(*All greenback quantities quoted are in CAD)
This week’s bond evaluate highlights a development gear rental firm targeted in Western Canada. WesternOne offers gear rental providers to development corporations within the business, residential and infrastructure industries in addition to area of interest markets akin to tv and film manufacturing and shipbuilding. The corporate lately launched its quarterly outcomes for the three months ending March 31, 2018, with excellent will increase in a number of of its monetary metrics.
- Revenues elevated by 31.9% year-over-year.
- Adjusted EBITDA was up 63.6% over Q1 2017.
- Gross Income elevated by 36.four%.
- Margins additionally elevated with gross margin growing from 41% a yr in the past to 42.four% in Q1, and adjusted EBITDA margin rising from 23.6% a yr in the past to 29.three%.
- Q1 curiosity protection was a whopping three.4x.
Canada’s western provinces (British Columbia and Alberta), the place WesternOne’s operations are targeted, are slated to steer the nation in financial progress this yr. Together with that, development exercise is growing in Vancouver and Victoria (British Columbia) in addition to in Calgary and Edmonton (Alberta). WesternOne has a superb alternative to extend its revenues as financial and development exercise improve this yr in its main markets. WesternOne has had consecutive quarters of progress since Q3 of final yr. The corporate’s 2020 convertible bonds, couponed at 6.25%, are at present discounted, giving them a yield-to-maturity of about 9.50%. Given the corporate’s current robust quarterly outcomes, these 2020 convertible bonds would make a super addition to Durig Capital’s Fastened Revenue 2 (FX2) Managed Revenue Portfolio, the newest efficiency of which is displayed under.
Excellent First Quarter 2018 Outcomes
WesternOne lately launched its outcomes for the three months ending March 31, 2018. The corporate confirmed many areas of enchancment year-over-year. Listed here are a number of the highlights from Q1.
- Consolidated revenues have been up 31.9% to $34.three million, from $26.zero million in Q1 2017.
- Gross Revenue for Q1 was $14.6 million, up from $10.7 million a yr earlier, a rise of 36.four%.
- Together with gross revenue, gross margin additionally elevated, as much as 42.four% from 41% a yr earlier.
- Adjusted EBITDA additionally elevated handsomely as in comparison with Q1 2017, up by 63.6% to $10.zero million from $6.1 million.
- Adjusted EBITDA margin elevated to 29.three%, in comparison with 23.6% in Q1 2017.
Along with the year-over-year will increase recorded in Q1, WesternOne additionally has additionally posted wonderful trailing twelve month revenues and adjusted EBITDA. As of March 31, 2018, the corporate has trailing twelve month revenues of $87.9 million which is 15.three million or 21% greater than the prior comparative interval. Additionally, trailing twelve month adjusted EBITDA is presently at $11.7 million, $three.eight million or 48% larger than the comparative interval.
Concerning the Issuer
WesternOne is headquartered in Vancouver, British Columbia, Canada, and seeks to accumulate and develop companies within the development and infrastructure providers sectors in Western Canada. The corporate’s principal enterprise platform is WesternOne Infrastructure Providers (WIS). WIS is a number one supplier of development warmth providers and aerial gear leases to companies within the development, infrastructure, movie and tv industries in Western Canada. WIS has 13 places in BC, Alberta and Manitoba. As of March 31, 2018, the corporate employed roughly 360 staff in Western Canada.
Roughly one yr in the past, WesternOne closed on the sale of a good portion of the belongings from its Britco LP subsidiary. This included its modular area rental enterprise (Britco Leases) and its majority curiosity in Britco’s modular constructing manufacturing operations in the USA (Britco USA). The transaction, valued at roughly $45.1 million, gave WesternOne monetary flexibility to scale back debt and make capital investments into its core WIS division (WesternOne Infrastructure Providers).
Since divesting its curiosity in Britco, WesternOne has constructed strong momentum over the previous three quarters. Third and fourth quarter 2017, in addition to first quarter 2018 has proven regular will increase in complete income in addition to adjusted EBITDA.
Peter Blake, CEO of WesternOne commented on the corporate’s upward momentum within the firm’s current first quarter press launch. “We’re inspired with the continued indicators of gradual financial progress within the Western Canadian markets as we execute our enterprise technique to reinforce capital returns by way of managing income progress, redeploying fleet inside branches and leveraging our WEDGE distant monitoring know-how.”
