RE:TD raised targetHere is the actual TD analyst report for those interested.....
Event
Q2/21 adj. PS&PM EBITDA was $148.9mm vs. consensus of $156.4mm and our forecast of $151.4mm. Adj. PS&PM EPS was $0.31 vs. consensus and TD, both at $0.37 (note: EPS unfavourably affected by an unusually high tax rate).
SNC reaffirmed its full-year 2021 SNCL Engineering Services outlook, which includes: low-single-digit percentage y/y revenue growth (TD: +2.7%) and an adjusted EBIT margin range of 8.0–10.0% (TD: 9.4%).
Impact: MIXED
Although Q2/21 adj. PS&PM EBITDA was modestly below consensus and SNCL Projects experienced a modestly larger-than-forecast loss, importantly, the quarter included numerous positives (i.e., continued healthy Engineering Services results that modestly exceeded our expectations, healthy cash flow from operations, and continued progress in LSTK backlog run-off).
SNCL Engineering Services earned adj. EBIT of $145.1mm (9.6% margin); above our estimate of $139.3mm (9.2% margin). The outperformance was primarily driven by Infrastructure Services, although EDPM and Nuclear were also slightly ahead. SNCL Projects generated an EBIT loss of $21.3mm vs. our forecast of -$8.0mm (Infrastructure EPC Projects pressured by project close- out costs and COVID-19 impacts). Still, Q2/21's SNCL Projects loss was far less significant than the losses the business line realized in numerous recent quarters. Consolidated CFO was +$78mm, while SNCL Engineering Services CFO was +$157mm. LSTK backlog in SNCL Projects declined to ~$1.4bln (-13% q/q; -48% y/y).
We have made various adjustments to our model; however, our consolidated EBITDA/EBIT estimates are not materially changed. Our target price increases to $42.00 (from $40.00), primarily driven by modest increases in the target multiples we use to value the segments comprising the company's SNCL Engineering Services business line.
TD Investment Conclusion
We continue to be constructive on SNCL Engineering Services' outlook (SNC's future focus). Although LSTK project run-off risks remain (particularly in Infrastructure EPC Projects), we see these risks as more than adequately priced into the stock. We continue to view SNC's valuation as compelling. We reiterate our BUY rating.