Post by
Nadia6519 on Sep 29, 2022 5:44am
National Bank
H2O Innovation Inc.
Positive Quarter With Strong Organic Growth Despite Some Inflationary Margin Impact
HEO (TSX) STOCK RATING TARGET EST. TOTAL RETURN C$2.16 Outperform (Unchanged) C$3.25 (Unchanged) 50.5% Q4/f2022 Review Strong revenue growth but some inflation impact on margins HEO reported Q4/f22 with revenues ahead of forecast on solid growth (+48% y/y vs. +30% est.) with the majority organic (32% y/y / $11.2 mln vs. our 18% est.) driven by volumes (less than 5% of y/y growth from pricing and mainly in SP segment). While adj. EBITDA was overall in line with our est., inflationary pressures (some starting to ease) continued to have an impact in fQ4 with an Adj. EBITDA margin of 9.1% / 8.2% (incl. / excl. a tax credit) vs. our 9.5% est. & 8.8% in Q4/f21.
Overall, Q4/f22 revs were $52.0 mln (vs. $45.8 mln est.), Adj. EBITDA incl. / excl. tax credit was $4.8 mln / $4.3 mln (vs. $4.4 mln est.) and Adj. EPS incl. / excl. tax credit was $0.02 / $0.01 (vs. $0.01 est.). Street was seeking revs / EBITDA / EPS of $46.8 mln / $4.3 mln / $0.01.
WTS ahead of forecast; SP and O&M largely in-line The O&M segment reported rev growth of +44% y/y (+14% y/y organic) to $25.7 mln (vs. $24.7 mln est.) and EBAC of $3.5 mln (vs. $3.5 mln est.) with some inflation-driven margin impact (14% vs.14% est. & 15% in Q4/f21). Some O&M contract pricing increases are tied to CPI, and HEO can implement them at contract anniversaries.
The SP segment reported rev growth of +29% (organic) to $13.4 mln (vs. $12.9 mln est.) and EBAC of $3.4 mln (vs. $3.4 mln est.) with margin gain (26% vs. 26% est. & 25% in Q4/f21) given a shorter sales cycle and ability to increase prices more frequently. The WTS segment reported rev growth of +84% to $13.4 mln (vs. $12.9 mln est.) and EBAC of $1.0 mln (vs. $0.5 mln est. & $0.6 mln in Q4/f21) that was driven organically by higher sales of water treatment projects / services. While margins were a bit impacted (7.5% vs. 6.5% est. & 8.4% in Q4/f21) from higher material costs, HEO expects to pass price increases over time.
Maintain Outperform rating and $3.25 target We maintain a positive view and $3.25 target, which implies ~14.5x f2024 EV/ EBITDA.