Exco Technologies is still a pass, says Industrial Alliance

Better-than-expected EBITDA margins in the latest quarter for Exco Technologies (TSX:XTC) were not enough to move the needle for analyst Nav Malik of Industrial Alliance Securities. In a research update on Thursday, Malik reiterated his “Hold” rating while raising his target price from $10.25 to $10.50.

A global supplier to the die-cast, extrusion and automotive industries, Exco Technologies reported its first quarter 2019 ended December 31 results on Wednesday, showing sales of $142.1 million and Adjusted EBITDA of $20.6 million. Exco’s top line represents a 5.4 per cent year-over-year uptick in revenue, while the Adjusted EBITDA was 6.6 per cent higher year-over-year.

Malik says that revenue arrived in line with his expectations but that at 15.5 per cent the EBITDA margins were about a percentage point higher than his forecast. Overall, Malik says the quarterly results were slightly higher than his expectations but that he’s making no changes to his outlook and estimates.

“While company-specific and macro challenges persist (i.e., competitive pricing pressure, higher labour costs, and raw material cost inflation), we view Exco’s initiatives to improve operational efficiency, target specific organic growth opportunities and focus on higher margin products as positive. In addition, the Company has a clean balance sheet and pays a sustainable dividend,” says the analyst.

Exco announced a dividend increase from $0.085 per share to $0.09 per share, along with the appointment of Darren Kirk as President and CEO, with Kirk having previously served as COO since January of last year.

Malik’s $10.50 target represents a projected return of 12.3 per cent at the time of publication.