Due to recent tariff impacts, Atrium Research has lowered its target price on ADF Group Inc. (DRX:TSX; ADFJF:OTCMKTS). However, the company is still rated as a Buy. Read on to see why.
On April 10, 2025, Atrium Research analyst Nicholas Cortellucci maintained a Buy rating on ADF Group Inc. (DRX:TSX; ADFJF:OTCMKTS), while reducing the price target from CA$23.00 to CA$9.00, citing a changed outlook due to U.S. tariffs impacting the company's ability to sign new contracts and negatively affecting revenue and margins projections for FY26.
ADF reported Q4 and FY25 financial results that slightly missed analyst estimates. Q4 revenue came in at CA$77.4 million (-12% YoY) versus the estimate of CA$80.0 million, while EBITDA was CA$19.2 million (+24% YoY) compared to the estimated CA$19.7 million. For the full fiscal year 2025, revenue reached CA$339.6 million (3% YoY growth) versus the CA$342.2 million estimate, and EBITDA was CA$91.3 million (27% margin, +63% YoY) compared to the estimated CA$91.7 million.
The company's order backlog stood at CA$293.1 million at quarter-end, extending through January 2027, which does not include the CA$120 million in new contracts announced on February 26. These new contracts include the fabrication and installation of steel structures for a major sports complex renovation in the Western United States, along with various structural steel contracts in the recreational sector.
Due to the impact of U.S. tariffs on Canadian goods, management is implementing a Work-Sharing program at its Terrebonne fabrication plant, effective April 14, which will reduce hours for approximately 200 employees by 50-60%. This measure is intended to help manage costs until the fabrication phase begins for recently announced projects.
Despite these challenges, ADF maintains a strong financial position, ending the quarter with CA$60.0 million in cash, CA$189.6 million in current assets compared to CA$80.4 million in current liabilities, and CA$45.6 million in total debt. During Q4, the company purchased 721,300 shares, and an additional 423,200 shares subsequent to the quarter, representing approximately 3% of its outstanding shares.
The analyst notes ADF's significant progress since FY23, with revenue increasing 35% from CA$250.9 million to CA$339.6 million, gross margins improving from 14% to 32%, EBITDA growing 250% from CA$26.1 million to CA$91.3 million, and net income rising 280% from CA$14.9 million to CA$56.8 million.
Based on updated estimates, ADF now trades at 1.7x/3.3x FY25A/FY26E EBITDA, compared to steel fabricator peers at 7.8x/6.3x and Canadian industrials at 9.9x/8.7x. The new CA$9.00 target price is based on a 5.5x FY26E EBITDA of CA$48.4 million, representing a 60% potential return from the share price at the time of the report of CA$5.63.
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Disclosures for Atrium Research, ADF Group Inc., April 10, 2025
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