(BOS-T) C$36.95
Q4/21 Preview Event
AirBoss is expected to report Q4/21 results in early-March (no date disclosed at this time). We forecast Q4/21 adjusted EBITDA of $24.7 million, in line with consensus of $23.9 million. We forecast EPS of $0.42 versus consensus of $0.44.
Impact: NEUTRAL
We are maintaining our BUY recommendation and adjusting our target price to C $52.00 from C$53.00. We have made minor adjustments to our Adjusted EBITDA and EPS forecasts to reflect updated currency, rubber price, industry assumptions, and other minor modelling updates.
We forecast 136% y/y growth for the Defence segment. Based on company indications, it is expected that a significant portion of the large contract from the U.S. Department of Health and Human Services (HHS) for nitrile gloves will be delivered in Q4/21, a revenue contribution that we assume will be approximately $150 million. We forecast that Rubber Solutions revenue will increase 47% y/y, similar to the 45% growth reported in Q3/21. Volume momentum and the impact of passing through a portion of higher rubber costs to customers account for the growth.
Despite the significant y/y increase in revenue, we forecast a decline in consolidated Adjusted EBITDA due to a change in product mix, higher operating expenses, and with a view towards management guidance for the full year. The significant Q4/21 contribution (approximately 60% of consolidated revenue) from what we assume is a lower-margin defence contract (nitrile gloves) is expected to increase revenue y/ y, while pressuring the margin percentage.
We believe that AirBoss is in the process of demonstrating its ability to generate follow-on orders or other defense/healthcare-related contracts in order to show the sustainability of its significant jump in earnings in 2020/2021. We believe that potential contract awards could be positive catalysts that could push the share price towards our 12-month target price.
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.