NBF: a less noisy print will be well-received Q1/24 results first look – a less noisy print will be well-received; valuation appears to be fair
Q1/24 results — better than feared EBITDA vs. consensus as four fixed price “legacy” projects are breakeven vs. string of losses.
Consolidated Adjusted EBITDA came in at $32.9 mln (imputing 3.9% margin), above NBF estimate at $23.3 mln and Street at $23.0 mln; we should note of course that Q1 is the least seasonality important quarter, so the TRUE underlying EBITDA margin is still TBD, in our view.
The four construction projects that marred prior quarters are now breakeven, according to the company (more in outlook below).
Adjusted EPS came in at-$0.10 (our forecast at -$0.12 and Street at -$0.20).
Outlook — transitioning to a leaner, more effective business. While the fixed-price legacy portfolio and associated legal proceedings are still with us, we are pleased to see the company reduce the remaining backlog by -$90 mln in the quarter, leaving $330 mln outstanding.
Furthermore, the lack of any further provisions is a positive sign, though of course no guarantee of “smooth sailing” through final resolution.
Combined with the sale of the ATE roadbuilding business, Construction margins improved significantly y/y (though off a low base), helped further by higher volumes and gross margins in the nuclear portfolio (Pickering refurb work would add further visibility and high-margin revenue — Back of the envelope math for Pickering refurb backlog potential — though over an extended period).
While the partial sales of Bermuda and the Utilities business do surrender stable cash flows, the -$13 mln (-84%) y/y reduction in net financing expenses on significantly lower debt levels does add a significant degree of flexibility.
Ultimately, annual 2024 run-rate will be a more meaningful measure of internal success vs. looking at only one quarterly print.
Bottom line — a much cleaner quarterly print, but sentiment reflected in share price rally.
An uneventful quarter for the fixed-price portfolio, improving core Construction margins (vs. loss making stance) and a seemingly promising pipeline of projects (including the Virgin Islands airport JV — Finding more Caribbean airport opportunity) should assuage investor concerns for the time being.
We suspect that the market will view the quarter as “we are over the hump” when it comes to problematic projects but at 6.1x 2025E EV/EBITDA, we believe the shares are fairly valued for our current projections.