TFI International Inc (TSX: TFII) is a transportation and logistics company domiciled in Canada. The company organizes itself into four segments: package and courier, less-than-truckload, truckload, and logistics. TFI International derives most of the revenue domestically, followed by the United States.

Key highlights 

• Sequentially improving financial matrices: The company maintained its pace and witnessed spirited performance across its revenue, operating income, and net income in Q1 FY 2022. Total revenue of USD 2,192 million was up 91%. Operating income grew 116% to USD 220.0 million from USD 102.0 million the prior year period. The increase was driven by business acquisitions and organic growth across the company. Net Income also witnessed growth. The Company is continuously working to carry this winning momentum and has witnessed higher scale on the sequential basis, which is appreciable.

• Less-than-truckload segment stole the show: The company's segment less-than-truckload stole the show in Q1 2022, accounting for 45 percent of overall revenues, which climbed by USD 703.8 million to USD 835.3 million. This rise was mostly attributable to the USD 695.0 million acquisition of UPS Freight. Truckloads (28% of total income) and logistics (20% of total revenue) were the next two largest revenue generators.
  

• Steady cash flows from operations: The company's cash flow from operations was USD 137.6 million in Q1 2022, down from USD 155.1 million in the previous similar quarter. The drop is mostly due to a USD 175.4 million decline in non-cash working capital as a result of an increase in fuel surcharge. As a consequence, the company's free cash flows fell to USD 91.7 million, compared to USD 143.4 million in pcp. Nonetheless, despite an increase in the fuel fee, the firm managed to record free cash flows, which is commendable.
  

• Diverse customer base: The Company's customer base is extensive, spanning a wide range of sectors, with no single client accounting for more than 5% of consolidated sales. Due to the sheer Company's customer diversity, as well as the broad geographic scope of its service offerings and the range of segments in which it operates, a downturn in the activities of a single customer or customers in a specific industry would not be expected to have a material adverse impact on operations.
  

• Promising outlook: The Company is well positioned for continued solid operational and financial performance in 2022 due to its strong financial foundation, its lean cost structure, and a longstanding focus on profitability and efficiency. It also has significant opportunity to improve performance in its US Truckload and US Less Than Truckload operations. Furthermore, its industrial exposure via specialized Truckload and Less Than Truckload could gain from increased domestic manufacturing because of lower imports from abroad due to global supply chain concerns.
  

• Trading at discounted valuations: The company’s shares are available at an NTM EV/Sales multiple of 1.0x compared to the sector (Industrials) median of 1.5x. while on NTM Price to Cash Flow multiple the stock is trading at 8.3x compared to 11.2x. This implies that the shares are trading at deep discount against the sector. The stock is undervalued on multiple valuation parameters. The table below reflects the picture.

• 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 dividend, which is consistently rising on Y-O-Y basis. This holds its own significance. Recently, the company declared a quarterly dividend of USD 0.27 per outstanding common share of its capital payable on April 15, 2022, to shareholders of record at the close of business on March 31, 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, low volume of goods, unavailability of workforce, fluctuation in foreign exchange rates, low e-commerce trade and supply chain evolution, etc.

Financial overview of Q1 2022

Source: Company Filing 

• Strong revenues: The company’s revenue for Q1 2022 increased by 91% to USD 2,191.5 million, compared with USD 1,148.8 million in pcp. The increase was mainly attributable to the contribution from business acquisitions of USD 941.9 million and an increase of USD 100.8 million from existing operations.
• Proportionate rise in operating expenses: For the three months ended March 31, 2022, the Company’s operating expenses increased by USD 924.7 million, to USD 1,971.7 million, from USD 1,047.0 million in Q1 2021. The increase is attributable to USD 875.4 million from business acquisitions, and USD 49.3 million from existing operations.
• Two-fold jump in operating income: The Company’s operating income rose by USD 118.0 million to USD 219.8 million as compared to USD 101.7 million in the same quarter in 2021. The increase was driven by business acquisitions and an increase from existing operations.
• Rise in operating margin: The operating margin as a percentage of revenue before fuel surcharge of 11.6% compared to 9.6% in Q1 2021.
• Robust net income: On the back of above discussed rationales, the company’s net income grew strongly to USD 147.7 million, against USD 66.8 million in pcp.
  

Top-5 Shareholders 

The top 5 shareholders have been highlighted in the table, which forms around 32.53% of the total shareholding. Capital Research Global Investors and Capital International Investors hold the company's maximum interests at 10.13% and 7.40%, respectively. The company's institutional ownership stood at 68.68% and ownership of the strategic entities stood at 10.10%. Higher institutional holding boosts the confidence in the mind of retail investors.

 Valuation Methodology (Illustrative): EV to Sales

Stock Recommendation

TFI International Inc. is off to a solid start this year, capitalizing on positive trends across its extremely diversified end markets and own internal potential to develop synergies and operational efficiencies. It more than doubled both operating income and adjusted diluted EPS in the first quarter, with positive contributions from all four business sectors.

The company is well positioned to benefit from the continuous rise of e-commerce, which offers opportunities for both growth and margin improvement in its P&C and Logistics businesses. Furthermore, it enhanced its very strong balance sheet by investing in the fleet and returning cash to shareholders, enhancing financial flexibility and the possibility for long-term growth through strategic acquisitions. 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 109.85 as on May 4, 2022.

One-Year Technical Price Chart (as on May 4, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Technical Analysis Summary

Disclaimer

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