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Stockchase Insights
TerraVest Capital Inc
TVK-T
BUY ON WEAKNESS
Apr 03, 2024
Stock price when the opinion was issued
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Has been dormant for many years, but has been one of the best Canadian compounders. They're not in a high-growth industries, but TVK can make highly accretive acquisitions. Earnings power is high. Have a strong balance sheet and capital to deploy. Are very good at synergizing, but doubts they can be as accretive when buying larger companies. Is a solid hold.
TVK is a unique serial acquirer of energy assets that possesses a solid track record of growing nicely over the years. In the last five years, TVK managed to grow its topline and EBITDA by approximately 23% and 27%, respectively. Since going public in 2013, TVK has managed to compound capital at 42% per year, even more impressively than CSU during that period.
TVK is trading at 15.0x EV/EBITDA, a premium valuation relative to its own historical averages of around 8.4x. The company is not as cheap as it used to be, but that being said, we think TVK is still a solid compounder and it is not too late to own the name. However investors need to set realistic expectations as the prospective returns in the near term may not be as attractive as in the past.
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Our PAST TOP PICK with TVK has triggered its stop at $112. To remain disciplined, we recommend covering the position at this time. This will result in a combined net return of 41%, when combined with our previous guidance.
The strength is a bit surprising considering financial terms were not disclosed on the acquisition. TVK is trading at 10.4x EV/EBITDA, the higher end of multiple averages in the last few years ranging from 6.3x to 10.4x, that said, fundamentally, it is not too expensive given the track record of capital allocation, and we are okay to buy some here (perhaps a quarter position) and average into the position over time. We would add more aggressively to the position if it drops below $60. Momentum is very strong but it is not likely to be a straight up move and some consolidation is to be expected.
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