TDThis analyst has never been a fan but actually raised his target (albeit modestly and he still checks in as the lowest on the Street). GLTA
North American Construction Group Ltd.
(NOA-T, NOA-N) C$34.14 | US$25.38
Q4/23 Results
Event
North American Construction Group (NACG) reported Q4/23 results.
Impact: SLIGHTLY NEGATIVE. Although the JV challenges are not likely
to reoccur, we expect that the stock will underperform on the Q4/23
EBITDAS miss.
Q4/23 Results: NACG reported Q4/23 EBITDAS of $101.9 million, below our
estimate of $109.6 million and consensus of $106.7 million. The miss was a function of its Nuna JV that missed its own internal expectations by $7.5 million in the quarter, generating a gross loss of $4.8 million. Details on Page 2.
Nuna Restructured in Q1/24: Following the challenges noted above, NACG
intervened in this business in Q1/24, including the installation of a new leadership team and a restructured back office that will support stronger project management and contract administration processes. Management's guidance assumes that the challenges in Q4/23 will not reoccur in 2024.
Growth Capital Split Out and Increased in Revised Guidance: Management
reclassified $50.0 million as growth capital spending (sustaining previously) and
increased the growth range to $55.0 million to $70.0 million as a result of its
recently announced contract extension in Australia (full report). Therefore, sustaining capital is now $170.0 million to $190.0 million ($220.0 million to $240.0 million previously). Management's revenue ($1.5 billion to $1.7 billion), EBITDAS ($430.0 million to $470.0 million), EPS ($4.25 to $4.75), and free-cash-flow ($160.0 million to $185.0 million) guidance are unchanged. There are no material changes to our 2024 and 2025 EBITDAS estimates, and our 2024 EBITDAS estimate of $444.3 million remains near the midpoint of management's guidance range.
Conference Call: 9:00 a.m. ET; dial: 1-888-886-7786.
TD Investment Conclusion
NACG's long history of strong operational execution gives us a high degree of
confidence in the ultimate success of the MacKellar transaction and achieving its 2024 guidance. The recent contract extension noted above is a notable success that supports our view. We calculate a 2024E free-cash-flow yield of 16%, below the Energy Services peer-group average of 17%, but note that NACG has no direct comparables, and the comparisons with the peer group provide limited takeaways.
As a result of lower sustaining capital in our NAV, our target price increases to $34.00 (from $33.00 previously), and we are maintaining our HOLD rating.