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: The Company carried its momentum and delivered strong results in terms of sales, OIBDA, and net income. Its sales climbed by CAD 166.4 million, or 57.3%, to CAD 456.9 million in Q1 2022, owing to strong success across all segments. The Company is working diligently to maintain its winning streak and has seen an increase in revenue on a sequential basis, which is commendable.

• 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.

• Strong outlook: The month of March 2022, was the best month in the quarter, as an indicator of the future activities, the company expect overall freight demand and its resources to remain strong for the foreseeable future. Any reduction in consumer discretionary demand should be offset by increase in the demand for capital goods, which appears to be gaining momentum as business investment accelerates. Moreover, there are evidence that supply chain bottlenecks will improve from the current levels as health protocols associated with Covid -19 are relaxed and overall freight demand moderates. This will undoubtedly help improved productivity levels and reduce excessive costs.

• Riding on an acquisition wave: Earlier this year, the corporation purchased six high-quality businesses and recently it acquired the business of Alberta based Monarch Messenger Services Ltd. 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.

• 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.

• 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 declared a monthly dividend of CAD 0.05 per Common share to be paid on May 16, 2022. The stock carries an attractive dividend yield of 4.882%, which is quite impressive for the investors with a long-term horizon amid the current economic scenario.

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 Q1 2022 (Expressed in 000’s of CAD)

• Strong revenues: The company’s revenue in Q1 2022 increased by 57.3% to CAD 456.8 million, against CAD 290.5 million in the previous corresponding period. An increase is attributable to the robust performance from all operating segments.

• Higher direct operating expenses: The company posted higher direct operating expenses in the reported period which stood at CAD 337.0 million against CAD 204.8 million in pcp. As a percentage of revenue these expenses increased to 73.7% as compared to 70.4% in pcp, mainly 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 CAD 60.2 million compared to CAD 47.0 million in pcp.
  

• Elevated net income: The company’s net income increased to CAD 16.4 million in the reported period of Q1 2022, as compared to CAD 12.9 million in pcp, primarily due to higher OIBDA and partially offset by loss on foreign exchange and higher income tax.

 Top-10 Shareholders 

The top 10 shareholders have been highlighted in the table, which forms around 35.81% of the total shareholding. Burgundy Asset Management Ltd. And QV Investors Inc. hold the company's maximum interests at 10.03% and 6.28%, respectively. The company's institutional ownership stood at 40.07%. Higher institutional holding boosts the confidence in the mind of retail investors.

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

Stock recommendation 

The Company posted strong financial numbers in Q1 2022, fueled by six high-quality enterprises it bought earlier this year.  This 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 management 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. The stock is also carrying an attractive dividend yield of 4.882%, which is quite impressive for the investors with a long-term horizon amid the current economic scenario.

Therefore, based on the above rationales and valuation, we recommend a "Buy" rating on the stock at the at the last closing price of CAD 12.29 as on April 29, 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 April 29, 2022). Source: REFINITIV, Analysis by Kalkine Group

 Technical Analysis Summary

Disclaimer

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