Current Price: $38.95
Target Price: $33-39
Watch list
Analysts: Alok Sanghvi, Gautam Singh, Jack Lindblad & Karan Dhir PRESENTED May 2, 2017
Financial Snapshot
Fiscal Year Ended December 31,
(In 000s of USD)
Revenue
2012A
2013A
2014A
2015A
2016A
60,576
68,232
108,382
154,655
223,910
12.6%
58.8%
42.7%
44.8%
31,668
34,846
45,181
68,778
107,580
Growth(%)
Gross Profit
Gross Profit Margin (%)
EBITDA
EBITDA Margin (%)
Net Income
Net Income Margin(%)
Diluted EPS
52.3%
51.1%
41.7%
44.5%
48.0%
3,825
5,410
10,231
17,167
24,631
6.3%
7.9%
9.4%
11.1%
11.0%
1,293
2,759
4,893
8,492
11,607
2.13%
4.04%
4.51%
5.49%
5.18%
0.52
0.7
0.87
1.18
1.22
Company Overview
NV5 Global, Inc. (NASDAQ: NVEE) is a leading provider of professional and
technical engineering and consulting solutions for public and private sector
clients in the infrastructure, construction, real estate, and environmental
markets. The company primarily focuses on five business verticals: construction
quality assurance, infrastructure, energy, program management, and
environmental. NV5 operates out of 75 locations in 26 states nationwide and
abroad. The company went public in 2013 and their market cap has increased
from approximately $25 million to $400 million in 3 years. The basic business
principles that underlie the NV5 story: a flat, vertically structured organization
that emphasizes entrepreneurial leadership in five key service areas; a constant
effort to cross-sell these services and vibrant mergers and acquisitions program.
Outlook
NV5 is in a sweet spot to capitalize on significant market momentum. First, the record backlog of $220 million provides several
years of visibility. There is a significant need to improve the ailing condition of our nation’s infrastructure. NV5 is well-situated to
benefit from the $305 billion FAST Act signed in December 2015, focused on transportation infrastructure improvements, and the
$608 billion PIPES Act of 2016. NV5 is also encouraged by the new presidential administration’s plan to invest $1 trillion in
infrastructure projects, focusing on airports, highways, roads and bridges, and energy infrastructure. Finally, NV5 should thrive
because of its proven M&A Strategy thus further scaling up its diverse service line and geographical footprint.
Valuation
We conducted valuation based on Discounted Cash Flow (“DCF”) analysis and Trading Multiples methodologies to arrive at a
Target Price range between $33 to $45 for NV5, which provides an upside of approximately 17 percent. We use revenue
growth forecasts incorporating management’s view of organic and inorganic growth. We have used total five companies as
comparables and used EV/EBITDA, EV/Revenue and P/E as metrics. For DCF we have projected FCF for 10 years and used 2
methodologies to calculate the terminal value – Exit multiple of 6.5x which is lower than comparable companies as we forecast
the multiple to reduce at the end of 10 years, and Perpetuity growth rate of 3%, with WACC of 13% that includes a size
premium of 2%.
EBITDA Margin (FY16)
11.0%
10.5%
8.9%
7.1%
6.6%
6.0%
5.2%
1.3%
Economic Moat
The company currently has a deep, but narrow moat because of price sensitive nature of winning government contracts.
Due to its strong revenue growth, operational efficiencies and acquisition efforts the company provides very strong
operating margins and free cash flow generation. However, the company derives its diverse service offering and cross
selling of services. To continue the success story, NV5 will have to retain its best employees besides further adding to it
Recommendation
Our recommendation is to keep NV5 Global on the watch list for near team. While we attracted to the companies
operating strategy ,we believe the market to have priced in a “Trump Bump”. Further it also seems that investors have
incorporated the premium for expected future acquisitions & we feel that the stock price would tumble in case of few
unsuccessful acquisitions. However, in the future if the company continues its high performance and utilizes the excess
free cash flows for winning acquisitions, we would like to consider buying the stock at a more attractive price.
By: Alok Sanghvi, Gautam Singh, Jack Lindblad & Karan Dhir