# Horizon North Logistics (TSX:HNL)



## leeder (Jan 28, 2012)

I haven't found any postings on Horizon North Logistics, so I thought I'd see what your opinion is on this company. This company seems to operate in a similar field as Black Diamond Group. Reuters's description: "Horizon North Logistics, Inc. provides camp management and catering, mobile structures, matting solutions, and northern marine services to resource companies. The Company operates in Canada's western provinces and three northern territories."

The financial ratios (as per TD Waterhouse) seems pretty attractive: 
- reasonable price to earning ratio [~17x P/E (current); ~13x P/E (forward)]
- low debt to equity and debt to capital ratios (less than 50%)
- high current ratio (~2.0)
- nice dividend yield (~2.7%) and low payout ratio (less than 50%); has grown its dividend quite well since it was initiated in 2011.
- good return on equity (20%+)

With energy production a key driver in Canadian growth, I would think this company is in a pretty good space. I would appreciate opinions and especially from current investors of this company. Thanks!


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## HaroldCrump (Jun 10, 2009)

Ready to buy now? ;o)


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## leeder (Jan 28, 2012)

Heh...(gulp!) Thankfully, I didn't pull the trigger. They just released a Q4 operational update that indicated reduced revenues. That said, it has pretty good balance sheet. Will keep it on my watch list and may become my contrarian buy.


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## CPA Candidate (Dec 15, 2013)

I have owned the stock for about a year now with an average price of $5.47. I sold a portion of my position at $10 and am now wishing I had disposed of all my shares.

I haven't had time to do an indepth analysis of the company but generally valuation is reasonable and the company has been growing revenue, income and dividends nicely for the past few years.

Problem is, recent shareholders haven't been rewared for any of it. In 2012 the price got to over $8 only for it to crash back to $5 (where I got in). Once again the stock has come down in even more dramatic fashion, losing 25% in a couple weeks, after a nice run.

I also have a sense something fishy is going on. Recently a big seller of shares supressed the price at $10 and again at $9.50 (from jan 10-20). The chart looks most unusual as it just goes sideways at $9.50 for about 10 days. One day later, the price plunges on no news. Three to four days later, operational update and the stock falls out of bed hard.

An insider also sold 500,000+ shares in December and January, just a couple weeks before the drop. That's an awful lot of shares to sell.

I feel like this is a situation where information asymmetry is playing a role in the price action and I am looking to exit the position after a recovery.


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## HaroldCrump (Jun 10, 2009)

CPA Candidate, that is my high level assessment as well.
I have known about this stock for about a couple of years now, but haven't taken a position.
A while ago, I had roughly estimated its fair value to be about $6.40.
Stock was probably in the $7 range at that time.

Regarding this "operational update" thing, we have seen that movie before.
Sometime last summer, when the stock was in the $7 range, the company put out an earnings warning and stock crashed into the mid $6 range.
Similar thing is happening now.

The company has a good business model and is poised for growth.
IMO, it deserves a deeper look.
But given the state of the market right now, I don't feel particularly compelled to look into it urgently.


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## CPA Candidate (Dec 15, 2013)

Quarterly dividend increased from 0.0625 to 0.08, an increase of 28%. The yield is now 4.4%. This strong signalling from management has convinced me to hang on.


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## HaroldCrump (Jun 10, 2009)

Are you still holding CPA Candidate?
I am glad I didn't buy in...but don't want to rub it in.


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## plasmasnake (Apr 17, 2014)

Looks like it recovered a bit from yesterday's drop. It seems like the entire sector is taking a beating - BDI also fell by 9% yesterday and fell another 2% today. Harold you brought Mullens Group to my attention in the other thread and it looks like that stock has been taking a beating as well.

It looks to me like an interesting sector to be in. I wonder how low these 3 will drop.


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## plasmasnake (Apr 17, 2014)

Well, it looks like HNL has basically recovered. That was an odd dip, no news or anything, and back up in 2 days.


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## HaroldCrump (Jun 10, 2009)

That remains to be seen...I wouldn't celebrate just yet.
Stock is down nearly 50% in 6 months, and about 40% just in last 3 months.
Yesterday's sell off does seem to be over, but whether this is the beginning of a recovery or simply a dead cat bounce remains to be seen.


