Stocks’ Details 

Aecon Group Inc. 

Aecon Joint Venture Reaches Financial Close: Aecon Group Inc. (TO: ARE) is engaged in the expansion and construction of infrastructure in the Canadian market. The company operates in three major segments, which includes Infrastructure, Industrial, and Concessions. On 10 February 2020, the company stated that Fraser Crossing Partners (a joint venture between Aecon and Acciona) on the Pattullo Bridge Replacement Project in British Columbia has reached financial close, for a total contract value of $967.5 million. The proceedings from the contract value will be included in the backlog of Aecon’s construction segment in the first quarter of 2020. The project would be commencing in 1Q20 and expected to be delivered by the end of 2025. 

Aecon Buys Voltage Power: On 3 February 2020, Aecon announced that it has acquired Voltage Power, an electrical transmission and substation contractor. Following the acquisition, the group has strengthened its medium to high-voltage power transmission and distribution capabilities. Aecon has paid $30 million in cash as base price and there will be some additional earnout payment over next three years based on achieving a minimum EBITDA. This was an all-cash deal which implied a transaction multiple of ~3.75x on average EBITDA (last three years) of Voltage Power.

Managerial Changes: Recently, the company announced that John M. Beck, former CEO and Executive Chairman of the company has transitioned to the role of non-executive Chairman, effective immediately. Mr Beck will be getting 36 month’s salary along with short term incentive plan entitlements and other benefits as a part of transition. Following the departure of Mr Beck, Jean-Louis Servranckx, President and CEO will assume the full executive responsibilities.  

Valuation Methodology: P/E Multiple Approach

P/E Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: The stock is quoting at $17.14 with a market capitalization of ~$1.04 billion. The company expects to benefit from robust backlog, strong pipeline, and ongoing concessions. Further, the company expects to have a strong FY20 year, as construction continues on various projects that have ramped up in FY19. We have valued the stock using relative valuation method, i.e., P/E based approach. For this, we have taken peers like SNC-Lavalin Group Inc (TO: SNC), Bird Construction Inc (TO: BDT) to name few and arrived at a target price with an upside of lower double-digit (in percentage terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $17.14, down ~2.4% as on 24 February 2020.

Price Chart (Source: Thomson Reuters)

Acadian Timber Corp. 

Higher Demand for Softwood Pulpwood in 4QFY19 is a Key Growth Driver: Acadian Timber Corp. (TO: ADN) is a top supplier of key forest products in Canada and the United States. The company is also engaged in owning and managing a forest nursery in New Brunswick.

Q4FY19 Financial Highlights for the Period ended 31 December 2019: ADN announced its quarterly results, wherein the company reported total sales of $25.8 million, as compared to $24.2 million reported in the year-ago period. The increase was on the back of higher demand for softwood pulpwood, which was partially offset by lower biomass sales and a moderate reduction in timber services activity. The company reported net income of $16.2 million as compared to $16.4 million in the previous corresponding period. Adjusted EBITDA for 4QFY19 came in at ~$6.6 million, up from $4.6 million in the year-ago quarter period. Earnings per share stood at 97 cents per share in 4QFY19, as compared to 98 cents in 4Q18.

4Q19 Financial Highlights (Source: Company Reports)

Cash Flow Details: At the end of the quarter, the company’s cash balance stood at $7.6 million. Total debt at the end of the period amounted to $7.6 million. Free cash flow for 4Q19 came in at $5.3 million. The company declared a quarterly dividend of 29 cents per share, as compared to 28.25 cents per share in the year-ago period. Pay-out Ratio for 4Q19 stood at 91%.

Managerial Changes: The company also appointed Mr. Adam Sheparski as Chief Financial Officer of Acadian, effective from February 13, 2020.  The company also stated that Mr. Luc Ouellet has retired from the post of Senior Vice President, after working for nearly 35 years in the company.

Stock Recommendation: The group reported a decent result in 4Q19, and the stock recently made a 52-week high. The company expects demand and pricing of its key products, softwood sawlogs and hardwood pulpwood to remain stable in the near term. Since the stock is currently trading at a P/E (NTM) multiple of ~16.2x against its peer group median of ~17x, we believe all the positive fundamentals are accounted for in the current price level. Hence, we have a “Watch” stance on the stock at and look forward for the growth drivers in the near term. The stock was trading at CAD 18.12, down ~1.5% on 24 February 2020 market close with a market capitalization of CAD 302.5 million.  

Price Chart (Source: Thomson Reuters)

Disclaimer

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