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Logistec, Sanexen’s parent company The Globe and Mail is talking about us

28 mai 2012

Madeleine Paquin’s new part-time role at Canadian Pacific Railway Ltd. is a big change from her day job – president of tiny Logistec Corp., a company one-hundredth the size of transportation behemoth CP.

To investors, though, it suggests an interesting comparison. Should they bet on Ms. Paquin, a highly regarded executive and the new acting chair at CP, to help create value at the railway? Or should they take a flyer on Logistec, where she has served as chief executive officer since 1996?

A Canadian Pacific Railway)freight train runs along the Bow River and distant Rocky Mountains on the CP main line near Lake Louise, Alta. LARRY MacDOUGAL/THE CANADIAN PRESS

Bill Ackman of Pershing Square Capital Management gestures as he speaks during a Pershing Square Capital Management town hall meeting for Canadian Pacific Railway shareholders meeting in Toronto on Monday, February 6, 2012. Pawel Dwulit/THE CANADIAN PRESS

The two companies could not be more different. Huge CP has been in the news constantly as a result of a corporate house-cleaning instigated by U.S. hedge fund operator Bill Ackman; tiny Logistec, founded by Ms. Paquin’s father, operates out of sight and out of mind of most investors.

Logistec’s mainstay is the dull but necessary business of “stevedoring” – the loading and unloading of ships at ports. It also has profitable niches in Arctic shipping and contaminated site remediation.

But even though Logistec lacks glamour, its prospects look more enticing than Canadian Pacific’s, at least from the perspective of a strict value investor. Its shares trade for only about seven times earnings, less than half the level of CP’s, suggesting that Logistec is a bargain compared to the railway company.

“From a value investor point of view, for us it was extremely attractive,” says Stephen Takacsy, chief investment officer at Montreal money manager Lester Asset Management, which has taken a position in the company.

Logistec doesn’t look high risk either. It hasn’t had a single profitless year since going public way back in 1969. It even made money in 2008-09 when the financial panic caused world trade – including many bulk commodities, the firm’s bread and butter – to tank.

One risk is that Ms. Paquin might be distracted by doing double duty at two companies, including one as fraught with turmoil as CP. But Logistec vice-president of finance, Jean-Claude Dugas, said in an e-mailed response to questions that her role at CP will have no impact on her duties at Logistec.

Many investors can be forgiven for never having heard of Logistec. Much of the available stock is locked up by the Paquin family. Because the company doesn’t generate much trading and doesn’t need external financing, no brokerage analysts follow it. Stevedoring isn’t particularly newsworthy, so there isn’t much media coverage either.

Another problem is that small isn’t necessarily beautiful when it comes to attracting large investors. Logistec’s minuscule stock market value of only $138-million is dwarfed by CP’s value of more than $13-billion, making it difficult for institutional investors to take a meaningful position.

Still, this isn’t a drawback for patient retail investors who want to pick up a few thousand shares, according to Mr. Takacsy, who likes the company around its current price of $20.

Logistec also has the type of moat around its businesses that famed billionaire investor Warren Buffett seeks when looking for companies to buy. Ports are a scarce piece of infrastructure and difficult to establish from scratch, especially in cities with well-developed waterfronts. Many port facilities are operated under long-term leases, a boon to existing players like Logistec, which has 23 locations in Eastern Canada and the U.S.

The stock trades for little more than its $17.74-a-share book value, indicating that investors haven’t cottoned onto the scarcity value of its assets.

Logistec has a leading position in Quebec, where it is set to benefit from the provincial government’s recent “Plan Nord” commitment to develop northern natural resources, such as its burgeoning iron ore prospects in the Labrador Trough. Mr. Takacsy said the Quebec developments offer “significant business opportunities” over the next few years.

The company also has upside if global warming opens up the Arctic to more development because it operates supply ships for the country’s northern coasts.

Logistec’s environmental division, which accounts for about 40 per cent of revenue, is solidly profitable, with an average return on investment of 20 per cent a year during the past two decades. The environmental division would be an attractive spinout candidate, but so far Ms. Paquin has resisted unloading it in an effort to boost shareholder value.

Logistec may even have underappreciated expansion potential in its basic stevedoring business. The company’s long-term debt as a percentage of equity is only 10 per cent, so it has plenty of ability to borrow should the right asset come along, or as Mr. Dugas says “there are still consolidation possibilities.”


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