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Bullboard - Stock Discussion Forum North American Construction Group Ltd T.NOA

Alternate Symbol(s):  NOA | T.NOA.DB.A | T.NOA.DB.B

North American Construction Group Ltd. is a Canada-based company. The Company provides a range of mining and heavy civil construction services to customer in the resource development and industrial construction sectors within Canada, the United States, and Australia. Its segments are Heavy Equipment - Canada, Heavy Equipment - Australia, and Other. Heavy Equipment - Canada and Heavy Equipment -... see more

TSX:NOA - Post Discussion

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Post by retiredcf on Aug 17, 2020 8:54am

TD 2

Still calling for a 20% increase in SP. GLTA

North American Construction Group Ltd.

(NOA-T, NOA-N) C$10.08 | US$7.62

Moving to HOLD on Valuation Event

We are changing our recommendation to HOLD (from Buy previously), with no changes in our estimates or target price.

Impact: NEUTRAL

This Downgrade is Entirely a Valuation Call: To be clear, this downgrade is in no way a reflection of North American Construction Group’s (NACG) outlook, asset quality, leverage ratios, or other potential concerns. In fact, we expect that NACG will be a positive outlier among a very challenged sector. However, given NACG’s strong share price performance amid the broader challenges of the energy sector, we believe that there are better investment opportunities in the sector at this time. NACG is trading at 2020 and 2021 EV/EBITDAS multiples of 4.7x and 4.3x, respectively, compared with its five year average of 4.0x.

Relative Share Price Performance: Since reporting Q2/20 results on July 29, 2020, NACG's share price has increased by ~27%, compared with an ~15% average increase for our overall coverage universe over this same time period. Moreover, when comparing the share price performance of the same peer group since their respective Q2/20 release dates (which ranged from July 23 to August 13), NACG was the strongest performer, with the average remaining the same at ~15%.

TD Investment Conclusion

We continue to have high confidence in the management team and refer investors to the case study beginning on page 16 of our recent initiating coverage report (full report) that highlights its history of strong financial performance in challenging market conditions. However, based on strong recent share price appreciation, our return to target is no longer sufficient to justify a Buy rating. As a result, we are decreasing our recommendation to HOLD (from Buy previously), with an unchanged target price of $12.00.

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