canadian equipment rental fund lp.
Ranjit Narayanan, CFA, Senior Analyst | Special Situations | 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. April 7, 2011 | BUY INITIATING COVERAGE
Target
$3.30
Recommendation
BUY
INITIATING COVERAGE: ATTRACTIVELY PRICED GROWTH STORY
SHARE DATA 52-week Range Mkt. Cap. (mm) Basic S/O (mm) Diluted S/O (mm) Cash (mm) Debt (mm) Enterprise Value (mm) Fiscal Y/E
CFL.UN-TSXV: $2.49 Target: $3.30 Implied Return = 33%
We are initiating coverage of Canadian Equipment Rental Fund (‚CERF‛ or ‚the Company‛) with a Buy recommendation and target price of $3.30. Our target is DCF based and equates to 5.8x forward EBITDA, well below its peer group at 6.6x. Given the Company’s consistent track record and solid growth outlook, we believe CERF should trade inline with its peers, with the potential for multiple expansion above our target.
From June 2005 to December 2010, the combined unit value appreciation and distributions have returned over 4.0x the original investment. Distributions to unit holders over this period totalled approximately $12.0 million, representing over 160% of the original unit price.
Having established a firm footing in the equipment rental business, CERF is now expanding into the growing construction waste disposal and recycling industry. The recently announced acquisition of Maplethorpe Contractors Ltd. (‚MCL‛) should act as a catalyst for growth.
CERF offers an appealing investment opportunity in the small cap space, which provides investors steady income (current annualized distribution yield of 10%) with scope for share price appreciation. CERF currently trades at 4.4x our 2011 EBITDA estimate of $4.9 million, below its broader peer group at 6.6x.
$2.12 - $3.24 $21.4 8.4 8.6 $5.5 $5.8 $21.7 Dec.
FINANCIAL SUMMARY $ mm Revenue (mm) EBITDA (mm) EPS
2009 $13.1 $4.4 $0.07
2010E $13.9 $4.1 -$0.01
2011E $15.3 $4.9 $0.18
2012E $16.9 $5.9 $0.28
EV/EBITDA Price/Earnings
N.A N.A
N.A N.A
4.4x 13.8x
3.7x 8.9x
Source: Union Securities, Bloomberg, tsx.com COMPANY PROFILE
Alberta-based Canadian Equipment Rental Fund (‚CERF‛ or ‚the Company‛) is a profitable and innovative company engaged in equipment rental, sales, service and repair and is currently focused on the city of Edmonton and surrounding areas, as well as Calgary. Please see important disclosures at the back of this report.
Ranjit Narayanan| 416-775-5121 | [email protected]
EQUITY RESEARCH REPORT
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
TABLE OF CONTENTS INVESTMENT OPINION .................................................................................................. 3 PRODUCTS & SERVICES ............................................................................................... 11 FINANCIAL ANALYSIS & OUTLOOK ............................................................................ 12 VALUATION AND RECOMMENDATION ...................................................................... 14 RISKS TO OUTLOOK ..................................................................................................... 15 APPENDIX A. MANAGEMENT AND DIRECTORS ......................................................... 17 APPENDIX B. FINANCIALS ........................................................................................... 18 IMPORTANT DISCLOSURES .......................................................................................... 21
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Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
INVESTMENT OPINION Alberta-based Canadian Equipment Rental Fund (‚CERF‛ or ‚the Company‛) is a profitable and innovative company engaged in equipment rental, sales, service and repair, and is currently focused on the city of Edmonton and surrounding areas, as well as Calgary. Operating under the ‚4-Way Equipment Rentals‛ brand, CERF supplies a wide range of equipment, machinery, tools and accessories to the infrastructure construction, industrial and residential construction, and environmental and related industries. Since its inception in 2005, the Company has been a consistent performer and barring the recession years (2008/2009), has grown revenues and EBITDA and has never missed a distribution payment. From June 2005 until December 2010, the combined unit value appreciation and distributions have returned over 4.0x the original investment. Distributions to unit holders over this period totalled approximately $12.0 million, representing over 160% of the original unit price. The Company’s customers now total over 4,000 across a diverse range of industries and equipment types. With the broader economy rebounding and recent Statistics Canada estimates indicating a rebound in Alberta’s construction activity, driven by resource sector activity (oil sands/mining), provincial government spending, and a stabilizing residential market, the Company’s outlook for 2011 and beyond appears favourable. Having established a firm foothold in the equipment rental services business, in 2009 the Company, through an acquisition, diversified into an adjacent and complementary market segment—waste disposal and recycling for end markets similar to the equipment rental business. The waste disposal and recycling business, branded as ‘Smart-Way Disposal‛, has enabled the Company to up-sell a new service to its existing customer base as well as provide a platform for growth. The timing of its foray into this business was also opportune as the Alberta Government has targeted the reuse and recycling of construction and demolition (C&D) waste. With C&D accounting for 25% of all municipal waste in Alberta and with only 10% of this waste being recycled, the Alberta Government began focusing on C&D, making it a priority. Over the past decade, consultations have been held with building contractors, landfill operators, municipalities, recyclers, engineering consultants etc., to build consensus; with key stakeholders on board, the legislative action is likely in the foreseeable future. CERF’s recent announcement that it has entered into an agreement to acquire MCL, an integrated waste management company, underscores the importance of the waste management opportunity. It is very likely that CERF could make additional acquisitions in the waste disposal and recycling segment to leverage
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Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
upcoming regulatory changes, as well as to further diversify its product and service offerings. Similar to equipment rentals, the waste disposal business is also driven by service/product range and comprehensive customer service. However, one distinguishing feature of the waste disposal business is the longterm nature of its contracts (typically one to fifteen years), which provides forward visibility and steady cash flow that reduces the risk of a distribution reduction. We believe this business will drive profitable growth for CERF in the years ahead and enable the Company to become a ‚one-stop shop‛ for equipment and waste disposal/recycling requirements. With a strong balance sheet, due to its recent financing in December 2010, we believe CERF is well positioned to make accretive acquisitions that would enhance its platform and product offerings. A seasoned management team with a proven track record of growing and building businesses is another positive feature. CEO Wayne Wadley previously founded Geocan Energy, an oil & gas company, and grew revenues from $1.0 million in 1998 to $50.0 million in eight years. CFO Ken Stephens is a chartered accountant in the province of Alberta with several years of experience in the accounting industry. Insiders own approximately 35% of shares outstanding. In our view, CERF offers investors a unique opportunity to participate in a company that is leveraged to the resources (oil sands) and construction sector in Alberta, generates predictable cash flows, consistently pays distributions, is well positioned to leverage the growing waste disposal and recycling opportunity and is attractively valued. CERF currently trades at 4.4x our 2011 EBITDA estimate of $4.9 million, well below its broader peer group at 6.6x. We believe there is good potential for upside to our forward estimates and, at current levels, the stock, in our opinion, is attractively valued with potential for multiple expansion. CERF offers an appealing investment opportunity in the small cap space, offering investors steady income (current annualized distribution yield of 10%) with scope for share price appreciation. Our investment thesis on CERF is driven by the following factors: (i) Favourable Macro Outlook; (ii) Consistent Performer; (iii) Effective Growth Strategy; (iv) Long Standing Customer Relationships; (v) Scope for Distribution Increases ; (vi) Strong Management Team; and (vii) Attractive Valuation. Favorable Macro Outlook. After a torrid pace of growth from 2004 – 2007 when the real GDP growth of Alberta’s economy averaged approximately 4-5%, the recession years of 2008 – 2009 saw an economic deceleration, with the economy experiencing negative growth in 2009. However, due to a recovery in commodity prices and stimulus spending by both the provincial and federal governments, the economy rebounded sharply in 2010 and is estimated to have grown 3.5% in
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Ranjit Narayanan| 416-775-5121 | [email protected]
APRIL 7, 2011
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
2010. Economic growth is estimated at 3.3% in 2011 and is expected to remain around the 3.0% level until 2014, as forecasted by the Finance Department of the Government of Alberta. Exhibit 1 highlights the growth outlook for Alberta’s economy through 2014. Exhibit 1. Alberta Real GDP Growth Forecast (2011 – 2014)
Source: Statistics Canada and Alberta Finance and Enterprise; Union Securities
We also examined the spending outlook for sectors in which CERF has exposure, namely construction, housing, government spending, oil & gas, and mining. Exhibit 2 highlights the growth outlook in 2011 for these segments. Barring government capital spending, all other sectors that CERF is exposed to are expected to have decent growth, which bodes well for the Company’s outlook in 2011. Exhibit 2. Alberta Capital Spending Outlook (by Sector)
2007 2008 2009 2010 2007 2008 2009 2010** Mining Miningand andOil Oiland andGas GasExtraction Extraction 40,300.7 40,300.7 43,128.3 43,128.3 23,934.1 23,934.1 23,809.8 23,809.8 Construction 1,738.8 1,717.6 Construction 1,738.8 1,717.6 1,812.4 1,812.4 1,939.9 1,939.9 Public 4,057.4 PublicAdministration Administration 4,057.4 5,383.8 5,383.8 5,449.7 5,449.7 6,869.5 6,869.5 Housing 14,800.5 Housing 14,800.5 13,403.4 13,403.4 10,401.5 10,401.5 13,000.4 13,000.4 inin$$millions millions
Y/Y Y/Y Expected Expected 2011 2011** Growth Growth 26,460.3 11.1% 26,460.3 11.1% 2,021.2 4.2% 2,021.2 4.2% 6,412.6 -6.7% 6,412.6 -6.7% 13,397.0 3.1% 13,397.0 3.1%
* Preliminary and actual intentions Source: Statistics Canada; Union Securities
Please see important disclosures at the back of this report. 5
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
Consistent Performer. The Company has been a consistent performer since going public in 2005, steadily growing revenues and EBITDA and, barring a slowdown during the recession period, now appears poised for growth. In F10, revenue growth was 6.0%; we anticipate revenue growth of 10.3% in F11 with anticipated EBITDA growth of 20%. Exhibit 3 highlights the rolling TTM revenue and EBITDA performance. After peaking in 2008, when both revenue and EBITDA performance were driven by high commodity prices, the subsequent period reflects the economic slowdown with both these metrics now beginning to trend back up. Exhibit 3. Historical Revenue & EBITDA Performance 30.0 TTM Revenues
TTM EBITDA
25.0 7.0
7.9 7.8 7.8 7.4 6.3 7.8
5.8 6.1
20.0
7.1 6.3 5.9
$ mm
5.2
4.2 4.2
4.0
15.0
10.0
1.2 5.0
3.8
1.4 1.4 1.4
2.0
2.4
2.9
8.7 7.0 7.8 5.4 5.8 5.9 6.1
10.2
13.5 12.213.2
15.716.7
17.317.516.6
15.414.6
14.113.1
12.812.713.613.9
Sep-10
Dec-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Jun-08
Sep-08
Mar-08
Sep-07
Dec-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
Mar-06
Dec-05
Sept-05
Jun-05
Mar-05*
0.0
Source: Company reports; Union Securities
CERF has also handsomely rewarded original investors with consistent and regular distribution payments. Since June 2005, cumulative distributions and unit price appreciation have returned over 4.0x to shareholders and distributions to investors has totalled over $12.0 million (representing over 160% of original unit price). Currently, on an annualized basis, the units yield approximately 10.0%. Based on the improving economic outlook, revenue diversification and anticipated prudent management, we believe the current $0.24 per unit annual distribution appears safe with the likelihood of an increase possible, as CERF finishes the year with results inline or above our expectations.
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Ranjit Narayanan| 416-775-5121 | [email protected]
APRIL 7, 2011
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
Exhibit 4. Unitholder Value Appreciation $9.00
Cumulative Distributions
$8.00
Unit Price
Combined
$7.00 $6.00
$5.00 $4.00 $3.00 $2.00 $1.00
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
Mar-06
Dec-05
Sept-05
$-
Source: Company reports; Union Securities
Effective Growth Strategy. The Company’s growth strategy has focused on providing customers innovative solutions in a cost competitive manner backed by customer support. One of the challenges faced by the Company’s industrial and commercial customers is lost efficiency and productivity due to the retirement of its senior labour force and current apprentices with limited experience. CERF has taken proactive steps to assist its customers and has introduced several unique solutions, including specialized heating and ground thawing equipment that allows customers to work through the winter months. Through its Smart-Way construction waste disposal business, the Company has introduced customized roll-off bins and other innovations such as the bin/bag combination. In our view, the recently announced MCL acquisition (expected to close April) would significantly enhance CERF’s waste disposal and recycling services. MCL generates about $1.8 million EBITDA per year and we estimate has revenues of approximately $8.0 million per annum. MCL operates six landfills on long-term contract arrangements as well as two large scale composting facilities. MCL also operates roll-off bins and transfer business for industrial/construction customers over an extended geographic area in Alberta, which we believe aptly complements CERF’s existing Smart-Way business. We believe there are two keys drivers for CERF’s waste disposal and recycling (Smart-Way/MCL): i.
The growing concern over municipal waste – C&D waste accounts for 25% of all municipal waste sent to landfills in Alberta, of which only 10% is being recycled. Government initiatives are targeting 50% of C&D municipal waste be diverted to recycling facilities; and
Please see important disclosures at the back of this report. 7
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
ii.
APRIL 7, 2011
Increasing trend towards Leadership in Energy and Environmental Design (LEED) certification among residential and commercial builders due to client demands has led to contractors embracing recycling programs; we expect this will drive additional business for CERF’s waste disposal and recycling operations.
Exhibit 5 highlights the growing volume of C&D sent to Alberta’s landfills. Exhibit 5. Tonnes of C&D Waste Sent to Landfills in Alberta 1,000,000 860,000
900,000 800,000
700,000 Tonnes
600,000
640,000
680,000
510,000
500,000 400,000 300,000 200,000 100,000 0 2002
2003
2004
2006
Source: Statscan; Union Securities
Long Standing Customer Relationships. The Company also has deep longstanding relationships with its customer base, which numbers over 4,000. The Company’s customers include the largest construction companies in Canada; the average length of these customer relationships with CERF and its predecessor is approximately 14 years, with 85% of the Company’s revenues derived from repeat business.
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Ranjit Narayanan| 416-775-5121 | [email protected]
APRIL 7, 2011
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
Exhibit 6. CERF Top Ten Customer Profile Customer Customer Ranking Ranking
Industry Industry
Length Lengthofof Relationship Relationship
11 22
(1) ICI ICI (1) Government Government
9.0% 9.0% 6.5% 6.5%
22 22years years 11 years 11 years
55 66
ICI ICI Industrial Industrial
2.7% 2.7% 2.5% 2.5%
14 14years years 12 years 12 years
33 44
77 88
99 10 10
ICI ICI Residential Residential
5.3% 5.3% 4.0% 4.0%
ICI ICI ICI ICI
2.4% 2.4% 2.3% 2.3%
Industrial Industrial Residential Residential
2.2% 2.2% 2.0% 2.0%
Total/Average Total/Average (1)
%%ofofCERF's CERF's Total Total Revenue Revenue
38.9% 38.9%
17 17years years 13 13years years
10 10years years 19 19years years 44years years 16 years 16 years 13.8 13.8years years
Industrial/Commercial/Institutional
Source: Company reports; Union Securities
Scope for Distribution Increases. After steady increases in distributions between 2005 – 2008, the Company cut distributions in 2009 from $0.16 per unit to $0.12 per unit in Q1/09 and subsequently to $0.06 per unit in Q4/09 as the economy slumped and distributable cash dropped by 23% in F09. In F10, due to scaled back maintenance capex spending, we expect distributable cash will rebound with growth of 15-25% over 2009 levels. With the economy and construction activity picking up, we expect further growth in distributable cash flow but we also anticipate higher maintenance capex spending in 2011 as CERF invests in new equipment to drive growth and compensate for under spending in F10. While this will position the company for future growth, we anticipate flat line distributable cash flow growth in F11. We expect this investment in F11 to drive solid double digit distributable cash flow growth in F12. We therefore believe, barring any economic surprises, there is the possibility of a distribution increase likely in early F12. Exhibit 7 demonstrates the trend of distributable cash flow (incl. forecasted) and distribution payouts.
Please see important disclosures at the back of this report. 9
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
Exhibit 7. Distributable Cash Flow and Payout Ratios 1,400
450% 399%
1,200
400% 350%
1,000
250%
600
200%
190%
200
150%
123%
400 97%
48%
48% 31%
49%
70%
55%
63%
43%
30%
100% 49%
30%
35%
Distributable Cash Generated
Distributions Declared
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
0
50% 0%
12-Dec
$ 000's
800
Payout Ratio
300%
Payout Ratio
Source: Company reports; Union Securities
Strong Management Team. A proven management team under the leadership of CEO Wayne Wadley and CFO Ken Stephens has demonstrated the ability to expand into new market segments, introduce new products, establish key industry partnerships and favourably position the company for future growth. Insiders own approximately 35% of shares outstanding. Attractive Valuation. CERF is currently trading at a forward EV/EBITDA multiple of 4.4x versus its broader peer group at forward 6.6x. We believe CERF should trade inline with its peer group for the following reasons: (i) Consistent track record of results and distributions; (ii) Expanding presence in the high growth waste disposal and recycling segment; (iii) Steady transition to a recurring revenue model with long-term contracts; (iv) Scope for distribution increases; and (v) Strong and reliable management team. In our view, CERF offers investors a unique opportunity to participate in a company that offers steady income, has a solid growth outlook, scope for distribution increases and is attractively priced. We are Initiating Coverage on Canadian Equipment Rental with a Buy recommendation and $3.30 Target Price. Our target price is DCF driven and based on a sensitivity of the discount rate (10–12%) and terminal growth rate (3–5%); we arrive at a target range of $3.09 - $3.79 per share. Our target price equates to 5.8x F11 EBITDA, which is still well below its peer group at 6.6x forward EBITDA.
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Ranjit Narayanan| 416-775-5121 | [email protected]
APRIL 7, 2011
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
Exhibit 8. Valuation Summary $ mm except per share
Sales EBITDA EPS (f.d.)
F09 $13.1 $4.4 $0.07
F10E $13.9 $4.1 -$0.01
F11E $15.3 $4.9 $0.18
F12E $16.9 $5.9 $0.28
1.7x 5.0x N.A
1.6x 5.3x N.A
1.4x 4.4x 13.8x
1.3x 3.7x 8.9x
EV/Sales EV/EBITDA P/E Source: Company reports; Union Securities
PRODUCTS & SERVICES In this section we briefly outline the Products and Services offered by CERF. The Company is primarily engaged in Equipment Rental, Equipment Sales, Equipment Service and Repair and Merchandise Sales. Equipment Rental: Over two-thirds of the Company’s revenues are derived from equipment rental, supplied to customers in the construction and maintenance industries. Equipment rented includes air equipment, electric tools, generator sets, portable lighting, welding equipment, survey equipment, waste disposal bins, material handling equipment, among a host of other types of equipment. Exhibit 9 highlights the division of equipment rentals that CERF offers by type. Exhibit 9. Equipment Rental Type - CERF
11%
21%
18%
27% 23%
Heaters & Tanks Air Equipment and Compaction General & Tools
Generators & Lighting Material Handling
Source: Company reports; Union Securities
Please see important disclosures at the back of this report. 11
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
Equipment Sales/Service & Repair. CERF sells equipment, machinery and tools from a wide selection of manufacturers and provides maintenance and repair service for selected manufacturer brands. The Company also provides for the service and repair of customer owned equipment. Exhibit 10 highlights key end markets serviced by CERF. Exhibit 10. Key End Markets Serviced
10% 12% 45% 33%
Infrastructure Construction
Industrial Construction
Residential Construction
Other
Source: Company reports; Union Securities
FINANCIAL ANALYSIS & OUTLOOK 2010 was a consolidation year for CERF after experiencing the effects of one of the worst recessions in recent economic history. The Company prudently cut distributions, reduced maintenance capex spending and focused on consolidation. We expect the Company to post a modest revenue increase of approximately 6.0% in F10. With the broader economy now having emerged from the recession, and with commodity prices returning to healthy levels, Alberta’s economy is expected to perform well over the next few years, which we believe will benefit CERF. For F11, we expect revenues of $15.3 million (up 10.3%), EBITDA of $4.9 million (31.8% margin) and distributable cash flow of $3.3 million. For F12, we are forecasting revenues of $17.0 million (up 10.6%), EBITDA of $5.9 million (34.7% margin) and distributable cash flow of $3.6 million. Key assumptions underpinning our forward estimates include: i.
Ongoing rebound in the construction, commercial, industrial and infrastructure industries;
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Ranjit Narayanan| 416-775-5121 | [email protected]
APRIL 7, 2011
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
ii.
Renewed capex spending by CERF in F11 & F12 that we believe will drive revenues and productivity (we are forecasting capex spending of $2.0 million in F11 and $2.8 million in F12);
iii.
Rebound in the Smart-Way waste disposal and recycling segment driven by customers looking to become compliant ahead of upcoming regulations.
Exhibit 11. Forward Estimates Summary F10E $10.0 $3.0 $0.9 $13.9
F11E $11.1 $3.2 $1.0 $15.3
F12E $12.3 $3.6 $1.0 $16.9
Gross Margins
85.4%
85.6%
86.0%
EBITDA % Margin
$4.1 29.5%
$4.9 32.0%
$5.9 34.7%
Net Income EPS
-$0.6 -$0.01
$1.6 $0.18
$2.7 $0.28
$ mm except EPS
Rentals Sales Service & Other Total Revenues
* does not incl. MCL Source: Company reports; Union Securities
Utilization Should Drive Operating Margins and Distributable Cash. With a pick up in economic activity we believe CERF will be able to improve the utilization of its equipment, which should drive margins and distributable cash. Higher utilization spreads incremental business over the same cost base, which should drive margins and cash flow. In Exhibit 12 we highlight the EBITDA and distributable cash trend.
Please see important disclosures at the back of this report. 13
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
Exhibit 12. EBITDA and Distributable Cash 2,000 Distributable Cash Generated
EBITDA
1,800 1,600
$ 000's
1,400 1,200 1,000 800 600 400 200 Q4-12e
Q3-12e
Q2-12e
Q1-12e
Q4-11e
Q3-11e
Q2-11e
Q1-11e
Q4-10e
Q3-10
Q2-10
Q1-10
Q4-09
Q3-09
Q2-09
Q1-09
0
Source: Company reports; Union Securities
At the start of 2010, EBITDA and distributable cash began trending up; we expect this trend to continue.
VALUATION AND RECOMMENDATION Two methods were used to value CERF units: Discounted Cash Flow and Relative Valuation. Discounted Cash Flow. Using a discount rate of 11%, terminal growth rate of 4% and a long-term operating margin of 15-20%, we arrive at a price target of $3.30 per share. Based on a sensitivity of the discount rate (10–12%) and terminal growth rate (3–5%), we arrive at a target range of $3.09 - $3.79 per share. Exhibit 13. DCF Sensitivity Analysis Discounted DiscountedFree FreeCash CashFlow Flowto toEquity Equity--Sensitivity SensitivityAnalysis Analysis 3.30 3.30
Terminal Terminal Growth Growth Rate Rate
3% 3% 4% 4% 5% 5% 6% 6%
99%%
$$4.06 4.06 $$4.46 4.46 $$5.04 5.04 $$5.98 5.98
DDi sco i scouunnt tRRaatete 1100%% 1111%% 1122%%
$$3.53 3.53 $$3.78 3.78 $$4.14 4.14 $$4.66 4.66
$$3.12 3.12 $$3.30 3.30 $$3.53 3.53 $$3.85 3.85
$$2.80 2.80 $$2.93 2.93 $$3.09 3.09 $$3.30 3.30
1133%%
$$2.55 2.55 $$2.64 2.64 $$2.75 2.75 $$2.90 2.90
Source: Union Securities
Relative Valuation. We compared CERF’s valuation to other companies in the equipment rental and equipment sales and service business. CERF is currently
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Ranjit Narayanan| 416-775-5121 | [email protected]
APRIL 7, 2011
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
trading at a forward EV/EBITDA multiple of 4.4x versus its broader peer group at forward 6.6x. We believe CERF should trade inline with its peer group for the following reasons: (i) Consistent track record of results and distributions; (ii) Expanding presence in the high growth waste disposal and recycling segment; (iii) Steady transition to a recurring revenue model with long-term contracts; (iv) Scope for distribution increases; and (v) Strong and reliable management team. Exhibit 14. Comparables
Company Company
Share Market Net Share Market Net Price Net Cap. Cash / EPS Price/Earnings EV/EBITDA EV/Sales Price Shares Net Cap. Cash / EPS Price/Earnings EV/EBITDA EV/Sales Shares Ticker 01-Apr-11 (MM) Cash (MM) $MM Share FTM FY1 FY2 FTM FY1 FY2 FTM FY1 FY2 FTM FY1 FY2 Ticker 01-Apr-11 (MM) Cash (MM) $MM Share FTM FY1 FY2 FTM FY1 FY2 FTM FY1 FY2 FTM FY1 FY2
Finning International, Inc. FTT Finning International, Inc. FTT Rocky Mountain Dealerships RME Rocky Mountain Dealerships RME Strongco Income Fund SQP Strongco Income Fund SQP Toromont Industries TIH Toromont Industries TIH Wajax Income Fund WJX Wajax Income Fund WJX Cervus Equipment Corp. CVL Cervus Equipment Corp. CVL Average Average
$28.5 $28.5 $10.5 $10.5 $4.8 $4.8 $31.5 $31.5 $39.6 $39.6 $16.0 $16.0
172.2 172.2 19.1 19.1 10.6 10.6 77.0 77.0 16.9 16.9 14.5 14.5
CERF CERF
$2.49 $2.49
8.6 8.6
CFL-U CFL-U
-$681 -$681 $4,908 $4,908 -$35 -$35 $200 $200 -$14 $51 -$14 $51 -$245 -$245 $2,422 $2,422 -$37 -$37 $670 $670 $6$6 $232 $232
-0.3 -0.3
$1.56 $1.56 $1.57 $1.57 $1.99 $1.99 18.3x 18.3x 18.2x 18.2x 14.3x 14.3x $1.22 $1.23 $1.47 8.6x 8.5x $1.22 $1.23 $1.47 8.6x 8.5x 7.1x 7.1x -$1.27 -$1.27 $0.28 $0.28 $0.29 $0.29 $0.53 $0.53 17.3x 17.3x 16.7x 16.7x 9.1x 9.1x $1.96 $1.96 $1.97 $1.97 $2.43 $2.43 16.1x 16.1x 16.0x 16.0x 12.9x 12.9x -$2.18 -$2.18 $2.87 $2.87 $2.87 $2.87 $3.36 $3.36 13.8x 13.8x 13.8x 13.8x 11.8x 11.8x $0.41 $1.66 $1.58 $1.93 9.6x 10.1x $0.41 $1.66 $1.58 $1.93 9.6x 10.1x 8.3x 8.3x 13.9x 13.9x13.9x 13.9x 10.6x 10.6x
$21 $21
8.9x 8.9x 9.0x 9.0x 5.7x 5.7x 5.1x 5.1x 2.4x 2.4x 2.2x 2.2x 8.2x 8.2x 8.2x 8.2x 8.5x 8.5x 8.4x 8.4x 6.1x 6.1x 6.6x 6.6x 6.6x 6.6x 6.6x 6.6x
7.6x 7.6x 4.3x 4.3x 2.1x 2.1x 7.0x 7.0x 7.4x 7.4x 5.6x 5.6x 5.7x 5.7x
1.1x 1.1x 1.1x 1.1x 0.3x 0.3x 0.3x 0.3x 0.2x 0.2x 0.2x 0.2x 1.0x 1.0x 1.0x 1.0x 0.6x 0.6x 0.6x 0.6x 0.4x 0.4x 0.4x 0.4x 0.6x 0.6x 0.6x 0.6x
1.0x 1.0x 0.3x 0.3x 0.2x 0.2x 0.9x 0.9x 0.5x 0.5x 0.4x 0.4x 0.5x 0.5x
$0.16 $0.16 $0.18 $0.18 $0.30 $0.30 15.6x 15.6x13.8x 13.8x 8.3x 8.3x 4.6x 4.6x 4.4x 4.4x 3.7x 3.7x 1.5x 1.5x 1.4x 1.4x 1.1x 1.1x
Source: Union Securities; Bloomberg; Thomson One
In our view, CERF offers investors a unique opportunity to participate in a company that offers steady income, has a solid growth outlook, scope for distribution increases and is attractively priced. We believe CERF offers investors the opportunity to play a small cap story with upside potential and pending catalysts. Catalyst for the stock include: (i) Closing of the MCL acquisition; (ii) Long-term high value contract wins in the waste disposal and recycling segment; (iii) Increase in distributions; and (iv) Additional accretive acquisitions that drive scale and footprint.
RISKS TO OUTLOOK Economic Cycle. The Company’s customers operate primarily in the construction and industrial sectors and are impacted by the vagaries of the economic cycle. A deep economic downturn could adversely impact the outlook for the company. Key Personnel. The ability to retain and attract well-qualified management is the key to continuity and effectiveness. CERF’s current senior management team has been together for several years and the sudden departure of any important management personnel could have a negative impact on the stock. Please see important disclosures at the back of this report. 15
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
Competition. Competition in the equipment rental industry is intense. CERF competes with companies that have greater resources and brand recognition. With the improvement in Alberta’s economy, it is likely new competitors could enter the market. Ability to Raise Capital. CERF may require additional financing to grow and expand its operations. The ability to raise capital on acceptable terms could affect future expansion plans.
16
Ranjit Narayanan| 416-775-5121 | [email protected]
APRIL 7, 2011
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APPENDIX A. MANAGEMENT AND DIRECTORS Management And Directors Wayne Wadley, President, CEO and Director
Wayne Wadley has been a businessman and entrepreneur for over 25 years. His area of expertise has chiefly been developing and growing successful organizations within the oil production and rental industries and he understands their financial needs and challenges. He is the founding Chief Executive Officer and Director of the TSX listed GEOCAN Energy Inc.
Ken Stephens, Chief Financial Officer and Director
Mr. Stephens received his Chartered Accountant designation in 1977. He is currently an assurance partner in a Calgary-based public accounting firm providing consulting and assurance services to small and medium sized private and public businesses.
Mr. John Koop, Director
Mr. Koop received his Certified Management Accountant (CMA) designation in 1961. From 1961 through 1969, he worked as manager of joint venture and fixed asset accounting at Canadian Petro Fina Ltd., a subsidiary of a major Belgian oil company. From 1969 to 1982, he worked with Dome Petroleum Ltd. as manager of budgets and short-term forecasting where he developed plans governing activities for the coming year. From 1982 through to the present, Mr. Koop has been a provider of accounting and management support to small businesses.
Gary Layden, Director Mr. Layden began his career as co-founder of Bomega Manufacturing Ltd. in 1978 which he owned and operated for 18 years. Bomega specialized in the designing and manufacturing of oilfield, mining and construction equipment. . In 1996, Bomega was purchased by Badger Daylighting Inc. (a TSX listed company). From 1997 to 2000, Mr. Layden worked with Badger as VP of Manufacturing and Director. Currently, Mr. Layden is a businessman and consultant.
