RBC Reaction April 24, 2015
Canam Group Inc.
Operating leverage thesis playing out, continue to
see solid upside ahead
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:
Positive operating leverage thesis intact, no change to $16 target. CAM
reported Q1 EPS of $0.10, in line with Street and just shy of our $0.11
estimate on higher tax rate (EPS up from $0.01 in Q1 F14). Sales very strong
at $309M, up 30% YoY on +7% volume, FX, pricing, this drove EBITDA
margin up 160bps YoY to 5.7% (from lower SG&A as % of sales) to $17.7M,
just ahead of our $17.1M estimate, and up from $10M in Q1 F14. CAM
commented it is aiming for better results going forward (including from
more profitable bridge, heavy structural contracts). We continue to expect
CAM to drive higher YoY EBITDA margin with volume growth through F15
and F16. We maintain our $16 target and Outperform recommendation.
Backlog $1.1B, see opportunity for large project wins in Canada. CAM
backlog was up 10% from $1B at year end and up 38% from $800M in
Q1 2014, $80M was USD FX related QoQ, we note 80% of backlog is for
US delivery. We expect CAM is well positioned for large infrastructure
build out in Canada picking up, ex. new and upgrades to transportation
structures announced in recent Canadian budgets as well as potential for
Champlain bridge. Outlook for US nonresidential build continues strong,
we expect this will drive moderate volume growth for the next few years.
CAM to leverage capacity and outsourcing ability, M&A on back burner.
Mgmt commented bridge facility can see added 30-35% work, joist and
deck has capacity, structural steel can grow by subcontracting out when
needed, given CAM is large player. While subcontracting impacts gross
margin expectation, return on assets is improved. Co sees capacity to grow
to $1.6-$1.7B in sales (we model $1.6B in 2016). Mgmt commented it has
passed on several M&A opportunities, feeling timing is not right (other
than potential tuck-ins). Instead, co has focused on hiring industry talent
for improved internal execution and oversight.