While he expects TerraVest Industries Inc. to maintain its “steady growth trajectory” in 2026, National Bank Financial analyst Zachary Evershed lowered his recommendation for its shares to “sector perform” from “outperform” based on valuation considerations ahead of the release of its fourth-quarter results on Dec. 6.
“While both the business and management are unquestionably of high quality, valuation appears to now fully reflect M&A potential; after a 61.7-per-cent climb since our initiation (vs. S&P/TSX Composite Index up 12.1 per cent), we move to a Sector Perform rating and will await a better entry point,” he said.
Mr. Evershed said he continues to see the industrial manufacturer’s “dominant competitive position across products and regions to allow for pricing gains to carry flat or slight declines in volume on average.”
“On the profitability front, we flag that steel pricing has likely bottomed, and is set to flip from a tailwind to a headwind for the portion of the business not yet matching procurement to backlog (Highland Tank),” he said. “We believe 2026 will benefit however, from the continued integration of HT and AEP [Highland Tank and Advance Engineered Products], and what we anticipate to be a turnaround/restructuring of Argo within the Processing Equipment segment. On the balance, we forecast a 20.7-per-cent margin for 2026, a 40 basis points increase year-over-year.”
“With a clean balance sheet sitting at 1.4 times Net Debt/EBITDA and $250-million in dry powder, combined with the equity raise signaling interest in chunkier targets, we believe the company’s M&A appetite remains significant and TVK is likely to execute on transactions comparable to HT.”
After rolling his financial model to 2026, Mr. Evershed increased his target to $128 from $104. The average is $109.67.
“We highlight TerraVest’s likely inclusion within the S&P/TSX Composite Index during the December 2024 rebalance (approximately 0.33 million shares; ADV 6.27 tims; $39 million notional demand), which will be announced on December 6,” he added.