Bird Construction - A Worthwhile Investment?
- fitzgeraldfliam
- Jun 16, 2024
- 7 min read
Updated: Jul 21, 2024
Business overview
Bird Construction (TSX: BDT) is a Canadian leader in design, engineering, installation, and maintenance services performed across the industrial landscape. Through its subsidiaries, Bird provides a comprehensive and diversified portfolio of solutions including:
New construction and retrofits.
Maintenance, repair and operations (“MRO”) services, shutdowns and turnarounds.
Civil infrastructure construction.
Mine support services.
Utility contracting.
Fabrication.
Steel modular construction.
They deliver these services across Canada to a range of end-markets including industrial facilities, marine infrastructure, non-residential residences, power generators, transportation assets, mining and oil production.
Why do I like Bird Construction?
Experience, diversity, and national reach: With over 100 years experience Bird construction is considered one of Canada’s oldest and most respected brands in the construction industry[1].
With a deep and rich history in the industry, the firm has expanded to offering services in all major markets and sectors throughout the country. Bird’s comprehensive range of services spans new construction, retrofits, tenant improvements, fabrication, and maintenance programs. In partnership with Stack Modular, Bird also provides purpose-built structural steel modular building design and construction.
Because it has a diversified portfolio of capabilities it means that the company can execute work using its own employees and resources instead of finding subcontractors, leading to better control over scheduling, budgeting, and overall project quality. Furthermore, shifting to a diversified project selection reduces their risk profile allowing for more stable streams of revenue.
Renewable and Low Carbon Energy Solutions: As part of its diversification strategy, Bird Construction is repositioning and expanding its capabilities in the renewable energy sector by growing its portfolio of projects that align with a lower carbon future.
Bird Construction has experience and expertise in construction of renewable and low-carbon energy infrastructure, delivering projects relating to hydroelectric infrastructure, nuclear power plants, organic waste processing facilities, and waste energy recovery projects to support decarbonisation efforts. In addition, the firm employs a range of services that enables them to be actively involved in helping Canada reach it’s emissions targets including:
Net Zero Buildings: Develop structures that utilise technologies, processes and materials aiming for energy and carbon reductions throughout every construction phase and across a building’s lifecycle.
Deep Energy Retrofits: Deep energy retrofits aim to reduce greenhouse gas emissions and energy consumption in existing buildings through extensive overhauls of building systems and materials.
Mass Timber: Bird develops cross-laminated timber, nailed laminated timber, wood-frame, and hybrid projects by focusing on sustainable forestry, and using wood-based materials to capture carbon and offset total CO2 emissions over the lifespan of the asset.
Strategic growth: In recent years, the company shifted its strategic focus, aiming to diversify its services, take on larger projects, including projects with higher margins. As part of this strategy, the company has pursued strategic acquisitions, to expand its capabilities, market reach, and push into sectors with recurring revenue streams. Accretive mergers and acquisitions for Bird have included some of the following purchases:
Jacob Bros Construction: Bird announced on June 10, 2024 that it will acquire Jacob Bros, a BC-based civil infrastructure contractor, for $135 million [1].
Jacob Bros specialises in such projects as airports, seaports, rail, bridges and structures, earthworks, energy projects and utilities.
Adds civil infrastructure expertise to Bird as well as enhancing its core infrastructure vertical.
Expanding its scale and geographic reach into Western Canada’s public and private infrastructure markets.
NorCan Electric Inc.: On January 18, 2024, Bird acquired the assets of NorCan Electric for $11 million [2].
NorCan is a leading electrical and instrumentation contractor providing maintenance turnaround and sustaining capital services.
The acquisition is seen as expanding Bird’s electrical and instrumentation capabilities on MRO services for large, complex industrial facilities in Canada and the United States.
With NorCan’s 25 years of industry experience, this acquisition enhances Bird’s presence in the Alberta electrical infrastructure market.
Stuart Olson: On July 29,2020, Bird announced that it will acquire Stuart Olson for $96.5 million[3].
Stuart Olson Inc. is a leading contract for vertical infrastructure and electrical building system construction, along with a full suite of services including, electrical, mechanical and specialty trades, such as insulation, cladding and asbestos abatement, in the industrial construction and services market [3].
With history dating back 100 years, Stuart Olson is considered a Top 5 Canadian diversified infrastructure & construction services company [3].
According to Terri McKibbon, the merger will “create a company with substantially increased breadth and scale, diversified across services, end-markets and geographies”[3].
