September 15, 2024
ADF designs and engineers complex steel structures including airports, stadiums, office towers, manufacturing plants, warehouse facilities, and transportation infrastructure. Some of their sample projects include:
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- Miami International Airport
- Lester B. Pearson International Airport (Toronto)
- Logan Airport Pedestrian Bridges
- One World Trade Center
- Goldman Sachs HQ
- M&T Bank Stadium (home of the Baltimore Ravens)
- Ford Field (home of Detroit Lions)
- Daimler-Chrysler Automotive Plant
- Paccar (Kenworth Trucks) Assembly Plant Expansion
- steel bridges and overpasses in Jamaica
Complex construction projects have higher pricing. And there’s less competition for building them because few fabricators are equipped to do this work for these reasons:
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- A more specialized labor force is needed.
- Strange angles mean more complex welding.
- Larger components require a larger fabrication base and more lifting capacity.
- Other special equipment is often needed.
ADF has two facilities – a 635k sqft plant in Quebec, and a 100k sqft plant in Montana. Roughly 90-95% of revenues have come from the United States and only 5-10% from Canada.
Important Note: Although infrastructure spending can be cyclical, management believes that it has 3-5 years of revenue growth ahead of itself based on infrastructure spending needs across North America.
Here are the metrics of cheapness:
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- EV/EBITDA = 5.30
- P/E = 8.6
- P/B = 2.20
- P/CF = 5.56
- P/S = 1.10
The market cap is $288.83 million while enterprise value is $267.61. Cash is $56.3 million while debt is $34.9 million.
The Piostroski F_Score is 8, which is very good.
Insider ownership is 46%, which is outstanding. ROE is 30.67%, which is excellent.
Intrinsic value scenarios:
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- Low case: If there’s a bear market or a recession, the stock could decline 50%. This would be a buying opportunity.
- Mid case: The current P/E is 8.6, but it should be at least 16. That means fair value for the stock is at least $16.43, which is over 85% higher than today’s $8.83.
- High case: Assuming a 10x EV/EBITDA for fiscal year 2025, the stock would be worth $22.69, which is over 155% higher than today’s $8.83.
RISKS
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- A Republican victory in the U.S. presidential election would be a negative for infrastructure spending. However, ADF has not yet seen the benefit of the 2021 Infrastructure Bill, meaning that ADF’s revenue growth is not reliant on new government spending over the next few years.
- A U.S. recession is quite possible, but ADF sees 3-5 years of revenue growth ahead.
h/t devo791 of Value Investors Club, who wrote up ADF Group here: https://valueinvestorsclub.com/idea/ADF_GROUP_INC/9574466948
BOOLE MICROCAP FUND
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