Disclosure: Bullpen receives compensation from Altius Minerals & VersaBank for research coverage. VersaBank is also an IR client of LodeRock Advisors, an affiliate of Bullpen.
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WHAT'S ON TAP
HOT OFF THE PRESS
Potash trade fears appear to be overblown
Trump announced that the US is working on a deal to import potash from Belarus…
… mentioning its cost-competitiveness with Canada. Prior to sanctions, US imports of Belarusian potash were minimal…
… and the Belarusian president said the country’s output is mostly contracted for the year, so we’ll take the under on being replaced - but Trump’s search for volume is understandable given >90% of American consumption is imported.
With the EU maintaining sanctions on Belarus (which is landlocked), getting product to the US market would be a logistical nightmare in comparison to Canada’s freight network…
… which enables the efficient export of potash mined from Saskatchewan. That bodes well for producers like Nutrien (NTR), who owns six potash mines in the province that represent ~20% of global capacity…
… and for Altius Minerals (ALS), which holds royalties on five Nutrien mines and another from Mosaic, among other key mineral royalties in its portfolio.
Aecon runs 16% on $1.7B nuclear deal
OPG announced contracts totalling $3B to refurbish the Pickering Nuclear Generating Station, of which Aecon’s (ARE) share is ~$1.7B - adding 17% to the backlog…
… and supporting continued growth in the company’s largest segment, with work expected to begin in January 2027.
Alongside a deliberate shift away from fixed price contracts…
… recent wins have supported a material expansion in ARE’s valuation, as investors price in Canadian infrastructure tailwinds.
ON OUR RADAR
VersaBank (VBNK) announced the launch of its SRP to the US small business sector, which more than doubles its addressable market south of the border…
… and improves visibility towards its US$3B funding target for 2027, half of which is tied to new partner wins. Combined with strong growth in Canada thanks to real-time SRP adoption, there’s room for our estimates to move higher…
… but the trajectory is more important, as continued asset growth should drive ROE and multiple expansion.
GAINERS & LOSERS
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Hammond Power (HPS-A) ran 8% on a $50M capital expansion in Texas, supporting $250M of US revenue for large standard and custom transformers…
… which should drive margin expansion. Using a conservative 15% EBITDA margin assumption on that $250M…
… backs into a sub-2x build multiple, making organic growth the obvious choice versus M&A (outside of tech/geo expansion)…
… given the market is paying 14x for that EBITDA once operational (a discount to peers), which makes me think the bid wasn’t enough - especially considering there’s room to scale the facility to $400M if demand supports it.
CAE Inc. (CAE) closed up 5% Monday after announcing a $300M recompete contract with the US Air Force. The bid was less about contract size…
… and more about evidence the US government (>20% of revenue) will keep working with CAE’s defense business, despite recent geopolitical rhetoric. While there’s still pressure in its civil aviation unit…
… the company could be another beneficiary of an expanded EU mandate, given it already generates one-fifth of its revenue in Europe and the UK.
With valuation sitting modestly below the long-term average…
… there’s room in the multiple if the company can keep putting points on the board.
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