This morning (02 march 2022) From Benoit Poirier, good comments for the nexts quarters. Aecon is a partner of SNC Lavalin.
Aecon Group Inc.
Benoit Poirier, CFA • (514) 281-8653 • benoit.poirier@desjardins.com
Jean-Francois Lavoie, CFA, Associate • (514) 985-3498 • jean-francois.b.lavoie@desjardins.com
Rang: Buy, Risk: Average, Target: C$25.00
ARE C$17.31, TSX
A rare miss in 4Q21 more than offset by healthy outlook, dividend increase and encouraging comments on arbitraon process
The Desjardins Takeaway: Mixed
Highlights
ARE reported a rare miss with 4Q21 results. Revenue of C$1,089m (+1% yoy) was slightly below consensus of C$1,132m and our forecast of C$1,159m. Adjusted EBITDA (including IFRS 16; investors’ main focus) of C$61m (5.6% margin) was below our esmate of C$87m and consensus of C$84m. The shorall vs consensus was mainly driven by lower margins in civil operaons and urban transportaon soluons (mainly due to the swi surge of COVID-19 cases related to the Omicron variant) and lower CEWS vs a year ago. Fully diluted EPS of C$0.19 was also below consensus of C$0.48 and our C$0.52.
On a segmented basis, Construcon reported revenue of C$1,073m (up 1% yoy) and an EBITDA margin of 5.3% vs consensus of C$1,131m and 6.7%, respecvely. Concessions generated revenue of C$19m and EBITDA of C$16m vs consensus of C$20m and C$19m, respecvely. The backlog increased sequenally to C$6.2b from C$6.0b. This excludes four major contract wins secured in early 2022 that will be added to the backlog in 1H22 (we esmate a contribuon in excess of C$2b).
More importantly, ARE highlighted that its consorum on the Coastal GasLink pipeline program reached several informal agreements in 4Q21 that were formalized in 1Q22. ARE believes these agreements will enable the compleon of the project without a material impact on its cash flow. We note that ARE’s shares are down 15% since 3Q21 results (S&P/TSX flat over the period), mainly due to this dispute.
ARE ended 4Q21 with net debt to EBITDA of 1.8x (including converts), up sequenally from 1.7x. Its healthy balance sheet remains a key compeve advantage in terms of winning addional projects. Recall that management is on the lookout for a potenal transformave acquision to bolster its posion in eastern Canada and/or the Marimes; ARE realized the acquision of Pacific Electrical Installaons in 4Q. The company increased its quarterly dividend by 6% to C$0.185share (implied yield of 4.3%)—a testament to its posive outlook.
Finally, the outlook for 2022 is posive, thanks to the healthy backlog level and project awards secured since the beginning of the year. With the gradual liing of COVID-19 restricons in early 2022, we are comfortable with the consensus for 2022 (revenue of C$4.2b, with an adjusted EBITDA margin of 6.7%). Accordingly, we would view any share price weakness tomorrow as a buying opportunity.
On the conference call tomorrow (10am EST; dial-in 833-950-0062, passcode #254589), we will be looking for more colour on the outlook for 2022, the bidding/M&A pipeline and progress on the ramp- up of key contracts.