Savaria Corp.
(SIS-T) C$16.39
Expecting Solid Q4/23; Focus on 2024 Margin Progress
Event
Savaria will report Q4/23 results on March 6. We forecast adjusted EBITDA
of $35.2mm vs. $33.3mm last year. Consensus is $35.5mm (range: $35.0mm-
$36.7mm). We have not made any changes to our estimates. After rolling out
valuation another quarter, our target price increases to $20.00 (from $18.00).
Impact: NEUTRAL
In Q4/23, we are forecasting consolidated organic revenue growth of ~6%
(excluding the divestiture of Norwegian business), reflecting organic growth
estimates of 6.5%/4.0% in Accessibility/Patient Care, attributable to: 1) continued
strength in Accessibility, backed by a significant backlog despite increased
manufacturing throughput; 2) positive momentum in Patient Care, with increased
order intake from year-end budgetary spending and bidding opportunities around
government new build activities; 3) benefits from cross-selling driven by the
integration of Handicare, including the sale of curved stairlifts in North America; and
4) modest price increases implemented in H1/23.
We forecast ~6% adjusted EBITDA growth driven by the modest top-line
growth and meaningful ~70bps y/y margin expansion, stemming from: 1)
volume-driven efficiencies from increased throughput at the Surrey/Brampton plant,
cross-selling, and share gains; 2) pricing and vendor diversification; 3) improved
mix following the divestiture of the lower-margin Norwegian business; and 4) “on-
shoring” initiatives in Brampton (began production of second Handicare stairlift) and
Mexico (started shipments to Vancouver), which should deliver more meaningful cost
savings over time. In the long term, we also see potential savings arising out of the
Savaria One initiative (details TBA on inaugural Investor Day on April 9), focusing on
operational and sales excellence. Our Q4/23 margin forecast assumes an ~50bps
($1mm) impact from additional costs associated with Savaria One, but without
the incremental margin benefits from the project as we wait for details.
With improved profitability and FCF, we see Savaria deleveraging to ~2.0x (down
from 2.3x in Q3/23), positioning it well for strategic initiatives and opportunistic M&A.
TD Investment Conclusion
We expect the strong balance sheet, solid momentum, synergies and execution
on its initiatives (including Savaria One) to generate ~12% EBITDA CAGR through
2025. This should, helped by a return to favour of small-cap stocks, push valuation
higher and the stock price closer to our $20.00 target.