DRX: Another Quarter, Another Beat; Increasing Target Price
What you need to know:• ADF Group reported Q4 & FY24 financial results this morning that beat our expectations across the board.
• For Q4, revenue came in at $88.4M (+72% YoY) vs. our estimate of $77.1M and EBITDA came in at $15.5M (+164% YoY) vs. our estimate of $13.6M.
• FY24 marked another stellar year for ADF as it benefits from infrastructure spending across North America and the automation capex program at its Terrebonne facility. Management expects this cycle to extend 3-5 years.
ADF Group (DRX:TSX, ADFJF:OTC) reported Q4 and FY24 financial results today before market open. The numbers beat our expectations across the board with the most notable beat being revenue coming in at $88.4M vs. $77.1M expected. On the conference call, management highlighted that it expects another excellent year ahead and that this growth cycle can last another 3-5 years. ADF Group remains one of our highest conviction names in our coverage. We are maintaining our BUY rating and increasing our target price to $15.00/share (previously $13.00/share) based on 7.0x FY25E EBITDA (previously 6.5x).
Key Highlights
• Revenue for Q4 came in at $88.4M beating our estimate of $77.1M and $51.5M last year, representing 72% YoY growth. FY24 revenue was $331M, equating to 32% YoY growth.
• The order backlog came in at $510.9M (vs. $339.3M in Q3), extending through January 2026.
• Gross margin for Q4 was reported at 24.5% vs. our estimate of 22.0% and 17.5% in Q4 last year. FY24 gross margin came in at 22.0%. The improvement was driven by higher fabrication volume and increased automation.
• Q4 EBITDA came in at $15.5M (18% EBITDA margin, +164% YoY) compared to our estimate of $13.6M (18% margin) and $5.9M in Q4/23. FY24 EBITDA was $55.9M (17% margin, +114% YoY).
• EPS in Q4 of $0.33 (or $10.5M in net income) compared to our estimate of $0.26/share (or $8.6M). FY24 EPS was $1.15/share, representing a 23% ROE and 19% ROIC.
• ADF posted $1.1M in capex in Q4, translating to $30.4 in FCF in Q4 and $73.9M in FCF for the full year (21% FCF yield).
• The Company ended the quarter with $72.4M in cash and $48.8M in debt.
ADF Group is engaged in the design and engineering of connections, fabrication and installation of complex steel superstructures, heavy steel built-ups, as well as architectural and miscellaneous metalwork for the five principal segments of the non-residential construction market namely, office towers and high-rises, commercial and recreational buildings, airport facilities, industrial complexes and nuclear facilities, and transport infrastructures.
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