15 minutes ago....TD Buy with price target $40 Event
Q1/21 PS&PM adjusted EBITDA was $164.1mm vs. consensus of $143.3mm and our $156.8mm forecast. PS&PM adjusted EPS was $0.48 vs. consensus of $0.32 and our $0.35 estimate (note: EPS benefited from an unusually low tax rate, with the reversal of certain tax liability provisions favourably affecting results by ~$0.07).
SNC reaffirmed its full-year 2021 SNCL Engineering Services outlook, which includes: low-single-digit percentage y/y revenue growth (TD at +3.0%) and an adjusted EBIT margin range of 8.0–10.0% (TD at 9.2%).
Impact: POSITIVE
Encouragingly, SNCL Engineering Services (SNC's go-forward focus area) continues to perform relatively well, and management's outlook for this business remains reasonably healthy. Meanwhile, SNCL Projects (mostly being wound-down/exited) delivered its best quarter since Q3/18 (small EBIT loss; far lower than in recent quarters, as Q1/21 was void of any significant negative provisions/charges).
SNCL Engineering Services earned adjusted EBIT of $132.8mm (8.8% margin); above our $127.3mm estimate (8.5% margin). The outperformance was driven by Infrastructure Services and EDPM. SNCL Projects generated an EBIT loss of $8.2mm vs. our -$5.0mm forecast. Lower-than-expected corporate expenses also benefited overall performance. Consolidated CFO was +$5.6mm, while SNCL Engineering Services CFO was +$118mm.
We have made various adjustments to our model; however, our consolidated estimates are not materially changed. Our target price increases to $40.00 (from $33.00), driven by increases in the target multiples we use to value the segments comprising the company's SNCL Engineering Services business line.
TD Investment Conclusion
We continue to be constructive on SNCL Engineering Services' outlook (SNC's future focus). Although LSTK project run-off risks remain (particularly in Infrastructure EPC Projects): 1) we are encouraged by the performance of SNCL Projects in Q1/21 (i.e., no significant negative surprises) and 2) we see these run-off risks as more than adequately priced into the stock. Even after considering the 16% gain in SNC's stock price following the Q1/21 results, we view SNC's valuation as compelling. We reiterate our Buy rating.