TSX:WSP - Post Discussion
Post by
retiredcf on May 10, 2024 7:26am
RBC 2 (Raise Target)
Their upside scenario target is $263.00. GLTA
May 9, 2024
WSP Global Inc.
A good start to the year, with more to come
Our view: We reiterate our positive view of WSP Global Inc. ("WSP") following Q1 results that were in line with Street expectations (2024 guide also reiterated). Looking ahead, the company remains well positioned to capitalize on strong demand tailwinds and the M&A opportunity ahead, while positive operational updates this quarter (i.e., ERP- & productivity-related) further reinforce our favorable opinion (supports margin improvement thesis). Increasing PT +$8 to $245 and reiterating OP.
Key points:
Thoughts exiting Q1 – Q1 results reflected Net Revenue and Adjusted EBITDA in line with consensus while 2024 guidance was reiterated. See inside for details. Looking ahead, we continue to believe WSP remains well positioned to capitalize on the strong demand tailwinds driving the business, including generational investments in infrastructure across its core end-markets/regions. Of note this quarter, management highlighted that a focus on internal productivity initiatives led to a ~50 bps YoY improvement in the Adjusted EBITDA margin. We think this bodes well for results through 2024, as calendar Q1 tends to be a cyclically lower-margin quarter for WSP and we should see further benefit from productivity improvements in Q2 onward (midpoint of WSP's 2024 revenue and Adjusted EBITDA guidance implies +62 bps of margin expansion YoY). Commentary from management on the earnings call also pointed to an active pipeline of potential M&A opportunities, which could provide upside to the current full-year outlook. There were a number of questions on management's willingness to undertake further/larger M&A, and the availability of such transactions. The punch line is that larger opportunities are available, and management is willing to execute on larger transactions.
ERP implementation complete across Canada/U.S./U.K. – On the ERP implementation (recall this is a multi-year internal initiative to drive further operational improvements), WSP's U.K. operations have now been integrated onto the platform and the project remains on-time/on-budget. This means that WSP's Canadian (moved over in Q1/23), U.S. (Q4/23) and now U.K. businesses, collectively accounting for ~70% of WSP's Adjusted EBITDA, have been integrated onto the new platform. This milestone "de- risks" the overall implementation, with the company's 3 largest markets now integrated.
B/S in good shape, well positioned for M&A – Leverage exiting Q1 was ~1.6x (~2.2x including leases), in line with WSP's ~1.0x-2.0x target range. We think WSP is well positioned to execute on its M&A growth strategy, and note the active start to the year (4 acquisitions announced YTD). Looking ahead, management's tone indicates that 2024 could be an active year of consolidation given the pipeline of opportunities. The key considerations for larger transactions against the current backdrop are likely to include the growth trajectory and margin profile of potential targets, and seller expectations.
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