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.

Ameresco Target Price Raised $12.50

AMRC : NYSE : US$10.02
BUY 
Target: US$12.50

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.

Investment recommendation
Visibility gets a bit better in H2/13, as projects finally start to move and funded backlog growth is expected at long last. Given the attractive energy efficiency market (and the owner/operator model), we find the opportunity attractive.
Investment highlights
 We recently hosted a series of investor meetings with Ameresco management. In sum, progress continues to build for improvement later in H2/13, as efficiency projects remain attractive and cash flow from the underlying “concession” business (e.g., landfill gas) stays supportive.
 Near term, the continued federal budgetary stalemate (and likely government shutdown) keeps headline risk elevated (though we don’t expect material impact). In our view, 2013 revenue/net income guidance still looks very achievable at ~$620-640M/$18- 21M.
 Our price target adjusts to $12.50 (from $10.50) as we assign a higher multiple given expected movement in funded backlog and better operating leverage in H2/13.
Valuation
Our $12.50 target is based on a ~13x (from ~12x) EV/EBITDA off 2014E.
Risks
Long & lumpy sales cycles, governmental customer concentration, project financing dependency, insider control.

Ecolab

ECL : NYSE : US$96.00
BUY 
Target: US$110.00

COMPANY DESCRIPTION:
Based in St. Paul, Minnesota, Ecolab is a leading international provider of advanced technologies and services helping to optimize the use of resources such as water, energy, food and the environment

Investment recommendation
We find Ecolab very well positioned to benefit from the convergence of population growth, resource volatility and rapid industrialization across the world. The company’s recurring services model drives high visibility (even in uncertain macro environment), while the energy platform looks positioned for strong earnings growth post Champion. Maintain BUY.
Investment highlights
All in, the underlying megatrends (population growth, water and resource volatility + efficiency) stay firmly intact, as the company continues to deliver against both near- and long-term targets. With a model that supports 90%+ recurring revenues and lots of room in target markets, we maintain our BUY rating and take our target to $110 as a reiteration of the broader outlook earns a slightly better (albeit premium) multiple, in our view.
At yesterday’s biannual meeting, management’s own assessment was refreshingly balanced, acknowledging areas of needed improvement (e.g., emerging market and paper growth) while diving into detailed business segment strategy and reinforcing core themes – EPS growth, technology/services, market share gains and cash return goals.
Besides basic block and tackling, there are several trends driving real margin expansion in the coming quarters (e.g., fast casual dining, 3D TRASAR in institutional markets) that should help the company continue to outperform broader market trends.