CA - Hammond Power Solutions: Strong Q4 2023 Results But Dark Clouds On The Horizon (Rating Downgrade)

2024-04-02 08:45:04 ET

Summary

• The company booked sales of C$187 million ($138.1 million) and EBITDA of C$26.7 million ($19.7 million) in Q4 2023, which was above my expectations.
• Hammond Power Solutions plans to have annual manufacturing capacity of C$900 million ($664.4 million) by 2025 and the backlog remains strong.
• However, there are signs that the power transformer shortage in the USA is starting to ease, and Siemens Energy is building a large plant.
• While I think 2024 and 2025 could be strong years for Hammond Power Solutions, the valuation here is starting to look stretched at above 18x EV/EBITDA.

Introduction

In January 2024, I wrote a bullish article on SA about Canadian power transformer maker Hammond Power Solutions ( HPS.A:CA ) ( OTCPK:HMDPF ) in which I said that I expected Q4 2023 sales and EBITDA to be about C$185 million ($136.6 million) and C$25 million ($18.5 million), respectively....

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