Please see important disclosures at the back of this report. 17
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
APPENDIX B. FINANCIALS Canadian Equipment Rental Fund Ltd. Canadian Equipment Rental Fund Ltd. Income Statement Income Statement Yr End Dec 31, $000's except per share figures Yr End Dec 31, $000's except per share figures Revenues Revenues
F2010E F2011E F2012E F2010E F2011E F2012E F2007 F2008 F2009 Q1-10 Q2-10 Q3-10 Q4-10e F2010E Q1-11e Q2-11e Q3-11e Q4-11e F2011E Q1-12e Q2-12e Q3-12e Q4-12e F2012E F2007 F2008 F2009 Q1-10 Q2-10 Q3-10 Q4-10e F2010E Q1-11e Q2-11e Q3-11e Q4-11e F2011E Q1-12e Q2-12e Q3-12e Q4-12e F2012E Dec-07 Dec-08 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-12 Dec-07 Dec-08 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-12 13,135 13,135 -20.7% -20.7%
3,867 3,867 -7% -7% 9.7% 9.7%
2,871 2,871 -3% -3% -25.8% -25.8%
3,275 3,275 32% 32% 14.1% 14.1%
3,892 3,892 10% 10% 18.8% 18.8%
13,905 13,905 5.9% 5.9%
4,242 4,242 10% 10% 9% 9%
3,151 3,151 10% 10% -26% -26%
3,594 3,594 10% 10% 14% 14%
4,350 4,350 12% 12% 21% 21%
15,337 15,337 10.3% 10.3%
4,664 4,664 10% 10% 7% 7%
3,482 3,482 11% 11% -25% -25%
3,970 3,970 10% 10% 14% 14%
4,844 4,844 11% 11% 22% 22%
16,960 16,960 10.6% 10.6%
1,646 1,646
653 653
333 333
466 466
584 584
2,035 2,035
636 636
457 457
503 503
609 609
2,205 2,205
653 653
487 487
556 556
678 678
2,374 2,374
16,561 16,561
11,489 11,489 87.5% 87.5%
3,214 3,214 83.1% 83.1%
2,538 2,538 88.4% 88.4%
2,809 2,809 85.8% 85.8%
3,308 3,308 85.0% 85.0%
11,870 11,870 85.4% 85.4%
3,606 3,606 85.0% 85.0%
2,694 2,694 85.5% 85.5%
3,091 3,091 86.0% 86.0%
3,741 3,741 86.0% 86.0%
13,131 13,131 85.6% 85.6%
4,011 4,011 86.0% 86.0%
2,995 2,995 86.0% 86.0%
3,414 3,414 86.0% 86.0%
4,166 4,166 86.0% 86.0%
14,585 14,585 86.0% 86.0%
875 875 6% 6%
1,058 1,058 6% 6%
1,224 1,224 9% 9% 15.7% 15.7%
299 299 8% 8% -5% -5% 0% 0%
446 446 16% 16% 44% 44% 49% 49%
400 400 12% 12% 32% 32% -10% -10%
467 467 12% 12% 57% 57% 17% 17%
1,612 1,612 11.6% 11.6% 31.7% 31.7%
382 382 9% 9% 28% 28% -18% -18%
347 347 11% 11% -22% -22% -9% -9%
413 413 12% 12% 3% 3% 19% 19%
500 500 12% 12% 7% 7% 21% 21%
1,642 1,642 10.7% 10.7% 1.9% 1.9%
466 466 10% 10% 22% 22% -7% -7%
348 348 10% 10% 0% 0% -25% -25%
437 437 11% 11% 6% 6% 25% 25%
533 533 11% 11% 7% 7% 22% 22%
1,784 1,784 10.5% 10.5% 8.7% 8.7%
6,465 6,465
8,195 8,195
5,905 5,905 45% 45% -28% -28%
6,965 6,965 EBITDA Margin (%) 44.4% EBITDA Margin (%) 44.4%
7,308 7,308 44.1% 44.1% 7,308 7,308
4,360 4,360 33.2% 33.2% 4,340 4,340
1,751 1,751 45% 45% 4% 4% 19% 19% 2,218 2,218 57% 57% 12% 12% 19% 19% 1,090 1,090 28.0% 28.0% 1,090 1,090
1,570 1,570 37% 37% 11% 11% -10% -10% 1,951 1,951 46% 46% 14% 14% -12% -12% 1,655 1,655 39.0% 39.0% 1,655 1,655
1,418 1,418 45% 45% -5% -5% -10% -10% 1,764 1,764 56% 56% -9% -9% -10% -10% 929 929 29.5% 29.5% 929 929
1,617 1,617 45% 45% 10% 10% 14% 14% 2,030 2,030 57% 57% 9% 9% 15% 15% 1,060 1,060 29.5% 29.5% 1,060 1,060
2,001 2,001 46% 46% 14% 14% 24% 24% 2,501 2,501 58% 58% 13% 13% 23% 23% 1,240 1,240 28.5% 28.5% 1,240 1,240
4,884 4,884 31.8% 31.8% 4,884 4,884
1,726 1,726 37% 37% 10% 10% -14% -14% 2,192 2,192 47% 47% 12% 12% -12% -12% 1,819 1,819 39.0% 39.0% 1,819 1,819
1,497 1,497 43% 43% 6% 6% -13% -13% 1,845 1,845 53% 53% 5% 5% -16% -16% 1,149 1,149 33.0% 33.0% 1,149 1,149
1,667 1,667 42% 42% 3% 3% 11% 11% 2,104 2,104 53% 53% 4% 4% 14% 14% 1,310 1,310 33.0% 33.0% 1,310 1,310
2,034 2,034 42% 42% 2% 2% 22% 22% 2,567 2,567 53% 53% 3% 3% 22% 22% 1,598 1,598 33.0% 33.0% 1,598 1,598
6,925 6,925 40.8% 40.8% 4.8% 4.8%
7,129 7,129 54% 54% -23% -23%
1,466 1,466 45% 45% 6% 6% -2% -2% 1,866 1,866 57% 57% 10% 10% -4% -4% 943 943 28.8% 28.8% 960 960
6,606 6,606 43.1% 43.1% 7.7% 7.7%
9,253 9,253 56% 56%
1,500 1,500 52% 52% 0% 0% 6% 6% 1,945 1,945 68% 68% 8% 8% 13% 13% 593 593 20.7% 20.7% 627 627
6,136 6,136 44.1% 44.1% 3.9% 3.9%
7,340 7,340 47% 47%
1,420 1,420 37% 37% 6% 6% -15% -15% 1,719 1,719 44% 44% 4% 4% -13% -13% 1,495 1,495 38.7% 38.7% 1,482 1,482
267 267 2,653 2,653
110 110 3,431 3,431
0 0 3,778 3,778
4 4 798 798
4,045 4,045 EBIT Margin (%) 25.8% EBIT Margin (%) 25.8% 335 335
3,767 3,767 22.7% 22.7% 407 407
582 582 4.4% 4.4% 474 474 -20 -20
694 694 17.9% 17.9% 200 200 -13 -13
4 4 754 754 246 246 -411 -411 -14.3% -14.3% 196 196 34 34
2 2 724 724 161 161 57 57 1.7% 1.7% 198 198 16 16
2 2 724 724 0 0 364 364 9.3% 9.3% 130 130
13 13 2,999 2,999 406 406 703 703 5.1% 5.1% 724 724 37 37
2 2 700 700 0 0 953 953 22.5% 22.5% 116 116
2 2 700 700 0 0 227 227 7.2% 7.2% 107 107
2 2 700 700 0 0 358 358 10.0% 10.0% 98 98
2 2 700 700 0 0 538 538 12.4% 12.4% 89 89
8 8 2,800 2,800 0 0 2,076 2,076 13.5% 13.5% 411 411
2 2 700 700 0 0 1,117 1,117 23.9% 23.9% 113 113
2 2 700 700 0 0 447 447 12.8% 12.8% 104 104
2 2 700 700 0 0 608 608 15.3% 15.3% 106 106
2 2 700 700 0 0 896 896 18.5% 18.5% 97 97
8 8 2,800 2,800 00 00 3,069 3,069 18.1% 18.1% 419 419
3,710 3,710 EBT Margin (%) 23.7% EBT Margin (%) 23.7%
3,360 3,360 20.3% 20.3%
128 128 1.0% 1.0%
507 507 13.1% 13.1%
-640 -640 -22.3% -22.3%
-157 -157 -4.8% -4.8%
233 233 6.0% 6.0%
-57 -57 -0.4% -0.4%
836 836 19.7% 19.7%
120 120 3.8% 3.8%
260 260 7.2% 7.2%
449 449 10.3% 10.3%
0 0 1,665 1,665 10.9% 10.9%
1,004 1,004 21.5% 21.5%
343 343 9.9% 9.9%
502 502 12.7% 12.7%
800 800 16.5% 16.5%
0 0 2,649 2,649 15.6% 15.6%
22 22
-293 -293
44 44 9% 9%
(44) (44)
1 1 -1% -1%
0% 0%
1 1 -2% -2%
42 42 5% 5%
6 6 5% 5%
13 13 5% 5%
22 22 5% 5%
83 83 5% 5%
50 50 5% 5%
17 17 5% 5%
25 25 5% 5%
40 40 5% 5%
132 132 5% 5%
3,338 3,338 20.2% 20.2%
421 421 3.2% 3.2%
463 463 12.0% 12.0%
-596 -596 -20.8% -20.8%
-159 -159 -4.8% -4.8%
233 233 6.0% 6.0%
-59 -59 -0.4% -0.4%
795 795 18.7% 18.7%
114 114 3.6% 3.6%
247 247 6.9% 6.9%
426 426 9.8% 9.8%
1,582 1,582 10.3% 10.3%
954 954 20.5% 20.5%
326 326 9.4% 9.4%
477 477 12.0% 12.0%
760 760 15.7% 15.7%
2,517 2,517 14.8% 14.8%
Y/Y% Y/Y% Q/Q % Q/Q % Cost of Sales Cost of Sales
Y/Y% Y/Y% Q/Q% Q/Q%
Gross Profit Gross Profit Operating Expenses Operating Expenses General & Administrativ e General & Administrativ e
Operating Ex penses Operating Ex penses
Total Operating Expenses Total Operating Expenses
EBITDA EBITDA
15,688 15,688
1,383 1,383
14,305 14,305 Gross margin (%) 91.2% Gross margin (%) 91.2%
% of rev enue % of rev enue Y/Y% Y/Y% Q/Q% Q/Q%
% of rev enue % of rev enue Y/Y% Y/Y% Q/Q% Q/Q% % of rev enue % of rev enue Y/Y% Y/Y% Q/Q% Q/Q%
Adjusted EBITDA Adjusted EBITDA Unit Based Compensation Unit Based Compensation Amortiation of property and equipment Amortiation of property and equipment Loss on disposal of property and equipment Loss on disposal of property and equipment EBIT EBIT Interest on long term debt Interest on long term debt Loss (gain) on deriv ativ es Loss (gain) on deriv ativ es EBT EBT Income Taxes Income Taxes Current (recov ery ) Current (recov ery ) Net Income Net Income Weighted Average Shares O/S Weighted Average Shares O/S
Earnings Per Share Earnings Per Share
16,561 16,561 5.6% 5.6%
572 572 3,138 3,138 Net margin (%) 20.0% Net margin (%) 20.0%
7,748 7,748 55.7% 55.7% 8.7% 8.7% 4,122 4,122 29.6% 29.6% 4,158 4,158
8,248 8,248 53.8% 53.8% 6.5% 6.5%
8,709 8,709 51.3% 51.3% 5.6% 5.6% 5,877 5,877 34.7% 34.7% 5,877 5,877
Basic Basic Fully Diluted Fully Diluted
5,192 5,192 5,478 5,478
5,568 5,568 5,961 5,961
5,644 5,644 5,903 5,903
5,911 5,911 6,156 6,156
5,913 5,913 6,118 6,118
5,939 5,939 6,118 6,118
8,439 8,439 8,618 8,618
6,551 6,551 6,753 6,753
8,489 8,489 8,668 8,668
8,539 8,539 8,718 8,718
8,589 8,589 8,768 8,768
8,639 8,639 8,818 8,818
8,564 8,564 8,743 8,743
8,689 8,689 8,868 8,868
8,739 8,739 8,918 8,918
8,789 8,789 8,968 8,968
8,839 8,839 9,018 9,018
8,764 8,764 8,943 8,943
Basic Basic Fully diluted Fully diluted Y/Y% Y/Y% Q/Q % Q/Q %
0.60 0.60 0.57 0.57
0.60 0.60 0.56 0.56
0.07 0.07 0.07 0.07
0.08 0.08 0.08 0.08
-0.10 -0.10 -0.10 -0.10
-0.03 -0.03 -0.03 -0.03
0.03 0.03 0.03 0.03
-0.01 -0.01 -0.01 -0.01
0.09 0.09 0.09 0.09
0.01 0.01 0.01 0.01
0.03 0.03 0.03 0.03
0.05 0.05 0.05 0.05
0.18 0.18 0.18 0.18
0.11 0.11 0.11 0.11
0.04 0.04 0.04 0.04
0.05 0.05 0.05 0.05
0.09 0.09 0.08 0.08
0.29 0.29 0.28 0.28
Source: Company reports, Union Securities
18
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
Canadian Equipment Rental Fund Ltd. Canadian Equipment Rental Fund Ltd. Cash Flow Statement Cash Flow Statement Yr End Dec 31, $000's except per share figures Yr End Dec 31, $000's except per share figures Cash Flow from Operations Cash Flow from Operations Net Earnings Net Earnings
APRIL 7, 2011
F2010 F2011E F2012E F2010 F2011E F2012E F2007 F2008 F2009 Q1-10 Q2-10 Q3-10 Q4-10e F2010E Q1-11e Q2-11e Q3-11e Q4-11e F2011E Q1-12e Q2-12e Q3-12e Q4-12e F2012E F2007 F2008 F2009 Q1-10 Q2-10 Q3-10 Q4-10e F2010E Q1-11e Q2-11e Q3-11e Q4-11e F2011E Q1-12e Q2-12e Q3-12e Q4-12e F2012E Dec-07 Dec-08 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-12 Dec-07 Dec-08 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-12
3,138 3,138
3,338 3,338
421 421
463 463
-596 -596
-159 -159
233 233
-59 -59
795 795
114 114
247 247
426 426
1,582 1,582
954 954
326 326
477 477
760 760
2,517 2,517
2,653 2,653 0 0 267 267
3,778 3,778
798 798
21 21 -20 -20 -293 -293
4 4 -13 -13 44 44
754 754 246 246 4 4 34 34 -44 -44
724 724 161 161 2 2 16 16 1 1
724 724 0 0 2 2
572 572
3,430 3,430 0 0 110 110 0 0 22 22
700 700 0 0 2 2 0 0
700 700 0 0 2 2 0 0
700 700 0 0 2 2 0 0
700 700 0 0 2 2 0 0
2,800 2,800 0 0 8 8 0 0 0 0
700 700 0 0 2 2 0 0
700 700 0 0 2 2 0 0
700 700 0 0 2 2 0 0
700 700 0 0 2 2 0 0
0
3,000 3,000 406 406 13 13 37 37 1 1
2,800 2,800 0 0 8 8 0 0 0 0
-1,293 -1,293 -10 -10 0 0 663 663
1,004 1,004 -398 -398 -54 -54 -202 -202
1,493 1,493 32 32 -9 -9 -535 -535
-866 -866 -585 -585 46 46 384 384
898 898 25 25 -97 -97 -401 -401
-399 -399 190 190 -46 -46 406 406
120 120 290 290 75 75 -439 -439
-246 -246 -80 -80 -22 -22 -50 -50
-935 -935 -636 -636 52 52 779 779
986 986 377 377 28 28 -439 -439
-437 -437 -141 -141 -22 -22 255 255
78 78 301 301 -86 -86 -458 -458
-308 -308 -99 -99 -28 -28 137 137
-980 -980 -684 -684 62 62 836 836
1,069 1,069 408 408 30 30 -474 -474
-481 -481 -156 -156 -24 -24 280 280
60 60 324 324 -44 -44 -494 -494
-332 -332 -107 -107 24 24 148 148
-641 -641
351 351
981 981
-1,020 -1,020
425 425
151 151
47 47
-398 -398
-740 -740
952 952
-346 -346
-165 -165
-298 -298
-767 -767
1,034 1,034
-381 -381
-153 -153
-267 -267
Cash Flow from Operations Cash Flow from Operations
5,989 5,989
7,251 7,251
4,888 4,888
275 275
823 823
897 897
1,006 1,006
3,000 3,000
757 757
1,769 1,769
603 603
964 964
4,092 4,092
889 889
2,062 2,062
798 798
1,308 1,308
5,058 5,058
Cash Flow from Investing Cash Flow from Investing Non-cash w orking capital Non-cash w orking capital Purchase of property & equipment Purchase of property & equipment Proceeds from sale of property & equipment Proceeds from sale of property & equipment Other Other
0 0 -8,716 -8,716 1,821 1,821 -132 -132
-289 -289 -6,355 -6,355 1,772 1,772 0 0
-81 -81 -3,517 -3,517 1,234 1,234 -554 -554
338 338 -1,139 -1,139 324 324
-807 -807 1,247 1,247
-174 -174 -584 -584 659 659
-550 -550
164 164 -3,080 -3,080 2,230 2,230
-500 -500 200 200
-500 -500 200 200
-500 -500 200 200
-500 -500 200 200
-2,000 -2,000 800 800
-700 -700 200 200
-700 -700 200 200
-700 -700 200 200
-700 -700 200 200
-2,800 -2,800 800 800
Cash Flow from Investing Cash Flow from Investing
-7,027 -7,027
-4,871 -4,871
-2,918 -2,918
-477 -477
440 440
-99 -99
-550 -550
-686 -686
-300 -300
-300 -300
-300 -300
-300 -300
-1,200 -1,200
-500 -500
-500 -500
-500 -500
-500 -500
-2,000 -2,000
Cash Flow from Financing Cash Flow from Financing Bank indebtedness Bank indebtedness Distributions to partners Distributions to partners Proceeds of isuue of partnership units Proceeds of isuue of partnership units Unit purchase loan repay ments Unit purchase loan repay ments Proceeds of long-term debt Proceeds of long-term debt Repay ment of long term debt Repay ment of long term debt Repay ment of obligation under capital lease Repay ment of obligation under capital lease
-150 -150 -3,184 -3,184 1,310 1,310 0 0 4,434 4,434 -1,118 -1,118 0 0
-3,613 -3,613 151 151 0 0 7,480 7,480 -6,426 -6,426 0 0
317 317 -3,009 -3,009 740 740 0 0 1,446 1,446 -1,648 -1,648
519 519 -365 -365 11 11
-507 -507 -364 -364
-74 -74 -365 -365
0 0 -366 -366 5,884 5,884
-366 -366
-366 -366
-366 -366
-366 -366
0 0 -1,464 -1,464
-366 -366
-366 -366
-366 -366
-366 -366
-1,464 -1,464
432 432 -377 -377 -23 -23
-391 -391 -24 -24
-383 -383 -24 -24
-450 -450
-62 -62 -1,460 -1,460 5,895 5,895 64 64 432 432 -1,601 -1,601 -71 -71
-450 -450
-450 -450
-450 -450
-450 -450
-1,800 -1,800
-450 -450
-450 -450
-450 -450
-450 -450
-1,800 -1,800
Cash Flow from Financing Cash Flow from Financing
1,293 1,293
-2,408 -2,408
-2,154 -2,154
195 195
-1,221 -1,221
-846 -846
5,068 5,068
-816 -816
-816 -816
-816 -816
-816 -816
-3,264 -3,264
-816 -816
-816 -816
-816 -816
-816 -816
-3,264 -3,264
Items not affecting cash and cash equiv alents Items not affecting cash and cash equiv alents Amortization of property & equipment Amortization of property & equipment Loss (gain) on disposal of equipment Loss (gain) on disposal of equipment Unit based compensation Unit based compensation Loss (gain) on deriv ativ es Loss (gain) on deriv ativ es Future income tax es Future income tax es
