Mullen Group Ltd (TSX: MTL) is the supplier of trucking and logistics services in Canada providing a wide range of service offerings including less-than-truckload, truckload, warehousing, logistics, transload, oversized and specialized hauling transportation. It provides a diverse set of specialized services related to the oil and natural gas industry in western Canada.

Key Highlights

• Robust operating matrix: Despite the turbulence, the Company maintained its momentum and delivered strong results in terms of sales, OIBDA, and net income. Its sales climbed by CAD 313.1 million, or 26.9%, to CAD 1,477.4 million in FY 2021, owing to strong success across all areas except specialized and industrial services. The Company is working diligently to maintain its winning streak and has seen an increase in scale on a sequential basis, which is commendable.

 Source: Company Filing, Analysis by Kalkine Group

• Diversified portfolio of Business Units: The company has a diverse portfolio of Business Units that provide a wide range of logistical services and solutions to a variety of industries. Due to this diversity, despite market volatility and changes, the company has been successful over time. The demand for transportation and logistics services, is expected to remain stable in 2022, driven by steady consumer spending, a recovery in capital investment, particularly in the construction and energy sectors of the economy, and rising prices, according to the company. As a result, we anticipate another strong performance in 2022.

• Strong outlook: Due to the obvious growth initiatives the company made last year, a slowdown in the economy is not likely to have a significant impact on the business forecast for 2022. In 2021, the company used its strong balance sheet and cash position to acquire companies, obtaining additional clients, experienced personnel, and critical mass in important strategic sectors. These investments are estimated to contribute CAD 400.0 million in annual revenue while maintaining the same margins as the current business. The results for 2022 will contain a full year's worth of performance from these purchases.

• Riding on an acquisition wave: Earlier this year, the corporation purchased six high-quality businesses. Besides aiding in revenue development, these businesses helped the company in further expansion. Furthermore, the company gained access to a larger client base and a larger staff at a time when finding new personnel has become difficult. To put it mildly, the corporation is overjoyed with these investments.

• Consistent dividend distribution: Given the strength of a business over the past number of quarters, improved cost structure, strong balance sheet and solid cash flow, the company has paid a consistent dividend. Recently, the company paid a monthly dividend of CAD 0 .05 per Common share on March 15, 2022. The stock carries an attractive dividend yield of 4.7%, which is quite impressive for the investors with a long-term horizon amid the current economic scenario.

Source: REFINITIV, Analysis by Kalkine Group 

• Robust guidance for FY 2022: The management provides 2022 guidance, where consolidated revenue is expected to be in the range of CAD 1.6 - 1.7 billion, representing a significant increase over FY 2021. In addition, the company aims to make CAD 260 million in operational earnings in FY 2022.
  

Risks associated with investment 

The business of the company is under many risks which can change the picture of their operations and financial health. Some of these risks can be classified as general economy risk, hike in fuel costs, fluctuation in foreign exchange rates, and supply chain evolution, etc. 

Financial overview of FY 2021

Source: Company Filing 

• Strong revenues: The company’s revenue for Fiscal 2021 increased by 26.9% to CAD 1,477.4 million, against CAD 1,164.3 million in Fiscal 2020. An increase is attributable to the robust performance from all operating segments accept Specialized & Industrial Services segment, where the revenue decline by 13.4%, to CAD 313.4 million.
• Higher direct operating expenses: The company posted higher direct operating expenses in the reported period which stood at CAD 1,055.3 million against CAD 796.5 million in pcp. As a percentage of revenue these expenses increased to 71.4 percent as compared to 68.4 percent in 2020 due to higher purchased transportation, fuel and contractors’ expenses.
• Rise in operating income before depreciation and amortization: On the back of strong revenue the company’s operating income before depreciation and amortization increased to CAD236.3 million compared to CAD 217.5 million in pcp.
• Elevated net income: The company’s net income increased to CAD 72.4 million in 2021 as compared to CAD 64.0 million in 2020, primarily due to higher OIBDA and gain on sale of property, plant and equipment.
  

Top-10 Shareholders 

The top 10 shareholders have been highlighted in the table, which forms around 41.91% of the total shareholding. Leith Wheeler Investment Counsel Ltd. and Burgundy Asset Management Ltd. hold the company's maximum interests at 10.23% and 10.00%, respectively. The company's institutional ownership stood at 46.23%. Higher institutional holding boosts the confidence in the mind of retail investors.

Valuation Methodology (Illustrative): EV to EBITDA based Valuation Metrics

Analysis by Kalkine Group 

Stock recommendation 

The company set a new revenue record for the second quarter in a row. It bought six high-quality enterprises earlier this year.  It helped the company in further expansion into new markets, access to a larger customer base, and expanding its workforce at a time when finding new employees has become a real challenge. 

Due to the sheer growth initiatives, it made last year, a slowdown in the economy is not likely to have a significant impact on the business forecast for 2022. In 2021, the company used its strong balance sheet and cash position to acquire companies, obtaining additional clients, experienced personnel, and critical mass in important strategic sectors. These expenditures are projected to result in increased revenue and margins in upcoming quarters, which is a significant benefit. Furthermore, the company forecasts consolidated sales to be in the range of CAD 1.6 - 1.7 billion in FY 2022, representing a significant increase over FY 2021. In addition, it aims to make CAD 260 million in operational earnings in FY 2022. Therefore, based on the above rationales and valuation, we recommend a "Buy" rating on the stock at the at the closing price of CAD 12.76 as on March 18, 2022.

Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 18, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.