A double-digit price return and a high dividend yield: It’s an attractive combination that shareholders of Wajax Corp. (
) have enjoyed this year.
Year-to-date, the share price has rallied more than 42 per cent as of Sept. 28. In addition, management announced a 32-per-cent dividend increase in March with the current yield standing at 4.7 per cent.
Driving these gains is the company’s record financial results. In 2022, the company reported record revenue of just under $2-billion. And in the second quarter of 2023, revenue came in at $586-million – the highest in the company’s history.
While not all investors may be familiar with the name, the company has a long history. Founded in 1858, Wajax is an industrial products and services provider. The company is well-diversified in terms of the end markets it serves including mining, construction, industrial/commercial, forestry, energy and transportation, with each of these markets representing between 7 per cent and 16 per cent of total revenue in 2022.
The Globe and Mail recently spoke with president and chief executive officer Iggy Domagalski, who highlighted multiple opportunities that he believes will support continued growth for the company.
How do you see top-line growth trending?
Generally, if we think about markets that we serve, all are pretty strong. The only one that’s a little bit weaker is forestry.
Last quarter, revenue came in at $586-million, up 15 per cent year-over-year. Can you explain what is driving this growth?
Our people are our competitive advantage. I think they believe in our company’s purpose and core values. One of those values is delivering an exceptional experience, another one is building lasting relationships. They have these great, lasting relationships with our customers that drives additional revenue.
When we think about some of the business drivers, we have a renewed relationship with Hitachi, our largest supplier. We’ve been dealing with them for a very long time. But about a year and a half ago, the relationship drastically changed. We were buying from a joint venture that was owned by Hitachi and John Deere. But John Deere did not particularly want Wajax to succeed. They have their own distribution channel. Since then, Hitachi and John Deere have split. Now, we only buy from Hitachi.
Because of that, we’ve had a lot of growth in that business. We continue to build our industrial parts and our engineered repair services business – a resilient business that does well in most cycles. Plus, we’re tacking on acquisitions in that area.
Can you expand on the improved relationship with Hitachi and the anticipated benefits?
We will have better access to inventory and parts – that’s a big one. Also, Hitachi now has its own financing program so that’s a benefit to us.
So customers can get financing directly from Hitachi for purchases, which may drive sales?
Exactly. Over time, the Hitachi product will be more differentiated than the competition, which will result in a technological advantage and would also result in a proprietary parts revenue stream.
Hitachi has come out with very aggressive public targets in the Americas. They’ve really shifted their focus to the Americas, and Canada is obviously a big part of the Americas.
Do you have exclusive distribution rights just for Canada?
That’s correct. And they would have a number of distributors in the U.S.
Would Wajax ever expand into the U.S.?
Never say never, but it’s not a market that I’m particularly interested in exploring. Wajax operates in Canada only. I think we’ve got a good name in this country. We’ve got a brand that’s 165 years old. We’ve got a network of over 120 branches. We’ve got 3,000 people who understand the business, the culture and the customers, and all of our infrastructure and systems are set up for a Canadian business. The moment we step over that border, we have none of that. And we see so much opportunity in Canada.
How much of your revenue stems from Hitachi?
In our annual report, it’s buried in our construction, forestry, crane and utility revenue, which in 2022 was $516-million. So, it’s a little over a quarter, most of that would be Hitachi but not all.
On the second-quarter conference call, you said the ultra-class mining truck space would be a “game changer” for your mining business and see that opportunity potentially realized in 2025 or beyond. Could you elaborate on this potential opportunity?
We distribute essentially three different products for Hitachi today. We distribute excavators and wheel loaders. So excavators are used for digging things out of the ground and wheel loaders would be used for things like snow clearing. So those are two products that we distribute for the construction business. And then in mining, we distribute mining shovels, which is basically a mining excavator. When you have one of these excavators, it digs, then it spins and then it opens up the shovel and drops whatever was picked up into a mining truck. For every mining shovel that you sell or that a mine has, they probably have close to 10 trucks. So the market for trucks is far larger than the market for mining shovels.
Hitachi is continuing to develop their mining trucks. It’s something that they sell in other parts of the world, but not too much here. It’s an exciting opportunity that we think could, a few years down the road, really be something significant for us.
