Dexterra Group keeps Buy rating with Beacon

With its EBITDA reaching record levels, investors should be paying attention to Dexterra Group (Dexterra Group Stock Quote, Charts, News, Analysts, Financials TSX:DXT). That’s the scoop from Beacon Securities analyst Kirk Wilson, who reviewed Dexterra’s latest quarterly results in an update to clients on Wednesday. Wilson reiterated a “Buy” rating on the stock, saying the company is set up well for a strong second half.

Dexterra, which has products and services in the facilities management, workforce accommodations, energy and forestry and modular building solutions industries, reported its second quarter 2023 results on Tuesday. Consolidated revenue was up 15 per cent year-over-year to $267.8 million and adjusted EBITDA was up 29 per cent to  $27.2 million.

Diving deeper, revenue from Integrated Facilities Management (IFM) was up 17 per cent to $76.5 million, Workforce Accommodations, Forestry and Energy Services (WAFES) was up 16 per cent to $137.7 million and Modular Solutions was up seven per cent to $53.1 million.

The company said non-recurring items in WAFES resulted in a $5 million adjusted EBITDA boost. 

“The overall positive Q2 results in WAFES are the result of abnormally high service activity in support of unprecedented wildfires and robust market activity in workforce accommodations and energy services. This includes high camp occupancy and rental equipment activity levels, as well as a contract change order related to the recovery of inflationary costs on a major project,” the company said in a press release.

Looking at the results, Wilson said the $27.2 million in EBITDA handily beat expectations, with the Beacon estimate at $22.9 million and the consensus call at $22.5 million. The analyst noted that the Q2 topline was down marginally quarter-on-quarter.

Wilson said the unprecedented wildfire season across Canada drove high service activity for Dexterra over the quarter, with that trend expected to continue in the third quarter. Strong camp occupancy also came from the energy and mining sectors, Wilson said, while the company is expecting several new accommodation contracts to ramp up over the next few quarters, enough to offset the wind-down of activity from the Coastal GasLink Pipeline.

“Dexterra appears set for a strong H2/23 and has its goal of annual revenue/EBITDA to reach the $1 billion/$100 million in 2024. We maintain our target price of $8.65, which tracks to a 6.0X EV/EBITDA multiple of our 2024 forecasts,” Wilson wrote.

At press time, Wilson’s $8.65 target price represented a projected one-year return of 53 per cent.