National bank daily bulletin.HIGHLIGHTS
Q3/18 revenues in line with Street, profitability miss Revenues increased 26.5% y/y to $72.1 million, missing our $80.3 million estimate but in line with the Street at $73.7 million as Span remained flat y/y. Adj. EBITDA margins contracted 350 bps y/y to 13.4%, yielding Adj. EBITDA of $9.7 million vs. our call for $13.4 million (16.7%) and consensus of $12.6 million (17.1%) due to the drag from foam cost inflation at Span and lower margin acquisitions at Accessibility.
Guidance reiterated, implying high expectations for Q4 Management reiterated both 2018 and 2019 full-year guidance. Following Q3/18 results, this implies a substantial contribution from Q4/18: at least $90.2 million in revenue and $16.3 million in EBITDA to hit the low end of the EBITDA guidance range (see Figure 2). Based on our discussions with management, we believe confidence in the 2018 targets stems from two sources: 1) Garaventa’s revenue contribution is much stronger than originally anticipated and is expected to hit ~$40 million in revenue contribution in 2018 vs. initial guidance for $31 million. 2) Span’s margins, which took a significant hit due to spiking foam prices, are expected to not only recover, but improve as (i) 4% price hikes were initiated to cover cost increases, which will remain in place despite the fact that (ii) foam prices retraced to prior levels
Target to $17 (was $21) on 14x 2019e EBITDA (was 16x) Savaria continues to compare favourably with other growth names in our universe (see Figure 7), but we do not believe the market will treat Savaria’s high multiple kindly following the quarter. We elect to value Savaria in line with peers at 14x (see Figure 6) and reiterate our Sector Perform rating.