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## Feruk (Aug 15, 2012)

I haven't heard of any new major projects in a few years. I have heard of postponements, cancellations, and delays. You'll probably be able to buy it cheaper in a month. Their six months EPS of $0.08 annualized give you a 34X earning multiple. With the degree of risk this company provides, I'd be very uncomfortable at 15X. Add in a recently strong US dollar and continued slump in oil prices, and this becomes a no-brainer to stay away from.


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## plasmasnake (Apr 17, 2014)

HaroldCrump said:


> That remains to be seen...I wouldn't celebrate just yet.
> Stock is down nearly 50% in 6 months, and about 40% just in last 3 months.
> Yesterday's sell off does seem to be over, but whether this is the beginning of a recovery or simply a dead cat bounce remains to be seen.


Of course, I was just intrigued that it could move so sharply without any news - I didn't even see any rating downgrades for example. But it does have a pretty small market cap so maybe that adds to the volatility?

I picked up some BDI earlier today.


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## HaroldCrump (Jun 10, 2009)

I looked a little more into it. There actually has been some news in the last few days.
Petronas threatening to cancel the LNG terminal was one.
Raymond James downgraded the stock from $8.50 to $7 saying it will take at least 2 more quarters for the picture on future LNG development to become clear.

Also, apparently, there were rumors earlier this year of a US energy services firm (Civeo Corp.) potentially buying out either HNL or BDI.
They have now clarified they are not buying anyone, but simply re-domiciling to Canada.
That news release came out this Monday just before market open.

There was also some heavy insider selling by the CEO in the last month or so.

Therefore, it seems like a combination of several factors.


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## plasmasnake (Apr 17, 2014)

Interesting, thanks for those tidbits!


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## CPA Candidate (Dec 15, 2013)

The market is reacting to pure speculation here. I heard the oil sands are shutting down, LNG is dead, etc.

I'm not seeing insider selling, but there was insider buying in August. At the last reporting date management gave pretty specific guidance of a much better 2nd half of the year.

The issue with a stock like this is the market doesn't look beyond it's nose, similar to the energy sector. Oil is low today so it's the end of the Canadian energy sector, etc.

I bought around the current price so I'm content to sit back and collect a 6% dividend till they have some better times.


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## HaroldCrump (Jun 10, 2009)

plasmasnake & CPA Candidate, I hope you guys got out earlier this month.
If not, I don't know what to say.

This stock may (or may not) recover over time, but it could be dead money for a long time.
I have been bearish on this for a long time, and I wish I had sold it short.


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## leeder (Jan 28, 2012)

Am I ever glad I never bought into the stock... whew!


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## CPA Candidate (Dec 15, 2013)

They gave guidance of 30-35M in EBITDA and achieved 27M and that was enough to send it down 28%. Never expected the strength of reaction. I think it's a highly emotional response because they have disappointed for several quarters in a row now. I wonder what would have happened if they got 30M? Is 3M the difference between flat and -28% on a company with 400+ million in annual revenues?

It's a long term play on the oil sands, pipelines and LNG. The market wants to play it quarter to quarter. I bought it to hold to for 5 years so I'm not moved by it all.

Edit: This might also be the ultimate fake out stock of all time. After Q2, which was another disappointment, insiders snapped up a bunch of shares around $6. As recently as Oct 2, they were still buying. They raised the dividend this year by a large margin. And then they report another disappointment. The signaling of management hasn't been correlated to results in the slightest way. The incredible drop probably has a lot to due to with these false signals and the basic distrust of their abilities.


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## HaroldCrump (Jun 10, 2009)

There was another large delay in the BC LNG terminals today as UK's BG Group delayed their investments for "a decade".
So perhaps that is another contributing factor.

Specific to HNL, I don't think it is the $8M miss (which is actually a 20% miss, rather significant) that is the company specific concern.
I think it may have more to do with the general lack of consistency, forecasting, and transparency of the management.

Granted, they are in a volatile sector, but their forecasts have been all over the map - in each of their lines of businesses.
If you go back to the beginning of the thread, we discussed this wild forecasting previously.