Western Canada Poised for Financial Progress
Just lately, the Convention Board of Canada launched its Provincial Outlook: Winter 2018. On this report, the Board said that the 2 Western Canadian provinces (British Columbia and Alberta) will present the strongest financial progress this yr. British Columbia (BC) is slated to steer the pack, with its financial system predicted to develop by three.1% this yr. Vancouver BC is a present hotspot for development, propelled by a scorching actual property market.
Because of rising oil manufacturing and a rise in drilling, Alberta’s 2017 progress surged forward of all different provinces with an actual GDP progress price of 6.7%. For 2018, this progress shall be average, predicted at 2.eight%, however nonetheless amongst the leaders in provincial progress. Calgary Alberta, one among Canada’s largest cities can also be slated to expertise wholesome progress. As Alberta seeks to diversify its financial system (along with oil), different industries are shifting in, lots of them making Calgary their headquarters. This has given the development business (which WesternOne is closely concerned in) a raise. As extra jobs are created, extra individuals relocate, they usually needn’t solely housing, but in addition the shops, and infrastructure that goes together with supporting an growing inhabitants.
Lastly, LNG Canada has lately indicated that circumstances are aligning to start out constructing a liquefied pure fuel undertaking in British Columbia. LNG Canada, a consortium which is 50% owned by Royal Dutch Shell, has been making regular progress to assemble an export terminal in Kitimat, British Columbia. Final month, LNG Canada chosen an engineering three way partnership based mostly within the U.S. and Japan because the prime contractor for the undertaking. LNG Canada forecasts that it’ll value as much as $40 billion to assemble the Kitimat terminal and associated infrastructure. This venture can be a pure match for WesternOne’s providers and will present vital revenues.
Curiosity Protection and Liquidity
Curiosity protection is of paramount significance to bondholders because it reveals the corporate’s means to service its present degree of debt. Based mostly on this, bondholders of WesternOne’s 2020 convertible bonds must be happy. For its most up-to-date quarterly outcomes (three months ending March 31, 2018), WesternOne had working revenue of $four.1 million and curiosity expense of $1.2 million. This calculates to an curiosity protection ratio of three.4x. This is a wonderful ratio, particularly contemplating the bonds presently discounted worth and really aggressive yield-to-maturity.
Liquidity measures an organization’s capacity to cowl its everyday operational bills. As of March 31, 2018, WesternOne had complete liquidity of $14.7 million. This was comprised of $four.eight million in money and $9.9 million of unused credit score on its ABL Facility.
The danger for bondholders is instantly associated to WesternOne’s potential to proceed to construct on the momentum it has established within the final three quarters in addition to its capacity to capitalize on Western Canada’s present financial progress. With the sale of its Britco subsidiary final yr, the corporate is now targeted on its core enterprise – WesternOne Insfrastructure Providers (WIS). The corporate has strung collectively consecutive quarters of income and adjusted EBITDA progress. And with Canada’s financial system on a wholesome progress monitor, WesternOne ought to have ample alternatives to take part in that progress. With these constructive developments, the 9.5% yield-to-maturity on the corporate’s 2020 convertible bonds does seem to outweigh the dangers recognized.
WesternOne’s enterprise is seasonal, in that its WIS aerial and basic development gear rental enterprise is usually decrease from January by way of March as development exercise is decrease in the course of the winter season. From April via July, the rental demand for aerial and development gear accelerates and demand continues to November as corporations attempt to satisfy development targets previous to the vacation season.
Abstract and Conclusion
WesternOne has carried out a unbelievable job of stringing collectively successive quarters of progress. The corporate operates in Canada’s quickest rising economies – British Columbia and Alberta. Development exercise is growing in each provinces and WesternOne has a strong alternative to revenue from this progress, particularly as development exercise ramps up in within the second and third quarters. Revenue buyers ought to take word, particularly given the corporate’s wonderful three.4x curiosity protection and its 2020 bond presently promoting at a reduction. Contemplating the aggressive 9.5% yield-to-maturity on these convertible bonds, they make a super addition to Durig Capital’s FX2 managed revenue portfolio.
Issuer: WesternOne Inc.
Worth: $1.67 (CAD as of 5/15/2018)
Conversion Worth: $11.82/share
Scores: – / –
Yield to Maturity: ~9.50%
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Disclosure: Durig Capital and sure shoppers might maintain positions in WesternOne’s June 2020 bonds.
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