ATS Corp T.ATS

Alternate Symbol(s): ATS

Industrials

ATS Corporation is a Canada-based automation solutions provider. The Company uses its knowledge base and global capabilities in custom automation, repeat automation, automation products and value-added services, including pre-automation and after-sales services, to address the sophisticated manufacturing automation systems and service needs of multinational customers in markets, such as life sciences, food and beverage, transportation, consumer products, and energy. It engages with customers on both greenfield programs, such as equipping new factories, and brownfield programs, including capacity expansions, production relocations, equipment upgrades, software upgrades, efficiency improvements and factory optimizations. It offers post-automation services. It also offers artificial intelligence (AI) and machine learning (ML)-based tools for industrial production. The Company also designs and manufactures automated water purification solutions for biomedical and life science applications.

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ATS Corp

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Post by retiredcfon Jan 13, 2023 9:38am

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Post# 35220746

TD

Have a $59.00 target. GLTA

ATS Corporation

(ATS-T) C$49.24

Well-positioned to Benefit from Supply-chain De-risking Event

We are re-initiating coverage of ATS after a temporary suspension in coverage.

Attractive End-market Exposure: Labour constraints, increasing health/safety requirements, and global supply-chain de-risking are driving automation activity. Within this broader context, ATS has targeted life sciences and food and beverage, end-markets with high barriers to entry and lower cyclicality. Despite ATS' recent success in the EV space (>US$450mm of bookings since mid-June), the highly regulated and technically demanding life sciences market remains ~45-50% of the company's backlog/TTM revenue, and within EVs, ATS has focused on battery-pack assembly, a less competitive niche.
Record Backlog, Strong EV Bookings: The company's backlog is a record $1.8bln, and with ~US$220mm of EV bookings already announced, Q3/F23 should set another record for bookings/backlog, which provides welcome visibility against an uncertain macro backdrop, and our sense is that we are still very early in both the customer and the automotive industry's EV transition.
Scope for Continued Margin Expansion: ATS' EBIT margin has expanded by ~400bps over the last five years. We anticipate modest margin improvement in F2023, despite rising costs/longer lead times for key raw materials, and we expect more meaningful margin improvement to resume in F2024, as supply-chain issues abate, and the company's sizeable backlog of EV work advances towards later billing milestones. Our F2025 EBIT margin assumption is just below ATS' 15% target, which we see as only a signpost on a continuous improvement journey.
Target-rich M&A Environment: The automation industry is highly fragmented, and a recession may provide opportunities for ATS to acquire at attractive valuations. ATS' balance-sheet leverage is temporarily elevated (3.2x net debt/ TTM EBITDA), as the company invests in working capital on some newer enterprise programs, but we anticipate that M&A will be back on the agenda once leverage returns to the target range (~2.5x) in late F2023/early F2024.

TD Investment Conclusion

We view ATS as uniquely positioned to benefit from supply-chain de-risking and see continued scope for margin improvement and M&A upside. We expect ATS' Q3/F23 earnings release to be a positive catalyst, and anticipate that the company will pursue a U.S. listing over the next 12-18 months, which should enable multiple expansion.