ADF Group ($DRX.TO) FINS Review

Q4 & 2024 Annuals (Rated R)

Well today should be interesting for ADF Group, a stock that has been beaten up like a red headed stepchild thus far in 2025 due to tariff threats and fears.

The headlines on their 2024 results are solid, highlighted by a 50% improvement in profitability but that isn’t going to matter much as I begin to write this prior to the market opening. The commentary within the press release in a word, is grim.

Work sharing programs impacting 50-60% of the staff, lighter backlogs, potential customers sitting on their hands (understandably) and a weak forecast for 2025 read quite bearish for a company whom the market has already put into hibernation.

In my previous review, I commended the CEO for his language during the Q3 conference call calling the 3x EBITDA “a joke” and instructing everyone not to “panic about the backlog”. I quite frankly found it endearing, but I wonder what his tone will be like today. If it is anything like to tone in the press release, DRX could be in for a long day after popping 13% on tariff news that didn’t end up changing the game for Canada in the slightest.

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I wrote that preamble just after the news release on Thursday morning, expecting to see the financials posted around the same time as the conference call. As I sit here on Sunday morning, sipping java and awaiting the Masters the company has yet to release them to SEDAR (which to little surprise is also under maintenance).

Here is what we do know from their 2024 press release. Revenue was up 2.6% on the year but down by 11% in Q4. Profitability was 51% higher than their previous year to $56.8M on much higher margins which were nearly 1000 basis points better than 2023. All of that delivered Net income of $1.84 per share. Cash flow was strong, although less than 2023 due to working capital changes and the balance sheet is extremely healthy with a current ratio of 2.4 including $60M in cash, $84M in A/R with only $80M in current liabilities and $38M in long term debt.

Overall:

An overall fantastic 2024 numerically, but unfortunately given the current state of things, they don’t mean shit.

Backlog numbers are down despite $120M in new contracts awarded post financials with potential customers south of the border basically in a holding pattern awaiting the outcome of a global tariff war, more specifically American 25% tariffs imposed on Canadian steel.

We are less than two weeks into Q2, and the company has already stated that 2025 revenues and margins will suffer, particularly in the first half of the year. That reduced backlog also sounds more 2026 fiscal year bullish than 2025. That feisty sounding CEO on the Q3 call was the polar opposite on Thursday. The usual elevator music preceding the conference call could have been replaced with Chopin’s Marche funèbre.

It’s hard to say exactly how long the current state of affairs will last. The US is currently in a 90 day pause with their 10% global tariffs, exclusive of the 25% on steel. It is hard to imagine a particular carve out here before then with concurrent negotiations with every country on the planet taking place, but I would expect talks with Canada to pick up a notch beginning in May after the Federal election. In Trump’s first term, steel tariffs remained on Canadian steel for eleven months, and up to thirty four for China. Predicting how long these tariffs may last this time is as reliable as trusting a fart after a late night of Taco Bell washed down with several pints of Richard’s Red.

If and when they are removed, I would expect a re-rate for DRX, but in the meantime one needs to expect very poor Q1 results announced in June and not much better Q2 results in September. Their business was 150% higher in 2024 than the last time tariffs were imposed, the company is extremely well run, has a strong balance sheet to withstand these times and are putting measures in place to reduce operating costs to weather this storm. With a 17M float (subordinate shares) I do not expect the company to continue taking advantage of their NCIB despite the depressed share price. Capital preservation and setting themselves up for better times would be the prudent move here, not to mention the message that would send to their workforce.

2025 therefore looks like a complete write off for ADF group, and as someone who selected them as a 2025 Wolf Pick that is a depressing thing to type. In normal times a company producing 17% net income and trading around a 4 P/E would be awarded somewhere near four stars. But these are far from normal times, and with the current outlook throwing out a star rating doesn’t make much sense.

I feel good about their long term prospects, but until then I’ll be the dude carrying some heavy bags. Maybe next year?

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Disclaimer:

My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from companies I review.

Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.