Falling Oil And Gas Demand Will Depress Margins Despite Diversification

Key Takeaways

• Shrinking demand for traditional oil and gas coatings, regulatory pressures, and innovation in pipeline materials threaten core revenue streams and long-term profitability.
  
• Heavy exposure to a few key end markets and rising international competition heighten volatility and limit future growth and financing opportunities.
  
• Diversified portfolio and strategic investments in infrastructure, clean energy, and technology support long-term growth, margin expansion, and resilience against industry cyclicality.

Catalysts

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

• Mattr's addressable markets in oil and gas infrastructure coatings and services are facing long-term decline as the world accelerates its transition to renewable energy sources, with mounting regulatory and ESG pressures further restricting growth and raising compliance costs. This is likely to erode both revenue and net margin over the coming decade as demand for its core offerings diminishes and cost burdens increase.
  
• The company remains exposed to significant customer and product concentration risk, particularly given its heavy weighting toward a few core end markets such as U.S. oil and gas, mining, and North American infrastructure. This risk is compounded by sluggish macro conditions and ongoing tariff uncertainties that are already causing order delays and revenue pull-forward, signalling a weak pipeline that will likely create volatile and shrinking future revenue streams.
  
• Structural industry headwinds from growing adoption of alternative pipeline materials and composites, which reduce or eliminate the need for external coating and protection, threaten to make legacy product lines at Mattr obsolete. This trend will likely depress future market share and revenues as innovation elsewhere undercuts demand for traditional solutions.
  
• Intensifying international competition from lower-cost suppliers, especially as input costs for steel, resins, and chemicals rise, will limit Mattr's pricing power and compress net margins. The company's ability to offset higher operational costs and preserve profitability is increasingly constrained by sectoral overcapacity and shrinking demand.
  
• With capital inflows into hydrocarbon-related businesses under mounting pressure due to the global shift in ESG investment, Mattr faces potential long-term constraints in accessing affordable financing and could see its valuation and future earnings power structurally capped-even as it attempts to diversify beyond its core oil and gas focus.

Mattr Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Mattr compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Mattr's revenue will grow by 14.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.4% today to 8.4% in 3 years time.
• The bearish analysts expect earnings to reach CA$125.2 million (and earnings per share of CA$2.02) by about July 2028, up from CA$44.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 5.5x on those 2028 earnings, down from 17.4x today. This future PE is lower than the current PE for the CA Energy Services industry at 11.0x.
• Analysts expect the number of shares outstanding to decline by 6.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.88%, as per the Simply Wall St company report.

Mattr Future Earnings Per Share Growth

Risks

• Mattr's investments in advanced electrification, nuclear, water management, and data center infrastructure position it to benefit from secular trends in infrastructure renewal and clean energy, which could drive sustained revenue growth and margin expansion over the long term.
  
• The company's portfolio diversification through AmerCable, Shawflex, Xerxes, and Flexpipe reduces reliance on traditional oil and gas, providing exposure to higher growth, less cyclical markets like industrial, nuclear, and AI-driven data center solutions, supporting earnings resilience.
  
• Robust backlog and sustained demand in businesses such as Xerxes (water/fuel tanks) and AmerCable (medium voltage) offer multi-year visibility on revenue, with order momentum supported by regulatory drivers, environmental mandates, and infrastructure spending, potentially lifting top-line and future cash flow.
  
• Production footprint modernization and technology-led product launches, including new large-diameter Flexpipe and increased nuclear-certified offerings, are likely to enhance productivity and cost efficiency, supporting margin improvement and long-term EBITDA growth.
  
• Strategic capital deployment-highlighted by disciplined acquisition integration, continued NCIB share repurchases, supply chain optimization, and deleveraging-provides a platform for enhanced shareholder value and improved net income, particularly if macro uncertainty abates and secular infrastructure demand accelerates.

Valuation

• The assumed bearish price target for Mattr is CA$11.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Mattr's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$18.0, and the most bearish reporting a price target of just CA$11.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CA$1.5 billion, earnings will come to CA$125.2 million, and it would be trading on a PE ratio of 5.5x, assuming you use a discount rate of 7.9%.
• Given the current share price of CA$12.49, the bearish analyst price target of CA$11.0 is 13.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.