WEQ Holdings Inc T.WEQ

Ccord tours the site

[Tobuyornot]

WesternOne Inc. (WEQ : TSX : C$7.58) - Buy - Target:C$8.00 Q1/14: an encouraging quarter; reiterate BUY rating & C$8.00 target Investment recommendation We reiterate our BUY rating and C$8.00 target price on WesternOne's shares following the Q1/14 print. Recent (and ongoing) equipment fleet additions into the robust Western Canadian non-res. construction market are paying off handsomely with WIS delivering 48% organic growth in Q1/14. Meanwhile, Britco enjoys excellent revenue visibility afforded by a large order book and solid prospects in oil sands, Site "C", and LNG. We continue to believe that this is an excellent growth with yield story. Investment highlights Q1/14 revenue and EBITDA were $117 million and $12.4 million versus our $95 million and $11.0 million estimates. As mentioned above, organic revenue at WIS was strong while Britco contributed $86 million (+53% y/y) to revenue through both organic and acquisition growth. Growth at Britco was driven by strong activity in Canada and the expanded workforce in the US. APB was kept to a loss of $1 million. Gross margin came in 167 bps below our estimate at 23.8%, which compared to 30.3% last year and 20.1% in Q4/13. WIS gross margin was in line. Britco was weaker than expected but we believe it bottomed in Q4/13 due to the following: (1) lower margin site work will wind down at Keeyask by Q3, (2) large uniform production runs are lined up through year end (Devon, oil sands and LNG camps, Keeyask Phase II), where higher margins can be earned, and (3) cost containment efforts in Australia should have it breakeven in Q4. Net debt at the end of the quarter was $192 million or 4.2x TTM EBITDA. FCF was $3.5 million in the quarter ($10.3 million when using maintenance capex) against dividend payments of $4.6 million. Management plans to increase its $22 million capital program by $8 million to support growth in Alberta.