National Bank In a research report released Monday titled Growing, defensive and a discount to peers, National Bank Financial analyst Rupert Merer reduced his first-quarter projections for GFL Environmental Inc. to reflect a weaker-than-anticipated Canadian dollar, lower fuel and commodity prices, less contribution from M&A and higher interest rate forecasts.
Ahead of the May 1 release of the Vaughan, Ont.-based company’s results, he’s now projected revenue of $1.798-billion, down 1 per cent from his previous estimate of $1.818-billion but remaining above the consensus forecast of $1.782-bilion. His adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) estimate slid by $5-million to $445-million, exceeding the Street by $4-million.
Moving forward, Mr. Merer sees GFL balancing M&A activity with deleveraging efforts for the remainder of 2024 with organic growth continuing.
“GFL could see $800-million of internal FCF generation in ‘24E, supporting roughly $600-650-million for tuck-in M&A and $250-300-million of investments into sustainability initiatives,” he said. “Its EPR-related investments in 2024E should also add $40-50-million in adj. EBITDA annually. While leverage has been a concern, we do not believe that GFL’s investments should change the trajectory of its deleveraging process, and it should close the gap with its peer group. Including M&A and other growth investments, GFL should finish 2024 with net leverage in the 3.65-3.85 times range.”
“For 2024, GFL is guiding towards $8.00-bilion in revenue (NBF $8.16-billion). This is driven by 6-6.5-per-cent price growth in Solid Waste, 5-5.5-per-cent organic growth in Environmental Services, and contribution from M&A rollover of 4 per cent. In the event of more resilient inflation, costs should be able to be passed through to customers more effectively than other sectors. On the flip side, if the economy weakens, waste has historically been a defensive sector.”
Maintaining an “outperform” rating, Mr. Merer cut his target for GFL shares to $55 from $56 to reflect a rise in bond yields. The average target on the Street is $52.75.
“GFL has lagged its peers over the last few months, and now trades at 12.8 times our 2024 estimates, versus its peers at an average of 16.2 times,” he said. “With a reduction in debt levels and the addition of some high-return investments in EPR and RNG, we believe GFL should converge with its peers.”