ABM Industries Incorporated

ABM Details

ABM Industries Incorporated (NYSE: ABM) provides integrated facility solutions through five business segments: Aviation, Business & Industry (B&I), Education, Technology & Manufacturing (T&M), and Technical Solutions. Its various business segments include janitorial, parking, facility services, building & energy solutions, and airline services. The Business & Industry division accounts for most of the company's revenue.

Latest News:

• Strategic Acquisition: On April 7, 2022, ABM completed an all-cash acquisition of Momentum Support ("Momentum"), based in Dublin, Republic of Ireland. Momentum is a significant independent facility services supplier in the Republic of Ireland and Northern Ireland, specializing in janitorial services. Momentum has a workforce of 2,300 people and produced yearly sales of around USD 70 million in 2021. This acquisition is part of ABM's ELEVATE strategy, which aims to increase the company's footprint in desirable geographies and end markets through strategic acquisitions. Momentum's acquisition provides ABM with access to Momentum's blue-chip customer list and the possibility to cross-sell ABM services to existing ABM clients with a presence in the Republic of Ireland and Northern Ireland. Furthermore, by purchasing Momentum, ABM expands its ability to service clients in faster-growing areas like technology and life sciences, where many companies have significant operations in Ireland.

Q1FY22 Results:

• Growth in Topline: The company reported a YoY growth of 29.74% in revenue to USD 1.94 billion in Q1FY22 (ended January 31, 2022) from USD 1.49 billion in Q1FY21, driven by 49.18% growth in Business & Industry segment.
• Growth in Profitability: In Q1FY22, ABM's net income increased to USD 76.0 million from USD 74.6 million in Q1FY21.
• Cash and Debt Position: The company had USD 46.60 million in cash and cash equivalents as of January 31, 2021, and total debt of USD 1.00 billion.

Key Risk:

• Dependence on Long-term Clients: Long-term client relationships are usually more profitable than short-term client partnerships since the company incurs higher initial expenditures on new contracts until labour management and facility operations normalize. As a result, even if ABM earns the same revenue from new clients, the company's financial position and cash flow may be jeopardised if long-term customers quit.
• Dependence on Third Parties: When ABM cannot perform work independently, it looks to subcontractors or other parties to execute the assignment, such as joint venture partners. Any contract breach by these third parties could jeopardise the company's operations.

Outlook:

FY22 Guidance (Source: Q1FY22, Earnings Release, March 08, 2022)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

ABM's stock price has increased 4.45% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 38.44 to USD 54.00. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 53.94.

Considering the slight growth in the stock price, decent top performance, inorganic growth initiatives, current valuation, and associated risks. We recommend a "Hold" rating on the stock at the current price of USD 48.57, up 1.38% as of April 27, 2022, 12:25 PM PDT.

Three-Year Technical Price Chart (as on April 27, 2022, at 12:25 PM PDT). Source: REFINITIV, Analysis by Kalkine Group

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: All forecasted figures and industry information have been taken from REFINITIV.  

Note 3: The report publishing date is as per the Pacific Time Zone.