Bird Construction Inc.

Bird Construction Inc. (TSX: BDT) operates as a general contractor, with a decent presence across the Canadian market. The company focuses primarily on projects related to industrial, commercial and institutional sectors of the general contracting industry.

Upcoming Event: The company would disclose its second quarter FY20 results on November 10, 2020.

Investment Rationale:

Strong Order Pipeline: The company reported strong backlog, driven by constant additions of new orders. For the second quarter of FY20, the company reported 11.2% y-o-y higher backlog over Q2FY19. The company has a strong clientele, and contracts including Eric Hamber School, Louvre Residence, 185 Enfield Place and we expect the trend to remain constant in coming quarters.                 

Snapshot of Backlog and Pending Backlog (Source: Company Presentation)

An Income-play: The company’s resilient business model lead to a solid operating cash flow. Furthermore, the company has paid a conssitent dividend over the years, which is a key positive. The company paid CAD 8.3 million of dividend during the first half of FY20, at par with the previous corresponding period, which is impressive given the current economic turmoil, wherein most of the businesses are reducing dividend payment in order to retain the liquidity. At the last closing price, the stock was offering a dividend yield of ~6.23%, which is lucrative considering the current interest rate scenario.        

Operating cash flow and Dividend snapshot (Source: Company Presentation)

Q2FY20 Financial Highlights:

• BDT reported Q2FY20 revenue of CAD 282.766 million, lower than CAD 315.428 million reported in Q2FY19, due to a tepid operating performance on account of the temporary project shutdowns and lower productivity on project sites in the month of April and early May 2020 on account of COVID-19 pandemic.
• Adjusted EBITDA stood at CAD 12.328 million, improved significantly from CAD 5.447 million in pcp. The business reported an improved Adjusted EBITDA margin at 4.36%, up 263 basis points, aided by an increase in gross profit on account of better revenue mix, combined with the higher realization from certain contract incurred in 2019, which did not recur in 2020.
• The quarter was marked by the inclusion of ~CAD 1.3 million of pre-tax acquisition costs related to the due diligence and agreement to acquire Stuart Olson Inc. BDT reported a net income of CAD 5.624 million, significantly higher from CAD 1.001 million in the previous corresponding period (pcp).                                   

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: Extented restriction by the Provincial And State Government coupled with the suspension of construction activities may take a toll on the overall performance of the company.

Valuation Methodology: Price to Earnings Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company offers a wide range of engineering and construction services to a diversified client base like buildings, light industrial, natural, transportation, power etc., which would act as a safeguard for the company during the current economic cycles. The Company is expecting a cost synergy of CAD 25 million by the end of 2021, which would support the margin. The management believes that near-record Backlog and Pending Backlog would provide ample work at good margins to help the Company to be considerably more profitable in 2020 than recent years despite a projected decline in revenue year-over-year. We have valued the stock using Price to Earnings based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have considered industry (Construction & Engineering) mean on NTM basis. Hence, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of CAD 6.26 on October 28, 2020.

BDT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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