ATS Corp T.ATS

Alternate Symbol(s): ATS

Industrials

ATS Corporation is an automation solutions provider. It uses its knowledge base and global capabilities in custom automation, repeat automation, automation products and value-added solutions, including pre-automation and after-sales services, to address the sophisticated manufacturing automation systems and service needs of multinational customers in markets, such as life sciences, transportation, food and beverage, consumer products, and energy. It engages with customers on both greenfield programs, such as equipping new factories, and brownfield programs, including capacity expansions, production relocations, equipment upgrades, software upgrades, efficiency improvements and factory optimizations. It offers post-automation services. It offers artificial intelligence and machine-learning-based tools for industrial production. It designs and manufactures automated water purification solutions. It also manufactures lab equipment for the life sciences and pharmaceutical industries.

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ATS Corp

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Post by retiredcfon Sep 07, 2023 10:07am

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Post# 35623877

TD

Have a $70.00 target. GLTA

ATS Corporation

(ATS-T) C$60.75

Attractive Runway for Top-line Growth and Margin Expansion

Event

ATS hosted an Investor Day in New York yesterday.

Impact: SLIGHTLY POSITIVE

Business Transformation: Management has purposefully reoriented ATS' end- market exposure/revenue mix to improve the company's growth profile and earnings resiliency. Life sciences, green tech (e-mobility, nuclear, etc.), and food & beverage now comprise ~85-90% of revenue vs. ~60% in F2018; likewise, custom integration has declined to 44% of revenue from 52%, in favour of a larger contribution from standard/modular products.
Attractive End-markets: ATS has leveraged strategic M&A in life sciences to become a dominant player in: 1) medical devices; 2) diagnostics; 3) pharma/ radiopharma; and 4) pharmacies/labs. The company has also originated a food & beverage platform, which is a leader in primary processing, and has strong building blocks for downstream expansion. In green tech, ATS is a market leader in EV module/battery-pack assembly and nuclear refurbishment/decommissioning, with line-of-sight to emerging opportunities in grid battery storage, small nuclear reactors (SMRs), etc.
Recurring Revenue: ATS generates ~25-35% of revenue from recurring sources and sees considerable scope to increase this over time. Services comprise ~30% of revenue, and we believe that ATS is still a long way from realizing the full potential of its installed base (which expands by ~$1bln/year), given that it automates mission-critical processes where the value proposition of avoiding costly downtime through professional maintenance is compelling. With regard to the trend towards factory digitalization, ATS brings a unique understanding of customer production processes, which is highly differentiated vs. that of a generic analytics provider and extends across both ATS/non-ATS systems.

TD Investment Conclusion

We believe ATS has considerable remaining runway for top-line growth and margin expansion, both organically and through M&A. The company will be lapping difficult prior-year bookings comparables in Q2/F24-Q3/F24, but it has a near-record backlog (~$2bln), which provides visibility into F2025, and is largely positioned in end- markets with lower cyclicality. The valuation is above the 10-year range of 9.7x–12.9x (EV/EBITDA), but, in our view, a premium is warranted based on the above, and the upside associated with a larger universe of potential investors/research coverage.