TSX:WSP - Post Discussion
Post by
retiredcf on Aug 13, 2023 7:26am
RBC Report
Their upside scenario target is also raised to $236.00. GLTA
Outperform
TSX: WSP; CAD 183.14
Price Target CAD 210.00 ↑ 199.00
WSP Global Inc. Steady as she goes
Our view: WSP Global Inc. (“WSP”) reported Q2 results ahead of RBC/ consensus expectations, and increased 2023 guidance across all metrics. We maintain our positive view on WSP given the strong organic results and potential for upside from M&A. Increasing PT +$11 to $210 and reiterating Outperform.
Key points:
Thoughts exiting Q2 – Q2 results were ahead of RBC/consensus forecasts and 2023 full-year guidance was also revised higher across all metrics (see below for details). Taking a step back, this quarter marked the halfway point of WSP's 2022-2024 strategic plan, and revised 2023 guidance implies the company could exceed its Net Revenue target (of >$10B) and Adjusted EBITDA margin target (17.5%-18.5%) one year ahead of schedule. For context, we forecast 2023 Net Revenue and Adjusted EBITDA margin are $10.8B and 17.6%, respectively. On the earnings call, management commentary pointed to notable growth of the North American soft backlog (+40% YoY, led by the U.S. market), while demand trends across other regions (particularly in the U.K., Australia and New Zealand) continue to reflect the benefit of tailwinds driving the broader Engineering Services space (i.e., aging infrastructure, Net Zero transition, etc.). While the performance YTD has been quite strong, full-year 2023 guidance implies sequential margin improvement relative to H1. At a higher level, the company's focus on improved labor utilization and turnover, the ongoing ERP implementation, and synergies from recent acquisitions should continue to support higher margins over the coming years (toward the longer-term Adjusted EBITDA margin target of 20%). Future M&A (and associated synergies) would be additive to the above-noted growth drivers. While there has been a slowdown in "larger" transaction across the Engineering space over the last 12 months, WSP and its peers have been active with smaller-sized transactions.
Q2 results ahead of RBC/consensus – Net Revenue of $2,739.1MM (+29.8% YoY) was ahead of RBC/consensus forecasts of $2,527.2MM/ $2,600.8MM. The YoY increase in Net Revenue was driven by organic growth across all segments (+9.3% on a consolidated basis) and the acquisition of the Wood E&I business. Adjusted EBITDA of $461.6MM (+31.1% YoY) was also ahead of RBC/consensus of $433.5MM/$444.2MM. Adjusted EBITDA was ahead of our expectations across all segments (partially offset by higher-than-expected corporate costs).
2023 guidance revised higher; balance sheet in good shape – Updated guidance calls for Net Revenue of $10.7B-$11.0B ($10.0–10.6B previously); organic growth of +6%-9% (+3%-6% previously); and, Adjusted EBITDA of $1.90B-$1.93B ($1.72B-$1.84B previously). Leverage exiting Q2 was ~2.0x (~2.6x including leases), within management’s target range of ~1–2x. Looking ahead, we expect M&A to remain the primary use of capital.
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