Tuesday, 25 January 2011

Carfinco - Big Upside?

Carfinco Income Fund (TSX:CFN.UN)
Units issued: 24.5 million
Units fully diluted: 24.6 million
Current monthly distribution: $0.02
Q1/2010 special distribution: $0.04
Q2/2010 special distribution: $0.10
Q3/2010 special distribution: $0.10
Q4/2010 special distribution: $0.31
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On the heels of Carfinco engaging U.S. based, FBR Capital Markets to evaluate strategic alternatives, including a possible sale of all of CFN’s assets, Industrial Alliance analyst Fred Westra believes that there is big potential upside for investors. In fact, he can see $10 to $12 per unit as a takeover price.
In addition to his call on a takeout value, he's updated his Strong Buy recommendation with an $8.50 target price in a January 17th update that can be viewed here.
Fred has compared the potential sale of Carfinco to past deals such as VFC, which sold for 19.5x forward earnings and Americredit which sold for 16.7x forward earnings.
He's projecting 2011 earnings of $0.61 per unit, which lead to his call for a potential take-out value between $10 and $12 per unit. He also mentions that although Carfinco is smaller than the two examples, it is more profitable with substantial growth opportunities.