2242749 Ont Ltd. AIIFF

Update Text 7 NOV 13 Anthony Zicha (Scotia Capital Inc.)

[agee]

 

Armtec Infrastructure Inc. announced Q3/13 EBITDA of $19.0M slightly below our

and consensus estimate of $20.0M.

 

. Decreased Backlog. Engineered Solutions/Precast backlog of $130M declined 18%

sequentially from $158M and was relatively flat compared to the same period last

year. We are cautious on Armtec's future earnings potential given declining

backlogs and uncertain timing of potential future contract awards. 

 

Weak Industry Demand. We expect Armtec's operational margins to improve in 2014

given the successful completion of the turnaround plan. Moreover, we expect a

2015 recovery in Canadian construction to support revenue growth. However, we

expect 2014 revenue to be driven mainly from recent awards in light rail

transit, the Pan American games, and Highway 407. We expect growth to be offset

by: (1) weak demand for drainage products, driven by lower government spending,

and (2) an expected decline in Canadian housing starts. 

 

Maintained Target Price. (2.50) We have rolled forward our estimates and introduced our

2015 EBITDA estimate of $61M. Moreover, we are valuing Armtec shares using 4.75x

EV/EBITDA on our 2015E due to lower visibility on Armtec's potential earnings.

 

We are neutral on Armtec shares.

 

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