0
Changes in non-cash w orking capital Changes in non-cash w orking capital Accounts Receiv able Accounts Receiv able Inv entory Inv entory Prepaid Ex penses Prepaid Ex penses Accounts pay able & accrued liabilities Accounts pay able & accrued liabilities Total Change in Non-Cash Working Capital Total Change in Non-Cash Working Capital
0
64 64
0
3,197 3,197
FX Impact FX Impact Net Cash Flow Net Cash Flow
0
0
255 255
0 -29 -29
0 -183 -183
-7 -7
42 42
-48 -48
5,524 5,524
0 5,511 5,511
-359 -359
653 653
-513 -513
-152 -152
0 -372 -372
-427 -427
746 746
-518 -518
-8 -8
0 0 -206 -206
Cash position, beginning Cash position, beginning Cash position, end Cash position, end
0 0 255 255
255 255 226 226
226 226 43 43
43 43 36 36
36 36 78 78
78 78 30 30
30 30 5,554 5,554
43 43 5,554 5,554
5,554 5,554 5,195 5,195
5,195 5,195 5,848 5,848
5,848 5,848 5,334 5,334
5,334 5,334 5,182 5,182
5,554 5,554 5,182 5,182
5,182 5,182 4,755 4,755
4,755 4,755 5,501 5,501
5,501 5,501 4,983 4,983
4,983 4,983 4,976 4,976
5,182 5,182 4,976 4,976
Source: Company reports, Union Securities
19
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
Canadian Equipment Rental Fund Ltd. Canadian Equipment Rental Fund Ltd. Balance Sheet Balance Sheet Yr End Dec 31, $000's except per share figures Yr End Dec 31, $000's except per share figures ASSETS ASSETS
APRIL 7, 2011
F2010 F2010 F2007 F2008 F2009 Q1-10 Q2-10 Q3-10 F2007 F2008 F2009 Q1-10 Q2-10 Q3-10 Dec-07 Dec-08 Dec-09 Mar-10 Jun-10 Sep-10 Dec-07 Dec-08 Dec-09 Mar-10 Jun-10 Sep-10
Cash and cash equiv alents Cash and cash equiv alents Accounts Receiv able Accounts Receiv able Prepaid Ex penses Prepaid Ex penses Inv entory Inv entory
255 255 4,875 4,875
Q4-10e F2010 Q4-10e F2010 Dec-10 Dec-10 Dec-10 Dec-10
463 463
226 226 3,871 3,871 118 118 797 797
43 43 2,370 2,370 216 216 764 764
36 36 3,237 3,237 169 169 1,349 1,349
78 78 2,337 2,337 1,324 1,324 266 266
30 30 2,736 2,736 313 313 1,134 1,134
5,554 5,554 2,616 2,616 238 238 844 844
Total Current Assets Total Current Assets
5,592 5,592
5,011 5,011
3,393 3,393
4,791 4,791
4,005 4,005
4,213 4,213
Property , plant and equipment Property , plant and equipment Goodw ill Goodw ill Financial Deriv ativ es Financial Deriv ativ es Other Other
13,298 13,298
14,450 14,450
88 88
88 88
17,995 17,995 203 203 20 20
18,012 18,012 203 203 33 33
16,572 16,572 204 204 0 0
Total Assets Total Assets
18,978 18,978
19,550 19,550
21,610 21,610
23,039 23,039
2,160 2,160 861 861 300 300 1,628 1,628
1,670 1,670 930 930 300 300 1,461 1,461
317 317 1,053 1,053 365 365 300 300 1,777 1,777
4,949 4,949 4,421 4,421
4,360 4,360 5,640 5,640
LIABILITIES & SHAREHOLDERS' EQUITY LIABILITIES & SHAREHOLDERS' EQUITY Bank Indebtedness Bank Indebtedness Accounts Pay able & Accrued Liabilities Accounts Pay able & Accrued Liabilities Distributions Pay able Distributions Pay able Note Pay able Note Pay able Current portion of long-term debt Current portion of long-term debt Current portion of capital lease obligation Current portion of capital lease obligation Total Current Liabilities Total Current Liabilities Long-term debt Long-term debt Notes pay able Notes pay able Obligation under capital lease Obligation under capital lease Financial deriv ativ es Financial deriv ativ es Future income tax es Future income tax es
F2011E F2011E F2011E F2011E Q1-11e Q2-11e Q3-11e Q4-11e F2011E Q1-12e Q2-12e Q3-12e Q4-12e F2012E Q1-11e Q2-11e Q3-11e Q4-11e F2011E Q1-12e Q2-12e Q3-12e Q4-12e F2012E Mar-11 Jun-11 Sep-11 Dec-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-12 Mar-11 Jun-11 Sep-11 Dec-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-12 5,195 5,195 3,551 3,551 186 186 1,480 1,480
5,848 5,848 2,565 2,565 158 158 1,103 1,103
5,334 5,334 3,002 3,002 180 180 1,244 1,244
5,182 5,182 2,924 2,924 266 266 943 943
9,252 9,252
5,554 5,554 2,616 2,616 238 238 844 0844 0 9,252 9,252
4,755 4,755 3,904 3,904 204 204 1,627 1,627
5,501 5,501 2,835 2,835 174 174 1,219 1,219
4,983 4,983 3,316 3,316 198 198 1,374 1,374
4,976 4,976 3,256 3,256 242 242 1,050 1,050
9,315 9,315
5,182 5,182 2,924 2,924 266 266 943 0943 0 9,315 9,315
10,490 10,490
9,729 9,729
9,872 9,872
9,524 9,524
4,976 4,976 3,256 3,256 242 242 1,050 1,050 0 0 9,524 9,524
10,412 10,412
9,673 9,673
9,761 9,761
15,613 15,613 203 203
15,439 15,439 203 203
15,439 15,439 203 203
15,039 15,039 203 203
14,639 14,639 203 203
14,239 14,239 203 203
13,839 13,839 203 203
13,839 13,839 203 203
13,639 13,639 203 203
13,439 13,439 203 203
13,239 13,239 203 203
13,039 13,039 203 203
13,039 13,039 203 203
20,781 20,781
20,030 20,030
24,894 24,894
24,894 24,894
25,654 25,654
24,515 24,515
24,203 24,203
23,357 23,357
23,357 23,357
24,333 24,333
23,371 23,371
23,315 23,315
22,767 22,767
22,767 22,767
3,813 3,813 5,297 5,297
836 836 1,775 1,775 365 365 300 300 1,834 1,834 98 98 5,208 5,208 5,199 5,199
329 329 1,374 1,374 366 366 300 300 1,818 1,818 100 100 4,287 4,287 4,824 4,824
255 255 1,607 1,607 366 366 300 300 1,718 1,718 104 104 4,350 4,350 4,541 4,541
255 255 1,167 1,167 366 366 300 300 1,718 1,718 104 104 3,911 3,911 4,091 4,091
255 255 1,167 1,167 366 366 300 300 1,718 1,718 104 104 3,911 3,911 4,091 4,091
255 255 1,947 1,947 366 366 300 300 1,718 1,718 104 104 4,690 4,690 3,641 3,641
255 255 1,508 1,508 366 366 300 300 1,718 1,718 104 104 4,251 4,251 3,191 3,191
255 255 1,763 1,763 366 366 300 300 1,718 1,718 104 104 4,506 4,506 2,741 2,741
255 255 1,305 1,305 366 366 300 300 1,718 1,718 104 104 4,048 4,048 2,291 2,291
255 255 1,305 1,305 366 366 300 300 1,718 1,718 104 104 4,048 4,048 2,291 2,291
255 255 2,140 2,140 366 366 300 300 1,718 1,718 104 104 4,884 4,884 1,841 1,841
255 255 1,667 1,667 366 366 300 300 1,718 1,718 104 104 4,410 4,410 1,391 1,391
255 255 1,947 1,947 366 366 300 300 1,718 1,718 104 104 4,690 4,690 941 941
255 255 1,453 1,453 366 366 300 300 1,718 1,718 104 104 4,196 4,196 491 491
255 255 1,453 1,453 366 366 300 300 1,718 1,718 104 104 4,196 4,196 491 491
4,431 4,431
4,405 4,405
4,380 4,380
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
573 573
595 595
301 301
345 345
301 301
4,352 4,352 17 17 303 303
Limited partnership units Limited partnership units Unit purchase loans receiv able Unit purchase loans receiv able Contributed surplus Contributed surplus Deficit Deficit
8,125 8,125 -531 -531 399 399 1,043 1,043
8,272 8,272 -487 -487 469 469 700 700
9,068 9,068 -439 -439 471 471 -1,332 -1,332
9,082 9,082 -439 -439 472 472 -1,234 -1,234
9,082 9,082 -375 -375 476 476 -2,196 -2,196
9,082 9,082 -375 -375 479 479 -2,719 -2,719
14,966 14,966 -375 -375 481 481 -2,851 -2,851
14,966 14,966 -375 -375 481 481 -2,851 -2,851
14,966 14,966 -375 -375 483 483 -2,423 -2,423
14,966 14,966 -375 -375 485 485 -2,675 -2,675
14,966 14,966 -375 -375 487 487 -2,794 -2,794
14,966 14,966 -375 -375 489 489 -2,734 -2,734
14,966 14,966 -375 -375 489 489 -2,734 -2,734
14,966 14,966 -375 -375 491 491 -2,146 -2,146
14,966 14,966 -375 -375 493 493 -2,185 -2,185
14,966 14,966 -375 -375 495 495 -2,074 -2,074
14,966 14,966 -375 -375 497 497 -1,681 -1,681
14,966 14,966 -375 -375 497 497 -1,681 -1,681
Total Shareholders' Equity Total Shareholders' Equity
14,030 14,030
15,189 15,189
17,798 17,798
17,831 17,831
16,494 16,494
15,680 15,680
20,983 20,983
20,983 20,983
20,964 20,964
20,264 20,264
19,697 19,697
19,309 19,309
19,309 19,309
19,449 19,449
18,961 18,961
18,624 18,624
18,570 18,570
18,570 18,570
Total Liabilities & Shareholders' Equity Total Liabilities & Shareholders' Equity
18,978 18,978
19,549 19,549
21,610 21,610
23,039 23,039
20,781 20,781
20,030 20,030
24,894 24,894
24,894 24,894
25,654 25,654
24,515 24,515
24,203 24,203
23,357 23,357
23,357 23,357
24,333 24,333
23,371 23,371
23,315 23,315
22,767 22,767
22,767 22,767
SHAREHOLDERS' EQUITY SHAREHOLDERS' EQUITY
Source: Company reports, Union Securities
20
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
IMPORTANT DISCLOSURES At the date of the release of this report Ranjit Narayanan does not own shares of Canadian Equipment Rental Fund. At the date of the release of this report, Union Securities Ltd. (“USL”) held options to acquire additional common shares of Canadian Equipment Rental Fund. Within the past 12 months, USL has acted as agent for an offering of Canadian Equipment Rental Fund. Within the past 12 months, Canadian Equipment Rental Fund has not paid any portion of the travel costs associated with a site visit by the Analyst.
Research Rating System: Strong Buy – Analyst’s top sector picks, with expected return of 25% or more over the next 6 to 12 months. Buy – Expected return of 10% to 25% over the next 6 to 12 months. Speculative Buy – Expected return over 10%, companies without significant revenues. Hold – Expected return of 0% to 10% over the next 6 to 12 months. Reduce – Expected return of -10% or more over the next 6 to 12 months.
Distribution of Ratings Rating
Number of Companies
% of Research Coverage
Strong Buy
6
26%
Buy
5
22%
Speculative Buy
10
43%
Hold
2
9%
Reduce Under Review
Research Analyst Certification The views expressed in this report accurately reflect the personal views of the analyst covering the subject company and its securities. No part of the analyst’s compensation was, is or will be directly or indirectly related to the specific recommendations expressed in this research report. Analyst Compensation Analysts are compensated through a combined base salary and bonus payout system. The bonus payout is determined by revenues generated directly or indirectly from various divisions of USL including investment banking, based on the following factors: quality and quantity of reports generated, relative performance of recommendations versus benchmark index, knowledge of industry and feedback from clients and in-house brokers. Analysts are not directly compensated for specific investment banking transactions.
Dissemination USL sends its research reports to interested institutional and retail clients via e-mail upon release. Simultaneously, research reports are posted to USL’s public web site and intranet where they are available to clients and to USL’s sales staff. Research reports may also be printed and mailed to cl ients upon request. The opinions, estimates, projections contained herein are those of USL as of the date hereof and are subject to change without notice. USL makes every effort to ensure that the contents herein have been compiled or derived from sources believed to be reliable and contain information and opinions, which are accurate and complete. However, USL makes no representation or warranty, express or implied in respect hereof, takes no responsibility for any errors or omis sions which may be contained herein and accepts no liability whatsoever for any loss arising from any use or reliance on this research report or its contents. Information may be available to USL which is not reflected herein. This research report is not to be construed as, an offer to sell or solicitation for an offer to buy, any securities. USL, its affiliates, and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. USL is a member of the Toronto Stock, the TSX Venture Exchange, the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.
UK Disclosure This Communication is only made to or directed at investment professionals whose ordinary business activities involve carrying on investments in junior Canadian equities and who have professional experience in such investments. The investments and investment services to which this Communication relates are only available to such Investment Professionals. This Communication is not made to anyone who does not have professional experience in investing in junior Canadian equities. Any person who does not have professional experience in investing in junior Canadian equities must not rely upon this Communication. Investments in exploration and early stage natural resource companies should be regarded as speculative and only made by persons who can afford the total loss of such an investment. This communication is exempt from section 21 of the Financial Services and Markets Act 2000 and has not been approved by an Authorised Person under Section 21 of The Financial Services and Markets Act 2000. Union Securities (International) Ltd. is authorised and regulated by the Financial Services Authority of the UK. Conflicts of interest disclosure – Individuals at Union Securities (International) Ltd. may hold investments in the company and /or have affected transactions in th e company concerned. London, UK Contact: David Sadler Tel: +44-(0)207-851-0250 This report is not intended for nor should it be distributed to any persons residing in the USA. ©This report may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever, nor may the information, opinion or conclusions contained herein be referred to without in each case the prior written consent of Union Securities Ltd.
