AirBoss of America Corp.
(BOS-T) C$37.11
Q3/21; Strong Q4 Expected and Big Opportunities Ahead Event
After market close on November 9, AirBoss reported Q3/21 Adjusted EBITDA of $13.9 million, compared with our forecast/consensus of $13.6/$13.1 million, and in- line with the company's pre-release of $13 million. Adjusted diluted EPS of $0.25 compared to our forecast/consensus of $0.20/$0.20.
Impact: SLIGHTLY POSITIVE
We are maintaining our BUY recommendation and increasing our target to C$49.00 from C$47.00. The increase reflects the shift forward of our valuation period by one quarter and a small increase to our valuation period adjusted EBITDA forecasts for the Defense segment. Not surprisingly, AirBoss was impacted in Q3 by supply chain challenge, and while risks remain, we believe that AirBoss has the financial resources, expertise, and customer base necessary to emerge from this period in a position of strength. The Q3 acquisition of Ace Elastomer, NIOSH approval for a new half mask respirator, technology investments in AEP along with the company's foundational PPE contracts should position the company well for future opportunities, in our view.
We believe that AirBoss is in the process of showing investors that its significant jump in revenue and earnings in 2020/2021 will be sustainable. We estimate that by the end of 2021, the company's three large PPE contracts that we estimate will have accounted for approximately 45% of total revenue from Q2/20 through Q4/21 will be completed. This will enable the company to demonstrate its ability to replace this revenue with follow-on orders or other defense and/or healthcare related contracts in 2022 and beyond.
We believe that potential contract awards, as well as M&A that accelerates the company's growth strategy, could be positive catalysts over the near term. In our view, AirBoss' balance sheet, momentum from recent M&A, investments in margin enhancing initiatives in both AEP and ARS along with eventual supply chain relief support a positive view.
TD Investment Conclusion
We believe that AirBoss' strong balance sheet, dividend, and growing exposure to global demand for personal protective equipment make it an appealing investment. We believe that its Defense segment is increasingly well-positioned to drive strong earnings, while its legacy Rubber Solutions and Engineered Products segments regain momentum