CIBC ReportEQUITY RESEARCH
December 12, 2024 Transferring Coverage
ATKINSRALIS GROUP INC.
Engineering A Bright Future
Our Conclusion
As of December 12, we transfer coverage of AtkinsRalis Group to Krista
Friesen from Jacob Bout. As we look out to 2025 and the next three years for
ATRL, we see significant opportunity for the company, whether it be in
nuclear, divesting of non-core businesses, or achieving the Investor Day
targets it presented in June of this past year. We maintain our Outperformer
rating with a price target of $90 (was $80) based on a sum-of-the-parts
valuation.
Key Points
Nuclear Offering Supported By Long-term Tailwinds: As it is one of the
few players with the capabilities to work on the entire nuclear lifecycle, we
believe ATRL is uniquely positioned to gain from the long-term tailwinds of
the nuclear super cycle. We are forecasting Nuclear revenue to grow at a
CAGR of ~18% from 2023 through 2027, reflecting work on life extension
projects, new builds, and nuclear services.
Supportive Environment Across ATRL’s Geographies: We see a number
of positive tailwinds across ATRL’s geographies which should help drive
topline growth over the next three years. In Canada, ATRL’s TAM of $21B
reflects government spending on industrial, transportation, and building
initiatives. In the U.S., ATRL’s ~$40B TAM is supported by initiatives such as
the Infrastructure Investment and Jobs Act (IIJA), the CHIPS and Science
Act and the Inflation Reduction Act (IRA).
Working Toward Margin Expansion: A key focus for ATRL over the next
several years is to improve its margin profile. During its 2024 Investor Day,
ATRL laid out a financial target of 17%–18% ESR EBITDA margin by 2027,
reflecting a 200–300 bps improvement from 2023. We see this as achievable
and are expecting ESR margins to reach 17.3% in 2027.
Exiting Non-core Businesses: We believe ATRL’s decision to exit a
number of non-core businesses helps to simplify its business as well as
lower its risk profile. In July 2019 ATRL stopped taking on LSTK projects and
as of Q3/24 its LSTK backlog stood at $190MM. Over the next two years we
also expect the company to divest its remaining stake in the 407 Highway
and Linxon business. We see opportunity for ATRL to redeploy the proceeds
from the sale of Highway 407 in share repurchases or acquisitions.
Assuming ATRL can complete acquisitions at a high-single-digit multiple, this
could suggest ~$13+ upside to ATRL’s share price.
Rolling Out 2026 And 2027: We have rolled out our 2026 and 2027
estimates to reflect the company’s Investor Day guidance. We use a sum-of-
the-parts valuation to derive our price target and apply a 13.5x multiple to
ATRL’s E&C business