Written by Christopher Liew, CFA at The Motley Fool Canada
Investors will have new shopping lists when another earnings season wraps up soon. Many companies reported solid quarterly results amid a challenging environment while rising interest rates and inflationary pressures weighed down on other businesses.
One standout is Dexterra Group (TSX:DXT), a niche player with a diverse support services platform for the private and public sectors. This underpriced TSX stock in the industrial sector is a screaming buy following a profitability step back in 2022. Besides the impressive top and bottom lines growth in the first quarter (Q1) of 2023, it pays a juicy 6.48% dividend.
The $353.6 million company supports the infrastructure and built assets of the government and companies across various industries. Dexterra, its lead brand, engages in facilities management and operations. Horizon North caters to resource and construction companies, while Outland provides forestry solutions.
NRB Modular is one of Canada’s largest modular solutions businesses and takes pride in its award-winning building solutions. The last brand in the group, Dana Hospitality, has 30 years of culinary experience and operates in the food service industry.
Dexterra and Horizon North merged in 2020 to form the support services company. The combination is perfect, as the former has an asset-light facilities management platform, while the latter focuses on workforce accommodations and national modular solutions businesses.
Profitable plan and achievable milestone
Today, the highly complementary platforms serve 10 critical industries, including aviation, defence & security, energy & resources, and emergency response. Management set out the path to $1 billion earnings before interest, taxes, depreciation, and amortization since the merger, and management believes the milestone is achievable within Dexterra’s longer-term profitable plan.
The pathway to success is growing the business and becoming the infrastructure support services champion in five years. Dexterra will focus on diversified end markets across North America, deliver $2 billion in revenue, and produce strong shareholder returns.
Thus far, the industrial stock had credible performance in 2.99 years, evidenced by the 87.54% overall return and a compound annual growth rate (CAGR) of 23.39%.
Based on market analysts’ forecasts, the current share price of $5.40 could rise between 43.7% ($7.79) and 59.6% ($8.65) in 12 months. They recommend a buy or hold rating.
Rapid inflation, rising interest rates, supply chain disruptions, and talent sourcing were significant challenges in 2022. Dexterra saw its net earnings drop by 84.9% to $3.71 million versus 2021. But in the three months that ended March 31, 2023, consolidated revenue and net earnings rose 19.7% and 342.5% year over year to $268 million and $4.7 million.
Management credits the significant contributions of the Integrated Facilities Management (IFS), Workforce Accommodations, Forestry and Energy Services (WAFES), and Modular Solutions business segments for the solid start for 2023. Dexterra is back on the road to profitability after last year’s step back.
The strong revenue growth should continue throughout the year due to the new sales momentum in IFM and WAFES. Dexterra continues to grow its diversified modular business while cementing its leadership position in Canada’s workforce accommodation market.
Dexterra Group’s chief executive officer John Mac Cuish said 2022 was an important year in the company’s growth story. Management also took steps in building the foundation for future profitable growth. The business model, a people business, is well positioned to deliver superior returns in 2023 and beyond.
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Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.