M Partners analyst Andrew Hood is staying bullish on cellular concrete maker Cematrix (Cematrix Stock Quote, Chart, News TSXV:CVX) after the company’s latest quarterly results.
Hood delivered an update to clients on Thursday, saying Cematrix’s pandemic-immune business will give investors a level of security during the currently volatile period.
Calgary-based Cematrix, which has proprietary formulations of cellular concrete suitable for a range of infrastructure and commercial markets, announced its first quarter 2020 financials on Thursday. The company posted record Q1 revenue of $3.9 million, up 23 per cent year-over-year, and EBITDA of negative $523,000 compared to negative 199,000 a year earlier.
Cematrix president and CEO Jeff Kendrick said the first quarter is traditionally slow for CVX but the new acquisition of PIGCO has already been a big contributor, adding $2.9 million or 74 per cent of revenues for the Q1.
“Looking ahead in 2020, improving cash flow and liquidity remains a priority for management, and the $5.5 million convertible debenture that closed on April 22, 2020, will provide the company with additional financial flexibility and capacity,” said Kendrick in the Thursday press release. “With our convertible debenture being oversubscribed, the company intends to hold the remaining balance of funds as cash/short term deposits in order to provide the company with flexibility as we manage our way through the COVID-19 pandemic.”
On the quarter’s $3.9 million revenue and EBITDA loss of $523,000, Hood had been calling for a top line of $3.5 million and EBITDA loss of $154,000. The analyst attributed the greater earnings loss to the company’s fixed operating cost structure and said CVX should generate positive EBITDA for the remainder of the year.
Hood pointed to management guidance for 2020 which is calling for revenue of between $40 and $45 million, which turns into between 77 and 100 per cent growth over 2019.
The analyst added that CVX has stability in its revenues and an $80.4-million backlog following $3.0
million of contracts announced on May 19.
Looking ahead, Hood is calling for fiscal 2020 revenue and EBITDA of $40.4 million and $6.3 million, respectively, and fiscal 2021 revenue and EBITDA of $50.0 million and $9.0 million, respectively.
“We have a positive view on CEMATRIX Corporation as an investment amidst the ongoing COVID-19 pandemic, as its end-markets are included in essential services with no order cancellations and only minor delays so far. As a result, some projects expected in Q1 were pushed to the second quarter,” Hood wrote.
“Because of the stability of its end markets and its backlog, CVX provides a level of security as an investment. Further, in the medium term we anticipate that government in the U.S. and Canada will look into infrastructure stimulus as they have in past recessionary scenarios for its advantages in generating superior growth in employment and GDP,” he said.
With the update, Hood has maintained his “Buy” rating and target price of $1.20 on CVX, which at press time translated into a projected 12-month return of 186 per cent.