Tornado Infrastructure Equipment is a buy, Beacon says

Beacon Securities analyst Russell Stanley reiterated his “Buy” rating and $2.50 target on Tornado Infrastructure Equipment (Tornado Infrastructure Equipment Stock Quote, Chart, News, Analysts, Financials TSX:TGH) on May 22, ahead of the company’s Q1 results expected Tuesday after market close. Stanley’s estimates come in below Street expectations, but he sees upside ahead driven by rising production capacity, strong cash flow, and the recently completed $28-million acquisition of CustomVac.

Tornado Infrastructure Equipment designs and builds hydrovac trucks at its 63,000-square-foot Red Deer, Alberta facility. The trucks are sold to infrastructure, industrial construction, and oil and gas customers. The company also offers heavy-duty truck maintenance.

Stanley said his estimates for Tornado’s upcoming results are below the Street, with expected revenue and Adjusted EBITDA of $33-million and $3.5-million, compared to consensus at nearly $35-million and $3.8-million. That’s also below the high end of Street expectations at over $36-million in revenue and $4-million in EBITDA.

Stanley’s forecast reflects a quarter-over-quarter drop from $38-million and $5.6-million, as hydrovac production normalizes to 79 units in Q1 after a strong Q4 with 89 units, which included some catch-up after delays in Q3 due to downtime at the Red Deer plant and work on a new 20,000-square-foot expansion. Stanley also expects Q1 operating cash flow of $2.7-million before working capital, or $6.4-million after, helped by the expected revenue dip. He added that the Red Deer expansion, set to finish later this quarter, should raise monthly production capacity by 33%, from 30 to 40 units, with the $1.5-million cost funded internally.

Stanley expects the company to generate $22-million in Adjusted EBITDA on $178-million in revenue for fiscal 2025. He forecasts those figures will rise to $35-million in EBITDA on $226-million in revenue in 2026.

He said the company’s recent $28-million purchase of CustomVac, a maker of vacuum equipment used in oil and gas, utilities, excavation and environmental work, was funded through existing cash and a new $25-million loan from Tornado’s lender, TD.

“Based on our estimates, Tornado will have a very reasonable leverage ratio of 1.2x this year, improving to 0.3x in F2026,” he said. “This acquisition prompted us to increase our adj EBITDA forecast for F2025 from $18M to $22M and our F2026 estimate from $29M to $35M. We note that our F2026 forecast contemplates a $10M gross profit contribution from CustomVac, reflecting little/no growth off of its actual LTM gross profit of $9.6M. We fully expect Tornado to work on driving production/revenue growth by cross-selling CustomVac products via Tornado’s distribution channels while monetizing cost synergies by leveraging Tornado’s supply chain to reduce CustomVac unit costs AND leveraging CustomVac’s capabilities (e.g. laser cutting, welding) to reduce Tornado’s outsourcing requirements.”

He said if Tornado doubles CustomVac’s 2026 gross profit to $20-million, Beacon’s Adjusted EBITDA forecast would rise to $45-million, supporting a price target of $3.25 per share, assuming no other changes. He also expects Tornado to keep looking for more acquisitions to grow its reach in the infrastructure equipment market, with the recent $28-million deal likely boosting its appeal to future targets.

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