Thursday January 12, 2012
by Roger Conrad, editor Canadian Edge
You won't have income for long without growth.
Student Transportation (
STB) has plenty of both, paying a monthly yield of more than 8.5% and with contracts in place to grow revenue 18% this fiscal year.
The owner and operator of school bus systems throughout North America last month announced the acquisition of Dairyland Bus, adding 700 vehicles, US $36 million in additional revenue and five new locations to its Midwest US operations.
This is the kind of deal Student Transportation has routinely been able to make work in recent years.
It’s expected to add an additional 6 percent in annualized revenue once it closes, pushing total growth to 18 percent for fiscal year 2012. It’s also expected to be immediately accretive to profits.
The company used proceeds from its newly inked credit deal to finance the acquisition, something it’s likely to repeat at least one more time this year.
Student Transportation was also able last month to roll over US $35 million in senior notes maturing December 15, 2011 for another five years, while cutting the rate from 5.94 percent to just 4.24 percent. That will save an estimated $593,000 in annual interest charges.
Student Transportation's targeted payout ratio is 80 to 85 percent going forward. That’s about where it stands now. But consistent and highly transparent revenue growth should push it lower and open up the potential for dividend growth by 2013 if not sooner.
And the longer the US economy remains at constrained levels, the greater the company’s opportunity for expansion will be, as school districts look to cut costs by outsourcing bus service, or by outright selling of their operations.
Student Transportation is a buy; note the stock is now listed NASDAQ, making it easy for US investors to buy.
Learn more about this financial newsletter at Roger Conrad's Canadian Edge.
