Stock to watch: Horizon North Logistics poised to boost dividend

December 12, 2012

Horizon North Logistics Inc.

Wednesdays' close: $6.86, down 2 cents, or 0.3 per cent; 52-week trading range: $4.29-$8.49 a share; Annual dividend: 20 cents a share for a yield of 2.9 per cent : Analysts' ratings: There were 9 buys, 1 hold and no sells, according to Bloomberg data. Target prices ranged from $8.75 to $13 a share.

Recent history: Shares of the provider of workforce accommodation in Alberta's oil patch have been a tear this year, helped by rising revenue, profit and cash flow. Despite a pullback this fall, the stock of the energy service company has gained about 50 per cent, including reinvested dividends. Horizon North's shares had been rebounding recently amid bargain hunting after they tumbled last month when third-quarter results missed analysts' expectations.

Outlook: The company still grew its top and bottom line in the latest quarter from a year ago, and now appears poised to boost its quarterly dividend again after raising it last February. "We are expecting another increase – a penny or two per share" because its payout ratio is quite low based on expectations for next year, said Alex Ruus, a portfolio manager with Northern Rivers Capital Management Inc. "I expect the annual dividend to be either 24 or 28 cents a year starting in February...Their earnings and cash flow are continuing to grow." The company, which posted revenue of $180-million in 2008, should see that number climb to over $600-million by next year, he noted.

Mr. Ruus, who bought more shares as they fell to the $6-level in November, is unruffled by the fact that third-quarter results did not meet expectations. Some analyst were "aggressive" in their estimates, he suggested. His own target is $10 a share for one year, and $12 for two years. "It was basically an unknown stock coming into 2012," he said. "But it is a well-run, and conservatively managed company." Horizon North's service arm has a "big backlog" of long-term contracts to operate camps going into next year, while their manufacturing arm, which builds accommodation for companies, "is basically sold out completely until the fourth quarter of 2013," he said.

"This stock has a 10-year running life," he suggested. "Canada is slowly becoming more and more of an oil superpower...Oil sands production is going to rise roughly from 1.5 million barrels per day to probably 5 million barrels per day over the next 20 years." Horizon North will benefit from oil sands development because these kinds of projects require not only a lot of capital, but also a lot of labour, he said. "The company provides the logistics, camps, catering and infrastructure to help build out the oil sands mines."

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