Our view: Q2 was in line but focus in our view should be on the meaningful demand rebound expected during the second half of the year as business restrictions are lifted in Canada post pandemic. We expect this to drive solid pricing and organic revenue growth and benefit MTL into 2022. While the outlook was positive, we are now tempering our M&A assumption following a very busy Q2. Net-net, we continue to see value in the shares at current levels and reiterate OP.
Key points:
Q2 results in line with consensus. Adj. EBITDA (excl. CEWS) of $52.6MM was in line with consensus $52.6MM (RBC: $55.9MM). Results were below our expectations reflecting weaker than expected revenues in Specialized & Industrial Services. However, the in line results masked a pronounced acceleration in activity in June, which we expect to benefit growth in the back half.
Management outlook suggests a strong H2. Management pointed to a solid H2 on the call noting that demand in June was robust and that they are projecting approximately $50MM of annualized revenue upside from recent acquisitions. We had already been modeling for a robust demand recovery in the back half but increased our 2021 revenue estimates to better reflect the commentary surrounding recent M&A.
Deal flow expected to slow. Management noted that they will not be as active on M&A over the balance of 2021 compared to Q2, but that they could still pursue tuck-in opportunities. While we continue to view acquisitions as a key catalyst, we believe the shift in strategy towards integration and margin improvement is prudent.
2022 estimate higher to account for upside from recent M&A. We are taking higher our estimates to account for commentary from the call suggesting upside to revenue from recent acquisitions, as discussed above. Our 2021 EBITDA estimate remains unchanged however at $231MM on the back of a lower Q2 while our 2022 EBITDA estimate increases to $274MM (from $265MM) resulting from upside from recent M&A.
Price target remains at $15; maintain Outperform.
We remain positive on MTL shares driven by rebounding demand and in our view tightening supply chain capacity in Canada. We expect this to drive better pricing and solid organic growth into 2022. While we took higher our estimates following positive commentary on the outlook from the call, we took down our assumptions for further M&A as management noted activity will slow. While these items largely offset and our price target remains unchanged, we continue to see value in the shares at these levels due to a FCF yield north of 10% as well as a positive demand and pricing outlook. We reiterate our positive view on the shares and maintain our Outperform rating.