TD Upgrade target from $27.00 to $31.00Event Q4/22 results were above expectations. Meanwhile, WJX announced an $0.08/ share or 32% increase in its quarterly dividend (now $0.33/share). We were not forecasting an increase. Management indicated that the increase reflects growing confidence in both WJX's near- and long-term outlooks.
Impact: POSITIVE
Q4/22 adjusted EBIT was $28.2mm (5.2% margin) vs. consensus of $26.8mm (5.5%) and TD at $25.1mm (5.3%). The beat was driven by higher-than-expected sales. Adjusted EPS (f.d.) was $0.80 vs. consensus/TD at $0.70/$0.66.
Revenue was $541.3mm (+34.4% y/y) vs. consensus of $488.6mm and our $473.3mm estimate. Revenues benefited in part from the sale of several large mining shovels (no such sales in the prior-year period).
Backlog was $469mm, +10.5% y/y, but -16.1% q/q (the sequential decline was primarily due to deliveries of multiple mining shovels).
Outlook Commentary: For 2023, Wajax continues to see sound fundamentals in many of its key markets (particularly mining, energy, and construction), supported by relatively elevated key commodity prices and sustained capital spending. Management expects further growth in WJX's heavy-equipment business, and continued strong demand in its less-cyclical industrial parts and engineered repair services businesses. Still, Wajax expects supply-chain volatility, higher interest rates, inflation, and a tight labour market to remain as challenges.
Our 2023 estimates have increased, driven primarily by our higher revenue forecast (now forecasting modestly higher y/y revenues vs. flat revenues previously). Meanwhile, we have introduced our 2024 estimates.
We have rolled forward our target valuation (now based on our 2024 EPS estimate vs. our 2023 EPS estimate previously).
Our target price increases to $31.00 (from $27.00).
TD Investment Conclusion We are encouraged by WJX's strong y/y sales growth and the continued realization of benefits from its new direct distribution relationship with Hitachi. We are also encouraged by WJX's dividend increase and management's constructive outlook commentary. We see the stock's valuation (7.6x our 2023 EPS estimate) and 5.3% dividend yield as attractive.
We reiterate our BUY rating. Industrial Products Wajax Corp. (WJX-T) C$25.07 Q4/22 Results Ahead; Healthy Dividend Increase
Michael Tupholme, CFA 416 307 9389 michael.tupholme@tdsecurities.com Mark Stuebing, CFA, CPA, (Associate) 416 983 9717 mark.stuebing@tdsecurities.com Recommendation:
BUY Risk: HIGH 12-Month Target Price: C$31.00 Prior: C$27.00
12-Month Dividend (Est.): C$1.32 12-Month Total Return: 28.9% Market Data (C$) Current Price C$25.07 52-Week Range $17.25 - $25.48 Mkt Cap (f.d.) ($mm) $556.5 Float Cap ($mm) $538.3 EV ($mm) $859.5 Current Dividend $1.32 Dividend Yield 5.3%