AmerCable Acquisition And Production Modernization Will Expand Market Opportunities

Key Takeaways

• Modernization and expansion efforts in the U.S. and targeted acquisitions are set to enhance profitability and boost growth through increased efficiency and synergies.
  
• Strategic initiatives like share repurchases and product line expansions aim to improve earnings per share and expand market opportunities.
  
• Mattr faces challenges from economic factors and sector weaknesses, potentially affecting revenue and margins, while managing restructuring costs and tariff risks.

Catalysts

Operates as a materials 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.

• The completion and operational ramp-up of three new U.S. manufacturing sites in Mattr's North American production modernization program is expected to enhance long-term profitability, as the company can better serve U.S. customers, positively affecting revenue and net margins.
  
• Mattr's acquisition of AmerCable is anticipated to significantly increase the scale of its wire and cable portfolio within the Connection Technologies segment, which is projected to drive substantial revenue growth and enhance EBITDA margins due to synergies and cross-selling opportunities.
  
• Mattr's strategy to optimize and modernize its production footprint, including the relocation of its Shawflex business, is expected to lead to increased operational efficiency, reducing costs and leading to margin expansion across the business.
  
• Mattr's introduction of larger diameter Flexpipe products and forthcoming further diameter expansions are expected to significantly increase the addressable market for the Flexpipe business, countering market softness to maintain stable revenue and potentially improve earnings.
  
• The strategic share repurchase plan under the normal course issuer bid, which saw nearly 12% of stock bought back, is likely to result in a higher earnings per share (EPS) ratio by reducing the number of shares outstanding, benefiting existing shareholders.

Mattr Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mattr's revenue will grow by 15.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.4% today to 6.6% in 3 years time.
• Analysts expect earnings to reach CA$101.6 million (and earnings per share of CA$1.8) by about August 2028, up from CA$44.2 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 8.8x on those 2028 earnings, down from 16.8x today. This future PE is lower than the current PE for the CA Energy Services industry at 9.6x.
• 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 7.98%, as per the Simply Wall St company report.

Mattr Future Earnings Per Share Growth

Risks

• The company faced a decline in adjusted EBITDA, primarily due to non-capitalizable expenses related to their MEO strategy, which negatively impacted their net margins.
  
• Mattr anticipates ongoing weakness in the oilfield and automotive sectors to persist throughout 2025, which could hinder revenue growth in these areas.
  
• High exposure to potential cross-border tariffs presents a significant risk that could impact their cost of goods sold and consequently pressure operational margins.
  
• There were substantial restructuring and severance costs to align with market conditions, which, if not properly managed, could affect net earnings if similar adjustments are required again.
  
• Fluctuations in global economic conditions, such as higher interest rates and geopolitical tensions, could adversely affect Mattr's ability to achieve projected revenue growth and impact their free cash flow generation.

Valuation

• The analysts have a consensus price target of CA$14.125 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$18.0, and the most bearish reporting a price target of just CA$11.0.
• 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$101.6 million, and it would be trading on a PE ratio of 8.8x, assuming you use a discount rate of 8.0%.
• Given the current share price of CA$12.04, the analyst price target of CA$14.12 is 14.8% 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.