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TerraVest Industries Inc. (TVK)
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Hammond Power Solutions Inc. Class A Subordinate Voting Shares (HPS.A)
Q: I have been eyeing these companies for some time now, regretting not pulling the trigger when first on my radar. I am now questioning the debt level of TVK; does this cause any concern on your part? As for Hammond Power, do you think there is any more room for gains, or has it pretty much hit the wall and is fairly valued?
5i Research Answer:
TVK has been an active user of debt in its acquisition strategy. Its net debt is $347M, and net debt/EBITDA of 2.3x. The company has consistently run a leveraged balance sheet in the range of 2.0x to 3.0x over the years, and we would not be too concerned with the debt level here.
HPS.A had a great run. HPS. A is trading at 20x Forward P/E and is expected to grow low double-digits over the next few years. The prospective return may not be as good as it has been in the last year, but we think it is still an attractive name here given the recent drawdown.