Stifel Initiate Coverage Touting “what is shaping up to be an impressive turnaround,” Stifel analyst Ian Gillies initiated coverage of Bird Construction Inc. with a “buy” recommendation on Friday, expecting organic growth to reappear in the second half of 2021 as pandemic-related slowdowns “begin to reverse course.”
“The company stands to benefit from higher spending profiles in its key end markets, which should drive organic revenue growth in the mid-single digits,” he said. “This is complemented by internal initiatives to improve margins closer to peer averages. This leads to a 2020-2023 estimated EPS CAGR [compound annual growth rate] of 8 per cent. We also expect Bird to remain active on M&A with its disciplined strategy. There’s a lot to like if management continues to execute its business plan, making BDT an intriguing small cap value stock.”
Mr. Gillies called the 2020 acquisition of Stuart Olson Inc. as “transformative,” seeing Bird become a “key” provider of maintenance and repair work in the oilsands.
“This end market is going to provide the company with a low risk, recurring cash flow stream to redeploy into other parts of the business,” he said. “In August 2021, the company acquired a private Ontario construction company, which will create increased exposure to the Ontario transportation sector. This is important because of the quantum of spending expected to occur in this market over the next decade. We expect M&A to be a key part of the growth trajectory.”
“One important consideration is management has done a good job turning the business around after being stuck in a number of onerous P3 contracts that had a significant negative impact on financial results in 2017-2019. The contracts were executed prior to President and CEO Teri McKibbon’s arrival and at the very beginning of CFO Wayne Gingrich’s tenure. Since that time, the company has been working at reducing its exposure to P3 contracts. As a result, EBITDA margins have recovered to the mid-3-per-cent range from 0.8 per cent in 2018. We believe Bird may be chasing Aecon’s Construction segment EBITDA margins of 5.3 per cent as a goal.”
Seeing the potential for a “significant” re-rating if its “solid” execution continues, the analyst set a target of $13 per share, exceeding the consensus of $11.91.