Member
and IIROC
21
Ranjit Narayanan| 416-775-5121 | [email protected]
Union Securities Ltd. John MacPhail, CEO
(604) 646-2016
[email protected]
Jovan S tupar, P.Eng , M BA, Managing Director, Investment Banking Vilma Jones, Managing Director & Head of Equity Capital Markets Abid Mukhtar
(403) 205-2211 (416) 775-5150 (416) 775-5134
[email protected] [email protected] [email protected]
Dane Walton
(416) 775-5124
[email protected]
John-Paul Grabowski
(416)775-4653
[email protected]
Brock H. Daem
(604) 691-2862
[email protected]
Mark Van Remortel
(416) 775-5142
[email protected]
Kelly Poncelet
(416) 775-5145
[email protected]
Cameron Ross
(416) 775-5137
[email protected]
Janet Toffolo
(416) 775-5106
[email protected]
44 (0) 020 3170 6198
[email protected].
Investment Banking
Institutional Sales & Trading (Canada)
Institutional Sales (Europe) David S adler Equity Research Ranjit Narayanan,
M BA, CFA ,
S enior S pecial S ituations Analyst & Head of Research
(416) 775-5121
[email protected]
Warren Verbonac, S enior Oil & Gas Analyst
(403) 205-2224
[email protected]
Brian Mok, P.Eng, MBA, S enior Mining Analyst
(416) 775-5135
[email protected]
HEAD OFFICE
#900 - 700 West Georgia St. P.O. Box 10341, Pacific Centre Vancouver, B.C. Canada V7Y 1H4 Tel: 604-687-2201 Fax: 604-684-6307 TORONTO OFFICE
Suite 901, 33 Yonge St. Toronto, ON Canada M5E 1G4 Tel: 416-777-0600 Fax: 416-777-0618 MEMBER: INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA CANADIAN INVESTOR PROTECTION FUND
CANADIAN EQUIPMENT RENTAL FUND LP. April 7, 2011 | BUY INITIATING COVERAGE
Target
$3.30
Recommendation
BUY
INITIATING COVERAGE: ATTRACTIVELY PRICED GROWTH STORY
SHARE DATA 52-week Range Mkt. Cap. (mm) Basic S/O (mm) Diluted S/O (mm) Cash (mm) Debt (mm) Enterprise Value (mm) Fiscal Y/E
CFL.UN-TSXV: $2.49 Target: $3.30 Implied Return = 33%
We are initiating coverage of Canadian Equipment Rental Fund (‚CERF‛ or ‚the Company‛) with a Buy recommendation and target price of $3.30. Our target is DCF based and equates to 5.8x forward EBITDA, well below its peer group at 6.6x. Given the Company’s consistent track record and solid growth outlook, we believe CERF should trade inline with its peers, with the potential for multiple expansion above our target.
From June 2005 to December 2010, the combined unit value appreciation and distributions have returned over 4.0x the original investment. Distributions to unit holders over this period totalled approximately $12.0 million, representing over 160% of the original unit price.
Having established a firm footing in the equipment rental business, CERF is now expanding into the growing construction waste disposal and recycling industry. The recently announced acquisition of Maplethorpe Contractors Ltd. (‚MCL‛) should act as a catalyst for growth.
CERF offers an appealing investment opportunity in the small cap space, which provides investors steady income (current annualized distribution yield of 10%) with scope for share price appreciation. CERF currently trades at 4.4x our 2011 EBITDA estimate of $4.9 million, below its broader peer group at 6.6x.
$2.12 - $3.24 $21.4 8.4 8.6 $5.5 $5.8 $21.7 Dec.
FINANCIAL SUMMARY $ mm Revenue (mm) EBITDA (mm) EPS
2009 $13.1 $4.4 $0.07
2010E $13.9 $4.1 -$0.01
2011E $15.3 $4.9 $0.18
2012E $16.9 $5.9 $0.28
EV/EBITDA Price/Earnings
N.A N.A
N.A N.A
4.4x 13.8x
3.7x 8.9x
Source: Union Securities, Bloomberg, tsx.com COMPANY PROFILE
Alberta-based Canadian Equipment Rental Fund (‚CERF‛ or ‚the Company‛) is a profitable and innovative company engaged in equipment rental, sales, service and repair and is currently focused on the city of Edmonton and surrounding areas, as well as Calgary. Please see important disclosures at the back of this report.
Ranjit Narayanan| 416-775-5121 | [email protected]
EQUITY RESEARCH REPORT
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
TABLE OF CONTENTS INVESTMENT OPINION .................................................................................................. 3 PRODUCTS & SERVICES ............................................................................................... 11 FINANCIAL ANALYSIS & OUTLOOK ............................................................................ 12 VALUATION AND RECOMMENDATION ...................................................................... 14 RISKS TO OUTLOOK ..................................................................................................... 15 APPENDIX A. MANAGEMENT AND DIRECTORS ......................................................... 17 APPENDIX B. FINANCIALS ........................................................................................... 18 IMPORTANT DISCLOSURES .......................................................................................... 21
2
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
INVESTMENT OPINION Alberta-based Canadian Equipment Rental Fund (‚CERF‛ or ‚the Company‛) is a profitable and innovative company engaged in equipment rental, sales, service and repair, and is currently focused on the city of Edmonton and surrounding areas, as well as Calgary. Operating under the ‚4-Way Equipment Rentals‛ brand, CERF supplies a wide range of equipment, machinery, tools and accessories to the infrastructure construction, industrial and residential construction, and environmental and related industries. Since its inception in 2005, the Company has been a consistent performer and barring the recession years (2008/2009), has grown revenues and EBITDA and has never missed a distribution payment. From June 2005 until December 2010, the combined unit value appreciation and distributions have returned over 4.0x the original investment. Distributions to unit holders over this period totalled approximately $12.0 million, representing over 160% of the original unit price. The Company’s customers now total over 4,000 across a diverse range of industries and equipment types. With the broader economy rebounding and recent Statistics Canada estimates indicating a rebound in Alberta’s construction activity, driven by resource sector activity (oil sands/mining), provincial government spending, and a stabilizing residential market, the Company’s outlook for 2011 and beyond appears favourable. Having established a firm foothold in the equipment rental services business, in 2009 the Company, through an acquisition, diversified into an adjacent and complementary market segment—waste disposal and recycling for end markets similar to the equipment rental business. The waste disposal and recycling business, branded as ‘Smart-Way Disposal‛, has enabled the Company to up-sell a new service to its existing customer base as well as provide a platform for growth. The timing of its foray into this business was also opportune as the Alberta Government has targeted the reuse and recycling of construction and demolition (C&D) waste. With C&D accounting for 25% of all municipal waste in Alberta and with only 10% of this waste being recycled, the Alberta Government began focusing on C&D, making it a priority. Over the past decade, consultations have been held with building contractors, landfill operators, municipalities, recyclers, engineering consultants etc., to build consensus; with key stakeholders on board, the legislative action is likely in the foreseeable future. CERF’s recent announcement that it has entered into an agreement to acquire MCL, an integrated waste management company, underscores the importance of the waste management opportunity. It is very likely that CERF could make additional acquisitions in the waste disposal and recycling segment to leverage
3
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
upcoming regulatory changes, as well as to further diversify its product and service offerings. Similar to equipment rentals, the waste disposal business is also driven by service/product range and comprehensive customer service. However, one distinguishing feature of the waste disposal business is the longterm nature of its contracts (typically one to fifteen years), which provides forward visibility and steady cash flow that reduces the risk of a distribution reduction. We believe this business will drive profitable growth for CERF in the years ahead and enable the Company to become a ‚one-stop shop‛ for equipment and waste disposal/recycling requirements. With a strong balance sheet, due to its recent financing in December 2010, we believe CERF is well positioned to make accretive acquisitions that would enhance its platform and product offerings. A seasoned management team with a proven track record of growing and building businesses is another positive feature. CEO Wayne Wadley previously founded Geocan Energy, an oil & gas company, and grew revenues from $1.0 million in 1998 to $50.0 million in eight years. CFO Ken Stephens is a chartered accountant in the province of Alberta with several years of experience in the accounting industry. Insiders own approximately 35% of shares outstanding. In our view, CERF offers investors a unique opportunity to participate in a company that is leveraged to the resources (oil sands) and construction sector in Alberta, generates predictable cash flows, consistently pays distributions, is well positioned to leverage the growing waste disposal and recycling opportunity and is attractively valued. CERF currently trades at 4.4x our 2011 EBITDA estimate of $4.9 million, well below its broader peer group at 6.6x. We believe there is good potential for upside to our forward estimates and, at current levels, the stock, in our opinion, is attractively valued with potential for multiple expansion. CERF offers an appealing investment opportunity in the small cap space, offering investors steady income (current annualized distribution yield of 10%) with scope for share price appreciation. Our investment thesis on CERF is driven by the following factors: (i) Favourable Macro Outlook; (ii) Consistent Performer; (iii) Effective Growth Strategy; (iv) Long Standing Customer Relationships; (v) Scope for Distribution Increases ; (vi) Strong Management Team; and (vii) Attractive Valuation. Favorable Macro Outlook. After a torrid pace of growth from 2004 – 2007 when the real GDP growth of Alberta’s economy averaged approximately 4-5%, the recession years of 2008 – 2009 saw an economic deceleration, with the economy experiencing negative growth in 2009. However, due to a recovery in commodity prices and stimulus spending by both the provincial and federal governments, the economy rebounded sharply in 2010 and is estimated to have grown 3.5% in
4
Ranjit Narayanan| 416-775-5121 | [email protected]
APRIL 7, 2011
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
2010. Economic growth is estimated at 3.3% in 2011 and is expected to remain around the 3.0% level until 2014, as forecasted by the Finance Department of the Government of Alberta. Exhibit 1 highlights the growth outlook for Alberta’s economy through 2014. Exhibit 1. Alberta Real GDP Growth Forecast (2011 – 2014)
Source: Statistics Canada and Alberta Finance and Enterprise; Union Securities
We also examined the spending outlook for sectors in which CERF has exposure, namely construction, housing, government spending, oil & gas, and mining. Exhibit 2 highlights the growth outlook in 2011 for these segments. Barring government capital spending, all other sectors that CERF is exposed to are expected to have decent growth, which bodes well for the Company’s outlook in 2011. Exhibit 2. Alberta Capital Spending Outlook (by Sector)
2007 2008 2009 2010 2007 2008 2009 2010** Mining Miningand andOil Oiland andGas GasExtraction Extraction 40,300.7 40,300.7 43,128.3 43,128.3 23,934.1 23,934.1 23,809.8 23,809.8 Construction 1,738.8 1,717.6 Construction 1,738.8 1,717.6 1,812.4 1,812.4 1,939.9 1,939.9 Public 4,057.4 PublicAdministration Administration 4,057.4 5,383.8 5,383.8 5,449.7 5,449.7 6,869.5 6,869.5 Housing 14,800.5 Housing 14,800.5 13,403.4 13,403.4 10,401.5 10,401.5 13,000.4 13,000.4 inin$$millions millions
Y/Y Y/Y Expected Expected 2011 2011** Growth Growth 26,460.3 11.1% 26,460.3 11.1% 2,021.2 4.2% 2,021.2 4.2% 6,412.6 -6.7% 6,412.6 -6.7% 13,397.0 3.1% 13,397.0 3.1%
* Preliminary and actual intentions Source: Statistics Canada; Union Securities
Please see important disclosures at the back of this report. 5
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
Consistent Performer. The Company has been a consistent performer since going public in 2005, steadily growing revenues and EBITDA and, barring a slowdown during the recession period, now appears poised for growth. In F10, revenue growth was 6.0%; we anticipate revenue growth of 10.3% in F11 with anticipated EBITDA growth of 20%. Exhibit 3 highlights the rolling TTM revenue and EBITDA performance. After peaking in 2008, when both revenue and EBITDA performance were driven by high commodity prices, the subsequent period reflects the economic slowdown with both these metrics now beginning to trend back up. Exhibit 3. Historical Revenue & EBITDA Performance 30.0 TTM Revenues
TTM EBITDA
25.0 7.0
7.9 7.8 7.8 7.4 6.3 7.8
5.8 6.1
20.0
7.1 6.3 5.9
$ mm
5.2
4.2 4.2
4.0
15.0
10.0
1.2 5.0
3.8
1.4 1.4 1.4
2.0
2.4
2.9
8.7 7.0 7.8 5.4 5.8 5.9 6.1
10.2
13.5 12.213.2
15.716.7
17.317.516.6
15.414.6
14.113.1
12.812.713.613.9
Sep-10
Dec-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Jun-08
Sep-08
Mar-08
Sep-07
Dec-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
Mar-06
Dec-05
Sept-05
Jun-05
Mar-05*
0.0
Source: Company reports; Union Securities
CERF has also handsomely rewarded original investors with consistent and regular distribution payments. Since June 2005, cumulative distributions and unit price appreciation have returned over 4.0x to shareholders and distributions to investors has totalled over $12.0 million (representing over 160% of original unit price). Currently, on an annualized basis, the units yield approximately 10.0%. Based on the improving economic outlook, revenue diversification and anticipated prudent management, we believe the current $0.24 per unit annual distribution appears safe with the likelihood of an increase possible, as CERF finishes the year with results inline or above our expectations.
6
Ranjit Narayanan| 416-775-5121 | [email protected]
APRIL 7, 2011
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
Exhibit 4. Unitholder Value Appreciation $9.00
Cumulative Distributions
$8.00
Unit Price
Combined
$7.00 $6.00
$5.00 $4.00 $3.00 $2.00 $1.00
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
Mar-06
Dec-05
Sept-05
$-
Source: Company reports; Union Securities
Effective Growth Strategy. The Company’s growth strategy has focused on providing customers innovative solutions in a cost competitive manner backed by customer support. One of the challenges faced by the Company’s industrial and commercial customers is lost efficiency and productivity due to the retirement of its senior labour force and current apprentices with limited experience. CERF has taken proactive steps to assist its customers and has introduced several unique solutions, including specialized heating and ground thawing equipment that allows customers to work through the winter months. Through its Smart-Way construction waste disposal business, the Company has introduced customized roll-off bins and other innovations such as the bin/bag combination. In our view, the recently announced MCL acquisition (expected to close April) would significantly enhance CERF’s waste disposal and recycling services. MCL generates about $1.8 million EBITDA per year and we estimate has revenues of approximately $8.0 million per annum. MCL operates six landfills on long-term contract arrangements as well as two large scale composting facilities. MCL also operates roll-off bins and transfer business for industrial/construction customers over an extended geographic area in Alberta, which we believe aptly complements CERF’s existing Smart-Way business. We believe there are two keys drivers for CERF’s waste disposal and recycling (Smart-Way/MCL): i.
The growing concern over municipal waste – C&D waste accounts for 25% of all municipal waste sent to landfills in Alberta, of which only 10% is being recycled. Government initiatives are targeting 50% of C&D municipal waste be diverted to recycling facilities; and
Please see important disclosures at the back of this report. 7
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
ii.
APRIL 7, 2011
Increasing trend towards Leadership in Energy and Environmental Design (LEED) certification among residential and commercial builders due to client demands has led to contractors embracing recycling programs; we expect this will drive additional business for CERF’s waste disposal and recycling operations.
Exhibit 5 highlights the growing volume of C&D sent to Alberta’s landfills. Exhibit 5. Tonnes of C&D Waste Sent to Landfills in Alberta 1,000,000 860,000
900,000 800,000
700,000 Tonnes
600,000
640,000
680,000
510,000
500,000 400,000 300,000 200,000 100,000 0 2002
2003
2004
2006
Source: Statscan; Union Securities
Long Standing Customer Relationships. The Company also has deep longstanding relationships with its customer base, which numbers over 4,000. The Company’s customers include the largest construction companies in Canada; the average length of these customer relationships with CERF and its predecessor is approximately 14 years, with 85% of the Company’s revenues derived from repeat business.
8
Ranjit Narayanan| 416-775-5121 | [email protected]
APRIL 7, 2011
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
Exhibit 6. CERF Top Ten Customer Profile Customer Customer Ranking Ranking
Industry Industry
Length Lengthofof Relationship Relationship
11 22
(1) ICI ICI (1) Government Government
9.0% 9.0% 6.5% 6.5%
22 22years years 11 years 11 years
55 66
ICI ICI Industrial Industrial
2.7% 2.7% 2.5% 2.5%
14 14years years 12 years 12 years
33 44
77 88
99 10 10
ICI ICI Residential Residential
5.3% 5.3% 4.0% 4.0%
ICI ICI ICI ICI
2.4% 2.4% 2.3% 2.3%
Industrial Industrial Residential Residential
2.2% 2.2% 2.0% 2.0%
Total/Average Total/Average (1)
%%ofofCERF's CERF's Total Total Revenue Revenue
38.9% 38.9%
17 17years years 13 13years years
10 10years years 19 19years years 44years years 16 years 16 years 13.8 13.8years years
Industrial/Commercial/Institutional
Source: Company reports; Union Securities
Scope for Distribution Increases. After steady increases in distributions between 2005 – 2008, the Company cut distributions in 2009 from $0.16 per unit to $0.12 per unit in Q1/09 and subsequently to $0.06 per unit in Q4/09 as the economy slumped and distributable cash dropped by 23% in F09. In F10, due to scaled back maintenance capex spending, we expect distributable cash will rebound with growth of 15-25% over 2009 levels. With the economy and construction activity picking up, we expect further growth in distributable cash flow but we also anticipate higher maintenance capex spending in 2011 as CERF invests in new equipment to drive growth and compensate for under spending in F10. While this will position the company for future growth, we anticipate flat line distributable cash flow growth in F11. We expect this investment in F11 to drive solid double digit distributable cash flow growth in F12. We therefore believe, barring any economic surprises, there is the possibility of a distribution increase likely in early F12. Exhibit 7 demonstrates the trend of distributable cash flow (incl. forecasted) and distribution payouts.
