ScotiabankScotia’s Michael Doumet also reduced his Badger Infrastructure Holdings Ltd. (BDGI-T) target to $48.50 from $52 with a “sector perform” rating. The average is $53.50. “1Q EBITDA was as expected. It was delivered differently, however: the U.S. outperformed and Canada lagged,” he said. “There are two ways to look at this: (i) strong growth and margin expansion in the U.S. exactly highlights one of the main opportunities BDGI made at its IR Day — i.e. that higher utilization can be converted into price, operating leverage, and margin expansion — or (ii) that 2024 results will be overly reliant on the U.S. performance as Canada lags for several Qs (Canada accounted for 13% of the 2023 EBITDA).
“BDGI shares have retraced from its late-March highs. The shares trade at 7.4 times EV/EBITDA on our 2024E, roughly in-line with its historical average. At its recent IR day, management highlighted a multi-year opportunity for double-digit organic growth (12-per-cent to 14-per-cent CAGR) and margin expansion. We believe the outlined margin expansion opportunity has led to recent re-rate seen in the LTM. Going forward, we believe the shares could be range-bound as we view 2024 and 2025 as the ‘show me’ years to the story (the reason we lowered our valuation multiple). All told, we believe that the many initiatives either implemented or discussed (as future implementations) are making sustainable improvements to the business.”