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Energy infrastructure: not played out yet

Also: Pope Francis weighs in on his own economic philosophy, and gives the papal thumbs-down to trickle-down economics

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Nov 29, 2013

by Max Fawcett

Is the energy infrastructure play over? Genevieve Roch-Decter, a portfolio manager at LDIC (which just happens to run an energy infrastructure fund) doesn’t think so. The combination of a gathering recovery in the U.S. and billions – many billions – of investment in B.C.’s incipient LNG play should mean that the good times will continue to roll for the space.

Nobody’s had a better roll of late than Badger Daylighting (TSE:BAD), and it was one of Roch-Decter’s top picks the last time she appeared on BNN’s Market Call Tonight. And in her latest appearance, she tapped it again – despite the stock being up some 50 per cent since August, and a staggering 175 per cent on the year so far. What’s driving it? In short, it offers a service – hydraulic excavation and trenching – that’s both technologically superior and more cost effective than the back-hoes that tend to get used for the job. “It’s less damaging, it’s less intrusive, and they can do a lot more specialized work,” Roch-Decter says.

In fact, it sounds like the company can barely keep up with the work. It has a manufacturing facility that builds three new trucks a week, and it recently bumped that up to five given that its existing fleet was running full-tilt. “The revenue per truck is at record levels,” Roch-Decter says. “The company’s going to $85 million in EBITDA this year, and north of $100 million next year, and I don’t see why it can’t trade 12, 14 times. On those multiples, the stock could get to $100, $120. And that’s why I recently bought more stock. I know it’s had a huge run, but I really still like it and think it has a ways to go.” The fact that it just crossed the $1 billion threshold in market capitalization – a key benchmark for institutional investors – could help it continue moving up.

Roch-Decter also likes AltaGas (TSE:ALA), a multi-pronged play on energy infrastructure that has an interesting catalyst on the horizon. “It’s a core holding in any income portfolio. The business segments are split between clean energy, gas and utilities. They have a huge project coming on next year, and I recommend anybody who likes this story to go onto their website and look for this video for the Forest Kerr run of river power project. It’s just phenomenal. It’s in B.C., and it’s going to add $100 million in EBITDA to their bottom line on a $350 million base.”

Meanwhile, in entirely different news, Pope Francis, who has been on a charm offensive the likes of which the Catholic world has never seen, made some rather interesting comments on the state of the global economy and the role that markets play in it. In an interesting piece in The Atlantic, Heather Horn parses the Pontiff’s economic worldview, and notes that it bears striking similarities to the late Hungarian economist Karl Polanyi. “He rejects the idea that ‘economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world.’ Instead, he argues, growing inequality is ‘the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation,’ which ‘reject the right of states, charged with vigilance for the common good, to exercise any form of control.’ And he repeats the exact language he used in an early address: ‘Money must serve, not rule!’”

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As Horn notes, this formulation sounds a lot like Polanyi’s central philosophical tenet. “Karl Polanyi is most famous for his book The Great Transformation, and in particular for one idea in that book: the distinction between an ‘economy being embedded in social relations” and “social relations [being] embedded in the economic system.’” On a day on which people are literally stepping on each other to buy the latest toy or trinket, his words are worth reflecting on – even if you’re not a Catholic.

 

 

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