Thanks @govro - I really appreciate you sharing your thoughts!! A couple of things stood out to me and keen to hear how you think about this. 1) the rate of inorganic growth seems to have slowed and the acquisition multiple being paid is higher than historic levels - annualized sales using acquisitions for first half is $26m whereas historically annualized sales for full year has been around the $75m also paid sales multiple 0.8x relative to historic 0.4x - 0.6x. 2) I am surprised that you are anticipating revenue growth in Q3 as management have seen a 10% rev decline in June (from earnings call). 3) keen to hear also what you think is a reasonable normalized EBITDA margin over the longer term (management have recently reduced guidance to 13%-14% although i suspect as US gains scale this could approach 14%-15%) how do you think about this? And lastly do you know if management has set any targets for topline growth and maybe also specifically growth for US bussines? Keen to hear your thoughts and thanks again for sharing - very insightful as always!
On the acquisition front, I dont think we can say that the company is overpaying based simply on sales. Using sales ratio can be misleading. The management is very disciplined and the company modus operandi is to buy something at lower or fair value but increase its profitability over 4-5 years, increasing margin from 3-5% to 13%. They also bought 2 companies in the 3D printing area. Possibly margin relative to sales is very high. As for the non organic growth, this is a company who has been doing this for 30 years, we would need at least 2-3 years of subpar acquisition trend to justify a new trend.
My estimates is based on Q1 management discussion on 2023 and with some positive adjustment by 2.5% based on Q2 better results. In retrospect, I saw the comment on June later of 10% and we should probably revised downward a bit the Q3 results. We will see. I am not changing my estimates for now based on a 1 month trend. I actually dont care too much about quarterly result. I am here for the long game. Will see what happen in the next quarter. The canadian market is very strong in terms of renovation and home building there was a great immigration influx. I think the renovation trend will remain strong.
I think 14% as an average long term margin makes sense. Canadian market is actually higher than this, but growth will come from USA and growth come at a price from a margin perspective.
I think the next few years will be a story of slight margin improvement with good amount of acquisition and network expansion (organic growth by increasing footprint in the USA + new products. Historical CAGR on top line was 12% in the last 30 years. I think sub 10% is more likely. EPS in 2024 will improve from 2023, and stock price will follow.
Hi Govro, yes true - I agree management have always been very prudent with regards to acquisitions and looking at sales multiple ignores differences in profitability (although unfortunately sales is the only data we have with regards to assessing acquisitions - I plan on keeping track of this).
I will review Q1 commentary again but I agree, in the long run the individual quarterly results are not so important but rather the overall trend. You mention that the Canadian market is very strong with regards to renovation and home building, i was wondering what sources do you use to assess this?
Thanks @govro - I really appreciate you sharing your thoughts!! A couple of things stood out to me and keen to hear how you think about this. 1) the rate of inorganic growth seems to have slowed and the acquisition multiple being paid is higher than historic levels - annualized sales using acquisitions for first half is $26m whereas historically annualized sales for full year has been around the $75m also paid sales multiple 0.8x relative to historic 0.4x - 0.6x. 2) I am surprised that you are anticipating revenue growth in Q3 as management have seen a 10% rev decline in June (from earnings call). 3) keen to hear also what you think is a reasonable normalized EBITDA margin over the longer term (management have recently reduced guidance to 13%-14% although i suspect as US gains scale this could approach 14%-15%) how do you think about this? And lastly do you know if management has set any targets for topline growth and maybe also specifically growth for US bussines? Keen to hear your thoughts and thanks again for sharing - very insightful as always!
Thanks for the very pertinent comments.
On the acquisition front, I dont think we can say that the company is overpaying based simply on sales. Using sales ratio can be misleading. The management is very disciplined and the company modus operandi is to buy something at lower or fair value but increase its profitability over 4-5 years, increasing margin from 3-5% to 13%. They also bought 2 companies in the 3D printing area. Possibly margin relative to sales is very high. As for the non organic growth, this is a company who has been doing this for 30 years, we would need at least 2-3 years of subpar acquisition trend to justify a new trend.
My estimates is based on Q1 management discussion on 2023 and with some positive adjustment by 2.5% based on Q2 better results. In retrospect, I saw the comment on June later of 10% and we should probably revised downward a bit the Q3 results. We will see. I am not changing my estimates for now based on a 1 month trend. I actually dont care too much about quarterly result. I am here for the long game. Will see what happen in the next quarter. The canadian market is very strong in terms of renovation and home building there was a great immigration influx. I think the renovation trend will remain strong.
I think 14% as an average long term margin makes sense. Canadian market is actually higher than this, but growth will come from USA and growth come at a price from a margin perspective.
I think the next few years will be a story of slight margin improvement with good amount of acquisition and network expansion (organic growth by increasing footprint in the USA + new products. Historical CAGR on top line was 12% in the last 30 years. I think sub 10% is more likely. EPS in 2024 will improve from 2023, and stock price will follow.
Hi Govro, yes true - I agree management have always been very prudent with regards to acquisitions and looking at sales multiple ignores differences in profitability (although unfortunately sales is the only data we have with regards to assessing acquisitions - I plan on keeping track of this).
I will review Q1 commentary again but I agree, in the long run the individual quarterly results are not so important but rather the overall trend. You mention that the Canadian market is very strong with regards to renovation and home building, i was wondering what sources do you use to assess this?
Thanks again!!