Cantech24
Trending >

Buy TMG stock ahead of Q3 results, Beacon says

TMG stock

Ahead of the company’s third quarter results, due April 25 Beacon analyst Russell Stanley has reiterated his “Buy” recommendation on Thermal Energy International (Thermal Energy International Stock Quote, Chart, News, Analysts, Financials TSXV:TMG).

Stanley gave a rundown of what he expects from the results.

“We are looking for revenue/EBITDA of $4.8M/($0.7M), and ours is the only active coverage according to FactSet,” the analyst noted. “TMG has a May 31 FYE, so these will be its results for the quarter ending February 28th. Our forecasts contemplate a q/q decline from revenue/EBITDA of $7.1M/$0.8M for the Q2 ended November 30th to reflect a combination of seasonality and the ongoing shift in the backlog/revenue mix from Custom Equipment sales toward more Turnkey Projects. Turnkey Projects typically offer lower gross margins (30-35%) v. the 45-55% available on Custom Equipment sales, but they are typically larger in size, and require longer to execute/recognize revenue on. Given the q/q volatility in revenue, we will also consider the LTM results against the prior year. Our Q3 forecast implies LTM revenue/EBITDA of $25.3M/$1.7M, representing y/y revenue and EBITDA improvement of 46% and 128%, respectively. As discussed in our recent initiating coverage report, TMG has historically employed little-tono discretionary adjustments, so we view its EBITDA quality as very high. We are also looking for operating cash flow before working capital of ($0.5M), or $0.9M net of working capital, with seasonal softness allowing for a reduction in receivables.”

In a research update to clients April 18, Stanley maintained his “Buy” rating and price target of $0.45 on TMG, implying a return of 50% at the time of publication.

The analyst thinks TMG will post EBITDA of $900,000 on revenue of $24.4-million in fiscal 2024. He expects those numbers will improve to EBITDA of $2.5-million on a topline of $34.6-million in fiscal 2025.

“TMG trades at 10.6x our C2025 EBITDA forecast (calendarized given the May 31 FYE). This represents a 44% discount to the 18.8x at which Trane Technologies trades. Consensus estimates for TT imply an expected 9% EBITDA CAGR during the 2023-2025 period, whereas our estimates contemplate a 105% EBITDA CAGR for TMG. Potential catalysts include the Q3 results next Wednesday, contract wins, and M&A activity (both as buyer and as target).” Russell concluded.

About The Author /

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.
insta twitter facebook

Comment

RELATED POSTS