DRX: Here We Go Again; Increasing TP on Contract Announcement
What you need to know:• ADF announced a series of new contracts totalling $90M spanning the pharmaceutical, industrial, and public infrastructure sectors.
• This includes additional work awarded for the pharmaceutical project in the Midwest U.S. which ADF was recently awarded phase 2 for.
• ADF will be reporting Q1/25 on June 11th, we are expecting $90.1M revenue (12% YoY), 23.5% gross margin, and $17.2M EBITDA (19% margin).
This morning, ADF Group (DRX:TSX, ADFJF:OTC) announced $90M of new contracts across North America in the pharmaceutical, industrial, and public infrastructure sectors. We were highly impressed with this update and are increasing our forward expectations accordingly. We also provide a preview for the Q1 financials that will be reported on June 11th below. ADF Group remains one of our highest conviction names in our coverage. We are maintaining our BUY rating and increasing our target price to $20.00/share (previously $15.00/share) based on 9.0x FY25E EBITDA (previously 7.0x).
Contract Announcement
ADF announced the signing of a series of new orders across Quebec, Western Canada, and the Midwest U.S. totalling $90M. This includes additional work on the pharmaceutical project in the U.S. Midwest which ADF was originally awarded in April 2023 followed by the second phase in December 2023. ADF was again entrusted by the client for additional work surrounding the second phase. The scope included the design and engineering of connections, fabrication work (including industrial coating), the supply of steel, and the erecting of the steel structure and heavy steel components. Fabrication on this began in February 2024 and management expects the project to extend over ~12 months. The other contracts in this series include projects in the industrial sector in Quebec and the public infrastructure sector in Western Canada.
Management outlined that both fabrication plants will be involved in the new contracts. Adding the $90M to the last reported backlog, ADF’s backlog stands at $600.9M (+18% since January 31st).
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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