National Bank Given its current price, the RB Global target must be in USD. GLTA
In a separate report previewing earnings season for Canadian industrial products companies, National Bank's Mr. Sytchev said investor positioning appears “less uniform than in past periods,” noting “the dispersion of returns has widened materially year-to-date for our coverage (up 12 per cent mean vs. TSX at up 9 per cent) vs. a more uniform 2023 advance.”
“Rebounding construction names (BDT and, until recently, ARE) and the ones shedding it (ATRL) are at the top of the list,” he said. “Our top ideas from the beginning of the year (RBA and WSP) are outperforming (up 22 per cent and up 19 per cent) while ATS (down 20 per cent) has been challenged by a negative backlog dynamic due to a lackluster EV backdrop. With a potential Republican Presidency victory upon us, the EV space is likely to get worse, not better in the short-term. We got the steel trade completely wrong so far, though the $70 take-out offer for STLC quickly reversed that dynamic. Despite good volumes, compressing scrap and HRC pricing continue to hamper results. Staying away from consumer (ACQ) and interest rate sensitivity (CIGI) has been the right approach.”
Mr. Sytchev said he now has four long ideas in the space: Rb Global Inc ( “outperform” and $87 target); ATS Corp. ( “outperform” and $65); Finning International Inc. ( “outperform” and $47) and WSP Global Inc. (“outperform” and $234).
“In terms of high(er) visibility of beats, we see the consulting cohort (WSP, STN, ATRL) being well positioned for Q2/24E,” he said. “In the equipment-related space, we have high conviction in RBA while FTT / TIH are facing some tougher comps (hence less belief in a ‘beat’). In the diversified space, SJ looks good to us as Poles pricing concerns appear to be pushed out. We wish AFN would have cut its guide with its Q1/24 release as the market remains skeptical about H2/24E. BDT should deliver another good quarter, but we are looking for a better entry point. NOA on the other hand, having slid due to oil sands concerns (now 35% of EBIT) is hardly expensive at 3.1 times EV/2024E EBITDA with a much more diversified footprint.”
The analyst added: “All-in, the big themes around infra spending, water, rebounding commodities (gold, copper, WTI in good spot) – ex steel and ag, energy infrastructure (let’s see who mentions AI on the upcoming calls) are somewhat balanced by higher valuations. But we are staying balanced, not counter-balanced; as a result, having a net positive tilt towards our coverage remains our base-case scenario.”
Mr. Sytchev made a pair of target price adjustments. They are:
* Stella-Jones Inc. ( “outperform”) to $99 from $91 “on higher margin projections in 2025 (from 16.2 per cent to 17.1 per cent) as our channel-checking work points to stickier pricing in the short-term than feared by the market.” The average on the Street is $96.50.
* Russel Metals Inc. (“outperform”) to $47 from $48 “due to steel pricing headwinds while also marginally moderating RBA forecasts as equipment pricing indexes have continued to retrench (while still being structurally bullish on the vertical, IAA turnaround, and attractive valuation vs. peers and own history).” The average is $47.50.