North American Construction Group Ltd.
(NOA-T, NOA-N) C$7.96 | US$5.97
Q2/20 Results
Event
North American Construction Group (NACG) reported Q2/20 results.
Impact: POSITIVE
Q2/20 Results: NACG reported Q2/20 EBITDAS of $32.0 million, above our estimate of $25.8 million, consensus of $24.7 million, and its guidance range of between $21.0 million and $27.0 million. Importantly, NACG disclosed $10.7 million in Canada Emergency Wage Subsidy (CEWS) proceeds in Q2/20 and, given the uncertainty around the CEWS program at the time that the guidance was disclosed, we believe that expectations around proceeds were understated, explaining the difference between actual results and our estimate, as well as the midpoint of NACG’s guidance range. As a result, we view the quarter as operationally in-line. Details on page 2.
Outlook Commentary & Guidance: Management has reinstated its 2020 EBITDAS guidance of between $140 million and $170 million, after withdrawing its original guidance range of between $190 million and $215 million on April 13. Using the midpoint of each range, NACG’s revised guidance represents an ~25% reduction versus original, and in our view, it highlights the resiliency of NACG’s business model.
Estimate Changes: Aside from actualizing for Q2/20 results, we are not making any material changes to our estimates and note that our 2020 EBITDAS estimate of $155.0 million is consistent with the midpoint of NACG’s guidance range ($155 million). Affecting 2021, we expect that the second train at Fort Hills will recommence operations before the end of 2020, given costly winterization expenses associated with that project (assuming current crude oil strip pricing), supporting our 2021 EBITDAS estimate that increases 9% y/y, despite our expectation that NACG will not receive CEWS proceeds next year.
Conference Call: Management will host a conference call at 9:00 a.m. ET; dial: 1-800-838-7301.
TD Investment Conclusion
We continue to have high confidence in the management team, and we refer investors to the case study beginning on page 16 of our recent initiating coverage report (link) that highlights its history of strong financial performance in challenging market conditions. As a result, we are maintaining our BUY rating and $12.00 target price.