Please see important disclosures at the back of this report. 9
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
Exhibit 7. Distributable Cash Flow and Payout Ratios 1,400
450% 399%
1,200
400% 350%
1,000
250%
600
200%
190%
200
150%
123%
400 97%
48%
48% 31%
49%
70%
55%
63%
43%
30%
100% 49%
30%
35%
Distributable Cash Generated
Distributions Declared
Sep-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
0
50% 0%
12-Dec
$ 000's
800
Payout Ratio
300%
Payout Ratio
Source: Company reports; Union Securities
Strong Management Team. A proven management team under the leadership of CEO Wayne Wadley and CFO Ken Stephens has demonstrated the ability to expand into new market segments, introduce new products, establish key industry partnerships and favourably position the company for future growth. Insiders own approximately 35% of shares outstanding. Attractive Valuation. CERF is currently trading at a forward EV/EBITDA multiple of 4.4x versus its broader peer group at forward 6.6x. We believe CERF should trade inline with its peer group for the following reasons: (i) Consistent track record of results and distributions; (ii) Expanding presence in the high growth waste disposal and recycling segment; (iii) Steady transition to a recurring revenue model with long-term contracts; (iv) Scope for distribution increases; and (v) Strong and reliable management team. In our view, CERF offers investors a unique opportunity to participate in a company that offers steady income, has a solid growth outlook, scope for distribution increases and is attractively priced. We are Initiating Coverage on Canadian Equipment Rental with a Buy recommendation and $3.30 Target Price. Our target price is DCF driven and based on a sensitivity of the discount rate (10–12%) and terminal growth rate (3–5%); we arrive at a target range of $3.09 - $3.79 per share. Our target price equates to 5.8x F11 EBITDA, which is still well below its peer group at 6.6x forward EBITDA.
10
Ranjit Narayanan| 416-775-5121 | [email protected]
APRIL 7, 2011
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
Exhibit 8. Valuation Summary $ mm except per share
Sales EBITDA EPS (f.d.)
F09 $13.1 $4.4 $0.07
F10E $13.9 $4.1 -$0.01
F11E $15.3 $4.9 $0.18
F12E $16.9 $5.9 $0.28
1.7x 5.0x N.A
1.6x 5.3x N.A
1.4x 4.4x 13.8x
1.3x 3.7x 8.9x
EV/Sales EV/EBITDA P/E Source: Company reports; Union Securities
PRODUCTS & SERVICES In this section we briefly outline the Products and Services offered by CERF. The Company is primarily engaged in Equipment Rental, Equipment Sales, Equipment Service and Repair and Merchandise Sales. Equipment Rental: Over two-thirds of the Company’s revenues are derived from equipment rental, supplied to customers in the construction and maintenance industries. Equipment rented includes air equipment, electric tools, generator sets, portable lighting, welding equipment, survey equipment, waste disposal bins, material handling equipment, among a host of other types of equipment. Exhibit 9 highlights the division of equipment rentals that CERF offers by type. Exhibit 9. Equipment Rental Type - CERF
11%
21%
18%
27% 23%
Heaters & Tanks Air Equipment and Compaction General & Tools
Generators & Lighting Material Handling
Source: Company reports; Union Securities
Please see important disclosures at the back of this report. 11
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
Equipment Sales/Service & Repair. CERF sells equipment, machinery and tools from a wide selection of manufacturers and provides maintenance and repair service for selected manufacturer brands. The Company also provides for the service and repair of customer owned equipment. Exhibit 10 highlights key end markets serviced by CERF. Exhibit 10. Key End Markets Serviced
10% 12% 45% 33%
Infrastructure Construction
Industrial Construction
Residential Construction
Other
Source: Company reports; Union Securities
FINANCIAL ANALYSIS & OUTLOOK 2010 was a consolidation year for CERF after experiencing the effects of one of the worst recessions in recent economic history. The Company prudently cut distributions, reduced maintenance capex spending and focused on consolidation. We expect the Company to post a modest revenue increase of approximately 6.0% in F10. With the broader economy now having emerged from the recession, and with commodity prices returning to healthy levels, Alberta’s economy is expected to perform well over the next few years, which we believe will benefit CERF. For F11, we expect revenues of $15.3 million (up 10.3%), EBITDA of $4.9 million (31.8% margin) and distributable cash flow of $3.3 million. For F12, we are forecasting revenues of $17.0 million (up 10.6%), EBITDA of $5.9 million (34.7% margin) and distributable cash flow of $3.6 million. Key assumptions underpinning our forward estimates include: i.
Ongoing rebound in the construction, commercial, industrial and infrastructure industries;
12
Ranjit Narayanan| 416-775-5121 | [email protected]
APRIL 7, 2011
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
ii.
Renewed capex spending by CERF in F11 & F12 that we believe will drive revenues and productivity (we are forecasting capex spending of $2.0 million in F11 and $2.8 million in F12);
iii.
Rebound in the Smart-Way waste disposal and recycling segment driven by customers looking to become compliant ahead of upcoming regulations.
Exhibit 11. Forward Estimates Summary F10E $10.0 $3.0 $0.9 $13.9
F11E $11.1 $3.2 $1.0 $15.3
F12E $12.3 $3.6 $1.0 $16.9
Gross Margins
85.4%
85.6%
86.0%
EBITDA % Margin
$4.1 29.5%
$4.9 32.0%
$5.9 34.7%
Net Income EPS
-$0.6 -$0.01
$1.6 $0.18
$2.7 $0.28
$ mm except EPS
Rentals Sales Service & Other Total Revenues
* does not incl. MCL Source: Company reports; Union Securities
Utilization Should Drive Operating Margins and Distributable Cash. With a pick up in economic activity we believe CERF will be able to improve the utilization of its equipment, which should drive margins and distributable cash. Higher utilization spreads incremental business over the same cost base, which should drive margins and cash flow. In Exhibit 12 we highlight the EBITDA and distributable cash trend.
Please see important disclosures at the back of this report. 13
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
Exhibit 12. EBITDA and Distributable Cash 2,000 Distributable Cash Generated
EBITDA
1,800 1,600
$ 000's
1,400 1,200 1,000 800 600 400 200 Q4-12e
Q3-12e
Q2-12e
Q1-12e
Q4-11e
Q3-11e
Q2-11e
Q1-11e
Q4-10e
Q3-10
Q2-10
Q1-10
Q4-09
Q3-09
Q2-09
Q1-09
0
Source: Company reports; Union Securities
At the start of 2010, EBITDA and distributable cash began trending up; we expect this trend to continue.
VALUATION AND RECOMMENDATION Two methods were used to value CERF units: Discounted Cash Flow and Relative Valuation. Discounted Cash Flow. Using a discount rate of 11%, terminal growth rate of 4% and a long-term operating margin of 15-20%, we arrive at a price target of $3.30 per share. Based on a sensitivity of the discount rate (10–12%) and terminal growth rate (3–5%), we arrive at a target range of $3.09 - $3.79 per share. Exhibit 13. DCF Sensitivity Analysis Discounted DiscountedFree FreeCash CashFlow Flowto toEquity Equity--Sensitivity SensitivityAnalysis Analysis 3.30 3.30
Terminal Terminal Growth Growth Rate Rate
3% 3% 4% 4% 5% 5% 6% 6%
99%%
$$4.06 4.06 $$4.46 4.46 $$5.04 5.04 $$5.98 5.98
DDi sco i scouunnt tRRaatete 1100%% 1111%% 1122%%
$$3.53 3.53 $$3.78 3.78 $$4.14 4.14 $$4.66 4.66
$$3.12 3.12 $$3.30 3.30 $$3.53 3.53 $$3.85 3.85
$$2.80 2.80 $$2.93 2.93 $$3.09 3.09 $$3.30 3.30
1133%%
$$2.55 2.55 $$2.64 2.64 $$2.75 2.75 $$2.90 2.90
Source: Union Securities
Relative Valuation. We compared CERF’s valuation to other companies in the equipment rental and equipment sales and service business. CERF is currently
14
Ranjit Narayanan| 416-775-5121 | [email protected]
APRIL 7, 2011
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
trading at a forward EV/EBITDA multiple of 4.4x versus its broader peer group at forward 6.6x. We believe CERF should trade inline with its peer group for the following reasons: (i) Consistent track record of results and distributions; (ii) Expanding presence in the high growth waste disposal and recycling segment; (iii) Steady transition to a recurring revenue model with long-term contracts; (iv) Scope for distribution increases; and (v) Strong and reliable management team. Exhibit 14. Comparables
Company Company
Share Market Net Share Market Net Price Net Cap. Cash / EPS Price/Earnings EV/EBITDA EV/Sales Price Shares Net Cap. Cash / EPS Price/Earnings EV/EBITDA EV/Sales Shares Ticker 01-Apr-11 (MM) Cash (MM) $MM Share FTM FY1 FY2 FTM FY1 FY2 FTM FY1 FY2 FTM FY1 FY2 Ticker 01-Apr-11 (MM) Cash (MM) $MM Share FTM FY1 FY2 FTM FY1 FY2 FTM FY1 FY2 FTM FY1 FY2
Finning International, Inc. FTT Finning International, Inc. FTT Rocky Mountain Dealerships RME Rocky Mountain Dealerships RME Strongco Income Fund SQP Strongco Income Fund SQP Toromont Industries TIH Toromont Industries TIH Wajax Income Fund WJX Wajax Income Fund WJX Cervus Equipment Corp. CVL Cervus Equipment Corp. CVL Average Average
$28.5 $28.5 $10.5 $10.5 $4.8 $4.8 $31.5 $31.5 $39.6 $39.6 $16.0 $16.0
172.2 172.2 19.1 19.1 10.6 10.6 77.0 77.0 16.9 16.9 14.5 14.5
CERF CERF
$2.49 $2.49
8.6 8.6
CFL-U CFL-U
-$681 -$681 $4,908 $4,908 -$35 -$35 $200 $200 -$14 $51 -$14 $51 -$245 -$245 $2,422 $2,422 -$37 -$37 $670 $670 $6$6 $232 $232
-0.3 -0.3
$1.56 $1.56 $1.57 $1.57 $1.99 $1.99 18.3x 18.3x 18.2x 18.2x 14.3x 14.3x $1.22 $1.23 $1.47 8.6x 8.5x $1.22 $1.23 $1.47 8.6x 8.5x 7.1x 7.1x -$1.27 -$1.27 $0.28 $0.28 $0.29 $0.29 $0.53 $0.53 17.3x 17.3x 16.7x 16.7x 9.1x 9.1x $1.96 $1.96 $1.97 $1.97 $2.43 $2.43 16.1x 16.1x 16.0x 16.0x 12.9x 12.9x -$2.18 -$2.18 $2.87 $2.87 $2.87 $2.87 $3.36 $3.36 13.8x 13.8x 13.8x 13.8x 11.8x 11.8x $0.41 $1.66 $1.58 $1.93 9.6x 10.1x $0.41 $1.66 $1.58 $1.93 9.6x 10.1x 8.3x 8.3x 13.9x 13.9x13.9x 13.9x 10.6x 10.6x
$21 $21
8.9x 8.9x 9.0x 9.0x 5.7x 5.7x 5.1x 5.1x 2.4x 2.4x 2.2x 2.2x 8.2x 8.2x 8.2x 8.2x 8.5x 8.5x 8.4x 8.4x 6.1x 6.1x 6.6x 6.6x 6.6x 6.6x 6.6x 6.6x
7.6x 7.6x 4.3x 4.3x 2.1x 2.1x 7.0x 7.0x 7.4x 7.4x 5.6x 5.6x 5.7x 5.7x
1.1x 1.1x 1.1x 1.1x 0.3x 0.3x 0.3x 0.3x 0.2x 0.2x 0.2x 0.2x 1.0x 1.0x 1.0x 1.0x 0.6x 0.6x 0.6x 0.6x 0.4x 0.4x 0.4x 0.4x 0.6x 0.6x 0.6x 0.6x
1.0x 1.0x 0.3x 0.3x 0.2x 0.2x 0.9x 0.9x 0.5x 0.5x 0.4x 0.4x 0.5x 0.5x
$0.16 $0.16 $0.18 $0.18 $0.30 $0.30 15.6x 15.6x13.8x 13.8x 8.3x 8.3x 4.6x 4.6x 4.4x 4.4x 3.7x 3.7x 1.5x 1.5x 1.4x 1.4x 1.1x 1.1x
Source: Union Securities; Bloomberg; Thomson One
In our view, CERF offers investors a unique opportunity to participate in a company that offers steady income, has a solid growth outlook, scope for distribution increases and is attractively priced. We believe CERF offers investors the opportunity to play a small cap story with upside potential and pending catalysts. Catalyst for the stock include: (i) Closing of the MCL acquisition; (ii) Long-term high value contract wins in the waste disposal and recycling segment; (iii) Increase in distributions; and (iv) Additional accretive acquisitions that drive scale and footprint.
RISKS TO OUTLOOK Economic Cycle. The Company’s customers operate primarily in the construction and industrial sectors and are impacted by the vagaries of the economic cycle. A deep economic downturn could adversely impact the outlook for the company. Key Personnel. The ability to retain and attract well-qualified management is the key to continuity and effectiveness. CERF’s current senior management team has been together for several years and the sudden departure of any important management personnel could have a negative impact on the stock. Please see important disclosures at the back of this report. 15
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
Competition. Competition in the equipment rental industry is intense. CERF competes with companies that have greater resources and brand recognition. With the improvement in Alberta’s economy, it is likely new competitors could enter the market. Ability to Raise Capital. CERF may require additional financing to grow and expand its operations. The ability to raise capital on acceptable terms could affect future expansion plans.
16
Ranjit Narayanan| 416-775-5121 | [email protected]
APRIL 7, 2011
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APPENDIX A. MANAGEMENT AND DIRECTORS Management And Directors Wayne Wadley, President, CEO and Director
Wayne Wadley has been a businessman and entrepreneur for over 25 years. His area of expertise has chiefly been developing and growing successful organizations within the oil production and rental industries and he understands their financial needs and challenges. He is the founding Chief Executive Officer and Director of the TSX listed GEOCAN Energy Inc.
Ken Stephens, Chief Financial Officer and Director
Mr. Stephens received his Chartered Accountant designation in 1977. He is currently an assurance partner in a Calgary-based public accounting firm providing consulting and assurance services to small and medium sized private and public businesses.
Mr. John Koop, Director
Mr. Koop received his Certified Management Accountant (CMA) designation in 1961. From 1961 through 1969, he worked as manager of joint venture and fixed asset accounting at Canadian Petro Fina Ltd., a subsidiary of a major Belgian oil company. From 1969 to 1982, he worked with Dome Petroleum Ltd. as manager of budgets and short-term forecasting where he developed plans governing activities for the coming year. From 1982 through to the present, Mr. Koop has been a provider of accounting and management support to small businesses.
Gary Layden, Director Mr. Layden began his career as co-founder of Bomega Manufacturing Ltd. in 1978 which he owned and operated for 18 years. Bomega specialized in the designing and manufacturing of oilfield, mining and construction equipment. . In 1996, Bomega was purchased by Badger Daylighting Inc. (a TSX listed company). From 1997 to 2000, Mr. Layden worked with Badger as VP of Manufacturing and Director. Currently, Mr. Layden is a businessman and consultant.
