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Cash-rich builders going cheap

As far as headlines go, Cash Rich And Vastly Undervalued will catch the eye of even the most jaded second-millennium investor.

That's National Bank Financial's description of Seacliff Construction Corp. and Churchill Corp., both of which toil in the building industry.

Both are pound-the-table buys, according to the firm. The arguments are interesting. A summary: Both companies earned solid profits in the latest quarter. Churchill beat the Street's estimates by 10 per cent, while Seacliff blew them out of the water. Both firms have solid backlogs and are benefiting from something of a resurgence in their home markets in Western Canada.

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Neither company's profitability is expected to shoot out the lights over the next couple of years, although earnings are expected to rise in both 2010 and 2011.

More important to the valuation are free cash flow and the cash balances both companies carry.

Seacliff is forecast to crank out between $20-million and $25-million in excess cash a year over the next three to four years as it works off its backlog. A sign of management confidence is that the board recently instituted a dividend. Churchill's free cash flow will be even greater.

Report on Business Company Snapshots are available for: CHURCHILL CORPORATION (THE) SEACREST DEVELOPMENT CORP.

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About the Author
Investment Columnist

Fabrice Taylor, CFA, publishes the President’s Club investment letter, for which he and The Globe and Mail have a distribution agreement. More

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