Discover the Hidden Gems of Dexterra: Why This TSX Stock (DXT:CA) is a Must-Buy Beyond Its 6% Dividend
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In the last few quarters since the bullish coverage on Dexterra (OTCPK:HZNOF), the stock fell slightly while the S&P 500 (SPY) gained 5.80%. At that time, the company posted third-quarter results and declared a dividend. The 8.75 cents a share dividend yields around 6%. What do the dividend and latest earnings do to Dexterra’s rating?
About Dexterra
Dexterra operates three segments.
First, its Integrated Facilities Management unit provides operational and maintenance solutions for infrastructure. The sectors include aviation, defense, education, rail, healthcare, and leisure.
In Module Solutions, Dexterra designs and manufactures building solutions for housing, commercial, residential, and industrial clients.
Dexterra’s third segment is Workforce Accommodations, Forestry, and Energy Services (“WAFES”). The accommodations solutions, forestry services, and access solutions target sectors including energy, mining, forestry, and construction.
Third Quarter 2023 Results
In Q3, Dexterra posted revenue increasing by 20% Y/Y to $310.8 million. Net earnings increased to $14 million, up from $5.2 million last year.
The company posted revenue results that beat consensus estimates by a wide margin. As the chart below shows, the company met or exceeded expectations in the last twelve quarters:
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Strong support services activity in the WAFES unit is the primary catalyst. In addition, heavy wildfire activity in Alberta and British Columbia resulted in market share capture. This creates momentum for the sales force to capture growth from new major projects.
Dexterra
In the slide deck above, the wildfire activity across Canada resulted in around $30 million in revenue. The fire started in the spring in Ontario and Quebec. By the third quarter, activity expanded in Alberta, British Columbia, and the Northwest Territories.
WAFES has a superior brand that will expand Dexterra’s addressable market. Through a capital-light model, the firm has the flexibility to expand its business from future market opportunities.
Looking ahead, investors may exclude the impact of the wildfires to arrive at a 10% growth in WAFES Y/Y. The modest growth rate would explain the stock’s performance. Shares are trading in a range of between -4% and +6% in the last six months. Wall Street analysts rate the stock a “buy.”
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Opportunity
Dexterra should expand profitability as it focuses on execution and costs. It does not have any aggressive merger and acquisition plans, which should help reduce its debt levels.
Year-to-date free cash flow of $26.3 million is up from $17.1 million last year. In Q4, Dexterra expects strong free cash flow conversion, thanks to a drop in working capital levels.
Should the share price fall, management may opportunistically buy back shares. In the third quarter, Dexterra bought back 323,700 shares at an average price of $5.82 and a cost of $1.9 million. Through up to May 2024, the company has a normal course issuer bid that allows it to buy another 1.3 million shares. This sets a floor on the downside risks of holding the stock.
Dexterra has a project involvement in Coastal GasLink. Crossroads Lodge is in the construction phase. When the project moves into the next phase, Dexterra will give capacity support.
Dexterra has new WAFES projects similar in size to that of Coastal GasLink. As they continue to ramp up this year, larger projects will come online.
Stock Scores
According to Stock Rover Research, Dexterra is trading at 27% below its fair value. The stock has strong grades. Its value score is 84/100 while the growth grade is even stronger at 96/100.
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Dexterra’s Risks
Delays in affordable housing project approval hurt Dexterra’s ability to work down its backlog. It received municipal awards but needs to see government and other agency approvals, too. As it engages in active discussions on several projects with the government, Dexterra will rebuild its project backlog.
The company sees dozens of affordable projects in Canada. In Western Canada, 22 municipalities are in active discussions. Dexterra is in a good position to win awards. However, investors should expect lumpiness in backlog and revenue growth as governments take their time selecting from the bidders.
In Q3, the company took a one-time $2.2 million impairment charge related to excess camp equipment. This involved a specific installation and due to location, the company needed to relocate the work to resolve the issue. Activity around Dexterra’s camp assets faces upward cost pressures. Fortunately, demand for energy, mining, and infrastructure is at very strong levels.
Dexterra’s stock is currently under seasonal weakness, where it underperforms between January and April every year.
