A plan to produce more natural gas means more than drilling a few extra wells. Producers need equipment to build sites, move materials, and keep operations running. They also need people who can repair that equipment when an expensive piece of machinery stops working.
That creates an interesting way to invest in an energy expansion. You can own the supplier serving several projects, instead of choosing a single producer and depending entirely on the price it gets for gas.
B.C. premier-elect Lorne Doerkson pledged to double the province’s natural gas production by 2032. It’s a political ambition that still needs investment and execution, but brings renewed attention to businesses capable of supplying the work. One Vancouver-headquartered equipment dealer already has plenty to do.
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More than machinery
Finning International (TSX: FTT) sells Caterpillar equipment and supports it with parts, maintenance, and related services. Its customers work across industries including construction, mining, and energy. That mix gives it several possible sources of demand, with operations beyond Western Canada as well.
Selling a new machine is valuable. Helping the customer keep using it can be valuable for much longer. As more equipment enters service, there are more machines needing replacement parts and repairs. The customer has an incentive to keep an essential asset working instead of losing production while shopping around.
That’s the part of Finning I find particularly appealing. A larger equipment fleet can create future business after the original order has been delivered. It gives the company a continuing relationship with the people buying the machinery.
Think of a contractor with a full schedule and a broken machine. Getting it working again helps keep the whole job moving, so knowledgeable service has real value. Finning doesn’t need to win another brand-new equipment sale every time that customer needs help. Years of use can bring repeat visits, parts purchases, and eventually another replacement machine.
Work is waiting
Finning reported earnings of $1.22 a share in the second quarter, up 21% year over year. Its equipment backlog was a record $3.8 billion at June 30. Backlog means equipment customers have ordered for future delivery, giving the company a useful view of business still to come.
Those results also show why the opportunity doesn’t have to depend entirely on a new government’s plans. The order book already reflects customer demand. Any additional gas investment would arrive alongside a business that has been growing through its existing markets.
Canadian product-support revenue grew 19% in the quarter. More repair and parts business can help Finning earn from machinery already working in the field, while new-equipment sales remain tied more closely to customers’ investment budgets.
A fair price
Shares recently closed at $97.50, while Finning earned $2.24 per share on an adjusted basis during the first half. Doubling that six-month amount gives a simple annual earnings pace of $4.48, putting the shares at roughly 22 times that pace.
That price already reflects a business investors like. I’d start gradually, with the intention of holding through more than one resource cycle. The appeal is a combination of equipment demand and service income, with energy expansion offering an additional path for growth.
Customers can delay purchases when commodity prices weaken, and a large order book still needs to become delivered equipment and collected cash. Currency movements also affect overseas operations. These are manageable reasons to diversify a Canadian stock portfolio, especially if you already own several resource producers.
Bottom line
I like Finning as a way to participate in more construction and energy activity while owning a business that keeps serving customers afterwards. Its place in a long-term dividend strategy comes from those earnings and relationships. If B.C.’s expansion turns into real projects, Finning has a practical way to earn from the work, one machine and one service visit at a time.
