IA Capital IA Capital Markets analyst Naji Baydoun continues to see a “fundamentally health” growth outlook for Bird Construction Inc.
However, seeing “heightened macro-economic uncertainties,” he lowered his recommendation for the Mississauga-based company to “hold” from “buy” on Tuesday, expecting its expansion to “become challenged” over the near term.
“BDT has meaningfully de-risked its business profile over the past several years; the Company has taken deliberate steps to (1) diversify its client base/market exposure (reducing concentration risk), (2) develop self-perform capabilities, and (3) focus on lower-risk contract structures,” said Mr. Baydoun. “These initiatives, along with (1) the transformational acquisition of Stuart Olson (SOX) in 2020, and (2) Dagmar Construction in 2021, have materially rebalanced the Company’s risk profile and improved its backlog (via a more stable portfolio).”
“The previously noted significant transformation of BDT has translated into more sustainable top-line growth and impressive margin improvements; however, we are turning more cautious on the overall industry outlook. BDT’s Q1/22 results were impacted by a combination of productivity issues and supply chain challenges; along with heightened inflation, we see the potential for these variables to impact the near-term outlook for BDT via (1) cost increases, (2) project delays, and (3) a potential slowdown in new project activity. We do not see any material risks to BDT’s balance sheet from any potential near-term margin pressures given the Company’s relatively low leverage profile.”
Seeing the potential for industry challenges in the near term, Mr. Baydoun reduced his financial forecast for Bird, taking a “more conservative” stance. Now seeing compound annual growth of 3.5 per cent, down from 4.6 per cent previously, his full-year earnings per share estimates for 2022, 2023 and 2024 slid to $1, $1.07 and $1.09, respectively, from $1.07, $1.15 and $1.13.
His target for Bird shares fell to $10 from $11.50. The average on the Street is $11.36.
“We continue to like the long-term value proposition in BDT’s shares (from a combination of sustainable growth and an attractive dividend yield); however, at this time, we prefer to wait for either a better entry point or additional developments before accumulating the shares further,” said Mr. Baydoun.
“BDT offers investors (1) mid-single-digit revenue, Adj. EBITDA, and FCF/share growth (4-6 per cent per year, CAGR 2021-26), (2) exposure to the Canadian construction sector with potential upside from additional infrastructure investments and tuck-in M&A, (3) an attractive dividend (more than 5-per-cent yield, 20-30-per-cent FCF payout), and (4) a discounted valuation compared with peers.”