April 27, 2025
ADF Group (DRX.TO / ADFJF) is a North American steel fabrication company that designs, engineers, and produces complex steel structures. They specialize in connection design, industrial coating, and installation, using advanced automation and robotics to complete high-quality projects quickly.
ADF runs two fabrication plants—in Terrebonne, Quebec, and Great Falls, Montana—plus two paint shops and a U.S. construction division focused on steel erection.
(h/t Jumpman23 on Value Investors Club. See here: https://valueinvestorsclub.com/idea/ADF_GROUP_INC/0351385969)
The company operates mainly in Canada and the United States, with strong coverage in the U.S. Midwest, Southeast, and West, and Eastern Canada. It serves the non-residential construction market, including commercial buildings (like office towers and recreational centers), industrial facilities (such as pharmaceutical and automotive plants), transportation infrastructure, and public projects like airports.
The company recently completed an investment in robotics and automation at its Terrebonne plant that significantly improved ADF’s addressable revenue opportunity and ability to permanently fabricate higher volumes at a more profitable margin.
ADF Group may make a similar investment in its Great Falls, Montana plant, which would take roughly one year to complete.
Furthermore, the Infrastructure Investment and Jobs Act (IIJA) still has $300 billion to award through 2026. Management continues to emphasize a strong growth cycle expected over the next three to five years.
Also, the long-term demand for infrastructure investment will continue well beyond the expiration of the IIJA bill. Moreover, many companies are planning to invest in manufacturing facilities in the United States. This includes TSMC’s $100 billion initiative to build five new factories in the U.S., Eli Lilly’s $27 billion investment in four new production facilities, and Apple’s plan to open a 250,000-square-foot server manufacturing plant in Houston.
Regarding tariffs, there could end up being exemptions on steel fabrication, given the impact on U.S. infrastructure projects. Even in a worst-case scenario, tariffs would only affect steel fabrication exports from the Terrebonne facility to the United States, which account for 40–50% of total revenues. Other revenue streams—such as design, construction, and installation—would remain unaffected.
Management has indicated that there is flexibility to shift some fabrication work from the Terrebonne plant in Quebec to the Great Falls facility in Montana, providing a way to avoid tariff impacts.
As for guidance, management continues to guide for higher revenues, which appears to be at odds for what the market is expecting. The pro-forma backlog now stands at ~$450 million, greater than where it was prior to the recent sell-off in the stock. More importantly, this reinforces management’s credibility around guidance.
The market cap is $135.63 million while enterprise value is $125.29 million.
Here are the metrics of cheapness:
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- EV/EBITDA = 2.03
- P/E = 3.42
- P/B = 1.11
- P/CF = 3.42
- P/S = 0.57
These are exceptionally low metrics of cheapness.
Insider ownership is 13.2%, which is good. ROE (return on equity) is 34.3%, which is excellent. The Piotroski F_Score is terrific at 8.
Cash is $59.98 million while debt is $45.63 million. And TL/TA is low at 45%.
Intrinsic value scenarios:
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- Low case: If there’s a bear market or a recession, the stock could decline temporarily. That would be a buying opportunity.
- Mid case: The current EV/EBITDA is 2.03, but should be at least 7. That would mean a fair value of $14.84 a share, which is 225% higher than today’s stock price of $4.55 a share.
- High case: The P/E should be 15. This translates into a share price of $19.96, which is over 335% higher than today’s stock price of $4.55 a share.
RISKS
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- There could be a bear market or a recession, although infrastructure spending looks solid over the next three to five years.
- General tariffs by the U.S. against Canada, and specific tariffs by the U.S. against steel, may stay in place for some time. But tariffs would only affect steel fabrication exports from the Terrebonne facility to the United States, which account for 40–50% of total revenues. Other revenue streams—such as design, construction, and installation—would remain unaffected. Also, as noted, the company could shift some steel fabrication to its Great Falls, Montana, facility.
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