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The stock outperforms the index between May and September, with August as the stock’s best-performing month.
Your Takeaway
Dexterra did not reward its shareholders with a rising stock price in the last two quarters. Still, it pays to hold the stock that pays a 6% dividend yield. The fourth quarter will benefit from continued activity related to the wildfire. IFM and WAFES are strong businesses that will support the company’s revenue and EBITDA growth.
With many tailwinds in Dexterra’s business, the stock retains its “Buy” rating.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
Dexterra (TSX: DXT:CA) is a lesser-known Canadian stock that has been flying under the radar for many investors. But those who have done their research know that this company is a hidden gem waiting to be discovered. With a solid business model, steady growth, and a generous dividend yield, Dexterra is a must-buy for investors looking to diversify their portfolio. In this article, we will take a closer look at what makes Dexterra a great investment opportunity, beyond its impressive 6% dividend.
What is Dexterra?
Dexterra is a leading Canadian provider of facility management, operation and maintenance, and construction services to a wide range of industries including government, healthcare, commercial, and residential. The company operates through its four main segments: Maintenance, Operations, Construction, and Mobile Maintenance Services. Their services include everything from building maintenance and landscaping to HVAC systems and energy management solutions.
Founded in 2011, Dexterra has quickly become one of the most trusted names in the Canadian facility management industry. With a strong focus on sustainability, innovation, and customer service, the company has maintained steady growth and profitability over the years, making it a reliable choice for investors.
Steady Growth
One of the reasons why Dexterra stands out as a solid investment option is its steady growth. In its recent Q1 2021 financial report, the company reported a 6% growth in revenue compared to the same period in the previous year. This growth was driven by strong performance in their Maintenance and Operations segments, which saw a 31% and 46% increase in revenue, respectively.
Moreover, Dexterra’s portfolio of recurring contracts provides stability and predictability for its revenue streams. This means that even during times of economic uncertainty, the company is well-positioned to maintain its growth and profitability.
Beyond its impressive financial performance, Dexterra has also been expanding its services to new markets and industries. In April 2021, the company announced its expansion into the healthcare sector, acquiring healthcare facility management provider, Newlook Renovation Inc. This move not only diversifies Dexterra’s portfolio but also opens up new growth opportunities for the company.
Generous Dividend Yield
Investors are always on the lookout for companies that offer a good dividend yield, and Dexterra definitely falls into that category. Currently, the company offers a dividend yield of 6%, which is significantly higher than the industry average. This makes Dexterra a potential income-generating investment for those looking to add some stability and passive income to their portfolio.
Moreover, Dexterra has a strong track record of consistently increasing its dividend payout, with the most recent increase announced in April 2021. This not only benefits current shareholders but also makes the company more attractive to new investors.
Solid Fundamentals
Apart from its growth and dividend yield, Dexterra also boasts solid fundamentals that make it a strong investment option in the long run. The company has a healthy balance sheet with a manageable debt-to-equity ratio of 1.7, which is below the industry average. This indicates that the company has a strong financial position and is not overleveraged.
Dexterra’s operating margin and net profit margin are also in line with the industry average, indicating that the company is running efficiently and able to generate profits.
Why are some investors hesitant to buy Dexterra?
Despite its impressive financial performance and solid fundamentals, some investors may still be hesitant to invest in Dexterra. One of the reasons for this is the lack of exposure and marketing of the company. Unlike other TSX-listed companies, Dexterra does not have a strong online presence or media coverage, making it less visible to potential investors.
Moreover, the facility management industry is not as glamorous as other sectors, and many investors may overlook it when searching for profitable investment options. However, this is precisely what makes Dexterra a hidden gem for those who have done their research and are willing to invest in a reliable and undervalued company.
In conclusion, Dexterra (TSX: DXT:CA) is a hidden gem that offers investors a combination of steady growth, a generous dividend yield, and solid fundamentals. With a proven track record, a diverse portfolio, and a strong focus on sustainability and innovation, this TSX stock is a must-buy for those looking for a stable and profitable investment option. So, if you’re looking to diversify your portfolio and generate passive income, consider adding Dexterra to your watchlist and take advantage of its potential before it becomes the talk of the market.
