AmerCable Acquisition And Operational Efficiencies Will Improve Future Outlook

Key Takeaways

• Mattr's AmerCable acquisition and operational transformation are poised to enhance efficiency, market positioning, and long-term financial performance.
  
• Strategic cost-saving measures and technology investments aim to double revenue and boost earnings potential by 2030.
  
• Mattr's revenue and profits face risks from North American market weakness, geopolitical events, significant restructuring, and operational integration challenges.

Catalysts

Operates as a material technology company that serves the transportation, communication, water management, energy and electrification markets in Canada, the United States, Latin America, Europe, Middle East, Africa, and Asia Pacific.

• Mattr's planned acquisition of AmerCable is expected to be immediately and materially accretive, positioning the Connection Technologies segment for more robust mid
• and long-term growth. This is likely to positively impact revenue and earnings.
  
• The company is undergoing a significant operational transformation, including new manufacturing sites and production capabilities, which is anticipated to drive increased efficiencies and margins, potentially boosting earnings and EBITDA margins above 20%.
  
• Mattr is actively working to lower costs tied to specific end markets by approximately $20 million annually. This cost-saving initiative will likely improve net margins and overall earnings.
  
• Investment in technology and operational efficiencies, particularly in Flexpipe products, is expected to support market share gains and the company's ambition to double revenue by 2030, which would significantly enhance earnings potential.
  
• The North American industrial and infrastructure markets are anticipated to offer substantial growth opportunities, especially following the AmerCable acquisition. This could lead to increased revenue and improved financial performance for Mattr.

Mattr Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mattr's revenue will grow by 17.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.6% today to 15.7% in 3 years time.
• Analysts expect earnings to reach CA$230.9 million (and earnings per share of CA$3.32) by about January 2028, up from CA$24.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.3x on those 2028 earnings, down from 31.5x today. This future PE is lower than the current PE for the CA Energy Services industry at 10.1x.
• Analysts expect the number of shares outstanding to grow by 3.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.49%, as per the Simply Wall St company report.

Mattr Future Earnings Per Share Growth

Risks

• Mattr is experiencing continued weakness in the North American onshore oilfield market and the global automotive market, which is likely to result in lower revenue and margin compression in the near term.
  
• The company is undergoing significant restructuring and cost-cutting measures, which may include severance expenses and could impact net margins and operational efficiency during the short term.
  
• The new production sites are expected to have a temporary unfavorable impact on the segment’s margin profile during their ramp-up period, affecting earnings in the initial quarters.
  
• Mattr is facing potential negative impacts from geopolitical events, inflation, and interest rate movements, which could adversely affect its revenues and profits.
  
• The sale of its Brazilian pipe coating business and acquisition of AmerCable brings integration and execution risks that could affect future earnings growth if not managed effectively.

Valuation

• The analysts have a consensus price target of CA$19.22 for Mattr based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$23.0, and the most bearish reporting a price target of just CA$16.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$1.5 billion, earnings will come to CA$230.9 million, and it would be trading on a PE ratio of 7.3x, assuming you use a discount rate of 8.5%.
• Given the current share price of CA$12.02, the analyst's price target of CA$19.22 is 37.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.