A Member of Pat McKeough’s Inner Circle recently asked for his advice on a company that specializes in engineered wood products for home-building across Canada - Atlas Engineered Products.
Pat likes the firm’s steady revenue and earnings growth as well as the potential for new housing starts over time. The company could also cut costs while expanding significantly with its robotic automation plans. However, Pat notes the firm’s fortunes will fluctuate with the health of the housing market and volatility should be expected.
Atlas Engineered Products (Symbol AEP on the TSX Venture Exchange; www.atlasengineeredproducts.com), is engaged in acquiring, integrating, and upgrading well-established companies in Canada’s truss (roof framing), wall panels, and engineered wood products industry.
Atlas went public through a reverse takeover in November 2017. Since going public, it has acquired eight companies that operate in B.C., Manitoba, and Ontario. It targets acquisitions with annual revenue of between $3 million and $15 million. The targeted companies are usually owner-operated businesses.
In October 2023, Atlas completed the acquisition of New Brunswick-based Léon Chouinard et Fils Co. Ltd./Ltée. That company manufactures roof trusses, floor systems, and wall panels. It also distributes engineered wood products. In 2022, Léon Chouinard generated nearly $26 million in revenue, with $6.3 million in net income. The purchase price was $28.9 million.
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Most recently, in September 2024, the company has announced that it intends to acquire an as-yet-undisclosed truss manufacturer in Western Canada. This new firm will expand Atlas’ geographical reach and generate approximately $11 million a year in revenue for a proposed $3.8 million acquisition price.
Spurred by acquisitions, Atlas’ revenue rose 78.1% between 2019 and 2022, from $6.69 million to $9.06 million. In 2019, the company lost $755,147, or $0.02 a share. In 2020, it made $228,986, or nil per share. Earnings then jumped to $7.0 million, or $0.12 a share in 2021, before rising a further 27.0% in 2022, to $8.8 million, or $0.15 a share.
Inner Circle: Atlas’ revenue and earnings growth are strong with robotics on the way
In the quarter ended June 30, 2024, Atlas’ revenue was $15.1 million, up 34.5% from $11.2 million a year earlier. The Léon Chouinard acquisition was a key part of that growth.
Atlas earned $705,578, or $0.01 a share, in the latest quarter. That was down 10.3% from $786,236 million, or $0.01. The decline came from added costs due to the Léon Chouinard acquisition.
Growth by acquisition adds risk, but Atlas mitigates that risk by buying mostly smaller firms that it can easily integrate. Meanwhile, the company’s results remain significantly tied to the Canadian housing industry.
Recommendation in Pat’s Inner Circle: Atlas Engineered Products is a hold.
