Adentra Inc (TSX:ADEN), a wholesaler of hardwood lumber, plywood and other products based in British Columbia, sure knows how to put on an analyst day.
That is if the latest report from Stifel written after the December 6 event is any indication, which suggests the stock has the potential to double in value over the next 24 months. The stock was trading around C$28.69 Monday morning in Toronto, but the firm’s analysis points to a potential value of C$73.79.
“We came away with a positive bias on the stock, and it led us to doing some detailed work on future share price appreciation potential,” the analysts wrote. “The breadth and depth of the management team was readily apparent. The combined experience in different end markets and geographies makes the team well positioned for growth. Moreover, the supply chain strategy helps create competitive advantages and higher margins.”
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Stifel noted that Adrenta (formerly known as Hardwoods Distribution Inc (TSX:HWD)) has a run rate revenue target of $3.5 billion by the end of 2026, which consists of $200 million of organic growth and $200 million in acquisition revenue.
The firm’s own projections “contemplates a more conservative view,” noting that the company's $200 million of organic growth comprises $400 million between 2024 and 2026, and $200 million of market weakness in the near term. Stifel’s current model contemplates $488 million of year-over-year revenue contraction in 2023.
“The risks today are well known (housing starts collapsing) and interest rates are high compared to recent history,” analysts wrote. However, that is factored into an estimated 2023 price-to-earnings ratio of 6.4 x, which is 47% below what it considers a normalized P/E multiple of 11-13 x.
“The share price has embedded in significantly more downside than consensus estimates,” analysts wrote. “... As such, a very bearish outlook has been factored into the stock, which we believe is too punitive. Thinking of this another way, there seems to be limited downside risk given what has been priced in to date.”
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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