Ameresco

AMRC : NYSE : US$9.31
BUY 
Target: US$11.50 

COMPANY DESCRIPTION:
Ameresco is a leading provider of energy efficiency solutions for facilities throughout North America. Principal services include the development, design, engineering, and installation of projects that reduce the energy and operations & maintenance costs of facilities. The company also constructs and operates small-scale renewable energy plants.
All amounts in US$ unless otherwise noted.

Sustainability — Energy & Power Technologies
FRUSTRATING, BUT FORESHADOWING A CHANGE; MAINTAIN BUY Target $11.50
Investment recommendation
Market conditions stay challenging, while funded backlog looks to improve further in Q4 (helping visibility in ’14). We stay constructive here as we expect ’14 could bring the launch of a fresh corporate structure (e.g. dividend), along with our much more conservative outlook and underlying valuation (~2.1x TBV) provide support for shares.
Investment highlights
 Ameresco reported Q3/13 revs/EPS of 161.6M/$0.10 vs. our $177.0M/$0.15 and the Street at $185.0M/$0.18. Contracted backlog increased ~13% q/q to ~$366M (first positive move in 10 quarters, expected to grow in Q4), while full-year rev/net income targets get narrowed to $570-590M/$11-13M on delays (from $620-640M/$18-21M). Guidance now factors a more elongated view of conversion rates for funded projects (~18 months).
 Importantly, the balance sheet remains well-positioned to weather this protracted period of variable demand. We note FCF generation of roughly $1.6M in the quarter, supporting the core business.
 Our estimates adjust to reflect reported results and conversion delays. F2013 goes to $570.0M/$0.21 (from $620.4M/$0.39); F2014 to $585.0M/$0.25 from $682M/$0.55.
Valuation
Our $11.50 target (from $12.50) is based on a ~16x EV/EBITDA off CY14.
Risks
Long & lumpy sales cycles, governmental customer concentration, project financing dependency, insider control.

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