AirBoss of America Corp T.BOS

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[retiredcf]

Raise their target by two bucks to $46.00. GLTA

AirBoss of America Corp.

(BOS-T) C$40.91

Q2/21; Momentum Continues To Build Event

After market close on August 10, AirBoss reported Q2/21 Adjusted EBITDA of $25.1 million compared with our forecast/consensus (ex-TD, ex-outliers) of $20.9 million/ $14.1 million. Adjusted EPS of $0.65 compared with our forecast/consensus (ex-TD, ex-outliers) of $0.40/$0.21. Reported results included a $6.5 million benefit from a U.S. government loan that was forgiven during the quarter. Excluding this, Adjusted EBITDA was $18.6 million, and we estimate that Adjusted EPS was $0.47.

Impact: SLIGHTLY POSITIVE

We are maintaining our HOLD recommendation and increasing our target to C$46.00 from C$44.00. The increase primarily reflects the shift forward of our valuation period by one quarter. Q2 results were above consensus even after adjusting for non- recurring items, and guidance for 2021 remains unchanged.

We believe that AirBoss is in the process of showing investors that its significant jump in revenue and earnings in 2020/2021 will be sustainable, which we believe could bias its valuation multiples higher. We estimate that by the end of 2021, the company's three large PPE contracts that we estimate will have accounted for approximately 45% of total revenue from Q2/20 through Q4/21 will be completed. This will enable the company to demonstrate its ability to replace this revenue with follow-on orders or other defense and/or healthcare related contracts in 2022 and beyond. Our target multiples are significantly above the company's historical range, but remain a slight discount to best-in-class comparables (Exhibit 3).

We believe that potential contract awards, as well as M&A that accelerates the company's growth strategy, could be positive catalysts over the near term. In our view, AirBoss' balance sheet position, and positive momentum from the merger with CSI, support a positive view of potential M&A.

TD Investment Conclusion

We believe that AirBoss' strong balance sheet, dividend, and growing exposure to global demand for personal protective equipment make it an appealing investment. We believe that its Defense segment is increasingly well-positioned to drive strong earnings, while its legacy Rubber Solutions and Engineered Products segments regain momentum. At this time, we believe that the above-mentioned factors and risk associated with expected future contract wins are appropriately reflected in the stock valuation.