Post by
retiredcf on Nov 14, 2021 11:01am
CIBC Report
EQUITY RESEARCH
November 10, 2021 Earnings Update
BIRD CONSTRUCTION INC.
Record Pending & Hard Backlog – Q3/21 Review
Our Conclusion
BDT reported a solid Q3/21, with the company seeing higher activity across all work programs as the construction market continues to recover from the
pandemic. We continue to expect that higher backlog (and pending backlog) levels, and more opportunities engendered by the Stuart Olson and Dagmar acquisitions, should result in strong organic top-line growth in 2022. We have left our forward estimates largely unchanged, but raise our price target from $12 to $13 on a better-than-expected leverage position this year. We maintain our Outperformer rating.
Key Points
Backlog In Great Shape; Bidding Pipeline Strong: After remaining
relatively flat due to COVID-19-related timing delays in project tenders and awards from clients, backlog has begun to grow. During Q3/21, BDT’s backlog of $2.83B (quarterly book-to-bill ratio of 1.2x) was up 4.4% Q/Q and 5.4% YTD. About 62% of this backlog will convert into revenue over the next 12 months (providing better visibility into next year). Note that Q3/21 backlog does not include the OPG Clarington Campus project ($300MM+), three integrated project delivery projects ($150MM+), or Toronto Western Hospital project awards. Of the $1.8B in pending backlog (a record level), ~$900MM is in master service agreement-type contracts (recurring revenue, typically with oil/industrial clients). As these contract types range between one to
five years, it would be reasonable to assume just under ~$200MM is
converted to hard backlog over the next 12 months. Of the remaining
~$900MM, BDT expects the majority to be converted to hard backlog over the next 12 months.
Challenging Y/Y Margin Comparison (Lack Of CEWS), But Several
Levers To Boost Margins: While Stuart Olson (lower margin) and the lack of CEWS will continue to weigh on margins in the near term, a higher mix of self-perform industrial work (higher margin), a full run-rate of SOX synergies, and improving project productivity through the pandemic should drive a recovery in margins. Further, the recent Dagmar acquisition will support more self-perform work in the civil infrastructure sector. Wage inflation is unlikely to have a material impact as BDT typically has multi-year labour agreements in place. Excluding CEWS, we see EBITDA margins reaching ~5% in 2022E vs.
just under 4% in 2020/2021E.
Stuart Olson/Dagmar Acquisitions Provide Catalysts For Growth: High oil prices are translating into higher sustaining capital spend for customers, and BDT is seeing more opportunities in this space. Note, Metrolinx has been a key customer for Dagmar, and we would expect more rail/road opportunities to flow into BDT’s pipeline over the mid-term. The rail sector, in particular, could be a significant catalyst for long-term growth.