Please see important disclosures at the back of this report. 17
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
APPENDIX B. FINANCIALS Canadian Equipment Rental Fund Ltd. Canadian Equipment Rental Fund Ltd. Income Statement Income Statement Yr End Dec 31, $000's except per share figures Yr End Dec 31, $000's except per share figures Revenues Revenues
F2010E F2011E F2012E F2010E F2011E F2012E F2007 F2008 F2009 Q1-10 Q2-10 Q3-10 Q4-10e F2010E Q1-11e Q2-11e Q3-11e Q4-11e F2011E Q1-12e Q2-12e Q3-12e Q4-12e F2012E F2007 F2008 F2009 Q1-10 Q2-10 Q3-10 Q4-10e F2010E Q1-11e Q2-11e Q3-11e Q4-11e F2011E Q1-12e Q2-12e Q3-12e Q4-12e F2012E Dec-07 Dec-08 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-12 Dec-07 Dec-08 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-12 13,135 13,135 -20.7% -20.7%
3,867 3,867 -7% -7% 9.7% 9.7%
2,871 2,871 -3% -3% -25.8% -25.8%
3,275 3,275 32% 32% 14.1% 14.1%
3,892 3,892 10% 10% 18.8% 18.8%
13,905 13,905 5.9% 5.9%
4,242 4,242 10% 10% 9% 9%
3,151 3,151 10% 10% -26% -26%
3,594 3,594 10% 10% 14% 14%
4,350 4,350 12% 12% 21% 21%
15,337 15,337 10.3% 10.3%
4,664 4,664 10% 10% 7% 7%
3,482 3,482 11% 11% -25% -25%
3,970 3,970 10% 10% 14% 14%
4,844 4,844 11% 11% 22% 22%
16,960 16,960 10.6% 10.6%
1,646 1,646
653 653
333 333
466 466
584 584
2,035 2,035
636 636
457 457
503 503
609 609
2,205 2,205
653 653
487 487
556 556
678 678
2,374 2,374
16,561 16,561
11,489 11,489 87.5% 87.5%
3,214 3,214 83.1% 83.1%
2,538 2,538 88.4% 88.4%
2,809 2,809 85.8% 85.8%
3,308 3,308 85.0% 85.0%
11,870 11,870 85.4% 85.4%
3,606 3,606 85.0% 85.0%
2,694 2,694 85.5% 85.5%
3,091 3,091 86.0% 86.0%
3,741 3,741 86.0% 86.0%
13,131 13,131 85.6% 85.6%
4,011 4,011 86.0% 86.0%
2,995 2,995 86.0% 86.0%
3,414 3,414 86.0% 86.0%
4,166 4,166 86.0% 86.0%
14,585 14,585 86.0% 86.0%
875 875 6% 6%
1,058 1,058 6% 6%
1,224 1,224 9% 9% 15.7% 15.7%
299 299 8% 8% -5% -5% 0% 0%
446 446 16% 16% 44% 44% 49% 49%
400 400 12% 12% 32% 32% -10% -10%
467 467 12% 12% 57% 57% 17% 17%
1,612 1,612 11.6% 11.6% 31.7% 31.7%
382 382 9% 9% 28% 28% -18% -18%
347 347 11% 11% -22% -22% -9% -9%
413 413 12% 12% 3% 3% 19% 19%
500 500 12% 12% 7% 7% 21% 21%
1,642 1,642 10.7% 10.7% 1.9% 1.9%
466 466 10% 10% 22% 22% -7% -7%
348 348 10% 10% 0% 0% -25% -25%
437 437 11% 11% 6% 6% 25% 25%
533 533 11% 11% 7% 7% 22% 22%
1,784 1,784 10.5% 10.5% 8.7% 8.7%
6,465 6,465
8,195 8,195
5,905 5,905 45% 45% -28% -28%
6,965 6,965 EBITDA Margin (%) 44.4% EBITDA Margin (%) 44.4%
7,308 7,308 44.1% 44.1% 7,308 7,308
4,360 4,360 33.2% 33.2% 4,340 4,340
1,751 1,751 45% 45% 4% 4% 19% 19% 2,218 2,218 57% 57% 12% 12% 19% 19% 1,090 1,090 28.0% 28.0% 1,090 1,090
1,570 1,570 37% 37% 11% 11% -10% -10% 1,951 1,951 46% 46% 14% 14% -12% -12% 1,655 1,655 39.0% 39.0% 1,655 1,655
1,418 1,418 45% 45% -5% -5% -10% -10% 1,764 1,764 56% 56% -9% -9% -10% -10% 929 929 29.5% 29.5% 929 929
1,617 1,617 45% 45% 10% 10% 14% 14% 2,030 2,030 57% 57% 9% 9% 15% 15% 1,060 1,060 29.5% 29.5% 1,060 1,060
2,001 2,001 46% 46% 14% 14% 24% 24% 2,501 2,501 58% 58% 13% 13% 23% 23% 1,240 1,240 28.5% 28.5% 1,240 1,240
4,884 4,884 31.8% 31.8% 4,884 4,884
1,726 1,726 37% 37% 10% 10% -14% -14% 2,192 2,192 47% 47% 12% 12% -12% -12% 1,819 1,819 39.0% 39.0% 1,819 1,819
1,497 1,497 43% 43% 6% 6% -13% -13% 1,845 1,845 53% 53% 5% 5% -16% -16% 1,149 1,149 33.0% 33.0% 1,149 1,149
1,667 1,667 42% 42% 3% 3% 11% 11% 2,104 2,104 53% 53% 4% 4% 14% 14% 1,310 1,310 33.0% 33.0% 1,310 1,310
2,034 2,034 42% 42% 2% 2% 22% 22% 2,567 2,567 53% 53% 3% 3% 22% 22% 1,598 1,598 33.0% 33.0% 1,598 1,598
6,925 6,925 40.8% 40.8% 4.8% 4.8%
7,129 7,129 54% 54% -23% -23%
1,466 1,466 45% 45% 6% 6% -2% -2% 1,866 1,866 57% 57% 10% 10% -4% -4% 943 943 28.8% 28.8% 960 960
6,606 6,606 43.1% 43.1% 7.7% 7.7%
9,253 9,253 56% 56%
1,500 1,500 52% 52% 0% 0% 6% 6% 1,945 1,945 68% 68% 8% 8% 13% 13% 593 593 20.7% 20.7% 627 627
6,136 6,136 44.1% 44.1% 3.9% 3.9%
7,340 7,340 47% 47%
1,420 1,420 37% 37% 6% 6% -15% -15% 1,719 1,719 44% 44% 4% 4% -13% -13% 1,495 1,495 38.7% 38.7% 1,482 1,482
267 267 2,653 2,653
110 110 3,431 3,431
0 0 3,778 3,778
4 4 798 798
4,045 4,045 EBIT Margin (%) 25.8% EBIT Margin (%) 25.8% 335 335
3,767 3,767 22.7% 22.7% 407 407
582 582 4.4% 4.4% 474 474 -20 -20
694 694 17.9% 17.9% 200 200 -13 -13
4 4 754 754 246 246 -411 -411 -14.3% -14.3% 196 196 34 34
2 2 724 724 161 161 57 57 1.7% 1.7% 198 198 16 16
2 2 724 724 0 0 364 364 9.3% 9.3% 130 130
13 13 2,999 2,999 406 406 703 703 5.1% 5.1% 724 724 37 37
2 2 700 700 0 0 953 953 22.5% 22.5% 116 116
2 2 700 700 0 0 227 227 7.2% 7.2% 107 107
2 2 700 700 0 0 358 358 10.0% 10.0% 98 98
2 2 700 700 0 0 538 538 12.4% 12.4% 89 89
8 8 2,800 2,800 0 0 2,076 2,076 13.5% 13.5% 411 411
2 2 700 700 0 0 1,117 1,117 23.9% 23.9% 113 113
2 2 700 700 0 0 447 447 12.8% 12.8% 104 104
2 2 700 700 0 0 608 608 15.3% 15.3% 106 106
2 2 700 700 0 0 896 896 18.5% 18.5% 97 97
8 8 2,800 2,800 00 00 3,069 3,069 18.1% 18.1% 419 419
3,710 3,710 EBT Margin (%) 23.7% EBT Margin (%) 23.7%
3,360 3,360 20.3% 20.3%
128 128 1.0% 1.0%
507 507 13.1% 13.1%
-640 -640 -22.3% -22.3%
-157 -157 -4.8% -4.8%
233 233 6.0% 6.0%
-57 -57 -0.4% -0.4%
836 836 19.7% 19.7%
120 120 3.8% 3.8%
260 260 7.2% 7.2%
449 449 10.3% 10.3%
0 0 1,665 1,665 10.9% 10.9%
1,004 1,004 21.5% 21.5%
343 343 9.9% 9.9%
502 502 12.7% 12.7%
800 800 16.5% 16.5%
0 0 2,649 2,649 15.6% 15.6%
22 22
-293 -293
44 44 9% 9%
(44) (44)
1 1 -1% -1%
0% 0%
1 1 -2% -2%
42 42 5% 5%
6 6 5% 5%
13 13 5% 5%
22 22 5% 5%
83 83 5% 5%
50 50 5% 5%
17 17 5% 5%
25 25 5% 5%
40 40 5% 5%
132 132 5% 5%
3,338 3,338 20.2% 20.2%
421 421 3.2% 3.2%
463 463 12.0% 12.0%
-596 -596 -20.8% -20.8%
-159 -159 -4.8% -4.8%
233 233 6.0% 6.0%
-59 -59 -0.4% -0.4%
795 795 18.7% 18.7%
114 114 3.6% 3.6%
247 247 6.9% 6.9%
426 426 9.8% 9.8%
1,582 1,582 10.3% 10.3%
954 954 20.5% 20.5%
326 326 9.4% 9.4%
477 477 12.0% 12.0%
760 760 15.7% 15.7%
2,517 2,517 14.8% 14.8%
Y/Y% Y/Y% Q/Q % Q/Q % Cost of Sales Cost of Sales
Y/Y% Y/Y% Q/Q% Q/Q%
Gross Profit Gross Profit Operating Expenses Operating Expenses General & Administrativ e General & Administrativ e
Operating Ex penses Operating Ex penses
Total Operating Expenses Total Operating Expenses
EBITDA EBITDA
15,688 15,688
1,383 1,383
14,305 14,305 Gross margin (%) 91.2% Gross margin (%) 91.2%
% of rev enue % of rev enue Y/Y% Y/Y% Q/Q% Q/Q%
% of rev enue % of rev enue Y/Y% Y/Y% Q/Q% Q/Q% % of rev enue % of rev enue Y/Y% Y/Y% Q/Q% Q/Q%
Adjusted EBITDA Adjusted EBITDA Unit Based Compensation Unit Based Compensation Amortiation of property and equipment Amortiation of property and equipment Loss on disposal of property and equipment Loss on disposal of property and equipment EBIT EBIT Interest on long term debt Interest on long term debt Loss (gain) on deriv ativ es Loss (gain) on deriv ativ es EBT EBT Income Taxes Income Taxes Current (recov ery ) Current (recov ery ) Net Income Net Income Weighted Average Shares O/S Weighted Average Shares O/S
Earnings Per Share Earnings Per Share
16,561 16,561 5.6% 5.6%
572 572 3,138 3,138 Net margin (%) 20.0% Net margin (%) 20.0%
7,748 7,748 55.7% 55.7% 8.7% 8.7% 4,122 4,122 29.6% 29.6% 4,158 4,158
8,248 8,248 53.8% 53.8% 6.5% 6.5%
8,709 8,709 51.3% 51.3% 5.6% 5.6% 5,877 5,877 34.7% 34.7% 5,877 5,877
Basic Basic Fully Diluted Fully Diluted
5,192 5,192 5,478 5,478
5,568 5,568 5,961 5,961
5,644 5,644 5,903 5,903
5,911 5,911 6,156 6,156
5,913 5,913 6,118 6,118
5,939 5,939 6,118 6,118
8,439 8,439 8,618 8,618
6,551 6,551 6,753 6,753
8,489 8,489 8,668 8,668
8,539 8,539 8,718 8,718
8,589 8,589 8,768 8,768
8,639 8,639 8,818 8,818
8,564 8,564 8,743 8,743
8,689 8,689 8,868 8,868
8,739 8,739 8,918 8,918
8,789 8,789 8,968 8,968
8,839 8,839 9,018 9,018
8,764 8,764 8,943 8,943
Basic Basic Fully diluted Fully diluted Y/Y% Y/Y% Q/Q % Q/Q %
0.60 0.60 0.57 0.57
0.60 0.60 0.56 0.56
0.07 0.07 0.07 0.07
0.08 0.08 0.08 0.08
-0.10 -0.10 -0.10 -0.10
-0.03 -0.03 -0.03 -0.03
0.03 0.03 0.03 0.03
-0.01 -0.01 -0.01 -0.01
0.09 0.09 0.09 0.09
0.01 0.01 0.01 0.01
0.03 0.03 0.03 0.03
0.05 0.05 0.05 0.05
0.18 0.18 0.18 0.18
0.11 0.11 0.11 0.11
0.04 0.04 0.04 0.04
0.05 0.05 0.05 0.05
0.09 0.09 0.08 0.08
0.29 0.29 0.28 0.28
Source: Company reports, Union Securities
18
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
Canadian Equipment Rental Fund Ltd. Canadian Equipment Rental Fund Ltd. Cash Flow Statement Cash Flow Statement Yr End Dec 31, $000's except per share figures Yr End Dec 31, $000's except per share figures Cash Flow from Operations Cash Flow from Operations Net Earnings Net Earnings
APRIL 7, 2011
F2010 F2011E F2012E F2010 F2011E F2012E F2007 F2008 F2009 Q1-10 Q2-10 Q3-10 Q4-10e F2010E Q1-11e Q2-11e Q3-11e Q4-11e F2011E Q1-12e Q2-12e Q3-12e Q4-12e F2012E F2007 F2008 F2009 Q1-10 Q2-10 Q3-10 Q4-10e F2010E Q1-11e Q2-11e Q3-11e Q4-11e F2011E Q1-12e Q2-12e Q3-12e Q4-12e F2012E Dec-07 Dec-08 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-12 Dec-07 Dec-08 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-12
3,138 3,138
3,338 3,338
421 421
463 463
-596 -596
-159 -159
233 233
-59 -59
795 795
114 114
247 247
426 426
1,582 1,582
954 954
326 326
477 477
760 760
2,517 2,517
2,653 2,653 0 0 267 267
3,778 3,778
798 798
21 21 -20 -20 -293 -293
4 4 -13 -13 44 44
754 754 246 246 4 4 34 34 -44 -44
724 724 161 161 2 2 16 16 1 1
724 724 0 0 2 2
572 572
3,430 3,430 0 0 110 110 0 0 22 22
700 700 0 0 2 2 0 0
700 700 0 0 2 2 0 0
700 700 0 0 2 2 0 0
700 700 0 0 2 2 0 0
2,800 2,800 0 0 8 8 0 0 0 0
700 700 0 0 2 2 0 0
700 700 0 0 2 2 0 0
700 700 0 0 2 2 0 0
700 700 0 0 2 2 0 0
0
3,000 3,000 406 406 13 13 37 37 1 1
2,800 2,800 0 0 8 8 0 0 0 0
-1,293 -1,293 -10 -10 0 0 663 663
1,004 1,004 -398 -398 -54 -54 -202 -202
1,493 1,493 32 32 -9 -9 -535 -535
-866 -866 -585 -585 46 46 384 384
898 898 25 25 -97 -97 -401 -401
-399 -399 190 190 -46 -46 406 406
120 120 290 290 75 75 -439 -439
-246 -246 -80 -80 -22 -22 -50 -50
-935 -935 -636 -636 52 52 779 779
986 986 377 377 28 28 -439 -439
-437 -437 -141 -141 -22 -22 255 255
78 78 301 301 -86 -86 -458 -458
-308 -308 -99 -99 -28 -28 137 137
-980 -980 -684 -684 62 62 836 836
1,069 1,069 408 408 30 30 -474 -474
-481 -481 -156 -156 -24 -24 280 280
60 60 324 324 -44 -44 -494 -494
-332 -332 -107 -107 24 24 148 148
-641 -641
351 351
981 981
-1,020 -1,020
425 425
151 151
47 47
-398 -398
-740 -740
952 952
-346 -346
-165 -165
-298 -298
-767 -767
1,034 1,034
-381 -381
-153 -153
-267 -267
Cash Flow from Operations Cash Flow from Operations
5,989 5,989
7,251 7,251
4,888 4,888
275 275
823 823
897 897
1,006 1,006
3,000 3,000
757 757
1,769 1,769
603 603
964 964
4,092 4,092
889 889
2,062 2,062
798 798
1,308 1,308
5,058 5,058
Cash Flow from Investing Cash Flow from Investing Non-cash w orking capital Non-cash w orking capital Purchase of property & equipment Purchase of property & equipment Proceeds from sale of property & equipment Proceeds from sale of property & equipment Other Other
0 0 -8,716 -8,716 1,821 1,821 -132 -132
-289 -289 -6,355 -6,355 1,772 1,772 0 0
-81 -81 -3,517 -3,517 1,234 1,234 -554 -554
338 338 -1,139 -1,139 324 324
-807 -807 1,247 1,247
-174 -174 -584 -584 659 659
-550 -550
164 164 -3,080 -3,080 2,230 2,230
-500 -500 200 200
-500 -500 200 200
-500 -500 200 200
-500 -500 200 200
-2,000 -2,000 800 800
-700 -700 200 200
-700 -700 200 200
-700 -700 200 200
-700 -700 200 200
-2,800 -2,800 800 800
Cash Flow from Investing Cash Flow from Investing
-7,027 -7,027
-4,871 -4,871
-2,918 -2,918
-477 -477
440 440
-99 -99
-550 -550
-686 -686
-300 -300
-300 -300
-300 -300
-300 -300
-1,200 -1,200
-500 -500
-500 -500
-500 -500
-500 -500
-2,000 -2,000
Cash Flow from Financing Cash Flow from Financing Bank indebtedness Bank indebtedness Distributions to partners Distributions to partners Proceeds of isuue of partnership units Proceeds of isuue of partnership units Unit purchase loan repay ments Unit purchase loan repay ments Proceeds of long-term debt Proceeds of long-term debt Repay ment of long term debt Repay ment of long term debt Repay ment of obligation under capital lease Repay ment of obligation under capital lease
