Q3/24 BEAT: FIRING ON ALL CYLINDERS
THE TD COWEN INSIGHT
Q3/24 PS&PM adjusted EBITDA was ~7% above consensus. Further, ATRL's AtkinsRealis Services backlog reached another record-high. Meanwhile, ATRL remains on-track to deliver on its 2024 consolidated cash flow from operations (CFO) guidance (in excess of $400mm), with the company generating $215mm of CFO YTD. On the whole, we see the Q3/24 release as aligned with our constructive stance on the name.
Event
Q3/24 PS&PM adjusted EBITDA of $233mm was ~7% above consensus/TD at $218mm/$219mm. Further, ATRL reaffirmed its full-year 2024 guidance. I
Impact: POSITIVE
Engineering Services Regions (ESR) segment revenue growth was +9.7% y/y (+8.4% organically), while adjusted EBIT was $186mm (vs. consensus/TD at $170mm/$174mm). Nuclear delivered +36.4% y/y revenue growth (+34.7% organically) and realized adjusted EBIT of $46mm (vs. consensus/TD at $47mm). Meanwhile, LSTK Project adjusted EBIT loss was $18mm (vs. consensus/TD at $14mm/$18mm).
Outlook Commentary: The company expects relatively flat y/y organic revenue for its ESR segment in Q4/24 due to the completion of several large projects and a tough prior- year comp. That said, ATRL reaffirmed its ESR full-year 2024 organic revenue growth guidance range of 8–10% y/y and its 2025–2027 organic revenue CAGR guidance of over 8%. Meanwhile, management remains upbeat about its Nuclear segment growth outlook, with this segment's backlog +84.2% q/q and +205.9% y/y at the end of Q3/24 (reached a record level; $3.2bln vs. $1.7bln at the end of Q2/24). Further, ATRL discussed the potential to secure numerous additional nuclear projects, including life extension work for various phases at Pickering, Wolsong, Qinshan, and Cernavoda (C1 Unit), and new build work for Cernavoda units 3 and 4. As a reminder, ATRL is calling for Nuclear segment organic growth to be in the range of 30–35% y/y for full-year 2024, and targets achieving revenue of $1.8bln–$2.0bln by 2027 (vs. implied guidance of ~$1.4bln for full- year 2024).
Encouragingly, ESR segment's Q3/24 adjusted EBITDA margin of 16.9% was +160bps y/y (vs. +110bps y/y in Q2/24). ATRL noted that it remains on-track to achieve its ESR segment margin improvement targets (at midpoints, the guidance implies ~150bps and ~250bps of adjusted EBITDA margin (on net revenue) improvement for 2024 and by 2027, respectively, vs. the 2023 level).
Overall, our estimates are little changed. Our target price increases to $98.00 (from $87.00), driven primarily by the use of higher target multiples on 2025E EBITDA for Nuclear (20.0x vs. 15.0x) and ESR (14.0x vs. 13.5x).