3 New Buys From Aberdeen Asset Management - Are They Investment-Worthy?

Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Aberdeen is a Scotland-based asset management company, which manages assets worth $322.4 billion. It focuses on diversification and a long-term fundamental approach to investing in stocks. Its new top 10 holdings account for 61.33% of the total portfolio. In its recent 13F filing, the company took major new positions in Schlumberger (NYSE: SLB), Canadian National (NYSE: CNI), and Bradesco (NYSE: BBD). Due to the recent investments in these three companies, I have analyzed these stocks to see if there are opportunities for investors.

Company

% of portfolio

Schlumberger

2.22%

Canadian National

1.40%

Bradesco

11.09%


German giant in oil and exploration services

In the first quarter of 2013, Schlumberger posted revenue of $7.26 billion, which is a growth of 13% year over year. The company provides drilling and exploration services to other oil and gas companies. It is estimated that it will continue to grow in the coming years, as its prime focus is in Saudi Arabia due to the rise in drilling and exploration in the region. The company has increased its estimated rig count in Saudi Arabia to 170 from 140 for fiscal year 2013. In continuation of this, the company earned revenue of $2.1 billion from Middle-East Asia and $2.9 billion from Europe and Africa through March 2013. Latin America contributed revenue of $1.9 billion in the same period. It is expected that the international segment of the company will grow further, as rig count in Middle-East Asia was increased from 549 in 2011 to 575 in 2012 and will grow further to 600 in fiscal year 2013. With the increase in rig count, Schlumberger’s revenue per rig is also expected to rise from $15 million in 2012 to around $16 million in 2013. This will further provide upside to the overall profit of the company.

Conditions in North America remained challenging for the oil exploration industry due to the lower price of natural gas in the first quarter of 2013. Schlumberger, in North America, posted revenue of $3.29 billion in the first quarter of 2013, a decline of 4% year over year. However, its operations in the Gulf of Mexico continued to outperform in the North American region. The Gulf of Mexico contributes 25% of the total revenue in the company's North American segment. In the first quarter of 2013, operations in the Gulf of Mexico were slow due to planned maintenance work on the deep-water rigs. It is now resolved by the company and growth is expected in the upcoming quarters of 2013. Moreover, Schlumberger is also planning to expand its capacity in well services and pressure pumping in the North American regions. Revenue from North America is expected to improve to 6% and 10% in fiscal years 2013 and 2014 respectively. 

Canadian track for future growth

Coal transportation contributes 6.7% to the total revenue of Canadian National, and it remained flat in March 2013 quarter over quarter. The volume of coal transport is expected to rise in the second quarter, as weather conditions in North America will improve. Also, electric power generation companies are replacing natural gas with coal. With this, it is estimated that demand for coal will increase this fiscal year. Adding to that, in March 2013, the company entered a seven-year contract with Coalspur Mines for transporting 12 million tons per annum of thermal coal from the Vista coal project in Canada to Ridley terminals in Prince Rupert. Rising coal inventory in the mines of Prince Rupert and the new contract will help in giving a potential upside to the coal transportation segment of Canadian National.

The company had a tough start in fiscal year 2013 due to the adverse weather conditions in Canada. However, revenue growth of 5% year over year was achieved in the first quarter. Canadian National showed significant improvement in carloads and revenue-ton miles, which were 2% and 3% respectively. This increase in volume was driven by the petroleum and oil segment, as this segment surged by 19% year over year. The company also added new clients in the transportation of petroleum and chemical segment to boost performance in the future. Additionally, the company’s inter-modal registered growth of 7% year over year. Due to this improvement, Canadian National has revised its estimates of carloads to 60,000 from the earlier 30,000 for fiscal year 2013. The increase in carloads is expected to improve the revenue of the company by 5% in 2013.

Ambitious Brazilian bank

In the first quarter of 2013, net interest income, or NII, of Bradesco declined and contracted to 3.6% quarter over quarter. The decline in NII was led by lower trading gains and a lower margin from credit operations of the bank. However, the loan segment of the bank grew by 2.4% in the first quarter of 2013, quarter over quarter, and 10.4% year over year. Bradesco is optimistic about the recovery of the Brazilian economy, and it is hopeful to achieve NII growth of 7%-11% and loan growth of 13%-17% for the current fiscal year. This growth outlook is ambitious, and it is unlikely to achieve it in 2013, as Brazil’s central bank raised its interest rates recently which will lower the number of new loan applicants. Also, Brazil is the only country among the G-20 nations that is increasing its rate of interest continuously, which, according to economists, will have adverse effects.

Non-performing loans, or NPL, show the asset quality of the bank. NPL at Bradesco improved in the first quarter of 2013 due to the NPL ratio coming down from 4.1% to 4% in the first quarter of 2013. Further decline to 3.7% is expected until the end of the current fiscal year. Moreover, the loan loss provision of the bank is also around $6.07 billion for fiscal year 2013. Declining NPL is an encouraging factor for the bank and this will help Bradesco gain confidence among investors, as asset quality of the bank will improve in future.

Conclusion

The strong performance of Schlumberger in the international segment will continue its growth, and it also resolved the maintenance-related issues in North America. I recommend a buy for this stock for both the short term and long term.

Canadian National was affected by the adverse weather conditions in Canada and the U.S. However, an increase in volumes in its different segments and demand for coal will give an upside to the stock. I advise investors to buy this stock. 

I doubt Bradesco's estimation of growth in its loan segment for the current fiscal year. NII of the bank is also declining. The only positive indicator about this stock is its declining NPL. Investors should hold until further improvements are made by the bank.

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Madhu Dube has no position in any stocks mentioned. The Motley Fool recommends Canadian National Railway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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