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TGH stock is still a buy, Beacon says

Following the company’s third quarter results, Beacon analyst Russell Stanley remains bullish on Tornado Global Hydrovacs (Tornado Global Hydrovacs Stock Quote, Chart, News, Analysts, Financials TSXV:TGH).

On November 27, TGH reported its Q3, 2023 results. The company posted Adjusted EBITDA of $2.2-million on revenue of $27.1-million, a topline that was up 77.5 per cent over the same period a year prior.

Stanley summarized the quarter.

“TGH reported Q3 revenue/adjusted EBITDA of $27.1M/$2.2M v. our forecast of $23.5M/$2.1M,” the analyst said. “Revenue beat our forecast handily, owing to stronger than expected hydrovac sales ($24.8M v. $21.9M) and Parts & Services revenue ($2.3M v. $1.6M). Revenue also improved 76% y/y and 15% q/q driven by increased sales to both key customers – Custom Truck OneSource (CTOS-NYSE, Not Rated) and Ditch Witch, a division of The Toro Company (TTC-NYSE, Not Rated), as well as other customers. The revenue beat was partially offset by softer-thanexpected gross margins (253 bps below forecast), partially offset by better/lower than expected OPEX, reducing the EBITDA margin shortfall v. forecast to 108 bps. In dollar terms, adjusted EBITDA was in line with our estimate. Operating cash flow pre-w/c was slightly stronger than expected ($1.8M v. $1.7M), with the revenue beat driving a working capital build, resulting in operating cash flow after-w/c of $1.0M v. our forecast of $2.3M despite improvements in inventory and A/R relative to sales.”

In a research update to clients November 27, Stanley maintained his “Buy” rating and price target of $1.00 on TGH, implying a return of 104 per cent at the time of publication.

The analyst thinks the company will post Adjusted EBITDA of $10-million on revenue of $101-million in fiscal 2023. He expects those numbers will improve to Adjusted EBITDA of $19-million on a topline of $125-million the following year.

“Tornado is now trading at 4.2x our F2024 EBITDA forecast,” Stanley concluded. “This represents a 39% discount to 6.8x multiple at which BDGI trades, and a 54% discount to the 9.0x at ALG trades. We continue to view ALG as the better comparable for valuation purposes given both companies focus on manufacturing, whereas BDGI is a vertically integrated service provider. Our estimates for TGH imply an EBITDA growth CAGR of 107% through F2024 v. the 18% CAGR implied by consensus estimates on ALG. Potential catalysts include M&A that expands the product suite/production capabilities, contract wins and the Q4 results. We also continue to believe that TGH would make a strong acquisition target for any company looking to add (or expand) hydrovac manufacturing capabilities.”

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Tagged with: tgh
Nick Waddell

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

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