TSX:ATRL - Post Discussion
Post by
retiredcf on Jun 14, 2024 8:28am
And RBC
Their upside scenario target is also raised to $81.00. GLTA
June 14, 2024
AtkinsRealis Group Inc.
Key takeaways from 2024 Investor Day
Our view: At the Investor Day, AtkinsRealis outlined its go-forward strategy (focused on Engineering + Nuclear) and provided 2025-2027 targets, which point to meaningful top-line growth across the core business (as well as an improvement in Free Cash Flow generation over the guidance period). The company's transition over the past few years toward becoming a pure-play Engineering/Design firm (with a growing Nuclear platform) positions the company well to deliver against its targets. Revising PT +$4 to $69. Reiterate Outperform.
Key points:
Our view – At today's Investor Day, AtkinsRealis outlined its go-forward strategy and provided 2025-2027 targets. Overall, management is looking to build on the progress made towards repositioning the business since the 2021 Investor Day and drive continued growth across its core/go- forward businesses (i.e., Engineering + Nuclear; see inside for details). The 2025-2027 targets reflect organic top-line growth of >8% annually for Engineering Services Regions (with segmented Adjusted EBITDA margin expanding +200-300 bps over the forecast period), as well as Nuclear revenue of $1.8B-$2.0B (~16% CAGR vs. 2023). Management also outlined its plan to "streamline" the portfolio further via the continued wind-down of the LSTK Projects backlog (~$299MM), exit from Linxon (recall this business has been under strategic review), and the sale of the company's 6.76% interest in the Highway 407 ETR (which we value at ~$9/sh). Overall, we believe this transition will position AtkinsRealis as more of a "pure play" Engineering/Design firm (i.e., operations that would be in line with the rest of our global Engineering coverage), which we believe could drive a further re-rating of the company's valuation (we note that AtkinsRealis currently trades at ~10.4x EV/2025E EBITDA on the core E&C business vs. ~12.6x for Design peers).
Targeting 80%-90% FCF conversion – AtkinsRealis' weaker cash metrics over the recent past (negative OCF in 2022 and H1 2023) have been primarily driven by cost overruns related to the company's LSTK work. As part of its 2025-2027 targets, management is guiding to a meaningful inflection in OCF generation, reflected in an 80%-90% FCF conversion target (as a % of Adjusted Net Income) over the course of 2025-2027.
An "all of the above" capital allocation strategy, with M&A increasingly in focus – AtkinsRealis' capital allocation strategy is focused on investing in the business organically/inorganically and returning capital to shareholders through buybacks/dividends (i.e., all options are on the table) while staying within the company’s targeted leverage range of 1.0x-2.0x (Net Recourse + Limited Recourse Debt/LTM Adjusted EBITDA). On M&A, management is focused primarily on the U.S. market given the size of the opportunity (part of its “land & expand” strategy), with the ideal target size being in the ~300-1,500 employee range.
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