Following its US$375-million acquisition of Texas-based Hixson Lumber Sales., several equity analysts raised their target prices for shares of Doman Building Materials Group Ltd., formerly known as Canwel Building Materials Group, on Monday.
On Friday, the Vancouver-based company announced it will complete the acquisition, which will have the ability to triple its U.S. business, by utilizing cash on hand and existing senior credit facilities. It also increased its senior revolving loan facility limit from $360-million to $500-million.
“We believe the significance of the transaction is threefold: 1) It significantly expands DBM’s US business. Hixson is expected to have current run-rate revenues of approximately US$900-million, which would on a combined basis result in an effective tripling of DBM’s U.S. market exposure,” said Stifel analyst Anoop Prihar. “The acquisition also allows DBM to immediately scale up its presence within Central U.S., including in fast growing states such as Texas. 2) It strengthens the company’s higher-margin wood treatment business. Post the transaction, DBM expects to be one of the largest pressure-treated lumber producers in North America, with 32 treating plans and approximately 2 billion board feet of annual capacity. 3) Transaction is financially attractive and is expected to be accretive on an EPS basis.”
After raising his 2021 and 2022 revenue and earnings estimates, Mr. Prihar bumped up his target to $14 from $11.80 with a “buy” recommendation. The average on the Street is $12.54.
Others making changes include:
* Raymond James’ Steve Hansen to $13.50 from $12.25 with an “outperform” rating.
“While precise financial data was not provided, our initial impressions suggest this transaction offers a broad range of strategic and financial benefits, including: 1) complimentary scale in attractive, high-growth U.S. markets; and 2) attractive earnings and free cash flow accretion, conservatively estimated by management at more than 55 per cent on normalized earnings. Coupled with better-than-expected macro tailwinds in North American housing and building materials markets, we are increasing our target price,” said Mr. Hansen.
* National Bank Financial’s Zachary Evershed to $13.50 from $12.50 with an “outperform” rating.