New Flyer shares hit the gas

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NEW Flyer Industries shares have been on a tear the past two weeks, even though the company recently released information indicating its year-end production and order backlog are down.

At least one analyst believes the recent surge is caused by investors who are catching up to what had been a particularly underpriced stock.

But the sharp rise in New Flyer stock prices -- up 22.5 per cent since Jan. 19 -- prompted regulators to compel the company to explain the unusual run on Friday morning.

That's why New Flyer issued a press release announcing it is "holding discussions with a third party regarding a potential commercial and strategic relationship."

However, company CEO Paul Soubry said there's really nothing new.

"The TSX market surveillance people called us. We said there was nothing going on, but they said we have to tell the world something," Soubry said in a telephone interview from Edmonton, where he was meeting with customers.

The fact is, New Flyer has let it be known for some time it is talking to potential partners or merger targets and maybe even looking for potential acquisitions.

"We're out there looking, but we have nothing to announce. There's no deals closing," Soubry said.

According to a number of sources, he is not just being coy.

Trevor Johnson, an equity analyst with National Bank Financial in Toronto, said the run-up in the stock price was a result of the equity being underpriced and investors playing catch-up.

"We have known for ages they were doing that (holding discussions with a third party regarding a potential commercial and strategic relationship)," Johnson said. "Friday morning, the company formally reiterated that because of the regulators. But I don't believe there is any deal imminent."

The stock price jumped about 50 cents early in the day Friday, but the bidding settled down and eventually closed up only one cent to $7.35.

New Flyer has been biding its time until the U.S. economy strengthens and municipalities can get back to replacing their aging transit bus fleets.

The company has been forced to lay off workers, but it's also improving efficiencies and developing its growing aftermarket business.

Ron Koslowsky, the Manitoba vice-president of the Canadian Manufacturers and Exporters, said: "From what we can tell, everything New Flyer has been doing is the kind of effort that leads to a better organization and a more effective company, positioning themselves for the future."

Last summer, New Flyer started the process of converting to a common-share corporation from its complex income deposit securities (IDS) structure.

Among other things, that means annual dividends will be cut in half by this August -- from $1.17 to $0.56 -- but it will free cash for the company to pursue capital investments and potential partnerships and acquisitions.

On Friday, Soubry said the company has been saying for some time that the former structure, which required a high cash payout, did not support growth and diversification.

"Basically, all the cash that came in we were giving out and we couldn't reinvest, we couldn't acquire, we couldn't diversify because we didn't have any available cash," Soubry said.

The company expects to complete the conversion this August, when the last of the IDS units will be purchased.

martin.cash@freepress.mb.ca