It’s time to revisit the ADF Group investment case after the strong run and assess a bit what we can expect for this year.Thanks for reading ToffCap! Subscribe for free to receive new posts and support our work. I’ve highlighted the company frequently over the past year and summarized the base case back in June in a
Agree that's its still incredibly cheap. The earnings just grow so rapidly that the valuation can't catch up (so far).
Mind though that this is a very working capital heavy industry. FCF is relatively subdued when growth is strong, and explodes (>100% FCF conversion) when things slow down. Should growth stop beyond the order book (extremely unlikely), ADF would earn its market cap in net cash over the next few years.
Report is out. ”As at January 31, 2024, the Corporation's order backlog (1) stood at $510.9 million, compared with $376.5 million as at January 31, 2023. The majority of projects in hand will be completed progressively by the second semester of the fiscal year ending January 31, 2026.”
Here are some assumptions I've made:
- Only 75% of backlog converted to sales
- No increase in gross margin profile
- 45% of backlog converted to sales this next FY (2025), 30% converted in FY 26, other 30% in FY27
- Assuming no new projects are signed (highly highly unlikely)
- FCF Margins expanding to 15%, 14%, 13% in next 3 FY's...
... I see the PV of next 3 FY's FCF (from Backlog ONLY) worth ~70% of current Market cap's valuation!! It's still dirt cheap... Thoughts?!
Agree that's its still incredibly cheap. The earnings just grow so rapidly that the valuation can't catch up (so far).
Mind though that this is a very working capital heavy industry. FCF is relatively subdued when growth is strong, and explodes (>100% FCF conversion) when things slow down. Should growth stop beyond the order book (extremely unlikely), ADF would earn its market cap in net cash over the next few years.
It sounds as a bit lower conversion of backlog no?
Report is out. ”As at January 31, 2024, the Corporation's order backlog (1) stood at $510.9 million, compared with $376.5 million as at January 31, 2023. The majority of projects in hand will be completed progressively by the second semester of the fiscal year ending January 31, 2026.”
A bit weak share reaction prearning but I suppose som people want to take chips of the table
Can't find their IR page, any link?
https://adfgroup.com/en/investors/