More RBCTargets remain the same as before. GLTA
March 19, 2015
Canam Group Inc.
Marketing highlights: focus on execution to drive
shareholder value
Our view: We believe CAM will see margin expansion from operating
leverage with greater volumes from its increased backlog, driving double
digit EPS growth in 2015, 2016. We expect ROE to improve, and we expect
investors will see solid upside to CAM shares into 2015.
Key points:
We hosted senior management of CAM marketing this week.
Focus on greater $ per project vs. broad market share growth. CAM
demonstrated it is now selling more $ per non residential construction
sq. foot build in both US and Canada vs. prior years, a focus it aims
to keep. Management prefers to gain a larger project contribution with
existing clients vs. bidding on more 1 off projects to gain market share.
This direction ties in with CAM focus on improving margin, particularly in
expansion cycle co is now seeing.
Significant backlog to drive operating leverage, higher margin. CAM
ended 2014 with backlog at $1B, at current USD FX this is $1.1B. Co sees
ability to generate ~9% EBITDA on careful attention to project execution
as well as stronger volumes driving SG&A down as a % of sales. We have
slightly adjusted our EBITDA margin up in F16 closer to 9% from 8.5%
previously). Management is closely monitoring bridge work and structural
steel (where CAM expects record year in sales in F15) for improvement in
efficiency (co has seen some challenges in bridges in 2014, expected to be
corrected by Q2 F15).
Business more complex, larger players the winners. With contracts more
stringent now than in the past, these require careful oversight from CAM.
Co sees more change orders and negotiations vs. in past, and is also
more aggressive in recovering for change orders. Benefit of complexity
of legal is larger companies like CAM can manage these contracts and
use smaller firms as subcontractors where this makes sense. CAM notes
despite its significant market size, its avg project size is $100-$125K across
the company.
Balance sheet and FCF. CAM has $69M in convertible debentures (at
$12/share) due in October 2015, management is evaluating refinancing
but these are currently "in the money" and hence likely to convert. We
have adjusted our estimates to reflect CAM debenture conversion with
the share dilution and debt repayment. We note CAM FCF was tied up
for growing working capital in F14, normal in expansion cycle. We expect
CAM to generate ~$25M of FCF in F15 and co sees its current additional
borrowing capacity of $140M as sufficient to finance its working capital
and growth needs.