RE:RE:RE:RE:What’s new? Amazing quarter and only getting better. Nauman Satti, CFA, MBA • Associate Mona Nazir, MBA • Transportation & Infrastructure Analyst
Tel: 647-252-5602 • SattiN@lb-securities.ca Tel: 514-350-2964/ 647-252-5609 • NazirM@lb-securities.ca August 9, 2019
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IBI Group Inc.
(IBG-T – $5.05)
Buy – Target Price: $8.00
IBG Q2/19 Results: Growth and Margin Expansion Driven by U.S Division
Event
IBI Group reported Q2/19 results yesterday (AMC). A conf. call is scheduled for 8:30AM ET; dial 1-800-897-3679 or 1-416-981-9013.
Impact
Positive. EBITDA beat driven by growth in the International segment. As expected, the U.S division primarily drove YoY growth.
Analysis
Adj. EBITDA ahead of estimate. Adj. EBITDA of $12.2M was ahead of our $11.5M est. (cons. $11.2M) with delta driven by higher than expected contribution from the International segment. As expected, $1.45M EBITDA contribution from the U.S division vs. negative $2M in Q2/18 drove the bulk of 34% YoY EBITDA growth. The U.S segment’s EBITDA grew from higher revenue and performance improvement in the Building and Intelligence segments. Canadian operations EBITDA of $9.4M was down 7% YoY from a subdued revenue growth; a trend that was witnessed across the industry. In terms of business units, the Intelligence/Buildings/Infrastructure saw EBITDA margin improvements of 2.2%/2%/6% to 15.6%/18.3%/12.0%, respectively.
Intelligence unit grew by 8.8% YoY. The Intelligence segment, a focus area for management, drove the overall revenue growth of 4% YoY, with an 18% contribution in total revenue vs. 17% in Q2/18. Revenue in the U.S Intelligence segment grew by $0.7M (15.7%) YoY from the recently secured mobility and transit-related “SaaS” contracts. The Infrastructure unit posted a net revenue growth of 4.3% from transit and P3 related projects. The Buildings unit remained the largest revenue contributor (53%) and grew by 2.3%; the unit was awarded 14 towers in the GTA region, which also provides an opportunity to deploy its Intelligence products. Total net
revenue of $96.8M was 2%/3% ahead of our/cons. estimate (Exhibit 1).
Our thoughts. Despite a modest growth in revenue, IBG continues to deliver substantial YoY EBITDA growth from its U.S operator’s return to profitability. The International segment’s performance improved as well, with EBITDA growth of 61% to $1.07M from a 16% revenue growth. Meanwhile, the Intelligence segment had an EBITDA margin of 15.6% (13.4% in Q2/18) vs. management target of 20% by 2020. Apart from offering higher margins, the Intelligence segment’s product base allows IBG to build a recurring revenue stream. Given the products are scalable with moderate additional costs, we believe higher margins are achievable as IBG secures new contracts, albeit the timings of such contract wins can vary. The company maintained its outlook and target of achieving 20% EBITDA margin for the Intelligence segment. Additionally, management now expects the Intelligence segment to eventually generate “margins over 25%”.
We maintain our Buy rating and $8.00 TP, based on 14x P/E multiple (2020E) vs. NTM P/E multiple of 10.4x.
Exhibit 1. IBG Q2/19 Results($ Millions, Except EPS)Q2/19AQ2/18AYoY(%)Cons.Revenue96.8 93.1 4.0%94.2 Adjusted EBITDA12.2 9.1 33.7%11.2 Margin12.6%9.8%279 bps11.9%Adj. EPS 0.15 0.08 89.0%$0.13Source: Company reports, LBS, Thomson Eikon