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AirBoss of America Corp. (BOS:TSX)
Price: $7.13
Market Cap: $193.441 Million
Company Description: Airboss develops, manufactures, and sells high-quality proprietary rubber-based products such as rubber compounds, rubber footwear, hand wear, gas masks, anti-vibration automotive components, and other industrial products, offering enhanced performance and productivity to the transportation, military, and industrial markets. The company sold Personal Protective Equipment (PPE) to the US government during the Pandemic – essentially specialized clothing or equipment worn by an employee for protection against infectious materials.
Surge in Sales & Profitability During Pandemic
AirBoss stock was a beneficiary of pandemic-era, non-competitive U.S. government contracts for PPE. The contracts are now likely one-time in nature, and any future contracts will be more competitive if signed meaning they will not likely show the profit margins during the pandemic when it was a question of just getting the product without any question of cost. These contracts led to a massive spike in EPS from 2019 at $0.55 per share to $1.49 in 2020 to $1.54 in 2021, but as the contracts rolled off, earnings cratered to a loss of ($1.26) in 2022.
Q1 2023 Financials
- Revenues decreased by 19.0% to $117 million.
- Adjusted EBITDA for Q1 2023 decreased by 47.6% to $10.32 million.
- EPS was $0.05 in the quarter down from $0.35 in Q1 2022.
Balance Sheet:
Cash: $16.6 million
Debt: $16.97 million.
Net debt: $122.35 million.
Net debt to TTM EBITDA ratio of 2.99x as at March 31, 2023. OK, but not spectacular particularly in a rising rate environment with profitability decreasing.
Valuation:
Forward PE: Based on expected 2023 EPS: ~23.
Expected to see a jump in 2024 earnings, but this may be overly optimistic if the economy sees the macro headwinds many expect at some stage.
Our Take:
It was somewhat encouraging to see Airboss’s profitability in the Defense segment rebound in Q1 after two consecutive quarters of lacklustre margins, with the division reporting adj. EBITDA of $4.1 million compared to a loss of $(1.5) MM and $2.4 MM in Q4 2022 and Q3 2022. However, the debt level is high for a business of Airboss’s size and cuts ito profitability and with little revenue growth expected in 2023 and into 2024 at present (outside new )the path to a higher share price appears to be margin improvement. While this is a positibility and it could drive the share price higher, we like to pair profit growth with revenue growth as, in tandem, the two are a more sustainable path to driving consistent profit growth long-term which drives share prices higher over years not just a one year rebound. At this point, we just MONITOR Airboss as the growth does not match our criteria.