AirBoss of America Corp T.BOS

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AirBoss of America Corp.

(BOS-T) C$43.66

Target Increase on Pipeline Growth & Protective Equipment Appeal

Event

We are increasing our 12-month target price to C$53.00 from C$49.00 and maintaining our BUY recommendation.

Impact: NEUTRAL

We are increasing our target price, primarily due to the impact of increasing our Defense segment target EBITDA multiple to 11.0x from 10.0x to reflect our expectation of positive investor sentiment regarding PPE-driven opportunities related to the ongoing pandemic and the long-term potential for its expanded portfolio of military protective equipment. The implied consolidated target EBITDA multiple of 10.6x is now in line with the segment weighted-average multiples of its comparable group based on the trailing five-year average and current forward multiples.

We are reducing our estimates for 2021, while increasing our 2022 estimates based on the company's press release from late-December that indicates approximately $95 million of revenue from its nitrile glove contract is now expected to be realized in Q1/22 as opposed to Q4/21. Delivery delays are due to customs, logistics and border delays. The press release indicates that the company has a record pipeline of $1.5 billion in new contracts, up from the $1.0 billion-plus cited in the Q3/21 conference call.

We believe that AirBoss is in the process of demonstrating its ability to generate follow-on orders or other defense/healthcare-related contracts in order to show the sustainability of its significant jump in earnings in 2020/2021. We believe that potential contract awards could be positive catalysts that could push the share price towards or even through our 12-month target price in the short term. However, we believe that historical valuation and comparable precedents, combined with overall economic and defense segment uncertainty support a careful approach to future share-price strength.

TD Investment Conclusion

We believe that AirBoss' strong balance sheet, dividend, and growing exposure to global demand for personal protective equipment make it an appealing investment. We believe that its Defense segment is increasingly well-positioned to drive strong earnings, while its legacy Rubber Solutions and Engineered Products segments regain momentum.