Disclaimer: As of the date of writing this post, I am long the stock discussed here. This is not investment advice, and is intended for informational purposes only. Please do your own due diligence.

This is a quickly written overview of the stock & the business. For a more detailed write-up, check it out this post from Luc Nadeau.

The stock ticker is $AEP.V. The company builds and sells manufactured roof trusses and other engineered building products.

The company owns 6 plants, with AEP Building Systems (“Atlas”, formerly Coastal Windows) being the first one and the flagship plant.

aep-plants

A little bit of a backstory on the company. It was founded by Hadi Abassi in Jan 1999 and went public in November 2017 through a reverse takeover transaction with Archer Petroleum Corp. Hadi Abassi was the CEO, and Guy Champagne (CEO of Archer Petroleum Corp) the President.

In November 2018, Dirk Maritz was appointed as Chief Executive Officer, and Hadi took the role of EVP.

In February 2021, Dirk Maritz resigned from his role of CEO and from the board of the company. Hadi took over the role of CEO and President of the company.

Here is a summary of the company’s financials:

aep-fins

A few comments on the calculations:

  • Normalized EBITDA means excluding one-time costs. It also doesn’t account for share-based compensation. That’s why I substract it back when calculating free cash flow.

  • The EBITDA figure also excludes lease-related expenses. Therefore I include them in the debt calculations below.

  • CapEx means investments in equipment. It doesn’t include cash used for acquisitions.

  • I haven’t included changes in working capital in FCF calculation, out of laziness. TBD.

The conversion from EBITDA to FCF hovers between 50% and 80%, except for a few outliers.

The revenues per segment for the three and six months ended June 30, 2021 are as follows:

aep-revenues

The core of the business are the trusses, and the growth there is fantastic.

The growth in the Engineered Wood Products segment is nice to see, and should continue in the coming quarters as per this announcement of product line expansion at Novum.

On the other hand, it’s surprising to see almost no sales in the windows segment during 2021Q2, versus around $300K in 2020Q2 and 2019Q2. That segment was weak all year ($79K in 2021 YTD vs $700K in 2020). I have no idea why that is. Not a huge deal to be honest, but I’ve sent an email to the company enquiring about it.

For the rest of 2021, the company has recently announced that they expect to generate $50M revenues for the year. Applying the average ttm EBITDA ratio of 15%, that should translate into $7.5M of EBITDA. With a fully diluted EV of $44M, that’s less than a 6x ratio of EV/EBITDA.

Here’s the calculation of the Enterprise Value and the EV/EBITDA ratio.

Note that:

  • I use the fully diluted share count at a share price of $0.60 since we’re almost there, and I assume all warrants are exercised (goes to the cash balance).

  • If you compare my EV number with the one from Yahoo Finance, Koyfin or Tikr, they show $37.7M because they use the outstanding shares (not fully diluted).

aep-ev

To put this ratio in perspective, revenue per share for the 6 months ended June 30th, 2021 have increased 57% compared to 2020 and 23% compared to 2019.

According to Koyfin, current price to book ratio is 2.05x, up from 1.70x as of Jun 30th, 2021 (a 20% increase).

The company is also showing a decent ROIC profile (11.7% as of 2021Q2 and increasing):

aep-roic

I also like to keep an eye on option grants. In 2021 YTD, options granted were 450K (100K @ $0.49 and 350K @ $0.29). No options granted in 2020. 1.39M were granted in 2019.

Future acquisitions will be important to watch. My feeling is that the CEO/founder will be disciplined and that he doesn’t like to overpay. Paul Andreola being on the board is also a good thing, he’s familiar with the roll-up playbook. Hadi owns 7.6M shares (~13% of the shares outstanding), 695K options and 62.5K warrants. Paul holds (in total, including his wife and his company) 1.5M shares, 100K options and 125K warrants - but he has also been purchasing in the open market recently.

All in all, I like what I’m seeing here and still see some upside going into the last quarters of 2021, given the current construction activity in Canada.