North American Construction Group Ltd. (TSX:NOA) should continue to benefit from a buoyant commodities market
Capital Ideas Media | June 22, 2021 | SmallCapPower: We recently wrote about how we expect an improved outlook for infrastructure stocks following more anticipated government spending in the U.S. and Canada during the next few years.
(Originally published on Capital Ideas Media on May 4, 2021)
North American Construction Group Ltd. (TSX:NOA), which provides heavy construction and mining services, offers investors a different type of infrastructure investment, one that should continue to benefit from a buoyant commodities market.
[Editor’s Note: Shares of North American Construction Group have climbed more than 19% since Capital Ideas wrote about the company about seven weeks ago.]
While the Company has previously derived much of its revenue (about 65% in 2020) from Alberta’s oil sands, it is targeting to generate 50% of its adjusted EBIT outside of the Western Canadian heavy oil patch by 2022.
For example, NOA is currently ramping up construction of a new gold mine in northern Ontario and is bidding on two multi-year mining contracts in Quebec that would begin this year.
The Company also provides reclamation and environmental services, having salvaged 21 million cubic meters of organic material and topsoil and reclaimed 581 hectares of land in 2019 and 2020. As well, it recycled over 75,000 liters of oil during the past three years.
In addition, NOA has a strong relationship with Canada’s indigenous community having recently formed a joint venture with Inuit-owned mining contractor Nuna Group, which has increased the potential pipeline of Company projects. Revenue from its Nuna partnership surged 52% in Q1 from all of 2020.
PI Financial analyst Devin Schilling current has a “Buy” rating and a C$22 per share target price on shares of North American Construction Group, saying “we believe NOA remains well undervalued at current levels and anticipate re-rate potential as further diversification progress is made.”
The analyst also noted that NOA’s bid pipeline (approximately $3 billion) is anticipated to translate into new project wins over the near term with various project decisions expected to be announced during Q2 and Q3.
Finally, North American Construction Group’s stock price should benefit from the Company’s tight capital structure – less than 30 million shares outstanding. It also pays a modest dividend (yielding about 1% currently).
To read our full disclosure, please click on the button below: