Sometimes “simple” businesses can be the most attractive (and profitable) to own for the long haul. I put Toronto Stock Exchange-listed Toromont Industries Ltd. (TSE: TIH) under my ‘boring is beautiful’ banner along with insurance broking giant Marsh & McLennan Companies (NYSE: MMC).

Canada’s Toromont Industries Ltd. operates in the industrial and refrigeration industries primarily in Canada and the United States (with a small international presence). Toromont’s businesses are organized along two groups: the Equipment Group which includes the rental and sale of heavy equipment from such providers as Caterpillar and Massey Ferguson; and CIMCO Refrigeration, which is North America’s largest supplier of industrial and recreational compression equipment.

See below for my look at Toromont’s numbers:

Unfortunately, there seems to be more RED than I would like:

1. While still significant at over $100M (each year except 2012), CFO has been volatile over the past four years;
2. Coverage ratio has declined by an average of 2% YoY;
3. Total debt has climbed 3.5% YoY, and
4. ROE has fallen by nearly 7% YoY.

(not overly concerned with Backlogs trend…I put more weight on Bookings, which was climbed by about 5% YoY).

However, the following quantitative figures lessen the RED impact for me:

1. Total debt is till pretty low at about 17% to total capital (and has declined from 25% in 2011);
2. The company’s EBITDA/cash interest paid multiple, while down from a high of nearly 39 times in 2011, is still more than impressive at 35 times in 2015, and
3. Despite showing a negative trend, ROE is still amazing.

Other favorable items of note include

1. Top line growth is strong at nearly 7% YoY;
2. Gross margin has been pretty stable and a testament to company Management;
3. Effective cost control by way of rising Operating Earnings and Operating Margin;
4. Room to grow dividends (currently yielding a not too shabby 1.8%), and
5. Zero EPS impact from share buybacks.

The following qualitative points are also positive:

1. One of the largest Caterpillar dealers in the world;
2. Various other marques represented;
3. Diversified end-user base (agricultural, mining, industrial, infrastructure, refrigeration);
4. Full-service, end-to-end customer proposition i.e. buy, rent, service, parts, etc.;
5. Growing rental and product support business (‘annuity like’ revenue streams here);
6. Wide shop network;
7. Potential for expansion (both within Canada and United States, and internationally);
8. Strong brand recognition;
9. Mostly organic growth; and
10. Well respected and effective management team.

Unfortunately, TIH is by no means cheap. The stock is currently trading at a PE of about 20 times and is already up nearly 26% for the year.

However, if you are a ‘true’ investor with a long-term horizon, I believe TIH represents an attractive investment.

What do you think of Toromont Industries Ltd.?