Quick now, what’s Canada’s biggest export to China? A metal like copper or zinc; fuel like coal, oil or gas, or even a fertilizer like potash? Well, how about canola, formerly known as — wait for it! — rapeseed?
That’s right, canola. Not only is it our biggest export to the Middle Kingdom, but it now accounts for almost one-third of all farm receipts in Canada, says Michael Mills, an analyst with Beacon Securities in Halifax.
Indeed, the Canola Council of Canada puts the overall value of our canola industry at over $19 billion a year. Moreover, canola is reportedly considered the healthiest cooking oil available.
“You’re seeing increased usage in cooking applications versus some of the vegetable oils out there, such as palm oil,” says Mr. Mills.
“You’re seeing increased adoption of the use of canola oil globally.”
Small wonder that Mr. Mills likes Regina-based Input Capital Corp. (INP-TSX/VEN), a canola “streaming company” and the only play now out there on Canada’s canola industry.
As a “streaming company,” Input provides farmers with upfront capital. In exchange, it gets a set tonnage of canola grain.
Co-founders singled out
But Input’s status as Canada’s only canola outfit isn’t the only reason Mr. Mills has singled it out. He also has high praise for its management team — in particular, co-founders, Doug Emsley and Brad Farquhar.
Not only are both men well respected in Canadian agriculture, says Mr. Mills, but they also founded the biggest farmland fund in the country, whose portfolio they sold in January to the Canada Pension Plan Investment Board.
Not surprisingly, he can’t praise Input enough.
“I like the company’s model. It has generated cash flow from year one. And these guys have found a niche market and they have a big first mover advantage,” says Mr. Mills, who sees Input growing rapidly over the next few years.
For Mr. Mills, Input Capital is a “best buy” — one with a 12-month price target of $3.75. For fiscal 2015 (March 31 year end), his cash flow estimate is $0.28; for fiscal ’16, $0.34 a share.
For the year ended March 31, 2014, Input’s net loss deepened to $4.1 million or $0.09 a share, from $369,600, or $0.03 a share, for the similar period in 2013.
The company also posted sales of $5.1 million, as well as gross profit of $1.4 million.
Mr. Mills may like a Western Canadian company such as Input that’s based in Saskatchewan. But he also has a soft spot for a Western Canadian outfit like Petrowest Corp. (PRW-TSX) that’s based in Alberta.
For starters, Petrowest, an oilfield services firm, rosters one of the biggest fleets of heavy construction equipment in the West.
And Western Canada, given its many oil and gas projects now on the drawing boards, is likely to see an enormous construction spurt over the next few years.
Company a play on liquefied natural gas
In fact, for Mr. Mills, Petrowest is a play on the many pipelines and storage facilities for liquefied natural gas that are now being planned — especially in northern British Columbia.
Although many of those projects have yet to be OK’d, Petrowest is already benefiting from the need that companies have for access roads to service the proposed projects, Mr. Mills says.
Moreover, given Petrowest’s big presence at Fort St. John, B.C., it’s well-positioned to benefit should BC Hydro go ahead and build a 1,100-megawatt hydroelectric dam just seven kilometres away.
Ultimately Mr. Mills sees Petrowest being bought by a big national or international construction engineering company that wants to be in the thick of LNG action in Western Canada.
For Mr. Mills, Petrowest is also a “best buy” — one with a 12-month price target of $1.60.
For fiscal 2014 and ’15, his net earnings estimates are $0.09 and $0.13 a share, respectively.
For the three months ended March 31, Petrowest swung to net income of $3.5 million, or $0.02 a share, from a net loss of $4.3 million, or $0.03 a share, for the similar period last year.
Revenue, not surprisingly, was also a brighter picture, rising $15.7 million, or 34.2 per cent, to $61.6 million, while operating profit jumped $5.2 million, or more than 15 times, to $5.6 million.
Investor’s Digest of Canada , MPL Communications Inc.
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