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  ATS is Benj's One and Only

BENJ GALLANDER and BEN STADELMANN

Tuesday, February 28, 2012

Back in December, this newspaper kindly invited Benj to participate in the "My One and Only" competition. The criteria are pretty simple: pick one stock, income trust, American depositary receipt or exchange-traded fund, with a minimum market cap of $100 million in Canada or $1 billion in the States, that is traded on a major exchange. (No micro fry allowed in this contest.) Then hope it goes up a whole bunch in 2012. Run baby, RUN!

Benj was mighty tempted to go with Bank of America, a humongous outfit he acquired for the portfolio in August at $6.76. However, the beaten-up enterprise was being hit with another blast of rotten news and the stock price had shrivelled to the $5.50 range. At this point, as it skirts the $8 mark, it is looking like it would've been an appealing choice. Oh well. Instead, he decided to go with something that was tarnished, but a bit more secure: ATS Automation.

This company has been sitting in the President's Portfolio at Contra since 2007. In its early years, ATS was best known for manufacturing automated systems for the automotive, healthcare, computer-electronics and consumer products fields.

However, it was first purchased for the Contra portfolio at $10.51 when we got caught up in the hype about the enterprise's participation in the solar energy field, via its Photowatt subsidiary. Alas, all of the optimism proved to be somewhat of a delusion as a myriad of companies jumped into this sphere, which has since cratered with oversupply while overextended governments cut subsidies.

The spectacular Solyndra bankruptcy in California was one of the best examples of failure, but there have also been the stock meltdowns of Chinese producers including JA Solar, SuntechPower and Trina Solar . The promise the sector once showed has been shattered.

After an encouraging start, Photowatt faced the same headwinds as others in the industry. Trying to extricate itself from the problems, the operation was put up for sale. With market conditions so weak, a buyer could not be found, and towards the end of last year, the French venture declared bankruptcy. This affair — which was already ugly — moved to the repulsive stage.

However, it now appears that the light at the end of the tunnel is more visible. Management has indicated that the loss from discontinued operations will likely come to an end in the next six months. That is a relief, given that it registered $95.6 million in the first nine months of this fiscal year and was $19.4 million in 2011.

Meanwhile, ongoing operations at ATS are looking better and better. Revenue in the most recent quarter was $149.1 million, up 23 percent from a year ago. The backlog hit a record $376 million, up a whopping 75 percent from the same quarter last annum.

While the liability side of the balance sheet remained stable, a bit worrisome is that the cash balance of slightly more than $117 million has dropped to around $69 million. Much of this difference appears to be due to higher accounts receivable. While A/R is nice, cash in the bank is more certain.

The average purchase prices for ATS, which is in now in both Contra portfolios, were above $7. If the recovery that we envision ensues, this stock could again trade above $20, where it used to spend lots of time. However, the odds of that happening this year are next to zero, so Benj will have to hope for a smaller, but generous upside to be anointed the My One and Only champ for 2012. While feeling that ATS was an excellent choice, there are 12 other candidates in this race and the competition is intense. Maybe he should have sought his grand slam with Bank of America.


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