Scotiabank's Take on Dexterra Group
03:20 PM EDT, 06/08/2022 (MT Newswires) -- Scotiabank's Michael Doumet, who has a sector outperform and $10 target on Dexterra, notes its shares have softened recently, partly due to margin compression at the company's smallest segment. Corrective actions have been taken at Modular Solutions such that, when combined with the ramping profits of its two larger, more profitable, segments (WAFES and IFM), Doumet expects a healthy ramp in EBITDA in the H2 2022.
"We believe the recent pullback provides an attractive opportunity for long-term shareholders to participate in a small cap name that is successfully transitioning from project-based business to a relatively fast growing, capital-light, support services company." Scotia believes synchronized profit growth in the H2 2022 will put Dexterra firmly on path to achieving its near-term EBITDA target of $100 million, by Q3 2022, on a run-rate basis. The company is also targeting revenue of $2 billion in five years (equivalent to 70% of GDI's 2025 revenue objectives) and, in Scotia's view, has the leadership, balance sheet, and market position to achieve the implied growth (i.e., >15% CAGR) with a combination of GDP-plus organic growth rates and M&A.
Dexterra is trading at FCF yield of 11%/14% on Scotia's 2022E/23E. For a company with balance sheet capacity, that is capital-light and relatively high-growth, and benefiting from the reopening and strength in commodities markets, it remains undervalued.
Price: 6.21, Change: +0.11, Percent Change: +1.80