Government Spending: As COVID-19 continued to worsen and lockdown measures tightened, the Canadian government implemented infrastructure spending plans to prevent an economic downturn. In addition to promoting economic growth, the government's objective was to transition Canada's economy towards achieving net-zero emissions by 2050. Adding to the challenges, Canada was and continues facing a pressing need for infrastructure enhancements due to years of inadequate investment. According to the 2016 Canadian Infrastructure Report Card by the Business Council of Canada and the Canadian Chamber of Commerce, Canada’s infrastructure deficit was listed at a minimum of C$150 billion[4]. In particular, Canada needs to roughly double its electricity supply, including expanding clean energy and improving power distribution and transmission systems as well as investing in battery and EV supply chain support infrastructure [5].
As a consequence, the government deployed several investment vehicles to attract private capital, improve the delivery of public infrastructure, and provide a stable source of infrastructure funding for municipalities across Canada for a wide range of local infrastructure projects:
Canada Growth Fund: Refers to a $15 billion public investment vehicle launched by the federal government to attract private capital for Canadian projects and businesses, with a focus on decarbonization and clean technologies [6].
P3 Canada Fund: Created to improve the delivery of public infrastructure and provide better value, timeliness, and accountability by increasing the effective use of public-private partnerships [7].
Canada Community-Building Fund: A well-defined, flexible, and stable source of infrastructure funding for municipalities across Canada. It offers predictable, long-term support for a wide range of local infrastructure projects [8].
Canadian Infrastructure Bank: The CIB has been allocated $35 billion in capital by the Canadian Parliament for the period ending in fiscal year 2027-2028 [9]. It has committed significant funds to various projects, including public transit, green infrastructure, and clean power, attracting substantial private and institutional investments.
When it comes to the country’s climate policy, Canada has committed to achieving carbon neutrality by 2050, with a net-zero economic plan that will invest over $160 billion, with $93 billion in incentives by 2034-35 [5].
Given Bird’s scope of expertise and experience extends across a broad range of sectors, Bird is involved in many of the projects that receive funding or support from various spending programs outlined above. As a result, Bird can continue to exert a significant presence in the Canadian infrastructure sector as structural tailwinds continue to drive the business forward.
Track record of profitability and growth: Bird has a demonstrated history of sustained organic growth in both revenue and profit, for the period CY2020 to CY2023. In the years following COVID, Bird’s pursuit of large-scale projects across a range of sectors has achieved a CAGR of 22.99% for revenue, 8.51% for EBITDA and 25.61% for NPAT.
Robust backlog: The company's focus on collaborative delivery models and strategic acquisitions contributing to its success in securing new contracts and building its order book. Bird Construction's backlog of contracted work recorded an all- time high exceeding $3.4 billion, along with a portfolio of recurring revenue contracts approximating $1.4 billion [5]. In addition to the contracted backlog, Bird Construction also reports a "Pending Backlog" of $3.4 billion [5]. This represents expected future contract awards or projects where the company has been named preferred proponent. This robust backlog indicates a strong pipeline of future work for Bird Construction, supporting its growth trajectory and financial stability.
Risks
The primary concern investors would have with Bird’s business model is that its success hinges on whether the company can continue to secure large-scale projects to maintain revenue growth. This means the firm’s top and bottom line are heavily exposed to cancellations, delays in delivery, budget blowouts etc.
When it comes to sustaining revenue rates with project delivery, a significant risk is the shortage of labour and supply chain disruptions that are affecting the construction industry worldwide. With that being said, if we look at their track record for growth over the last 4 years where labour shortage and supply chains have been at their worst during COVID, the firm’s acquisition and diversification strategy is bearing fruits and demonstrates their ability to mitigate some of the risks listed above.
Conclusion
Bird’s 3-year growth rates across profitability metrics underscores the resilience of the business model to macro conditions and successful execution of strategic initiatives. As outlined above, there is clear demand continuing across Bird’s service profile, particularly in areas tied to energy transition, population growth and modernisation of critical assets. Their umbrella of key capabilities allows them to manage high-volume, complex projects work, giving them a leadership position as a collaborative construction and maintenance company. The focus now is on whether Bird will sustain utilising these competitive advantages to attain more earnings growth.
Source:
[1] Bird acquires Jacob Bros Construction for $135 million
[2] Bird Bolsters Capabilities, Capacity, and Recurring Revenue With ... https://www.bird.ca/who-we-are/news/2024/01/18/bird-bolsters-capabilities-capacity-and-recurring-revenue-with-agreement-to-acquire-leading-alberta-electrical-service-provider
[3] Bird and Stuart Olson join forces to create a leading Canadian construction company
[4] 2016 Canadian Infrastructure Report Card by the Business Council of Canada and the Canadian Chamber of Commerce report
[5] Bird Construction Q1 2024 Investor Presentation
[6] How to set up the Canada Growth Fund for success
8] The Canada Community-Building Fund
[9] The Government of Canada launches selection process for the Chair of the Canada Infrastructure Bank
The Government of Canada launches selection process for the Chair of the Canada Infrastructure Bank - Canada.ca