STB had bullish results.....cash flow grew by 19.5%, despite a 30% bump in fuel costs,and is up just a bit more than 7%, lagging the S&P/Toronto Stock Exchange Composite Index by a couple %-age points. Not every Canadian company that's expanded South has prospered, and the jagged nature of the US recovery raises the risk that some could stumble this year. Others are set for an explosive 2012 from their operations in the U.S,including ALA,AX.un,ATP,EMA,EXE,IBG,JE,STB and TRP. STB also got listing on Nasdaq,iin order to get investors' attention. Over time,this should/would mean higher valuation and therefore a lower cost of capital,with which to expand earnings and dividends.
One should note, that whether you buy a Canadian stock in Toronto or U.S. exchange, co. is still priced in Canadian $s and pays you dividends in Canadian $s as well. If you’re a U.S. investor, your dividends are translated into U.S. $s when they hit your account....again-no matter where you buy, but not before you get the full benefit of an appreciating loonie.
On the bargain counter right now is Student Transportation. The owner and operator of school bus systems is tapping into a USD18 billion US market of municipal- and district-owned school bus systems. Fiscal 2012 second-quarter revenue rose 24.4 percent, spurring a 19.5 percent increase in cash flow, as the company expanded its reach with acquisitions and new contracts.
STB’s current focus on new business is the Southeastern U.S., where 90% of school districts are district, or state owned. Many of these entities are cash strapped and outsourcing,or outright selling of school bus systems is a key way to save money.South Carolina’s School Bus Privatization Act will require the state to effectively divest the school bus system to municipal districts, which are likely to outsource from there. Meanwhile, Florida’s legislature is debating a bill that would require the state’s 65 school districts to offer up operation of their bus fleets to the best private bid. And the co. is working to get similar measures passed in Alabama, Georgia, North Carolina and Virginia.With the majority of Student Transportation revenue now coming from the U.S., currency management is becoming ever more important to dividends.
Fortunately, the nature of these contracts,which typically contemplate the pass through of fuel costs,makes revenue and CF highly predictable from month to month.That gives the co. ample opportunity to lock in exchange rates with hedging. It’s also issued debt in U.S. dollars, providing a further balance.Fiscal Q2 cash flow covered the dividend by better than 2 to 1, good for a POR of 45%. The full year ratio is a bit tighter, owing to the seasonal nature of the business....there’s little traffic in summer,which makes dividend growth unlikely in the near future.But, it does provide stability to a yield of more than 8%. And with the co. planning to ramp up business in Illinois, Minnesota and Michigan as well, it looks like only a matter of time, before CFs are strong enough to finance a boost. I own and consider STB very conservative,although I wouldn't chase it past the $7.00 mark.