Element Financial will finally split up

             Element Financial has been talking about it for months or is it years.They gave a press release that states the split up will occur on October3,2016.This blog doubted that such a split would occur nor could Steve Hudson get shareholder approval for the split.But Element Financial announced in a recent press release that the split would go through and that one old Element Financial would give the shareholder one new Element Fleet Management and one new Element Commercial Finance.Shareholders approved the split unanimously.The new shares presumably would trade on October3 or shortly after. But at what price?
        The New Deal
      The vast majority of assets are in the now called Fleet Management division and so would be after the split as well.Element Financial (EFN)  now has total assets of almost $21 billion and 65% to 75% of them would go to the new Element Fleet Management with the other 25% to 35% going to Element Commercial Finance.Total debt now stands at $16 billion and likely the allocation of debt would be along the same lines. But no guidance has been given here and it is possible that debt will be allocated on a project basis and less debt will go to Commercial Finance.This will have a tremenduous impact on the price of the smaller stock.Consolidated earnings will be the same although there will be a 10 to 15% increase for 2017 according to guidance.So earnings for 2015 will be about $1.65 to $1.75 before tax and about $1.25 after tax for the whole entity.And earnings before tax for Commercial Finance will be about $.45 before tax;this means that earnings before tax for Element Fleet Management will be about $1.25 to $1.30 for the year.This likely means that Element Fleet Management will trade at close to it's present value. and maintain the same P/E ratio.And Element Commercial Finance should trade at close to the $5.00 to $6.00 range. It may not open there but it will climb to this level by mid-2017 and keep a P/E ratio a little less than Element Fleet Mangement as it's growth rate seems smaller.
        Conclusion
   Many investors(including me) thought that the split may not be beneficial to them.But Steve Hudson has engineered a split that should please almost everyone,that is all three penguins will be happy (as in the caption above).This blog does not see Element Fleet Management retreating;it may move gradually towards the $18 level.But the bonus to existing shareholders will be Element Commercail Finance for which they will own in equal proportion to their existing stock.In theory, this split may allow for a 25% to 33% gain to old shareholders by mid-2017.The starting price for Element Commercial Finance will depend on the allocation of existing debt but even a low initial price will likely see it trading at a minimum of $4.00 by year-end.                                                         

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Is Air Canada Express on schedule?

     In it's last quarterly report ,Chorus Aviation talked about moving towards some kind of new agreement with Air Canada on the operation of Air Canada Express.It is not clear yet whether this has been covered in the Air Canada amended CPA agreement.But a number of things are becoming clearer.Chorus and it's partner Georgian Air Lines own the majority of the equipment(140 of 171 aircraft) in Air Canada Express now and Chorus has already ordered new aircraft for 2017.The division of duties or functions as well as revenues has not been decided yet.Or if it has the public has not yet been told of it.This blog predicts that Chorus will have more,not less, earnings from the new operational agreement.It is also likely that Air Canada will earn more revenue under the new setup as well.
                                      

    The new Chorus Structure 
 Workathon has in the last two or three posts on Chorus talked about the new structure that is emerging from out of the old company.Chorus now has a bigger maintenance operation and it has a new specialized charter operation centred around it's latest acquisition called Voyageur Airways.Both seem to be bringing in additional revenues and earnings.Consequently after Chorus showed in 2016 a good first quarter of $.29 or $.30 per share this blog predicted annual earnings of about $1.25 per share.But Chorus showed investors in the second quarter that it's earnings exceeded all analysts predictions as it came in with earnings per share of $.54 to $.56 .This increased this blog's prediction for annual earnings of $1.65 to $1.85 per share.
  It is hard to explain the extra earnings when the revenues from the amended CPA agreement are coming down not up.One possibilty is that Chorus is now earning more money from it's secondary operations such as maintenance and charter business.But it must be generating some earnings now from the Air Canada Express operation.According to Macleans magazine Air Canada has had two bad quarters in a row and needs more revenues and earnings.According to Macleans magazine Air Canada needs more revenues and it would be in their interest to make Air Canada Express more profitable.This blog agrees with this position and feels that giving more autonomy to Chorus and Georgian Air Lines to run Air Canada Express will certainly help.So with this in mind it is likely that Chorus will have another good quarter coming up and e.p.s may even beat that of the second quarter.
                                                  

