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Atlas Engineered Products: THE INVESTMENT CASE
INVESTMENT OVERVIEW

Atlas Engineered Products building significant foundations as its acquisition strategy rolls on

This month (October) Atlas said it had completed the acquisition of Coastal Windows Ltd
Atlas Engineered Products building significant foundations as its acquisition strategy rolls on
INVESTMENT OVERVIEW: AEP The Big Picture
The company specialises in trusses, which for the unitiated, keep your roof above your head

Wood product group Atlas Engineered Products Ltd (CVE:AEP) is growing fast, underscored by the fact it has made several acquisitions already this year.

President of the roof truss specialist Guy Champagne told Proactive last December how the central plank, pardon the pun, of his firm's strategy was making acquisitions, slowly but surely  (not that slow perhaps), of owner-managed companies from those wishing to retire or develop their brands.

He  said that over the next three years, he is growing Atlas up to the C$50mln company which something, which has been promised to shareholders, and recent quarterly and annual revenue figures showed a company on form.

WATCH: Atlas Engineered Products building a strong future

Acquisitions roll on

This month (October) Atlas said it had completed its earlier announced acquisition of manufacturer Coastal Windows Ltd, of British Columbia

Coastal has perfected a high-quality window manufacturing operation that Atlas will replicate in all its operating regions across Canada.

Coastal revenues for the 12 months to end May this year were around $1.7 million.

And in August this year, the firm unveiled another key transaction alongside a financing for up to C$5mln.

It revealed it was posied to buy Tandelle Specialty Inc and Pacer Building Components Inc (Tandelle-Pacer) of Ilderton, Ontario, which had revenue for its year to end October of around C$14.4mln.

And in July, it said it was buying buying Satellite Truss Ltd for C$1.2mln in cash, thereby making the Atlas mark in the eastern Ontario market

Satellite had revenue last year of around C$1.5mln and it also owns real estate assets with an appraised value of C$590,000, and equipment assets of C$212,000.

And in March it said it had bought the operating assets including equipment, inventory, and trademarks of Alberta Truebeam Ltd (Truebeam), leased the land and buildings in which Truebeam operates, and hired all the Truebeam employees.

Truebeam supplies trusses and engineered wood products to residential development projects in Northern Alberta and Northwest British Columbia.

Most notably perhaps is that the Truebeam operation will contribute strong positive cash flow to Atlas and an estimated C$2.4mln in profitable revenue during the 2018 calendar year.

And the month before that - in February, the group inked a binding letter of intent to buy Highwood Trusses Ltd, in Alberta, which has annual sales of over C$3.5mln, as well as strong profitability.

As announced last year, it also bought Ontario- based Clinton Roof Truss Ltd for C$2.1mln in cash.

The purchase included 31,000 sq feet (sq ft) of plant, warehouse and office space on a five acre site, positioned to provide access to the growing Ontario communities west of Mississauga.

Decent numbers..

Last month (September) the group said it had registered record quarterly and annual revenues.

Revenue for the three months to May 31 was around C$3.9mln - 93.3% higher than in the same period last year, and recognizing the full impact of the Clinton acquisition.

Based on this, Atlas said it expects annualized revenues of approximately US$18.1mln combined for the Atlas and Clinton operations.

Meanwhile, revenue for the full year to end May was around C$11.6mln - up from C$8.076mln for the previous year, representing an overall growth in revenue from the prior year of 43.6%.

"We are very pleased that our growth and financial results to date have met or exceeded our 2018 stated objectives, which are right on plan," said Champagne.

"The annualized revenue and adjusted EBITDA margin targets we have been communicating to the investment community are $50 million and 15%, respectively.

"We consider these very achievable and expect to enter 2019 at that annualized revenue threshold as we continue to make accretive acquisitions of good companies whose revenues we can grow organically as well."

What does the company do?

Trusses, for those not handy with a hammer, are the pre-fabricated, triangular frameworks that support a house’s roof.

The truss industry in North America is ripe for a company such as Atlas to consolidate, as many truss fabricators are local businesses run by owner-operators nearing retirement.

Often, there is no obvious successor to pass their business to, or to whom they can sell it.

Once the number of companies under the umbrella grows large enough, Champagne has said there are other products, such as I-joists and engineered beams, that Atlas can sell.

And critical mass also brings the potential to transfer skillsets across regions.  Engineers used to creating technically complex truss designs for a high-end market such as Vancouver, for example, can lend those talents to truss plants in other markets where access to such expertise is hard to come by.

Atlas Engineered Products shares are at $0.385.

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