UNDERVALUED BIRD

BDT.V

I took a look of the prospectus this morning and I like what I see. I believe this stock is under valued presently and should be bought before the special dividends and conversion into trust.

Current pricing	38.50
Special dividend	8.35
Net price	30.15
Common share count (000's)	3,759.60
Market cap (C$000s)	113,351.82
Expected cash distribution	16,000.00
Unit count	11,278.79
Expected distribution per unit	$1.42
Estimated unit price	$10.05
Cash distribution yield	14.12%

To sum it up, the net price after the $8.35 special dividend is $30.15. Each share will be converted into three trust units, which implies a unit price of 10.05. The company estimates that the sustainable annual cash distribution will be at $16 million level, or 1.42 per units, with a cash payout ratio of 80%. This translates into a 14.14% cash yield. I believe this cash yield is way too high for this company and I expect it to fall into 10%-11% range.

Cash distribution yield	10.00%	11.00%	12.00%	13.00%
Expected unit price	14.19	12.90	11.82	10.91
Common share pricing	50.91	47.04	43.81	41.09
Discount	32.2%	22.2%	13.8%	6.7%

As shown in the table above, assuming a 10% cash distribution yield would result in an implied share price of $50.91. The current share price represents approximately 32.2% discount of its implied price. At 11% cash yield, 22.2%. Even at 13% yield, the current share price is still traded at 6.7% discount. Considering the conversion will be effective on March, the compounded return is significant.

Moreover, even without the discount, I believe this is a good trust. (1) Very long track records; (2) High level of profitability and free cash flow; (3) Good management team with experience and track record; (4) Strong balance sheet with no debt; (5) Long term trend in favor; (6) Opportunities to participate in the booming oil sand construction; (7) Reasonable payout ratio (80%); (8) Limited coverage.

There are a couple of weaknesses. (1) Cyclical; (2) potential slow down of the real estate business. These risks are partially mitigated by high level of reserve (20%), diversified revenue sources; and limited exposure to residential construction.

In summary, this one is definitely a BUY. Unfortunately, it is very thinly traded and I only put through a limited order this morning at 37. I doubt if it could be filled here. That’s alright, there’s plenty of time before the ex-dividend date. (filled at 38)