               The third Quarter
   Chorus Aviation has increased it's earnings per share above expectations in 2016.Qtrade (a small broker) estimates their earnings per share at about $1.60 per share for the year and Yahoo Finance estimates it at only $.80.Workathon estimated annual e.p.s. at $1.25 per share after the first quarter and now (after a good second quarter) at about $1.75 per share.Chorus may be making more from Air Canada Express than all parties originally forecast and now may be ready to beat the trend of the first half.If so look for Chorus to hit $7.50 in October.I don't think Air Canada will be unhappy. 

Tucows is a different breed of "cap"

         Usually  the saying goes "something is a different breed of cat";this denotes an unusual person or company.And that applies to Tucows that I have never analysed on any of my blogs.This is the first for Workarthon also.In 2013 Tucows traded at about $12 to $13 a share and now it trades at $36 to $40.It only has a market capitalization of $370 to $400 million.Small even for a "small cap" but a decent size for a growing technology company.After all Tucows has grown 300% in 3 years.So just why has it done so well?
          Operational Numbers
      An examination of comparables reveals why it has done so well.It has earnings per share of $1.38 per share and a P/E ratio of 26.Revenues have grown by only 4 to 5% over the last quarter  but by about 20% over Q4 2015.Operational income shows about the same growth.This compares to Blackberry which has had  a reduction of revenues by 20% since Q4 2015.A quick examination of junior technology companies reveals that Tucows (TC) is one of a few that has positive growth in revenues matched with positive earnings per share.
    It has had large growth in plant and equipment since Q4 2015.While it's market capitalization is below Blackberry (BB) it's EBITDA is much larger at almost $20 million (according to Qtrade) or $25 million (according to Yahoo Finance) compared to negative$200 million EBITDA for BB.Surprisingly Tucows has a float of only 10 million shares;this compares to 523 million for Blackberry and 104 million for Urthecast, another competitor.This is actually a problem for Tucows as it trades very thinly and it's small float prohibits some institutions from acquiring it's stock.It's daily volume of trade is only 2000 shares.A 25,000 share transaction might send the price up by $3 to $5 a share.Otherwise this blog believes that Tucows would be trading closer to $45 a share.          

                    Financing Changes

       Tucows has just recently arranged $75 million in debt financing.It will be used for "share repurchases,acquisitions and capital expenditures".Admittedly Tucows has little debt on it's balance sheet now but it does not need to repurchase shares;it needs to issue more shares.It only has 10 million shares outstanding and this is much less than any of it's competitors.It could easily double the number of outstanding shares that it has to 20 million.This would increase it's liquidity by $720 million and it's trading float both of which would increase it's attractiveness to large institutions.This blog realizes that it would dilute it's earnings per share to$.70 but it would give it the capacity to acquire a number of  small technology companies like Splice Software or even a chunk of Intrinsync Software shares.Both show good growth.

          Conclusion

    Tucows has shown exceptional management in the period from 2013 to today.It has been very careful about issuing new equity and diluting it' earnings.At the same time it's revenue growth has slowed recently.A new equity issue would increase it's liquidity and allow it to pick up a few fast growing technology    companies.Perhaps 10 million new shares is extreme but 1.5 to 2.5 million shares priced at $36 a share would be a quite  acute move.This would reduce earnings by $.25 to $.30 per share.This blog is against any share repurchases when it only has 10 million shares now; a rights issue for 1 to 1.5 million shares would be quite a good idea.                            use Workathon to improve your share price;  use Workathon for business news