2025 BUDGET INTRODUCED - NOT MATERIALLY DIFFERENT THAN MARKET VIEW
THE TD COWEN INSIGHT
MTL released its 2025 business plan, in-line with our forecast (factoring in M&A contribution) and slightly below cons. Plan doesn't suggest meaningful downside for consensus, and market awareness of management tendency to provide conservative early guide likely means limited market reaction, in our view. No change to bullish investment thesis based on low valuation.
Impact: NEUTRAL
The 2025 EBITDA budget implies 4.6% y/y growth, a reasonable expectation given the challenging environment for underlying rates and volume, expected to persist through H1/25. Consensus estimates for comparables average +13% y/y, not surprisingly representing greater torque to a recovery, but in recent years, also more volatile and susceptible to downward revisions. In our view, this highlights the value in MTL's diverse group of niche business units and attractive risk profile, in particular given its historically large valuation discount.
Guidance assumes $150 million of M&A vs. our nil assumption. Assuming M&A at 6.5x (current fwd multiple) to 8.0x (TD Cowen target multiple) EBITDA, it implies 2025 M&A EBITDA of approx. $9-12 million and 2025 EBITDA excl. M&A of approx. $340 million. Although our estimate of core EBITDA is slightly (4.0%) below cons, given our view of the conservatism factored into the budget, we do not expect the market to view the difference as material.
2025 Plan
Revenue higher-than-forecast and consensus, though guide biased higher by (undisclosed) M&A assumption ($150 million capital vs TD Cowen: nil). $2.2 billion of revenue (TD Cowen/ cons: $2.059 billion/$2.097 billion), implying approx. +8.6% y/y, still above our forecast and consensus based on our assumption for M&A revenue contribution implied by budget. Budget assumes modest Canadian economic growth (TD Cowen: 1.7% real GDP growth).
Consolidated EBITDA budget of $350 million in-line with TD Cowen ($346 million) and cons ($353 million). Excl assumed M&A in budget, core EBITDA budget closer to $340 million (+4.6% y/y). EBITDA budget implies +7.7% y/y and 15.9% margin (TD Cowen/cons: 16.8%/16.9%). M&A assumption in budget could contribute to lower margin vs our forecast, though estimated adjusted/core guide still appears slightly below, likely conservatism in budget, in our view.
Capex in-line with forecast ($100 million vs. TD: $98 million).
Other: Monthly dividend continues at $0.07/share ($0.84 annualized), in-line with forecast.
Plan to renew NCIB in March/25.