OTCQX:HEOFF - Post by User
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Nadia6519on May 14, 2022 9:24am
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Post# 34683778
Banque Nationale
Banque NationaleA Beat Across Segments
HEO (TSX) STOCK RATING TARGET EST. TOTAL RETURN C$2.12 Outperform (Unchanged) C$3.25 (Unchanged) 53.3% Q3/f2022 Review
Beats despite a tough operating environment HEO reported Q3/f22 with solid revenue growth of 33% y/y (vs. 11% est.); both organic (15% y/y / $6.0 mln) and acquisitions (17% y/y / $6.7 mln). Adj. EBITDA was similarly ahead of expectations at 18% y/y (vs. 4% est.). Results were positive despite a tough operating environment (supply chain delays, inflation on labour / materials, higher G&A, etc.) with an EBITDA margin that, while -125 bps y/y, was in line with our 10.3% est. Overall, Q3/ f22 revs were $51.9 mln (vs. $45.5 mln est.), Adj. EBITDA $5.3 mln (vs. $4.7 mln est.), and Adj. EPS of $0.01 (vs. $0.01).
All segments’ growth was ahead of forecasts
The O&M segment reported revs of $24.1 mln (vs. $22.4 mln est. & 40% y/ y) from both organic growth (13%) and acquisitions (26%). EBAC of $3.0 mln (vs. $2.9 mln est.) grew 6% with some margin pressure from labour costs, insurance, and gas prices. The SP segment reported revs of $15.9 mln (vs. $13.2 mln est. and 35% / 16% y/y overall / organic). EBAC of $4.3 mln (vs. $3.9 mln est.) grew 31% y/y with minor margin pressures from 1) product mix; 2) supply chain; and 3) raw materials costs. The WTS segment had revs of $11.9 mln (vs. $9.9 mln est.) and EBAC of $1.4 mln (vs. $0.7 mln est.). The 18% y/y organic growth (vs. -2% est.) was due to higher-margin water treatment system projects that drove margins +200 bps y/y (to 12.0%).
Other updates Include: 1) proactively passing pricing that can be done more frequently in WTS contracts whereas O&M ones are done at renewal or contract anniversary; 2) sales staff could grow with a few more key hires in 2022 (helps drive growth); 3) Leader Evaporator acquisition to close within a few weeks; and 4) integration of NY acquisitions going well with some crossselling synergies already playing out.
Maintain Outperform rating and $3.25 target Following Q3/f22 results, our forecasts remain largely unchanged. We maintain an Outperform rating and $3.25 target, which implies ~15x f2023e EV/EBITDA.