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SHIRLEY WON

Friday, May 02, 2008

Bird Construction may not be a household name, but its project signs pop up across the country.

It's building the giant Filmport movie studio in Toronto, and the University of British Columbia's Thunderbird Winter Sports Centre - a hockey venue for Vancouver's 2010 Olympics. It's also building plants in Alberta's booming oil sands.

"It's our preferred construction play," Canaccord Adams analyst Yuri Lynk said in an interview. "It is one of the better managed public construction companies out there. This is demonstrated by their track record of consistent profitability over the last 20 years."

Bird Construction, which is owned by Bird Construction Income Fund, has been able to make money over many business cycles - no easy task for a company operating in a cyclical industry.

The company, which has been in business for 85 years, is involved in industrial, institutional and retail projects. Founded by H.J. Bird in the 1920s in Saskatchewan, it expanded across Canada, and also has an office in Seattle.

More than half of Bird Construction's revenue comes from Western Canada. But it recently extended its reach further east with its $15.8-million acquisition of Rideau Construction, a general contractor operating in Atlantic Canada.

Bird Construction, which went public in 1948, converted to an income trust in 2006. Units of the high-flying trust posted a 133-per-cent total return over the past year, but have been flat year to date. They closed up 30 cents yesterday at $38.25 on the Toronto Stock Exchange.

Mr. Lynk, who has a "buy" on Bird Construction with a one-year target of $49, attributes its profitability record to an effective risk-control strategy that includes getting firm pricing commitments from subcontractors before bidding on contracts to choosing clients carefully.

It has made money every year since Paul Charette took over as chief executive officer in 1988, and has not incurred a quarterly loss since 1995.

Bird Construction also has "strong relationship with the sub-trades" because it pays them when they finish the work, and not when the general contractor gets paid, Mr. Lynk said. "Most of the industry works on a pay-when-paid clause."

The company also has an impressive return on equity that is sharply higher than its publicly traded peers, Mr. Lynk added. Over the past five years, its ROE averaged 47 per cent, growing from 33 per cent in 2003 to 65 per cent in 2007.

Bird Construction's strategy has won fans from institutional investors like Toronto-based Gluskin Sheff + Associates Inc. Its clients control 12 per cent of the fund's units.

"We are now a significant shareholder," said Jeannine LiChong, a portfolio manager with Gluskin Sheff. "We don't generally as a rule go over 10 per cent in a company."

But Bird Construction is a compelling investments party because of its "strong and disciplined" management team, Ms. LiChong said. "They have disciplined pricing in making sure they don't accept work below the actual cost of doing it," she said. "They have also been disciplined about paying their cash flow as dividends to shareholders."

Raymond James analyst Frederic Bastien has a "strong buy" on Bird Construction with a one-year target of $48. "All the stars are lined up for this company," he said. "It's a market leader with a strong franchise value ... They have managed construction risk very well.

Bird Construction's high concentration of business in western Canada is appealing, he said. "We are bullish on infrastructure and oil sands."

By the numbers

Major shareholders: Fidelity Investments with about 15 per cent and Gluskin Sheff + Associates 12 per cent.

Revenue in 2007: $757-million

Profit in 2007: $33-million

IPO price in 2006: $12

52-week range: $17.22 to $39.99

Annual distribution

per unit: $1.45

Distribution yield: 3.8%

Market capitalization:

$523-million

© The Globe and Mail