Industrials
TRG sees more change ahead that is positive for GVA’s profitability, cash flow and the multiple that investors should apply to the stock. They believe the business is evolving to look more like Knife River and Construction Partners - KNF trades at ~10x FY25 Street estimates and ROAD ~13x (vs. GVA at ~7x TRG’s estimates). Upcoming catalysts include: 1) Positive operating backdrop and rising margins. 2) Increased disclosures for the Materials segment. 3) Updated multi-year guidance to be provided on the 3Q24 conference call. TRG has been bullish on the name for a few years now (the stock is up c.100% over the past year) and they continue to believe the shares are undervalued.
Edition: 195
- 20 September, 2024
Materials
The secular trend of the reindustrialisation of the US / North American market is one that TRG believes has a long tail for growth (10+ years) and will see a greater differentiation of winners. As a vertically integrated heavy materials producer, KNF is well placed to benefit. It was an “orphaned asset” under the MDU umbrella, and now as an independent entity, it has a greater ability to focus on value creation. To that end, KNF has already hit its 15% EBITDA margin target two years early. The next stop is 20%+, which TRG believes will come from a mix of pricing, cost control, and mix shift to materials focused from both organic and acquired efforts. 55% upside.
Edition: 187
- 31 May, 2024
Industrials
TRG has maintained a bullish view of GVA in the past few years, as the company worked down its Old Risk Portfolio and executed on a low-risk consistent growth strategy. The stock is valued at ~5x EV/EBITDA, which TRG believes is overly punitive and lumps it in with Fluor and Tutor Perini. They believe this is the wrong peer set. Instead, GVA should be compared to Construction Partners and Knife River, who sell at ~10x EV/EBITDA. These three companies have vertically integrated operations (materials producers + contracting services). ROAD and KNF have consistently produced better margins than GVA, but GVA’s 2024 targets show that it can close that gap.
Edition: 169
- 15 September, 2023