TDHave a $180.00 target. GLTA
AVL Acquisition a Key Focus of Investor
Meetings
THE TD COWEN INSIGHT
AVL’s enclosures are mainly sold to U.S. NE CAT dealers for data centers. Toromont does not
sell/service the engines, but AVL expects modest product support revenue. AVL generates
$250mm-$300mm of revenue, mainly out of Hamilton; Charlotte should 2x capacity.
Toromont is amortizing the acquired AVL backlog; the end of that amortization (late-Q1/26)
could lift annual EPS by up to ~$0.93 after-tax.
Event
We hosted Toromont for investor meetings in western Canada.
Impact: SLIGHTLY POSITIVE
AVL's primary competitive advantages are the highly engineered design of its enclosures/
its ability to rapidly scale production. AVL's design has been incorporated in the data
center templates of some key hyperscalers. AVL’s enclosures are mainly sold to U.S.
northeastern Caterpillar dealers. The local dealer sells/services the engine, but AVL's
enclosures have some components that will require maintenance, e.g. the switching,
radiator/exhaust, doors/hinges/gaskets. The DC opportunity in Canada has been slow to
develop, with some potential opportunities in 2027/2028.
AVL generates $250mm-$300mm of revenue, mainly out of Hamilton. The new Charlotte
facility should 2x capacity when it reaches full utilization, likely in mid-2026. AVL's cash
EBIT margin is ~30%-40%, although there could be downward pressure over time. On a
GAAP basis, earnings are being suppressed by amortization of the acquired backlog. That
amortization should end in late-Q1/26, which could lift annual EPS by up to ~$0.93 after-tax.
The actual increase will be <$0.93, because backlog amortization will be replaced to some
extent by dividends to AVL's 40% owners. The dividend paid in 2026 is still TBD and will be
based on 2025 earnings.
Construction/rental are a little slower on trade/economic uncertainty and residential
weakness, but construction is still above pre-COVID levels. The medium- to LT outlook is
increasingly positive, given the prospect of multi-year government infrastructure stimulus.
Mining has been a bright spot, and significant deliveries in gold during 2021-2024 provide
visibility to a future product support annuity, although there is a lag (~36 months). There
are opportunities in nickel/iron, although they may take time to materialize. New/used
equipment margins have normalized.
CIMCO has a near-record backlog. The company has lots of room to grow its LSD U.S.
market share and most of that growth will be organic. The DC market represents interesting
upside if CIMCO can get its natural refrigerant-based systems included in one of the major
DC templates (most DCs use synthetic refrigerants).