(The following story by Scott Deveau appeared on the National Post website on July 5.)
OTTAWA — Canadian National Railway Co. could make up to $200-million in proceeds after Deutsche Bahn AG, Germany’s state-owned railway, announced its intentions last week to buy English Welsh & Scottish Railway Holding Ltd (EWS), according to National Bank Financial analyst David Newman.
Deutsche Bahn said it would buy all of the shares of EWS, Britain’s biggest freight railway, for a reported US$560-million.
CN retained more than a 40% stake in EWS, the largest British freight railway, as a result of its 2001 acquisition of Wisconsin Central. It has since whittled that stake down to slightly more than 31%, which could represent between $175-million and $200-million in proceeds for CN, Mr. Newman estimates.
“Coupled with its under-levered balance sheet and strong cash flow generation, we believe the sale of the EWS stake could further augment CN’s ability to announce a stepped up share buyback program, which could provide an important catalyst for CN shares, in our view,” Mr. Newman wrote in a research note Tuesday.
“We would expect CN to look to renew or increase its share buyback program around the announcement of its Q2 results in late July, as its current buyback program is set to expire.”
CN will report its second quarter results on July 23 after market close.
But, Mr. Newman said he believes his current forecast of FD EPS of $0.92 in Q2 for Canada’s largest railway “could be heavy at this time” due to continued post-strike headwinds and bad weather, which included a week-long outage on CN’s Prince Rupert line due to flooding.
He said he was maintaining his target price of $59 a share.