Pour votre information:
Stantec Inc.
Benoit Poirier, CFA • (514) 281-8653 • benoit.poirier@desjardins.com
Jean-Francois Lavoie, CFA, Associate • (514) 985-3498 • jean-francois.b.lavoie@desjardins.com
Rating: Buy, Risk: Average, Target: C$57.00
STN C$57.44, TSX/STN US$46.84, NYSE
Soft 1Q21 results but 2021 guidance reiterated, pointing to a strong recovery in the rest of the year
The Desjardins Takeaway: Slightly negative
STN reported soft 1Q21 results, mainly driven by weaker-than-expected organic growth. Net revenue of C$879m was below consensus of C$932m (we expected C$913m). Adjusted EBITDA (investors’ main focus) of C$129m (including impact of IFRS 16) missed our forecast of C$133m and consensus of C $137m. Finally, adjusted EPS of C$0.50 was slightly below consensus of C$0.51 and our forecast of C$0.52. No government subsidy was recorded in 1Q. Encouragingly, the contract backlog increased sequentially to C$4.6b in 1Q (vs C$4.4b in 4Q; +5.8% organic), representing ~12 months of work.
Organic growth contracted 7.4% in 1Q, mainly due to the pandemic; this was below our forecast of -1.1%. The decline was primarily driven by Energy & Resources (-18.4%, mainly due to reduced scope on a large midstream project), Buildings (-13.6%), Environmental Services (-6.6%) and Infrastructure (-4.7%). Water remained strong in 1Q at +3.7%.
Net debt to adjusted EBITDA of 0.8x was better than our forecast of 0.9x and still below management’s target range of 1.0–2.0x (including IFRS 16 impact). This was driven mainly by stronger-than-expected FCF of C$15m (we expected -C$113m vs consensus of -C$27m). DSO remained stable sequentially at 75 days, again beating the company’s target of 90 days.
More importantly, management reiterated its outlook for 2021 despite the softer start to the year, highlighting that organic growth would recover through the remainder of 2021. Accordingly, STN reiterated its 2021 organic growth guidance of low- to mid-single digits (we expected +2.6%). Management expects adjusted EPS to increase by low- to mid-single digits compared with the C$2.22 reported in 2020 (consensus was at +4.5% vs our forecast of +2.3%).
Overall, while we are somewhat surprised by the soft organic growth posted in 1Q, we are encouraged by the healthy organic growth in the backlog in the period, which should help management to achieve its 2021 guidance. Recall that STN’s guidance does not contemplate any infrastructure stimulus spending in the US (management previously acknowledged that programs would likely be deployed starting in late 2H21).
A conference call is scheduled for tomorrow at 9am EDT (dial-in 800-367-2403). We will be focusing on (1) the organic growth outlook for the remainder of 2021, (2) management’s M&A strategy (five tuck-in acquisitions announced since October 2020) to achieve the 2021–23 net revenue growth CAGR target of >10%, as well as (3) the growth prospects associated with President Biden’s proposed infrastructure stimulus package.
This report was prepared by an analyst(s) employed by Desjardins Capital Markets and who is (are) not registered as a research analyst(s) under FINRA rules. Please see disclosure section on pages 2–4 for company-specific disclosures, analyst certification and legal disclaimers.