Coverage Changes

Please note that we’ve moved new Aggressive Portfolio Holding ShawCor Ltd (TSX: SCL, OTC: SAWLF) to the Energy Services segment of How They Rate from Business Trusts to better reflect the nature of its operations.

After this issue we’ll remove from How They Rate coverage Royal Host Inc (TSX: RYL, OTC: ROYHF), which hasn’t paid a dividend since December 2010 and is currently valued at just CAD20 million, barring any objection from subscribers.

We continue to evaluate members of the coverage universe based on a combination of low market capitalization, low daily trading volume on the Toronto Stock Exchange and in the US and, most importantly, for those that aren’t paying a dividend at present, whether there’s a reasonable likelihood of ever doing so in the near future.

This is part of an effort to streamline our focus on companies with a realistic opportunity to build wealth for investors for the long term, keeping in mind too that part of the rationale for building a coverage universe is to provide context and comparison.

We’re still considering our coverage of Armtec Infrastructure Inc (TSX: ARF, OTC: AIIFF), which pays no dividend and has a market capitalization of CAD44.5 million, and Imvescor Restaurant Group Inc (TSX: IRG, OTC: IRGIF), which discontinued its dividend in March 2011 and has a market capitalization of CAD80.1 million.

Due to the fact that a CE reader expressed an interest in continuing to hear from us regarding Data Group Inc (TSX: DGI, OTC: DGPIF), we will continue to cover the company in How They Rate.

Advice Changes

Bell Aliant Inc (TSX: BA, OTC: BLIAF)–From Buy < 28 to Hold. The yield is certainly attractive at greater than 7 percent, and the company continues to generate a lot of cash. But revenue growth has been non-existent for more than five years. In fact the company just posted its best year-over-year revenue performance since 2008, as 2013 revenue declined by just 0.1 percent compared to 2012.

Canfor Pulp Products Inc (TSX: CFX, OTC: CFPUF)–From Hold to Buy < 11. Management reported solid fourth-quarter results, with net income up to CAD14.2 million, or CAD0.20 per share, from CAD5.4 million, or CAD0.08 per share a year ago, while full-year earnings rose to CAD41.8 million, or CAD0.59 per share, from CAD13.4 million, or CAD0.14 per share, in 2012.

Norbord Inc (TSX: NBD, OTC: NBDFF)–From Hold to Buy < 30. Earnings before interest, taxation, depreciation and amortization (EBITDA) for 2013 were up 52.6 percent to CAD287 million. Lower oriented strandboard prices in the fourth quarter resulted in a year-over-year quarterly EBITDA decline, but the positive impact of recovering housing markets in North America and Europe is real.

Secure Energy Services Inc (TSX: SES, OTC: SECYF)–From Hold to Buy < 15. Prospects for the company are bright, as increasingly complex environmental regulations require specialization. At present 49 percent of oil and gas fluid and waste handling needs are management by producers themselves. This is likely to come down considerably as the trend toward outsourcing to experts in the field gains steam.

Tim Hortons Inc (TSX: THI, NYSE: THI)–From Hold to Buy < 54. The iconic Canada-based coffee-and-donuts retailer has sold off by nearly 9 percent in Canadian dollar terms and 13 percent in US dollar terms thus far in 2014, and it looks like a solid value at these levels.

WestJet Airlines Ltd (TSX: WJA, OTC: WJAFF)–From Buy < 22 to Hold. The International Air Transport Association (IATA) has forecast strong airline profits in 2014. But the loonie’s steep decline could have a negative impact on earnings, as fuel, which is priced in US dollars, accounts for the largest share of airlines’ expenses. Costs will rise and likely be passed on to passengers. And that could crimp demand.

Rating Changes

Bell Aliant Inc (TSX: BA, OTC: BLIAF)–From 4 to 3. The full-year payout ratio for 2013 came in at 93 percent, outside the safe range for Telecommunications companies. And management’s guidance for 2014 suggests it won’t come down much from there in the foreseeable future. The company earns two points for its debt situation, with manageable maturities before Jan. 1, 2016, and low overall debt relative to total assets, and it gets another for operating in a relatively stable industry.

Canfor Pulp Products Inc (TSX: CFX, OTC: CFPUF)–From 2 to 3. The company posted a full-year payout ratio of 33.8 percent for 2013, a very safe level for a Natural Resources company. There are no maturities coming due before Jan. 1, 2016, and overall debt as a percentage of total assets is just 14.4 percent.

Norbord Inc (TSX: NBD, OTC: NBDFF)–From 1 to 2. The building supply manufacturer posted a full-year payout ratio–based on 2013 earnings per share of CAD3.06 and an annualized dividend rate of CAD2.40–of 78.4 percent. There are no debt maturities coming due before Jan. 1, 2016, and overall debt is a modest 34.3 percent of total assets.