Keeping the Line Moving 

07/28/2009 10:00 am EST

Focus: GLOBAL

Benj Gallander

President, Contra the Heard

Canada's ATS Automation Tooling has weathered the worst and is geared to the global recovery, write Benj Gallander and Ben Stadelmann in Contra the Heard.

If ever there were a bellwether stock in the Contra portfolio—a harbinger of change in the economy as a whole and the equity markets in particular—ATS Automation Tooling (TSX: ATA) would be it. Which is not to forget that, by the time a recovery or decline has been officially designated as such and communicated to us citizens by the consortium of economic shamans, the price already [will have] moved smartly. Unfortunately, nobody rings a bell or turns over the cards to let you know when it's going to happen.

Judging purely by the market's anemic response to ATS's decent financial reports, we should not look forward to an immediate global economic recovery, because if good times were at hand, we would be seeing a much more vigorous reaction.

Perhaps there remains the stigma of being associated with the automotive industry. There does appear to be some correlation between ATS’s share price and news items regarding any of the North American automakers. But the company does supply manufacturing equipment to other industries. [During the most recent quarter, sales to the auto industry accounted for less than 12% of revenue—Editor.]

In any event, it's been a pleasure lately to go over the company's financial results. Consolidated revenue for the 12 months ended March 31st increased by 29% to C$855 million, including improved fourth-quarter revenues of C$201.8 million. Yearly earnings from operations went up by 641% to C$66.1 million, and total earnings were 61 cents a share compared with a loss of 33 cents a share a year ago. All numbers in the fourth quarter were strong: Profit increased to C$14 million; earnings from operations more than doubled to C$17.7 million; earnings per share was up six cents to 16 cents, and cash net of debt improved by more than C$70 million from the [previous quarter], to C$118.4 million.

Chief executive officer Anthony Caputo likes noted that the global financial crisis is still creating challenges, and he is keeping the spotlight on restructuring the Automation Systems division and improving the supply chain, which is likely to take a few million out of the till in 2010.

Also being considered is a C$10-million restructuring plan to reduce costs in the Photowatt division. Unfortunately, demand for ATS's solar products slowed as tightening credit markets reduced funding for alternative energy projects. The oversupply could last through next year.

Back in January, there was enough confidence in ATS that they were able to easily complete a private offering of ten million shares at C$5 each. Eventually, that purchase price should look quite good. [Shares closed at C$4.75 in Toronto Monday—Editor.] We continue to have great faith, as ATS stays resilient in these not-so-great economic times.
 
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