ATS Corp T.ATS

TD

[retiredcf]

Have a $71.00 target. GLTA

ATS Corporation

(ATS-T) C$57.92

U.S. IPO Provides M&A Flexibility and Wider Pool of Investors Event

We are resuming coverage of ATS following its U.S. IPO, which raised gross proceeds of ~US$283mm or ~$385mm (6.9mm shares at US$41.00/share).

Impact: NEUTRAL

• Strong Business Momentum: F2023 revenue was a record $2.6bln, up 18% y/y (9% organic growth), and bookings were a record $3.3bln, up 33% (25% organic growth) for a TTM book-to-bill ratio of 1.26. Adjusted EBITDA was a record $401mm (15.6% margin), as ATS capably managed supply-chain constraints. The backlog is a record $2.2bln, which provides good F2024 visibility, and although ATS is starting to lap difficult prior-year bookings comparables, we are encouraged by its recent wins in assembly systems for auto-injectors (e.g., weight-loss drugs) and in pilot production lines for a couple of new EV customers, which should have good potential for follow-on orders.

• Target-rich M&A Environment: ATS will apply the IPO proceeds against its line-of-credit initially, but expects to use them for strategic M&A eventually. The highly fragmented automation industry is target-rich, and ATS has executed on a transformational level of M&A under Andrew Hider's leadership, deploying >$1bln to seven medium-to-large transactions and numerous tuck-ins. The company has established a strong track-record of value creation through M&A by building a much more comprehensive life sciences offering and originating a food/beverage platform, whereby a majority of revenue now comes from markets with higher growth/lower cyclicality. ATS' M&A funnel remains active across all target sizes, and the U.S. IPO will reduce leverage to 1.8x net debt/TTM adjusted EBITDA vs. 2.7x, providing much more financial flexibility. We anticipate that further M&A will be focused on adding depth/breadth to ATS' capabilities in life sciences and food/ beverage, but we do not sense that a deal is imminent.

  TD Investment Conclusion

  We view ATS as uniquely positioned to benefit from supply-chain de-risking and see continued scope for margin improvement and M&A upside. A U.S. listing opens the stock to a much wider universe of investors, which should support multiple expansion, and provides a more attractive potential acquisition currency. We anticipate that ATS will reschedule its New York Investor Day for early fall, which should be a positive share-price catalyst.