Aecon Group Inc 

Growth in Revenue and Improved Adjusted EBITDA: Aecon Group Inc (TSX: ARE) is a Canada-based company that operates in two major segments: Construction and Concessions. As on 13 May 2020, the market capitalization of the company stood at CAD839.70 million.

Quarterly Results (For the Period Ended 31 March 2020): During the quarter ended 31 March 2020, ARE demonstrated consistent performance with growth of 15% in revenue to CAD748 million and an increase of CAD7.3 million in Adjusted EBITDA to CAD19.2 million. In the same time span, the company booked new contract awards of CAD912 million which included Fraser Crossing Partners, a 50/50 joint venture between Aecon and Acciona. During the three months ended March 2020, ARE reported a strong financial position with cash in hand of CAD105 million. In the same time span, the company retains a robust balance sheet with no debt and sufficient liquidity, and capital resources. During the quarter, Aecon acquired Voltage Power Ltd for a consideration of CAD30 million. The acquisition is likely to bring the medium to high-voltage power transmission and distribution capabilities.

Quarterly Financial Performance (Source: Company Reports)

What to Expect: The fallout of the global pandemic has impacted certain company projects. However, Aecon has activated continuity plans to minimize disruptions to its business and adapt to evolving market conditions. The company has also eliminated all non-essential spend, reduced discretionary capital investments, and is evaluating ongoing cost saving opportunities. The current backlog of CAD6,954 million and the level of new awards were robust. The company retains a positive long-term outlook and expects the demand for its services to remain strong following the COVID-19 pandemic.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: Aecon continues to monitor developments and mitigate risks related to the COVID-19 pandemic. As per TSX, the stock of ARE is trading at attractive levels, proffering a decent opportunity for the investors to enter the market. The stock of ARE gave a return of 5.21% in the past one month. Considering the decent returns in the past one month, attractive trading levels, resilient financial performance and positive long-term outlook, we have valued the stock using the price to cash flow multiple based illustrative relative valuation method and arrived at a target price offering an upside of lower double-digit (in percentage terms). Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD13.91, down by 2.9986% on 13 May 2020.

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

Park Lawn Corporation 

Strong Revenue Growth: Park Lawn Corporation (TSX: PLC) provides goods and services associated with the disposition and memorialization of remains in Canada and the United States. As on 13 May 2020, the market capitalization of the company stood at CAD591.58 million.

Quarterly Results (For the Period Ended 31 March 2020): During the three months ended 31 March 2020, the company reported strong growth of 47.5% in revenue to CAD73.98 million and an increase in adjusted EBITDA to CAD17.09 million. In the same time span, adjusted EBITDA margin improved to 23.3%. These strong financial results in a challenging quarter are the direct result of the company’s intense focus on operations and the integration of its businesses. Net Earnings attributable to shareholders stood at CAD734k in Q1 2020 as compared to CAD3.32 million in Q1 2019. On a fully diluted per share basis, this represents CAD0.025 for 2020, as compared to CAD0.141 in 2019. During the quarter, the company completed the acquisition of Family Legacy and Harpeth Hills in the high-growth middle Tennessee metropolitan market. 

Quarterly Financial Update (Source: Company Reports)

Future Expectations: The company reported a solid first quarter, especially considering the challenges posed by the market in March due to the onset of COVID-19. PLC continues to adjust and adapt to daily changes resulting from the COVID-19 pandemic, and its businesses have remained open to serve families at their time of need. The company might face some short-term uncertainty; however, it has placed some contingency financial measures to limit the financial risk to its business. Strong cash flow from operations has provided the company with financial flexibility. The company is likely to emerge from these uncertain times and is well positioned for growth.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Approach (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The solid first quarter with financial resilience demonstrates the flexibility of the business to adapt in the dynamic environment. As per TSX, the stock of PLC is trading close to its 52-week low of CAD15.08, proffering a decent opportunity for accumulation. The stock of PLC gave a return of 1.16% in the past one month. Considering the trading levels, decent returns, and financial resilience, we have valued the stock using the price to cash flow multiple based illustrative relative valuation method and have arrived at a target upside of lower double-digit (in percentage terms). Hence, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of CAD20.46, up by 7.0644% on 13 May 2020.

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.