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.

The company reported that it had acquired Stuart Olsan on 25 September 2020. The above acquisition is likely to enhance the company’s position in public and private construction markets.

Q2FY20 Financial Highlights: Bird Construction declared its quarterly results, wherein the company posted construction revenue of CAD 282.766 million, as compared to CAD 315.428 million in the previous corresponding period (pcp). The company reported a decline in revenue on account of the temporary project shutdowns and reduced productivity on project sites in the month of April and early May 2020 on account of COVID-19 pandemic. Gross profit improved significantly from the previous corresponding quarter, aided by growth in the industrial work program. The company reported Adjusted EBITDA of CAD 12.328 million, significantly higher than CAD 5.447 million in pcp, while Adjusted EBITDA margin improved 263 basis points to 4.36%. 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. The company posted a net income of CAD 5.624 million, grew drastically from CAD 1.001 million.

Q2FY20 Financial Snapshots (Source: Company Reports)

Risks: Construction activities are directly correlated to the current economic scenario, and a sluggish economic scenario might ruin the order book 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 BDT stock appreciated ~32% in the last six months. With the acquisition of Stuart Olson Inc., the group is expected to be a leader within the construction space and is poised to excel across diversified services, end-markets and geographies, which is positive. During FY20, the group successfully secured new contracts of CAD 702.4 million and change orders and executed CAD 604.4 million of construction revenues, which looks impressive if the current economic downturn is concerned. BDT reported a backlog of CAD 1.6 billion, reflecting an increase of 19.3%. 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. Further, the company continued to distribute dividend amid the challenging operating environment. At the last traded price, the stock was offering a dividend yield of 6.37%, which is lucrative considering the current interest rate environment. 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 peers like Aecon Group Inc, WSP Global Inc etc. Hence, considering the aforementioned facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 6.12 on September 25, 2020.

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

Viemed Healthcare Inc

Viemed Healthcare Inc (TSX: VMD) is focused on education, nurture, and inspiration of its patients, through an effective home treatment model, that integrates easily into the processes of its referral partners.

Pros

• Significantly higher LTM Return on Equity (RoE) of 29.5% compared to the industry average of 17.7%, which implies an outperformance of 11.8 percentage points.
• Featuring an LTM ROCE of 43.3% and the difference between Weighted Average Cost of Capital (WACC) and ROCE is quite positive, which reflects financial prudence of the Company and competitive advantage against the peers.
• The stock is gaining momentum over the last ten trading sessions, as VMD shares traded above its immediate support levels of 5-day and 10-day SMA.
• Price to 200-day SMA ratio stood at 1.17x, which implies that VMD shares trading above its long-term crucial support level and reflects a positive price trend in the stock.
• Lower debt contribution, with the Debt/Equity ratio of 0.22x at the end of June quarter of 2020, against the industry average of 0.67x, with a significantly higher interest coverage ratio of 29x. This implies no balance sheet risk for the Company.
• An industry-leading Cash Conversion ratio of 6.4x, whereas industry median stood at 33.5x.

Cons:

• Given the small-cap market capitalization, investors are exposed to liquidity risk.
• The Moving Average Convergence Divergence (MACD) is hovering below its 9-day SMA signal line, and the difference between 12-day and 26-day EMAs is negative.

2QFY20: Financial Highlights

• The revenue increased 111% in the second quarter of FY20 against the year over period to US$ 42.9 million. This includes ~US$ 19.7 million of product sales related to the ongoing COVID-19 pandemic. The Company also recognized an additional US$2.5 million in sales proceeds in gain/loss on the sale of equipment which represents another portion of the equipment sales related to the pandemic.
• Net Income during the quarter under review stood at US$ 19.4 million against US$ 1.3 million in a year-over period.
• Adjusted EBITDA for the quarter stood at US$ 16.3 million, a 296% increase on a YoY basis.
• The Company had a cash balance of US$ 29.7 million at the end of the June quarter vs US$ 13.4 million at December 31, 2019 and an overall working capital balance of US$ 17.4 million vs US$ 1.9 million at December 31, 2019. Total long-term debt as of June 30, 2020 stood at US$ 8.3 million.

Valuation Methodology (Illustrative): Price to Earnings

*Note: All forecasted figures have been taken from Refinitiv (Thomson Reuters)

Stock Recommendation: VMD reported solid performance in the second quarter of FY20, led by hefty top-line growth, and margin expansion. Also, the company bolstered its balance sheet with more than 100% surge in the group’s cash position from December 31, 2019.

Further, amid volatile capital market in the wake of COVID-19 pandemic, its shares are featuring a price return of 28% on a YoY basis and up by 45% on a YTD basis and significantly outperforming its competition and benchmark index at the same time.

Therefore, considering the above facts, solid second quarter performance and valuation, we have given a “Speculative Buy” recommendation at the closing price of CAD 11.77 on September 25, 2020.

VMD 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.