National Bank Initiates Coverage Expressing confidence in “the execution of management’s acquisition strategy, complemented by its history of extracting organic growth in mature industries,” National Bank Financial analyst Zachary Evershed initiated coverage of TerraVest Industries Inc. with an “outperform” recommendation on Monday.
“TerraVest (TVK) is a consolidator of businesses operating in niche end-markets with activities primarily focused on steel product manufacturing. The company has over 25 operating businesses across its HVAC (32 per cent), Compressed Gas (28 per cent), Processing Equipment (16 per cent), and Service (24 per cent) segments, and is a leading player within markets related to storage vessels, boilers, wellhead processing, and fluid management,” he said. “Led by a young management team with an established track record of value creation, TVK shares have produced total shareholder returns of 34 per cent per year since their instatement in 2014; yet despite this achievement, we believe that the company still has further room to grow.”
After completing 21 acquisitions that have added approximately $750-million in sales since 2014, Mr. Evershed continues to see Toronto-based TerraVest’s “M&A engine rumbling.”
“Aiming to compete in niche, mature industries with low capital intensity and favourable competitive dynamics, TVK’s acquisition strategy is focused on procurement synergies, primarily steel but applicable to other components; shifting company culture towards a focus on profitability, often accompanied by overhead rationalization and price hikes; and access to the TVK network for internalized functions such as automation, sandblasting, and instrumentation,” he said. “TVK aims to pay between 4-6 times EBITDA and further reduce the transaction multiple by 1-2 times via the aforementioned synergies.
“Pro forma the AEP acquisition ($26 million) and the equity raise ($96.5 million), we calculate that TerraVest can acquire $50-150 million in incremental EBITDA at historical multiples while staying inside management’s comfort of 3 times PF Net Debt/EBITDA. Specifically, we highlight the potential for further bolt-on acquisitions onto Highland Tank to further complement its organic growth profile, and the foray into a diverse set of end markets brought about by the acquisition of [Advance Engineered Products].”
The analyst set a target of $89 for TerraVest shares. The current average is $91.67.
“We are initiating coverage on TVK with an $89 target price, based on 10.75 times 2025 estimated EV/EBITDA comprised of a 9.5 times base multiple and a 1.25 times M&A growth premium representing $300 million in acquired sales per year, included in our valuation multiple but not baked into our estimates,” he said. “Our target implies a FY2 FCF yield (after leases and interest) of 4.2 per cent and can be replicated in our long-term DCF with a discount rate of 8.1 per cent.”