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Mathew Ingram

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Taking off from the Rock

Mathew Ingram

 

TORONTO (GlobeinvestorGOLD) — All Craig Dobbin wanted to do was go fly fishing in Labrador from time to time, like any good Newfoundland boy, so he bought a helicopter. Since it cost him about $85,000 to buy it, and almost that much every year to fly and maintain it, he decided — being the entrepreneurial sort — to charter it out and cover some of his costs.

That was in 1977. Now his company, CHC Helicopters, has the world's largest helicopter fleet and in 2002 became the first company based in the Atlantic provinces to get a listing on the New York Stock Exchange.

CHC's main business is providing helicopter transport for the offshore oil and gas industry, although it also does air ambulance, search and rescue and repair work. Although it is still based in Hanger #1 at St. John's airport in Newfoundland, after a series of acquisitions less than 3 per cent of its business is now in Canada. The company now operates in 30 countries and has 3,400 employees — including those it acquired in its latest purchase: Schreiner Aviation Group of the Netherlands.

The Schreiner acquisition, for $140-million, came in December of 2003 and added another 50 helicopters to CHC's fleet. The Dutch company operates in several countries with oil and gas services that CHC did not operate in, including Nigeria, Chad and Cameroon. Mr. Dobbin said after the purchase that demand for helicopter services in Nigeria "far outstrips the ability for the service operators to cope," and that the combination of the two made CHC the "undisputed" global leader of heavy and medium helicopter services to the oil and gas industry.

From its humble beginnings, CHC has grown relatively quickly over the past four or five years to become a giant, with annual revenue last year of $720-million and a total asset base of more than $1.2-billion. There have been some bumps along the way, however — such as the furor that arose in 2002 over what some investors saw as an overly generous stock option program. Some of the company's shareholders — including the powerful Ontario Teachers Pension Plan — felt the plan was being forced on them due to Mr. Dobbin's control of the company's multiple-voting shares.

In the end, Mr. Dobbin promised not to vote his controlling share stake (which gives him 60 per cent of the equity), and the option motion passed anyway. In the wake of that controversy, CHC also changed the makeup of its board of directors to include more unrelated members, replacing various Dobbin family members and friends, although the change was also sparked by new rules for corporate governance laid out by the Toronto Stock Exchange. The stock, which dropped as low as $23 in the wake of the option controversy, has since climbed by more than 70 per cent to a recent close at $40.

Although the company is growing again with its Schreiner acquisition, its latest quarter was not exactly a stellar one for a company that is seen as a growth story. Revenue fell by $8-million to $172-million and it had a profit from operations of $15-million or 59 cents a share fully diluted, lower than the 70 cents it made in the same quarter the previous year. Sales and profit fell due in large part to the impact of the stronger Canadian dollar, since most of CHC's business is done overseas. Cash flow from operations (defined as earnings before interest, taxes, depreciation and amortization or EBITDA) also fell by $5.7-million from last year.

Despite this performance, however, many analysts say CHC has a bright future. In a recent report on the oil and gas industry, Raymond James upgraded the company to a "strong buy" rating from "outperform" based on expectations for growth in the North Sea. The firm boosted its price target for the stock from $41 to $50, which it said was 12.6 times its profit target for 2005. The brokerage said that the North Sea was at cyclical low activity rates, and that CHC would "continue to grow over the next couple of years as North Sea development enters a positive upswing and international business grows."

Sprott Securities also has a positive outlook on the company and has a $50 price target for the next 12 months. And U.S. mutual fund giant Fidelity Management recently said that it owns close to 16.5 per cent of the company's sub-voting shares, which is a nice vote of confidence.

Not bad for a boy from the Rock.

Mathew Ingram joined The Globe and Mail's online news team in June of 2000, after spending four years as the Western business columnist, based in Calgary.

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