CIBC Notes1) Finning (Outperformer; $50 Price Target)
Our Conclusion – Very Strong 2025 Expected: We expect growth in Q3/24 to be better than Q2/24 and we continue to expect a stronger H2/24, supported by constructive new equipment outlook (Chile and Canada) and product support growth recovery in the U.K. and Chile. We expect 2025 to be a very strong year for new equipment sales, given ramp-up of mining activities in Chile, and 2026 should be strong for product support in Chile. In Canada,
we expect product support to be bit softer as oil sands producers focus on debt reduction and postpone maintenance (e.g., Suncor, Imperial). We expect cash flow to be stronger in Q3/24 as management is focusing on utilization rates, reducing capex, and normalizing working capital levels. Development of a conducive political/regulatory environment in Argentina could be a new business opportunity in the long term (mid-term elections in Argentina would provide more clarity on this). We expect FCF yield of 8.3% and 8.1% in 2024 and 2025, respectively. At ~10x 2025E P/E, there continues to be a strong valuation argument (20-year mean: ~13.5x). We increase our price target from $49 to $50 and maintain our Outperformer
rating.
Q3/24 Preview: As shown in the Exhibit 33 table, we forecast Q3/24 adj. EPS of $1.06 (vs. consensus $1.05), implying a ~0.5% Y/Y increase. Overall, we are expecting a solid result from Chile and a slight improvement in U.K. and Canada (with the one caveat that some oil sand producers have delayed maintenance, impacting parts and service revenue). Overall, we expect modest revenue growth (+3% Y/Y) driven by growth in new equipment sales and product support. We expect margins to be lower Y/Y due to improved product availability (particularly in used and rental), offset partly by SG&A optimization. The focus for Q3/24 will be on the anticipated ramp in backlog (focus on Chile as new copper projects ramp), utilization rates in oil sands, and product support recovery.
FTT: Our $50 price target is calculated by applying a multiple of 11.5x to our 2025E EPS. We apply a lower-than-historical mean multiple to reflect the risk of an economic slowdown. After a robust few years, we forecast modest revenue growth in 2024/2025 vs. 2023, offset partly by lower margins to reflect an easing supply-chain/pricing environment.