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EQUITY RESEARCH
March 15, 2023 Earnings Update
AIRBOSS OF AMERICA CORP.
Thoughts On Valuation
Our Conclusion
With BOS filing its 2022 full financials, we have updated our model. Our price
target moves from C$17 to C$16 and we maintain our Outperformer rating. In
this report we comment on BOS’ valuation. The stock has significantly
underperformed as the company has been unable to secure a larger ADG
contract over the past year. Also, given the earnings lift from these contract
wins during the pandemic, there was some uncertainty as to what BOS’ run-
rate earnings were and thus made it difficult to triangulate whether the
company’s valuation was truly compelling (i.e., was the stock cheap on
consensus only because estimates were too high?). As we enter into 2023,
and looking at BOS’ earnings trends in H2/22, we now have a better sense of
the company’s core earnings potential without the benefit of a major contract
win. We would argue that the company is trading at a compelling valuation at
current levels with upside optionality as BOS executes against its opportunity
pipeline.
Key Points
Applying HPOL Multiple To ARS Means You Get The Rest Of BOS For
Free: While ADG has been the focus segment within BOS, ARS has
performed well and consistently over the past couple of years reflecting the
company’s internal investments and M&A. We see this segment capable of
generating $25MM+ in annual EBITDA. The most direct comp to ARS is
HPOL, which is trading 10x forward consensus EBITDA. If we apply this
multiple to our ARS 2023E EBITDA of $29MM and back out the proportional
corporate costs associated with this segment, this implies an EV of $250MM.
Removing BOS’ 2023E pro-forma net debt and applying a $1.36 C$/US$
exchange rate gets us an equity value per share of ~C$8 for ARS alone.
BOS’s share price as of March 14, 2023 was C$7.70.
SOP Value Suggests Significant Upside: From a sum-of-the-parts
perspective, this suggests significant upside in BOS’ valuation. Using HPOL
for ARS, AVON for ADG and a lower-end range auto supplier multiple for
AEP plus taking BOS’ 2023E proforma net debt gets us an equity value per
share of C$18.55. This implies a blended EV to 2023E EBITDA of 8.4x. It is
currently trading at 4.4x our 2023 estimates. Please see the table in Exhibit 1
for our sum-of-parts analysis.
Model Adjustments: We have adjusted our estimates to reflect some
softness in tolling volumes in ARS, improved operating performance in AEP
with its renegotiated contracts, and the updated outlook for ADG. Our 2023E
EBITDA remains at $55MM and our 2024E EBITDA goes from $69MM to
$64MM