Titanium Transportation Group Inc (TSXV: TTR) is a transportation and logistics company that offers truckload, dedicated, and cross-border trucking services, as well as freight logistics, warehousing, and distribution. The company is organized into two segments namely, the Truck Transportation segment and the logistics segment.

Key highlights 

• Robust Q3 2021 results: The company reported record revenue for the fifth quarter in a row, up 93.2% to CAD 101.7 million, owing to exceptional growth in both the Truck Transportation and Logistics segments. For the second time in the company's history, it has surpassed the CAD 100 million mark. Even adjusted EBITDA increased by 31.3% to CAD 7.2 million, while EBITDA stood at 7.2 million as on pcp.
  

• Overcoming the challenging conditions: The company is continually adapting to adverse operational conditions that have impacted margins in both business segments, such as significant supply chain constraints, high inflationary pressure, and tighter labor markets. The Titanium team has demonstrated its focus and agility in navigating through the ever-changing economic climate.

• Healthy guidance for 2021: The company’s strategic investments in growth possibilities and strong execution helped the management as economic conditions improved, in part due to the relaxation of some of the limitations connected to the ongoing COVID-19 outbreak. A notable positive is the company's decision to raise its FY2021 annual guidance to roughly CAD 350 million in revenue while maintaining CAD 33 million for EBITDA.

• Integrating ITS Group: The company's plans for integrating the ITS Group, which was acquired in Q1 2021, has gone according to plan, and despite a softening of margins in the trucking segment, profitability is expected to improve in the coming quarters as it targets more operational efficiencies along with improving market conditions.

• Acquired Bert and Son’s Cartage Limited: Bert and Son's Cartage Limited ("B&S Cartage"), situated in Brantford, Ontario, was recently acquired by the corporation. As a result of this acquisition the company will be able to further expand its platform to better serve existing and future Canadian and US cross-border customers in a high-growth market, which is a significant plus.
• Trading at discounted valuations: The company’s shares are available at an NTM EV/Sales multiple of 0.4x compared to the sector (Industrials) median of 1.7x. while on NTM Price to earnings multiple the stock is trading at 8.6x compared to 15.9x. This implies that the shares are trading at a deep discount against the sector. The stock is undervalued on multiple valuation parameters. The table below reflects the picture.

Source: REFINITIV, Analysis by Kalkine Group 

• Decent yield from penny stock: The dividend pay-out practice translates into an essential factor for regular income-seeking investors with a long-term horizon. Recently, the Company paid a quarterly cash distribution of CAD 0.02 per common share. Moreover, at the last closing price of CAD 2.65, the stock is offering a decent dividend yield of 3.0%, which looks decent considering the current macros and interest rates.
  

Risks associated with investment

The Company's business is subject to several risk factors, including the duration and impact of the COVID-19 pandemic to the global economy. 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. Additionally, the higher cost of crude can spoil the margins of the company. 

Financial overview of Q3 2021 (Expressed in thousands of CAD)

Source: Company Filing 

• Robust rise in revenues: In Q3 2021, the company reported revenue increased 93.2% to CAD 101.7 million, against CAD 52.6 million in the previous corresponding period. The increase in revenue reflected a combination of rapid organic U.S freight brokerage growth and contribution from the ITS acquisition.
• Higher operating expenses: On the back of higher revenue, the total expenses increased to CAD 94.4 million in Q3 2021, against CAD 45.9 million in pcp. Total expenses as a % of revenue increased to 92.9% from 87.3%.
• Income before income tax: In the reported period, Income before Income tax for the company declined to CAD 1.8 million against CAD 3.5 million in Q3 2020, mainly due to higher operating expenses.
• Lower net income: Primarily due to above-discussed rationales the company’s net income for the reported period stood at CAD 1.4 million against CAD 2.7 million in the previous corresponding period, partially supported by lower income tax.
  

Top-5 Shareholders 

The top 10 shareholders have been highlighted in the table, which forms around 36.35% of the total shareholding. Trunkeast Investments Canada, Ltd. and Daniel Theodore hold the company's maximum interests at 27.80% and 7.19%, respectively. The company's ownership of the strategic entities stood at 35.25%. 

Valuation Methodology (Illustrative): EV to EBITDA based

Analysis by Kalkine Group 

Stock recommendation

The group's business capabilities, including the ability to successfully execute and integrate a transformative acquisition and enter new US markets amid the moment of turbulent economic environment, were on display in Q3 2021, with record top-line sales growth and maintained profitability. The ITS Group's integration is also paying off handsomely.

Looking ahead, the company is focused on profitability and strategic execution of growth plans, both organically and through acquisitions, including extending its U.S. Logistics operations, despite the uncertain economic situation.

A notable positive is the company's decision to raise its FY2021 annual guidance to roughly CAD 350 million in revenue and CAD 33 million in EBITDA. Moreover, the group is trading at deep valuations compared to an industry median on numerous parameters. Hence, based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 2.65 on February 15, 2022. We have considered Marten Transport Ltd, Heartland Express Inc, PAM Transportation Services Inc etc., as a peer group for comparison purpose.

One-Year Technical Price Chart (as on February 15, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Disclaimer

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