TORONTO -(Dow Jones)- Sprott Securities Inc. has increased its target on Railpower Technologies Corp. (P.T) to C$2.00 from C$1.50, reflecting improved payment terms from Union Pacific Corp. (UNP) and a lower likelihood for significant dilution on an equity financing.
Sprott is maintaining its speculative buy recommendation.
In Toronto Tuesday, Railpower is trading at C$1.71 a share, up 20 Canadian cents.
Sprott analyst MacMurray Whale said in a research report Tuesday that Union Pacific intends to accelerate its payments as a result of Railpower obtaining certification in December from the U.S. Environmental Protection Agency for its multi-genset low-emission road switcher. He said it's possible Railpower could achieve net income of C$9.5 million by 2008, assuming the road switcher can be sold for more than C$1 million a unit.
Whale further noted he had assumed Railpower would need to raise C$25 million in equity at 49 Canadian cents a share, leading to a significant increase in the number of shares outstanding by 2008. The stock closed last week at C$1.51, somewhat lowering the dilution risk. As a result, he has maintained his speculative buy rating and said it's likely the target will rise to C$2.40 in the coming months.
Sprott has an investment-banking relationship with Railpower. Whale doesn't have a stake in the company.
Railpower, Montreal, designs and manufactures hybrid and multi-genset power systems for the rail industry.