Analysts generally have an upbeat outlook for the railroad industry as strong crop production and oil being transported via rail has helped offset any declines in coal, historically a sweet spot for the business. Loads of crude oil have surged with the shale boom, to the tune of carloads for the U.S.’s largest railroads increasing from about 9,500 in 2008 to in excess of 400,000 in 2013.
Overall, that’s still only a minute fraction of total cargo moved via rail in the country, with intermodal freight, including consumer goods, making up a much larger portion. Some may wonder if sinking oil prices will impact the rail industry, but the opposite may actually be true as crude production is not being cut and the extra money people save at the gas pump may be transferred to additional products, many of which are shipped via rail.
Continental Rail Corp. (OTCPK:CRCX) has been looking to make a name for itself in the rail industry, namely the short line and regional freight business, for the last couple years. Information is somewhat limited on the Fort Lauderdale-based company formerly known as IGSM Group, which was more of a shell company before switching name, ticker and business model to its current status as a freight railroad holding company. OTC Markets doesn’t show any filings since November 2012, but Edgar Online does show filings throughout 2014.
Further, the company seems to still be in the midst of litigation as defendants in a breach of contract lawsuit with plaintiffs Monkey Rock Group, John A. Dent and Matthew Dent, so due diligence on these matters and the fundamentals is encouraged.
The last corporate press release before today came in September 2013 when it reportedly engaged energy and infrastructure banking firm Taylor-DeJongh Ltd. to help develop a freight railcar acquisition finance program. Through its offices in Washington, D.C. and London, Taylor-DeJongh is no small firm, consulting and structuring complex transactions worldwide with an aggregate value above $250 billion. The goal at the time was to build out a leasing division at Continental Rail through identifying an initial fleet of about 6,000 rail cars that could be leased to third parties. The 10-Q filed with Edgar on December 16, 2014 shows that the company presently does not own any short line or regional freight railroads or any rolling stock for lease to railroads or shippers.
On Wednesday, the company announced that after 14 months of developing the strategic relationship with Taylor-DeJongh, they are ready for the next step in executing on its plans to expand Continental Rail’s portfolio of short line railroads and railroad rolling stock. The two companies will work together to target infrastructure assets in North America, according to the press release.
Calling the agreement a "milestone alliance" that is "the culmination of months of intensive efforts," Taylor-DeJongh President Ibrahim Mardam-Bey gave Continental Rail a pretty strong endorsement in the statement. He added, "robust infrastructure is the foundation of healthy growth within the rail industry, and to that end we have spared no effort over the last 12 months to build the systems, management teams, and strategic relationships required for expansion in this space. We are confident that [Continental Rail Corp.] is prepared to close several transactions in 2015."
Maybe it was 15 months of radio silence, the lawsuit or other factors that could be uncovered via more extensive research, but investors aren’t exactly pinning back their ears and diving into the stock in Wednesday trading activity. Only 3,700 shares have traded hands, (which is actually a heavy trading day considering only about 10,000 shares have traded in the last year), pushing the stock up by a nickel per share to $1.10. Perhaps surprisingly, the company has maintained a relatively healthy market capitalization around $40 million.
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