WSP Global Inc T.WSP

RBC Report

[retiredcf]

They also raised their upside scenario target to $170.00. GLTA

May 13, 2021

WSP Global Inc.
A good start to the year, with more to come

Our view: WSP Global Inc. ("WSP") reported Q1 2021 Adjusted EBITDA above RBC and consensus forecasts. WSP remains our favorite idea in the E&C space given the outlook for good organic growth over our forecast horizon, and a solid balance sheet that can support continued M&A. Revising our price target +$9 to $148; reiterate our Outperform rating.

Key points:

Our view – Q1 results reflected a strong start to the year, with cost
management helping drive a record Adjusted EBITDA margin for Q1, and
helping deliver earnings ahead of RBC and consensus forecasts. Looking
ahead, the outlook is increasingly favorable with guidance for low-single-
digit organic growth in Q2 (which we expect will be followed by sequential
improvement for the remainder of 2021), a solid backlog (and even
stronger momentum with the "soft" backlog), improving trends across
nearly all markets, and a solid balance sheet that can support further M&A.
Management noted on the earnings call that they are comfortable with
the demand outlook/pipeline, and are more focussed on ensuring they hire
the required number of personnel to meet the strong demand. Given the
outlook for a more normalized demand environment through late-2021
and into 2022, we were encouraged by the focus by senior management  on recruiting/hiring (which we suspect will be increasingly in focus for the  broader industry over the near- to medium-term).

Expecting contribution from Golder to be stronger than initially anticipated – Management noted that they are cautiously optimistic that
Golder will perform better-than-expected in 2021 (compared to initial expectations). This outlook reflects an improved operating backdrop over
the recent months, as well as the strong outlook for infrastructure spend
under the Biden administration. The combined organization (WSP + Golder) is pursuing 150+ opportunities together and has received 22 project awards

thus far. In our follow-up note to the acquisition announcement (link here),
we noted that the addition of Golder would expand WSP’s role in projects
and create cross-selling opportunities. Moving forward, Golder's position as a leading global environmental consulting firm better positions WSP to help clients transition to a low-carbon economy.

Strong FCF and a clean balance sheet – Q1 FCF reflected strong operating results and good DSO management (68 days for Q1/21 vs. 77 days in Q1/20). Net leverage as at Q1 was ~0.2x (~1.1x including the impact of leases). After including the additional debt associated with the Golder acquisition (transaction closed subsequent to Q1), we estimate pro-forma Net Debt/Adjusted EBITDA of ~1.2x (~2.0x including leases). Given that the balance sheet remains in good shape, we expect WSP to remain active with M&A. We note that since the beginning of 2021, in addition to Golder, WSP has closed 3 other acquisitions which added 430 people to its workforce and expanded its exposure to the U.S. market.