DEALTALK-UPDATE 1-Garbage may drive growth for Canada’s truckers

* Truckers eye garbage, oil services, couriering as add-ons

* Prefer to pick up low-cost, distressed assets

* Economic revival will trigger core trucking price
squeeze
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By Gowri Jayakumar

BANGALORE, Nov 2 (BestGrowthStock) – Canadian truckers are moving
into less traditional areas such as collecting garbage and
delivering parcels after the recession exposed their reliance
on core trucking businesses like cargo and small freight
shipping.

Mid-tier truckers TransForce Inc (TFI.TO: ), Mullen Group
(MTL.TO: ) and Contrans (CSS.TO: ) are looking to broaden their
portfolio of specialized, niche services to guard against a
return to pricing pressures.

“Deal sizes in waste management, for instance, can be all
across the map,” said Jason Granger, an analyst with BMO
Capital Markets Canada, predicting deals in the $5-$10 million
range, rising to $50 million in waste management.

Walter Spracklin, an analyst with RBC Capital Markets,
expects TransForce and Contrans to be the chief gainers from
acquisitions in waste management — from garbage collection to
landfills.

“It’s a pretty good strategy to be going into — a higher
margin business with a little less competition and higher
barriers to entry,” Spracklin said.

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StarMine valuations: http://r.reuters.com/kyz43q

Graphic on TransForce ops mix: http://r.reuters.com/quf53q

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Contrans, which has already made two acquisitions in waste
management including assets from BFI Canada Inc (BIN.TO: ) in the
past two months, reports quarterly results on Thursday, with
investors looking for more on the company’s acquisition
strategy.

Niche services, which are tough to enter due to their
specialised nature and technological requirements, are largely
unaffected by spot market pricing, making them attractive
investment targets.

As the economy picks up, so trucking should rebound,
triggering more competition in truckers’ core
less-than-truckload (LTT) and truckload (TL) businesses, and
again putting pressure on pricing.

Truckers’ volumes and prices slumped during the downturn,
hurt by low freight demand and trucking overcapacity, pushing
even giants like YRC Worldwide (YRCW.O: ) close to the wall.

FROM PACKAGES TO OILSANDS …

Package and courier and oilfield services are other
non-traditional acquisition targets that could boost truckers’
revenues over the next year.

TransForce is the only significant Canadian player in a
package and courier delivery business dominated by Deutsche
Post’s (DPWGn.DE: ) DHL and U.S.-based UPS (UPS.N: ) and FedEx Corp
(FDX.N: ).

“Given that DHL has scaled down its operations in the U.S.,
there may be an opportunity for TransForce’s package and
courier business to partner DHL in Canada,” said BMO Capital’s
Granger.

TransForce CEO Alain Bedard said last week that a major
chunk of next year’s C$60 million capex budget would be
invested in the package and courier and specialised services
sectors.

Both TransForce and Mullen, which posted
better-than-expected profits last week, will be eyeing deals in
energy services as activity picks up in the Canadian oilsands
during winter.

Mullen’s dewatering business — which involves cleaning the
tailings ponds around mines — accounted for just C$10 million
in revenue in 2004, but has grown 10-fold and could expand even
faster through acquisitions.

“Given all the focus on water management around the
oilsands, the dewatering business looks to be a terrific
strategic move for Mullen,” said Dana Benner, an analyst with
Stifel Nicolaus & Co.

Truckers are eyeing distressed assets, following
TransForce’s lead in its $32 million acquisition of assets of
Enquest Energy Services in July, to augment its oilfield
services segment.

“Buy today while it’s cheap, as opposed to when the
recovery is back up and prices rise,” said Spracklin.
(Additional reporting by Viraj Nair in Bangalore, Editing by
Ian Geoghegan)

DEALTALK-UPDATE 1-Garbage may drive growth for Canada’s truckers