RBCHave an upside scenario target of $22.00. GLTA
April 14, 2015
Canam Group Inc.
Expect strong Q1 on higher volumes driving
operating leverage YoY
Our view: We believe CAM will see margin expansion from operating
leverage with greater volumes from its increased backlog, driving doubledigit
EPS growth in 2015 and 2016. We expect ROE to improve, driving
solid upside to CAM shares into 2015.
Key points:
Expect strong Q1/15, in line with Street. We forecast Q1/15E EPS of
$0.11, in line with Street's $0.10 and up from $0.01 last year, which
was negatively impacted by weather driving lower gross margin from
efficiency issues at NE plants. We estimate Q1 F15 total revenue of $285M
up 19% YoY from stronger activity in the US, which represents ~65% of
CAM revenue, and favorable FX. We expect EBITDA margin of 6%, up 180
bps YoY on higher volumes driving operating leverage. Recall that Q1 is
seasonally the weakest quarter for CAM and at Q4 results management
had commented that one bridge plant would continue to see negative
efficiency into Q2.
Growing US nonresidential construction positive for CAM volumes.
RBC Economics Research forecasts a moderate recovery in private
nonresidential investment structures in 2015 and 2016, up 4.3% and 4.9%,
respectively, following a very strong 2014 of up 8.1% (see p. 3). February
US nonresidential spending was up 4.6% YoY, down slightly MoM of -0.1%
and still well below peak in 2008. AIA's Architecture Billings Index also
showed an increase in February to 50.4, boding well for expansion to
future construction activity.
Significant backlog to drive operating leverage, higher margin. Recall
that CAM ended 2014 with backlog up 70% YoY at $1B. Since then, USD
appreciation is likely to push backlog to new records. With higher volumes
running through CAM plants, we expect SG&A absorption to improve,
driving higher EBITDA margin in a flat to lower gross margin environment
on sales mix (we note that gross margin on bridge and heavy structural is
typically lower than for other CAM business).
CAM will report Q1/15 results on April 24, with conference call same day
at 1:15 p.m. ET; dial-in 866-696-5910 (code 4866215#).