TSX Commentary

ATS Automation Tooling Systems (ATA) – $7.38 – FQ3/10 Results Below Expectations, But Signs of Order Stabilization in ASG
Sector Perform, Above Average Risk, Price Target: $7.00
ATS posted total revenue of $138MM, down 38% y/y and below RBC CM’s $151MM forecast. The ASG business was particularly soft at $79MM (exp. $100MM), partially offset by strength in the solar division (revenue of $60MM vs $52MM exp.). Both divisions remained profitable, though consolidated EPS of $0.04 was below RBC CM’s $0.05 forecast and consensus $0.08. RBC CM has seen considerable slowdown in orders over the past several quarters, but FQ3 order intake did show some improvement over FQ2. FQ3 ASG bookings were down 41% y/y to $92MM, but up 30% q/q. RBC CM continues to believe that ATS management has handled the economic situation well over the past 12-18 months. In the face of plummeting demand in several key end-markets, they have managed costs, focused sales efforts and raised capital to enable them withstand the downturn, and emerge stronger on the other side. In the near-term, however, RBC CM continues to expect that financial performance will remain relatively soft, as indicated by low (though improving in FQ3) order and backlog levels. RBC CM sees ATA shares as reasonably valued, currently trading at ~1.2x book value, or ~9.7x EV/EBITDA (F2011E). Accordingly, RBC CM remains on the sidelines with respect to ATA shares. For investors with a 12+ month horizon (able to look beyond current market conditions) RBC CM would watch for weakness to accumulate positions.