TSX:NOA - Post Discussion
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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