It sounds like a logical fit. Why is it not immediately on the horizon?
The priority today is construction excavators and wheel loaders. For me, and I think for Hitachi, too, we really like to focus on a few things and do them really well. Once we’ve done that, we can continue to expand.
Is it hard to find and retain skilled labour?
I would say that finding and retaining people, especially skilled labour and technical labour is a huge challenge, I think for us and for everyone.
Earlier this year, we hired a chief people officer. We are working very hard to build a people first company that can attract the best talent and also retain our best talent.
Are supply-chain challenges still present, and how much of a problem is it for you?
I would say that supply-chain challenges are still there. We deal with a lot of different manufacturers all around the world. For some of our manufacturers, they might have a piece of equipment that has 3,000 or 4,000 parts in it. And if it’s missing one or two of those, you can’t ship it.
What has sorted itself out is shipping rates. Shipping costs for a period of time during the pandemic were absolutely through the roof and that’s normalizing.
Let’s turn to management’s acquisition and internal growth objectives. Regarding management’s acquisition strategy, is the focus primarily on small and mid-sized businesses?
Yes. Our plan is small and mid-size companies in the industrial parts and engineered repair services (IP and ERS) space. We think those companies are lower risk for us. They’re easier to integrate, and we think there are great opportunities for both revenue and cost synergies with those companies. And we think they’re available at a fair price.
If there are larger ones that come across our desk, we certainly do look at those. But in the meantime, we’ll keep going on the small to medium-sized ones and continue to use those to grow our IP and ERS footprint.
And we’ve got a number of internal initiatives. We have internal priorities around margin improvement and around making investments to make our cost structure better. It’s an important priority for us that I think will drive a lot of value for investors.
For years, the quarterly dividend held steady at 25 cents per share. In March, management announced a 32-per-cent dividend increase, lifting it to 33 cents per share. Is this the new sustainable level that investors should expect over the next few years?
We review the dividend every quarter with our board and make a decision about it.
We are confident in the short, mid and long-term sustainability of this business, so we felt pretty confident being able to increase our dividend by a material amount. And we have not increased the dividend in seven years prior to that so we thought it was time.
You characterize yourself as a goal guy. Before Wajax acquired Tundra Process Solutions Ltd., you were the CEO at Tundra. While there, you encouraged staff to write down and post on the wall five goals. Do you still do this personally? And if so, what five goals are posted on your wall?
I do. I’m looking at them right now.
We’re in a publicly traded company, so I have a one-year financial target. All of our management team would share this same goal. This year, I was particularly passionate about launching a purpose and values set of statements for our company, which we’ve done. Also, I really wanted to get a five-year strategic plan done for our company, which we’re just in the process of finishing up. So those were my three big work ones that I wanted to get done.
In my personal life, I’ve got some health goals, usually around running, which I like to do. And then I have some goals around how much time I spend with my family. I travel a lot, so I’m pretty intentional about making sure that we get out for a lot of one-on-one dates. And then, I’m continuing to learn French. About a third of our people live in Quebec, so I started to learn French a couple of years ago and am slowly getting better. I love learning it.
In 2018, you made BNN Bloomberg’s Canada’s top 40 under 40 list. What qualities do you believe make you a strong leader?
I have a big belief in purpose and values and culture within a business. I believe in building a company where people like coming to work. I have this belief that businesses can have such a hugely positive impact on society. I mean, we have people for 40 hours a week. Nobody else has people for 40 hours a week. Not their family, not their friends.
So, I think we’ve got this duty and privilege of sending them home fulfilled and happy. And when they do that, positive energy gets fed through to their families and their communities and their friends. Many businesses do the opposite. They send their people home, anxious and mad and fearful and then that negative energy flows through to their community. So I think building a business around a purpose and around values and around culture is important. That’s one thing.
I really try to listen a lot and try to get a lot of different points of view before making a decision. I have a lot of different mentors and people that I really respect that I call on when I’ve got certain challenges. So I try to take all their vast experience and try to put it all together and the best decision that I can make.
And I’m not afraid to change my mind. If new information changes the landscape, I’m okay changing my mind. I’m not married to an idea just because it’s my idea. I’m married to the best idea based on the best possible information available at the time.