Titanium Transportation Group (TSXV: TTR) is an asset-based transportation and logistics company servicing Canada and the United States with terminals in Bolton, Bracebridge, Napanee, North Bay, Windsor, Belleville, Cornwall and Brantford, Ontario, with additional parking/switch yards in Sudbury, Brockville and Trenton, Ontario and freight brokerage offices in Charlotte, North Carolina, Nashville, Tennessee, and Chicago, Illinois. The Company has approximately 800 power units, 3,000 trailers, and over 1,100 independent owner operators and full-time employees.

Revenue Mix

• Strong Q1FY21 Results: Q1 was another quarter of milestones for Titanium. The company delivered record quarterly revenue, completed a transformative acquisition with the addition of International Truckload Services Group (ITS), continued to expand the U.S. Freight Brokerage business and further strengthened the capital position - successfully raising a total of $25 million in equity during the quarter. The company reported record consolidated revenue of CAD 85.7 million, an increase of 93.3% and Consolidated EBITDA of CAD 7.5 million, an increase of 65.3% and an EBITDA margin of 9.5%.

• Positioned Well to Capitalize Future Growth Opportunities: The strength of the company’s technology platform and its operational expertise positions TTR well to deliver synergies through the integration of ITS and to further expand the U.S. Freight Brokerage business with additional offices. As the group continue to integrate ITS into Titanium, it would build on ITS’ strengths and improve margins over time to drive profitable growth, all supported by the expected gradual improvement in overall operating conditions.
  

• Diversified Revenue Base: The Company has over 1,000 customers across various industries, including large multinational corporations, with no single customer accounting for more than 7% of revenue. This diversified revenue base would help the company to hedge the business in any kind of cyclicality.

Revenue by Industry. Source: Company Presentation

• Leading Edge Technology-Infused Company: Titanium would continue to be at the leading edge of modernization. The company is consistently investing in future for superior asset utilization, optimized and customized reporting, proactive maintenance and improved trip planning and logistics. The company has globally renowned technology partners, including names like Tesla, BlackBerry, Volvo and others.  

Source: Company Presentation

• Robust Financial Performance Over the Past 5-Years: Revenue improved with a CAGR of 13%, Operating Income soared up with a CAGR of 39% and Free Cash Flow bolstered with a CAGR of 20% since 2015. This implies the robust performance of the company over the past 5-years.

• Improve Technical Measures: A crossover can be seen in the next few trading session on the daily price chart, where its prices are going to crossover the 21-day SMA level, which is a bullish technical indicator. Also, 14-day RSI is hovering in neutral territory, and it has recovered significantly from oversold territory. Also, its shares are hovering well above the crucial long-term support level of 200-day SMA, a bullish indicator and imply that the stock is in a long-term bullish zone. Overall technical is moving in favor of the bulls.

• Yielding Higher than the Risk-Free Rate: At the last closing price of CAD 3.49 (as of June 29, 2021), its shares were yielding 2.29%, which is relatively higher than the Canada 10-Year Government Bond Yield of 1.4%. Moreover, the company has announced three consecutive dividends on the back of solid financial performance reported by the company. This is a strong measure to gauge the company's financial health. Also, the availability of dividend income, especially in a penny cap company, would attract many investors.

• Risk Associated to Investment: The Company's business is subject to several risk factors, including duration and impact of the COVID-19 pandemic on the global economy, as it is not possible to reliably estimate the length and severity of COVID-19 related impacts on the financial results and operations of the company. Further, the company is exposed to forex risks as the majority of the group's revenue comes from the abroad market, especially U.S Dollars.

Financial Highlights: Q1FY21

• During the first quarter under consideration, the company reported a record to consolidate revenue of CAD 85.7 million, a 93.3% jump on a YoY basis.
• This was primarily driven by a ~164% jump in the logistics revenue and an approximately 42% surge in the truck transportation revenue.
• The group’s consolidated EBITDA nudged by 65.3% to CAD 7.5 million, driven by 618.7% growth in the logistics segment EBITDA and partially offset by a 5.6% reduction in the truck segment reported EBITDA.
• The group’s consolidated Net Income stood at CAD 1.17 million, an increase of 81.8% and earnings per share of CAD 0.03.
• Further, risk protection metrics also improved in the quarter under consideration, with the net debt to equity ratio stood at 1.01x at the end of Q1FY21 from 1.14x at the end of the Q4FY20, respectively. This was supported by a significant jump in the top line and higher operating cash flow in the business.
• The company reported a Cash balance of CAD 10.0 million on March 31, 2021, following the closing of a CAD 25.0 million bought deal public offering and CAD 10.0 million secondary public offerings.
• Further, during the quarter, the company also closed the acquisition of ITS Group for CAD 60.5 million, of which CAD 27 million was paid in cash and CAD 33.5 million in assumed debt.

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

Note: Premium (discount) is based on our assessment of the company’s growth drivers, economic moat, competitive advantage, stock’s current and historical multiple against peer group average/median and investment risks.

Stock Recommendation: Past one and half years were one of the most challenging operating environments in history, reflecting the global impact of the COVID-19 pandemic. Throughout these unprecedented times, Titanium placed the highest priority on protecting the safety and wellbeing of all their customers and continues to do so. Notwithstanding these challenges, Titanium delivered a strong quarterly financial and operating performance. The group achieved record revenue in Q1FY22. These results once again demonstrate the robustness and strength of the company’s operating platform – supported by the dedication of the company’s employees and drivers.

In the early stages of fiscal 2020, Titanium experienced significant disruption to the company’s several key end markets, including automotive and metals, reflecting the impact of government-mandated closures. This was partially offset by increased demand from industries supporting essential household goods and medical products, where it was able to quickly focus on the group’s assets.

Moreover, the company’s stellar performance can be further gauged by throwing some light on the past five-year performance of the company, with revenue improved with a CAGR of 13% over the five years, Operating Income soared up with a CAGR of 39% and Free Cash Flow bolstered with a CAGR of 20% at the same time. This reflects the company capitalizes well over the past five years and the strength of the company’s technology platform and their operational expertise positions place it well to deliver synergies through the integration of ITS and to further expand their U.S.

Also, the long-term bullish trend is largely intact, with TTR stocks traded above the 200-day SMA, with the Price/200-day SMA ratio stood at 1.17x. This implies that the stock is trading approximately 17% above its 200-day SMA. Also, 14-day RSI is hovering in the neutral zone at 46 and recovered from oversold territory. Based on technical analysis, the stock has support at CAD 2.96 level.

Therefore, based on the above rationale and valuation, we suggest a “Speculative Buy” recommendation on the stock at the closing price of CAD 3.49 on June 29, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

1-Year Price Chart. Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

*Recommendation is valid at June 30, 2021 price as well.

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