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IBI Group (IBG) Downgraded to 'Sector Performer' by CIBC, PT Cut To $8.50

 November 13, 2012 04:04 PM

(By Balaseshan) CIBC World Markets Inc. analyst Paul Lechem downgraded his rating of IBI Group Inc. (TSE: IBG) to "sector performer" from "sector outperformer" and lowered his price target to $8.50 from $12.50.

The brokerage reduced its 2012 EPS estimate for the multi-disciplinary professional services provider to $0.83 from $0.97 and its 2013 estimate to $0.80 from $1.03.

IBI reported weak Q3-2012 results - revenues, EBITDA and EPS of $87 million, $9.0 million and $0.13 versus a consensus of $91 million, $13.0 million and $0.23, respectively. Management attributed the miss to delays in public infrastructure projects in the U.S., U.K. and Greece, weakness in China and one less working day, Lechem noted.

In response, the company cut staff, which is expected to save about $2 million per year. Despite Q3 weakness, backlog remains strong at 9.3 months of current fee volume, the analyst noted. Management foresees Q4 revenues and EBITDA at all-time record levels (i.e., above previous highs of $88.6 million and $12.9 million, respectively).

Focus remains on cash flow and the dividend. Improvements were made in working capital, providing $2 million towards a total $6 million operating cash flow in Q3, Lechem noted. Partnership distributions are now paid through a DRIP. Management is monitoring the dividend and "will address if needed," but plans no changes for Q4.

IBI's business remains volatile and is impacted by economic conditions in its end-markets. Lechem believes the business is set to weather the downturn but, with Q3 results and added risk, he believes a dividend cut could be a possibility.

IBG is trading down 11.03 percent at $6.45 on Tuesday.



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