Aecon Group Inc T.ARE

RBC Raises Target

[retiredcf]

Clearly this analyst hasn't been a fan in the past. As a result, the revised target doesn't make much sense either given the current SP but it's better than nothing. Their upside scenario target is now $30.00. GLTA

November 1, 2024

Sector Perform

TSX: ARE; CAD 27.52

Price Target CAD 25.00 ↑ 17.00

Aecon Group Inc.
Good underlying performance

Our view: Aecon Group Inc. ("Aecon") reported Q3 Adjusted EBITDA that was ahead of RBC/consensus forecasts, with the quarter reflecting no noise from legacy fixed price projects (vs. $277MM of losses over the TTM period and a $91MM loss in Q3/23). We raise our price target +$8 to reflect the improvement in the underlying business and reiterate our Sector Perform rating.

Key points:

Thoughts exiting Q3 – Q3 Adjusted EBITDA was ahead of RBC/consensus forecasts, with the quarter seeing no negative impact from the company's legacy fixed price projects. For perspective, Aecon realized a $91MM loss from these projects in Q3/23 and $277MM of losses over the TTM period (recall that in Q2/24, the company reached a settlement agreement on the CGL dispute, resulting in a $127MM accounting charge, and had updated its views on the remaining 3 fixed-price legacy projects, resulting in an additional $110MM charge). While management noted today that it expects substantial completion of the Eglinton and Finch LRTs in Q1/25, we note that go-forward results will still likely reflect some underlying assumptions for cost/arbitration recoveries associated with these projects, which could be reversed in the event of outcomes that are less favorable than currently anticipated (i.e., similar to CGL noted above). Further, Gordie Howe is still expected to be completed by Sep. 2025, and Aecon has previously outlined that its expects the potential for future cash losses through to completion of the remaining legacy projects to not exceed $125MM (vs. backlog of $182MM exiting Q3 for the legacy projects; for perspective, Aecon had $197MM in cash + equivalents exiting Q3, excluding balances held by joint operations).

Q3 Adjusted EBITDA above consensus; underlying Construction segment reported Adjusted EBITDA margin of 10.6% – Q3 revenue of $1,275MM (+2.9% YoY, which included $77MM of revenue from the fixed price legacy projects) was largely in line with RBC/consensus of $1,240MM/ $1,262MM, while Adjusted EBITDA of $127MM was above RBC/consensus forecasts of $114MM/$116MM. Excluding the legacy project revenue, Aecon's underlying Adjusted EBITDA margin on its Construction business was 9.5% in Q3/24 and 7.9% on a LTM basis (vs. 10.4% in Q3/23 and 8.6% LTM as of Q3/23) and its consolidated Adjusted EBITDA margin was 10.6% in Q3/24 (which in part reflects equity-accounted contribution from the Concessions segment; vs. 11.2% in Q3/23). Looking ahead, backlog exiting Q3 stood at $5,980MM (-3.6% YoY; -3.3% QoQ), with new contract awards in the quarter totaling $1,069MM (+80.9% YoY). See inside for additional details.

Consolidated revenue largely in line with RBC and consensus forecasts

Q3 revenue of $1,275 million (+2.9% YoY,) was largely in line with RBC/consensus forecasts of $1,240/$1,262 million. By segment, Construction revenue ($1,273 million vs. RBC forecast of $1,240 million) was modestly above our expectations, while Concessions revenue ($2.6 million vs. RBC forecast of $3.0 million) was modestly below.

Adjusted EBITDA ahead of consensus forecast

Aecon reported Adjusted EBITDA of $126.9 million vs. consensus forecast of $116.2 million. Excluding the losses on the legacy projects, Aecon's underlying Adjusted EBITDA margin on its Construction business was 9.5% in Q3/24 and 7.9% on a LTM basis (vs. 10.4% in Q3/23 and 8.6% on a LTM basis as of Q3/23) and its consolidated Adjusted EBITDA margin was 10.6% in Q3/24 (which in part reflects equity-accounted contribution from the Concessions segment; vs. 11.2% in Q3/23).

 

[Gabriel]

Thank you for always posting analyst comments.

[RANDMASTER]

Seems to me analyst are always way behind any upticks or so opptimistic that there is no credibility. Do your own due diligence, ignore the pundits but be patient. ARE has rebounded from year ago lows of $10.30 when analyst were forecasting high teens.  Now with the stock nearing the $30s they're raising their targets from $17.00 to $25.00 ? Myself I see this one climbing above the

[Ronbromleygross]

Analysts (many but not all) I find are nothing more than Monday morning QB's who point out the obvious when it's apparent to everyone.  They do not want to stick their necks out on the line and provide elevated share price targets in case companies they cover do not deliver and their share prices decline after each ER.   It's very bad publicity for the firms those analysts

[SurfForWealth]

Hey Ron, Here is a true story about my mutual fund purchase. I think I know what I am doing but not always sure. On Dec 1 2004, I carefully researched and decided to buy $5,000 of the Mawer New Canada Fund. My intent was to continue to add in $5K increments over time. They closed the fund to new money just after I got in. I have held on & dripped it for the 20 years. It is now worth $39,698.98

[Ronbromleygross]

Well done and congrats.  No disrespect  meant.  Just a saying from Warren buffet and my own experience with mutual funds Ron

[Gabriel]

Good to hear from you Surf. Below is for your kind consideration. You made an annualized 10.915 % compounded over 20 years (694% total). 39,698.98$ = 5,000$ * (1.10915)^20  In the meantime, The SP500 did 10.57% annualized or 665.3%.So the fund did beat the index. https://curvo.eu/backtest/en/market-index/sp-500?currency=usd

[Gabriel]

But if you follow Gabriel and the good fellas on this board, and help us avoid costly mistakes we could together beat those returns instead (over the last 5 years) shown as of last week, so presumably we are closer to 40% now. https://www.dropbox.com/scl/fi/ibrxa9zz299a5gre9mr21/Image-1.PNG?rlkey=qd1h0uzdy7wadbq9jwzuerzg3&e=1&st=zppr7a34&dl=0

[SurfForWealth]

Actually Aecon has become my largest individual stock holding and very close to my largest position period catching up to a couple core ETF holdings. I have a diversified portfolio which is down to 12 holdings. The lowest I have been in many years. As a retiree I need to practise risk management. Aecon is now just a few dollars short of becoming my biggest money maker for an individual stock ever.