Versant’s Lindsell raises target on ATS Automation to $9

Last Wednesday, ATS Automation (TSX:ATA) reported its Q3, 2012 results. Revenues were $149.1-million, 23% higher than in the same period a year ago. Earnings came in at $20.4-million, comparing favourably to the $6.1-million the company put to the bottom line in Q3, 2011.

The quarter was a little better than Versant analyst Neil Lindsell expected. Lindsell, who had already pegged ATS as a top pick for 2012, was cautiously encouraged by company’s performance. In a note to clients, he reasoned the early evidence that ATS is performing well is justification to raise his target on the stock to $9.00 from $8.50 because of higher than expected EPS forecasts. Lindsell continues to base his valuation a fifteen times his expected earnings for 2013.

2011 was an up and down year for the Cambridge, Ontario based company, which designs and builds factory automation systems. ATS, which was founded in 1978 and employs over 2300 people worldwide, has weathered through a ill-timed foray into the solar business. The failure of its Photowatt solar division meant a disastrous Q2 2011, but the effect was mitigated at least somewhat by the improved revenues from its core business.

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The French Division of ATS’ Photowatt was placed in bankruptcy protection on November 8th. The closing date for bids from prospective buyers was this past Friday, February 10th. The bids will then be reviewed by French courts and bankruptcy trustees. The Ontario division has already received several non-binding offers and should be wrapped up within the next quarter. Management says it expects proceeds from these sales will ease the financial pain of wrapping up Photowatt at least somewhat.

Lindsell believes the failed experiment that was Photowatt will be a distant memory within a few months, and that shareholders can look forward to a record order backlog that rose to $376M, up from $363M in Q2, which was also a record at the time.

The Versant analyst now expects ATS’ Automation Systems Group will be on the hunt for acquisitions. He points out the company’s still-strong balance sheet, which boasts net cash of $66 million, unutilized credit facilities of $53 million and line of credit facilities of $21 million.

Share of ATS Automation closed today up 1.5% to $7.88.

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