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Why I’m Considering Adding this Company to My TFSA

Bird Construction Inc (TSX:BDT) is a general contracting company providing services to both public and private markets including commercial, residential and industrial clients.

Some of the company’s recent projects include Whitby Ontario’s East Rail Maintenance Facility, Moncton New Brunswick’s Downtown Centre and the new Thunder Bay Courthouse.

Bird has regularly been recognized as one of Canada’s top 20 public companies, owing to its superior returns on capital, including a 20% return on invested capital (ROIC) in 2016.

The company also has a long track record of profitability, having generated a net profit for over 20 consecutive years including 2016 when it posted a $25 million net profit.

In addition, the company pays a monthly dividend of $0.0325 which works out to be $0.39 annually or a yield of 4.29% versus Monday’s closing price of $9.10.

The $0.0325 monthly payout is actually 49% less than the $0.0633 the company paid out monthly in 2016.

In November of last year, the board of directors in charge of Bird’s dividend decided to reduce the payout in order to save what would be $16 million in cash annually and preserve the company’s balance sheet.

The dividend cut came at the same time the company had announced a $22.4 million impairment charge related to Bird’s wholly owned subsidiary H.J. O’Connell Limited, which specializes in civil infrastructure construction, in addition to mining applications and energy development.

A large part of the reason for the impairment charge and dividend cut stems from the fact that Bird’s industrial revenues are down year-over-year in response to lower commodity prices which have affected many of its clients from the energy sector.

But it’s not just Bird – other construction firms like Snc-Lavalin Group Inc (TSX:SNC) and Badger Daylighting Ltd (TSX:BAD) have faced similar headwinds in the face of a weaker energy market.

As the industrial business recovers, Bird has been devoting more resources to commercial and institutional projects which carry with them lower margins than do the industrial projects bid on by energy companies.

While this will keep margins depressed short-term, the business will continue to grow as the company has been successful in securing new orders thus far in 2017, booking $763 million in new contract awards this year, an improvement of 20% over the $635 in new awards booked at the same time last year.

In the company’s second-quarter earnings report, Bird announced that excellent progress is being made on three key Public Private Partnership (PPP) projects and more to the point, announced that it is broadening the scope of future projects to include social infrastructure projects as well as transportation and environmentally-related projects.

Should you buy?

Bird shares trade at just 0.3x sales which is a steep discount to peer companies SNC-Lavalin and Badger Daylighting which trade at 1x sales and 2.3x sales respectively.

Lately, investors may be “wising up” to the relative value Bird shares offer.

Shares “popped” 16% in the two trading sessions between August 10th and 11th and have since broken through the 200-day moving average, a bullish sign the trend may already be heading in the other direction.

Foolish investors may want to pay attention to this under-covered name in hopes that Bird shares continue to take flight.

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Fool contributor Jason Phillips has no position in any stocks mentioned.

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