Markets do not take kindly to this type of shooting-from-the-hip cowboy management.


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## doctrine (Sep 30, 2011)

That's quite a drop. On a fundamental basis, the results are better than the Q1 and Q2, but I think the stock is being repriced to lower earnings. 

I think the BC LNG is also having an impact - they did say they were actually buying land in BC in anticipation of LNG work, which doesn't look like a good move at all. LNG may go ahead, but world LNG is selling for 25% less than earlier this year, and the far-off proposals in BC are very easy to defer for a few more years. If $0.07/share is their new standard, then if they're assigned a P/E of 8, the stock price is $2.24. I think they still trade at a small premium to book value even now - could see it going to 70-80% of book value in a hurry.


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## plasmasnake (Apr 17, 2014)

Yeah, quite a beating on this today. I came in here to see if there was any discussion on it. I had picked up some BDI earlier this month (I posted earlier in this thread), and that's been taking a big beating as well, but I guess not as big as HNL. On a sidenote, I finished maxing out my TFSA and still got a bit of cash left. Tempted to put some more in BDI but maybe not a great idea!


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## plasmasnake (Apr 17, 2014)

doctrine said:


> If $0.07/share is their new standard, then if they're assigned a P/E of 8, the stock price is $2.24. I think they still trade at a small premium to book value even now - could see it going to 70-80% of book value in a hurry.


Are you saying if they cut the dividend to $0.07/share? At $2.24 that would still be a massive 12% yield.. Isn't that pretty rare except in cases where investors feel that there is a strong chance for a drop in revenue, and therefore a dividend cut? P/E of 8 is also crazy low unless you're expecting revenues to shrink.


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## doctrine (Sep 30, 2011)

plasmasnake said:


> Are you saying if they cut the dividend to $0.07/share? At $2.24 that would still be a massive 12% yield.. Isn't that pretty rare except in cases where investors feel that there is a strong chance for a drop in revenue, and therefore a dividend cut? P/E of 8 is also crazy low unless you're expecting revenues to shrink.


P/E of 8 isn't so low for a company < $1B in market cap, especially if revenue growth is drying up. They probably don't have to touch the dividend for a while. Just trying to estimate how low it could go.


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## CPA Candidate (Dec 15, 2013)

HaroldCrump said:


> I think it may have more to do with the general lack of consistency, forecasting, and transparency of the management.


With respect to consistency, it's naturally a lumpy business. As far as forecasting, they don't seem to have a very good read on where things are going. In their defense a lot can change in a very short time frame. Since August we've gone from all time TSX highs, rich oil prices and a western energy boom, a supposedly improving world economy, to a collapsing oil price, faltering world economy, mega projects at risk and very nervous investors. LNG was the next big thing, now the picture is dimming. Few, if anyone, was predicting this kind of drastic change 90 days ago. Things were supposed to be getting better.

The part that gets me is I basically had a double on this stock and I only shaved a small portion off and then held it through a precipitous decline waiting for that quarter where things finally turn around and for dividends. I think my new motto is ABTP - Always be taking profits, because things can fall apart in short order.


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## plasmasnake (Apr 17, 2014)

Harold you mentioned Mullen group in the other thread I started. Looking at the chart, it looks like that's taken a huge dip as well, but P/E is still 22. Do you think a bottom is approaching? Seems like the entire sector is in free fall, not just HNL.


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## CPA Candidate (Dec 15, 2013)

The CEO is out. I figured that this might be coming. His performance in the last conference call was fairly poor; not a particularly articulate fellow and not confidence inspiring.
http://www.stockhouse.com/news/pres...cs-inc-announces-executive-management-changes


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## TheVigilante (Nov 6, 2014)

A change was certainly needed. I still see this as a solid long-term hold, especially at the current discount.


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## CPA Candidate (Dec 15, 2013)

Q1 2015 earnings were 0.09 EPS, which clearly surprised the market and covered the quarterly dividend of 0.08. The company earned 0.21 all of last year. HNL is now double the price of its December lows of $1.80 (now $3.65) and higher than it was after the brutal 20% decline after Q3 earnings.


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