Our view: We will be touring next week one of BVGlazing's construction sites in Toronto. The tour will provide us with a first-hand look at the segment's product lineup at one project. We expect focus will be on the impact of recent rate cuts on demand, updates on the synergy benefits from BV and Quest, and the meaningful long-term growth opportunity in Windows given the structural housing shortage in both the US and Canada. Key is that we believe Exchange's growth profile provides a solid long-term investment opportunity, not fully priced into the shares at current levels in our view.
Key points:
BVGlazing Systems project tour. Exchange will host a site tour on October 10th at one of BV’s construction sites, which will showcase the segment's product portfolio, including curtain walls, unitized window walls, and railings. The event will be hosted by Exchange's senior management, CEO Mike Pyle and COO Darwin Sparrow. We will also be hearing from BV's President, Mike Cornacchia, on the tour.
Demand environment inflecting in our view. We expect to get an update on the near-term demand environment, particularly as mgmt noted solid booking momentum post quarter end in Q2, following the July rate cut. We note that the level of rental construction across Canada's largest cities in 1H2024 was the highest since the 1990s and is likely to support backlog growth looking ahead (see Exhibit 1). Overall, we expect further rate cuts to stimulate construction demand and improve the company's conversion from quoting to backlog.
Leaner and meaner. We expect an update on efficiencies gained from the integration of Quest and BV, including reductions in their combined real estate footprint and administrative expenses. Moreover, the company is bearing higher labour costs in preparation for a possible surge in production; therefore, we believe the Windows division is well situated to realize substantial operating leverage once consumer demand accelerates.
Long-term strategic opportunity in Windows. We believe management will address the long-term opportunity surrounding housing demand, particularly apartment construction as immigration and lack of affordable housing remain strong throughout Canada and in the US. We recognize that recent policy initiatives intended to promote higher-density development are likely to act as a demand tailwind longer term.