From Clarus securitiesThis was posted on the CEO.ca Forum
“Foraco International SA (FAR-T, $3.19) BUY Rating $6.00 Target Event Foraco announced a special dividend of CAD$0.06 per share this morning. Impact: Neutral Details: Foraco announced this morning it will pay a special dividend of CAD$0.06 per share on July 18, 2024 to shareholders of record as at the close of business on April 23, 2024. The announcement was expected given the comments made on the company’s recent conference call. The dividend is expected to cost the company CAD$5.9 MM. The company currently has CAD$47.2 MM (US$34.3 MM) in cash on its balance sheet. Given our expectations for operating cashflow of US$77.8 MM in 2024 and US$89.4 MM in 2025, we expect the company should be able to declare special dividends in the upcoming years as well.
Conclusion: We continue to rate the shares of Foraco as a BUY, with a $6.00 target price. Foraco currently trades at 3.0x our 2025 EBITDA estimates, near trough valuations and well below its historical average of 4.5x. On an historical basis Foraco has averaged 4.5x one-year forward EBITDA with a range between 7.2x and 2.3x, compared to the industry average of 5.0x (with a range of 7.1x and 3.2x).
Our target multiple of 5.0x is set to the long-term average of the drilling industry. However, we note that our estimates for EBITDA growth surpass the industry average, which could warrant a premium multiple over the competitors. Additionally, competitor, Major Drilling (MDI.TO, Not Rated) has traded at a long-term average of 6.7x (ranging from 11.2x to 3.6x). With Foraco’s commitment to debt reduction and EBITDA growth over the last several years, the company is approaching the size of its competitor. If we assume the competitor’s average multiple of 6.7x, we will arrive at a target price of $8.50 per share.“