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ADF Group sees hike in price target from Stonecap Securities on largest contract win since 2009

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Steel structure design and engineering company ADF Group (TSE:DRX) received Thursday a boost in its target price from Stonecap Securities analyst Chris Blake, to $1.75 from $1.50 previously, on the back of a $47 million contract award announced earlier this week. 

The company was awarded the contract for the fabrication and installation of the steel structure of a new multi-purpose 18,000 seat amphitheater in Quebec City. The arena could serve as the home venue for a new or relocated National Hockey League franchise, the analyst notes, or a key venture for a future Winter Olympics Games bid. 

Roughly 50 percent of the project work is slated to be completed in fiscal 2014, with the remaining portion in the following year. Engineering work began earlier this year, with completion scheduled for August next year. 

"This is the largest contract win for the company since the $77 million NYC Transportation Hub contract awarded in July of 2009," says Blake.

"This work more than doubles the company’s backlog to $81 million from $34 million reported at the end of Q3/13 and is now at a level not seen since Q3/11. This should end a streak of 14 consecutive quarters of backlog declines once Q1/F14 results are released later this year."

On the back of this, the Stonecap analyst increased his forecast for ADF's fiscal 2014 sales and earnings before interest, taxes, depreciation and amortization (EBITDA) estimates by $20 million and $2.2 million, respectively - assuming an 11 percent margin on this new work. 

The net result is that the investment dealer's 2014 estimate for earnings per share increased to 4 cents from breakeven per share previously.  Stonecap notes it will incorporate the remaining project work with the introduction of its fiscal 2015 estimates following the release of fourth quarter 2013 results next month. 

The analyst also has a sector perform rating on ADF, which is trading at roughly $1.48 in Toronto on Thursday. 

 

Quick facts: ADF Group

Price: 0.84 CAD

TSX:DRX
Market: TSX
Market Cap: $27.41 m
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