-150 -150 -3,184 -3,184 1,310 1,310 0 0 4,434 4,434 -1,118 -1,118 0 0
-3,613 -3,613 151 151 0 0 7,480 7,480 -6,426 -6,426 0 0
317 317 -3,009 -3,009 740 740 0 0 1,446 1,446 -1,648 -1,648
519 519 -365 -365 11 11
-507 -507 -364 -364
-74 -74 -365 -365
0 0 -366 -366 5,884 5,884
-366 -366
-366 -366
-366 -366
-366 -366
0 0 -1,464 -1,464
-366 -366
-366 -366
-366 -366
-366 -366
-1,464 -1,464
432 432 -377 -377 -23 -23
-391 -391 -24 -24
-383 -383 -24 -24
-450 -450
-62 -62 -1,460 -1,460 5,895 5,895 64 64 432 432 -1,601 -1,601 -71 -71
-450 -450
-450 -450
-450 -450
-450 -450
-1,800 -1,800
-450 -450
-450 -450
-450 -450
-450 -450
-1,800 -1,800
Cash Flow from Financing Cash Flow from Financing
1,293 1,293
-2,408 -2,408
-2,154 -2,154
195 195
-1,221 -1,221
-846 -846
5,068 5,068
-816 -816
-816 -816
-816 -816
-816 -816
-3,264 -3,264
-816 -816
-816 -816
-816 -816
-816 -816
-3,264 -3,264
Items not affecting cash and cash equiv alents Items not affecting cash and cash equiv alents Amortization of property & equipment Amortization of property & equipment Loss (gain) on disposal of equipment Loss (gain) on disposal of equipment Unit based compensation Unit based compensation Loss (gain) on deriv ativ es Loss (gain) on deriv ativ es Future income tax es Future income tax es
0
Changes in non-cash w orking capital Changes in non-cash w orking capital Accounts Receiv able Accounts Receiv able Inv entory Inv entory Prepaid Ex penses Prepaid Ex penses Accounts pay able & accrued liabilities Accounts pay able & accrued liabilities Total Change in Non-Cash Working Capital Total Change in Non-Cash Working Capital
0
64 64
0
3,197 3,197
FX Impact FX Impact Net Cash Flow Net Cash Flow
0
0
255 255
0 -29 -29
0 -183 -183
-7 -7
42 42
-48 -48
5,524 5,524
0 5,511 5,511
-359 -359
653 653
-513 -513
-152 -152
0 -372 -372
-427 -427
746 746
-518 -518
-8 -8
0 0 -206 -206
Cash position, beginning Cash position, beginning Cash position, end Cash position, end
0 0 255 255
255 255 226 226
226 226 43 43
43 43 36 36
36 36 78 78
78 78 30 30
30 30 5,554 5,554
43 43 5,554 5,554
5,554 5,554 5,195 5,195
5,195 5,195 5,848 5,848
5,848 5,848 5,334 5,334
5,334 5,334 5,182 5,182
5,554 5,554 5,182 5,182
5,182 5,182 4,755 4,755
4,755 4,755 5,501 5,501
5,501 5,501 4,983 4,983
4,983 4,983 4,976 4,976
5,182 5,182 4,976 4,976
Source: Company reports, Union Securities
19
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
Canadian Equipment Rental Fund Ltd. Canadian Equipment Rental Fund Ltd. Balance Sheet Balance Sheet Yr End Dec 31, $000's except per share figures Yr End Dec 31, $000's except per share figures ASSETS ASSETS
APRIL 7, 2011
F2010 F2010 F2007 F2008 F2009 Q1-10 Q2-10 Q3-10 F2007 F2008 F2009 Q1-10 Q2-10 Q3-10 Dec-07 Dec-08 Dec-09 Mar-10 Jun-10 Sep-10 Dec-07 Dec-08 Dec-09 Mar-10 Jun-10 Sep-10
Cash and cash equiv alents Cash and cash equiv alents Accounts Receiv able Accounts Receiv able Prepaid Ex penses Prepaid Ex penses Inv entory Inv entory
255 255 4,875 4,875
Q4-10e F2010 Q4-10e F2010 Dec-10 Dec-10 Dec-10 Dec-10
463 463
226 226 3,871 3,871 118 118 797 797
43 43 2,370 2,370 216 216 764 764
36 36 3,237 3,237 169 169 1,349 1,349
78 78 2,337 2,337 1,324 1,324 266 266
30 30 2,736 2,736 313 313 1,134 1,134
5,554 5,554 2,616 2,616 238 238 844 844
Total Current Assets Total Current Assets
5,592 5,592
5,011 5,011
3,393 3,393
4,791 4,791
4,005 4,005
4,213 4,213
Property , plant and equipment Property , plant and equipment Goodw ill Goodw ill Financial Deriv ativ es Financial Deriv ativ es Other Other
13,298 13,298
14,450 14,450
88 88
88 88
17,995 17,995 203 203 20 20
18,012 18,012 203 203 33 33
16,572 16,572 204 204 0 0
Total Assets Total Assets
18,978 18,978
19,550 19,550
21,610 21,610
23,039 23,039
2,160 2,160 861 861 300 300 1,628 1,628
1,670 1,670 930 930 300 300 1,461 1,461
317 317 1,053 1,053 365 365 300 300 1,777 1,777
4,949 4,949 4,421 4,421
4,360 4,360 5,640 5,640
LIABILITIES & SHAREHOLDERS' EQUITY LIABILITIES & SHAREHOLDERS' EQUITY Bank Indebtedness Bank Indebtedness Accounts Pay able & Accrued Liabilities Accounts Pay able & Accrued Liabilities Distributions Pay able Distributions Pay able Note Pay able Note Pay able Current portion of long-term debt Current portion of long-term debt Current portion of capital lease obligation Current portion of capital lease obligation Total Current Liabilities Total Current Liabilities Long-term debt Long-term debt Notes pay able Notes pay able Obligation under capital lease Obligation under capital lease Financial deriv ativ es Financial deriv ativ es Future income tax es Future income tax es
F2011E F2011E F2011E F2011E Q1-11e Q2-11e Q3-11e Q4-11e F2011E Q1-12e Q2-12e Q3-12e Q4-12e F2012E Q1-11e Q2-11e Q3-11e Q4-11e F2011E Q1-12e Q2-12e Q3-12e Q4-12e F2012E Mar-11 Jun-11 Sep-11 Dec-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-12 Mar-11 Jun-11 Sep-11 Dec-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Dec-12 5,195 5,195 3,551 3,551 186 186 1,480 1,480
5,848 5,848 2,565 2,565 158 158 1,103 1,103
5,334 5,334 3,002 3,002 180 180 1,244 1,244
5,182 5,182 2,924 2,924 266 266 943 943
9,252 9,252
5,554 5,554 2,616 2,616 238 238 844 0844 0 9,252 9,252
4,755 4,755 3,904 3,904 204 204 1,627 1,627
5,501 5,501 2,835 2,835 174 174 1,219 1,219
4,983 4,983 3,316 3,316 198 198 1,374 1,374
4,976 4,976 3,256 3,256 242 242 1,050 1,050
9,315 9,315
5,182 5,182 2,924 2,924 266 266 943 0943 0 9,315 9,315
10,490 10,490
9,729 9,729
9,872 9,872
9,524 9,524
4,976 4,976 3,256 3,256 242 242 1,050 1,050 0 0 9,524 9,524
10,412 10,412
9,673 9,673
9,761 9,761
15,613 15,613 203 203
15,439 15,439 203 203
15,439 15,439 203 203
15,039 15,039 203 203
14,639 14,639 203 203
14,239 14,239 203 203
13,839 13,839 203 203
13,839 13,839 203 203
13,639 13,639 203 203
13,439 13,439 203 203
13,239 13,239 203 203
13,039 13,039 203 203
13,039 13,039 203 203
20,781 20,781
20,030 20,030
24,894 24,894
24,894 24,894
25,654 25,654
24,515 24,515
24,203 24,203
23,357 23,357
23,357 23,357
24,333 24,333
23,371 23,371
23,315 23,315
22,767 22,767
22,767 22,767
3,813 3,813 5,297 5,297
836 836 1,775 1,775 365 365 300 300 1,834 1,834 98 98 5,208 5,208 5,199 5,199
329 329 1,374 1,374 366 366 300 300 1,818 1,818 100 100 4,287 4,287 4,824 4,824
255 255 1,607 1,607 366 366 300 300 1,718 1,718 104 104 4,350 4,350 4,541 4,541
255 255 1,167 1,167 366 366 300 300 1,718 1,718 104 104 3,911 3,911 4,091 4,091
255 255 1,167 1,167 366 366 300 300 1,718 1,718 104 104 3,911 3,911 4,091 4,091
255 255 1,947 1,947 366 366 300 300 1,718 1,718 104 104 4,690 4,690 3,641 3,641
255 255 1,508 1,508 366 366 300 300 1,718 1,718 104 104 4,251 4,251 3,191 3,191
255 255 1,763 1,763 366 366 300 300 1,718 1,718 104 104 4,506 4,506 2,741 2,741
255 255 1,305 1,305 366 366 300 300 1,718 1,718 104 104 4,048 4,048 2,291 2,291
255 255 1,305 1,305 366 366 300 300 1,718 1,718 104 104 4,048 4,048 2,291 2,291
255 255 2,140 2,140 366 366 300 300 1,718 1,718 104 104 4,884 4,884 1,841 1,841
255 255 1,667 1,667 366 366 300 300 1,718 1,718 104 104 4,410 4,410 1,391 1,391
255 255 1,947 1,947 366 366 300 300 1,718 1,718 104 104 4,690 4,690 941 941
255 255 1,453 1,453 366 366 300 300 1,718 1,718 104 104 4,196 4,196 491 491
255 255 1,453 1,453 366 366 300 300 1,718 1,718 104 104 4,196 4,196 491 491
4,431 4,431
4,405 4,405
4,380 4,380
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
4,352 4,352 17 17 303 303
573 573
595 595
301 301
345 345
301 301
4,352 4,352 17 17 303 303
Limited partnership units Limited partnership units Unit purchase loans receiv able Unit purchase loans receiv able Contributed surplus Contributed surplus Deficit Deficit
8,125 8,125 -531 -531 399 399 1,043 1,043
8,272 8,272 -487 -487 469 469 700 700
9,068 9,068 -439 -439 471 471 -1,332 -1,332
9,082 9,082 -439 -439 472 472 -1,234 -1,234
9,082 9,082 -375 -375 476 476 -2,196 -2,196
9,082 9,082 -375 -375 479 479 -2,719 -2,719
14,966 14,966 -375 -375 481 481 -2,851 -2,851
14,966 14,966 -375 -375 481 481 -2,851 -2,851
14,966 14,966 -375 -375 483 483 -2,423 -2,423
14,966 14,966 -375 -375 485 485 -2,675 -2,675
14,966 14,966 -375 -375 487 487 -2,794 -2,794
14,966 14,966 -375 -375 489 489 -2,734 -2,734
14,966 14,966 -375 -375 489 489 -2,734 -2,734
14,966 14,966 -375 -375 491 491 -2,146 -2,146
14,966 14,966 -375 -375 493 493 -2,185 -2,185
14,966 14,966 -375 -375 495 495 -2,074 -2,074
14,966 14,966 -375 -375 497 497 -1,681 -1,681
14,966 14,966 -375 -375 497 497 -1,681 -1,681
Total Shareholders' Equity Total Shareholders' Equity
14,030 14,030
15,189 15,189
17,798 17,798
17,831 17,831
16,494 16,494
15,680 15,680
20,983 20,983
20,983 20,983
20,964 20,964
20,264 20,264
19,697 19,697
19,309 19,309
19,309 19,309
19,449 19,449
18,961 18,961
18,624 18,624
18,570 18,570
18,570 18,570
Total Liabilities & Shareholders' Equity Total Liabilities & Shareholders' Equity
18,978 18,978
19,549 19,549
21,610 21,610
23,039 23,039
20,781 20,781
20,030 20,030
24,894 24,894
24,894 24,894
25,654 25,654
24,515 24,515
24,203 24,203
23,357 23,357
23,357 23,357
24,333 24,333
23,371 23,371
23,315 23,315
22,767 22,767
22,767 22,767
SHAREHOLDERS' EQUITY SHAREHOLDERS' EQUITY
Source: Company reports, Union Securities
20
Ranjit Narayanan| 416-775-5121 | [email protected]
CANADIAN EQUIPMENT RENTAL FUND LP. (CFL.UN-TSXV)
APRIL 7, 2011
IMPORTANT DISCLOSURES At the date of the release of this report Ranjit Narayanan does not own shares of Canadian Equipment Rental Fund. At the date of the release of this report, Union Securities Ltd. (“USL”) held options to acquire additional common shares of Canadian Equipment Rental Fund. Within the past 12 months, USL has acted as agent for an offering of Canadian Equipment Rental Fund. Within the past 12 months, Canadian Equipment Rental Fund has not paid any portion of the travel costs associated with a site visit by the Analyst.
Research Rating System: Strong Buy – Analyst’s top sector picks, with expected return of 25% or more over the next 6 to 12 months. Buy – Expected return of 10% to 25% over the next 6 to 12 months. Speculative Buy – Expected return over 10%, companies without significant revenues. Hold – Expected return of 0% to 10% over the next 6 to 12 months. Reduce – Expected return of -10% or more over the next 6 to 12 months.
Distribution of Ratings Rating
Number of Companies
% of Research Coverage
Strong Buy
6
26%
Buy
5
22%
Speculative Buy
10
43%
Hold
2
9%
Reduce Under Review
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Member
and IIROC
21
Ranjit Narayanan| 416-775-5121 | [email protected]
Union Securities Ltd. John MacPhail, CEO
(604) 646-2016
[email protected]
Jovan S tupar, P.Eng , M BA, Managing Director, Investment Banking Vilma Jones, Managing Director & Head of Equity Capital Markets Abid Mukhtar
(403) 205-2211 (416) 775-5150 (416) 775-5134
[email protected] [email protected] [email protected]
Dane Walton
(416) 775-5124
[email protected]
John-Paul Grabowski
(416)775-4653
[email protected]
Brock H. Daem
(604) 691-2862
[email protected]
Mark Van Remortel
(416) 775-5142
[email protected]
Kelly Poncelet
(416) 775-5145
[email protected]
Cameron Ross
(416) 775-5137
[email protected]
Janet Toffolo
(416) 775-5106
[email protected]
44 (0) 020 3170 6198
[email protected].
Investment Banking
Institutional Sales & Trading (Canada)
Institutional Sales (Europe) David S adler Equity Research Ranjit Narayanan,
M BA, CFA ,
S enior S pecial S ituations Analyst & Head of Research
(416) 775-5121
[email protected]
Warren Verbonac, S enior Oil & Gas Analyst
(403) 205-2224
[email protected]
Brian Mok, P.Eng, MBA, S enior Mining Analyst
(416) 775-5135
[email protected]
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