01.25
Toromont Industries (TIH) – $27.19 – EFX Takeover Success; View TIH as Solid Operating Leverage Story
Outperform, Average Risk, Price Target: $32.00
Total cash paid by TIH in its takeover of EPX is $315.6M with 11.9M shares issued. RBC CM has already factored the closing of EFX into its current estimates. TIH will now work with EFX mgmt to establish a detailed synergy plan. RC CM expects the majority of cost cutting efforts will be in Canada with consolidation of facilities. RBC CM expects TIH managementt’s lean operating structure will drive EFX EBIT margins into TIH legacy 9-10% range from <6% LTM EFX margin, over time; it also sees the deal as beneficial, offering TIH international growth opportunities (i.e. AustralAsia & MENA, Russia). EFX is expected to be well positioned in bidding. TIH reports year-end results on February 9th. RBC CM estimates Q4 09 EPS of $0.55 vs. $0.76 in Q4 08, with decline from 30% lower YoY compression revenue, 15% decline in Equipment group sales and margin pressure in Equipment group. RBC CM expects investors will be more focused on synergies and plans for EFX.
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