Titanium Transportation Group Inc. (TSXV: TTR) is assets-based transportation and logistics company which provides services like truckload, dedicated cross-border trucking services, freight logistics, warehousing, and distribution. The company has two operating segments namely, The Truck Transportation segment and Logistics segment.

Key Investment Rationale:

• Bullish Guidance: For FY22, the company expects its consolidated top line in between CAD 450 to 470 million, which is considerably higher than CAD 399.4 million in FY21. Moreover, the company expects its adjusted EBITDA in between CAD 38 to 43 million, higher than CAD 31.3 million in FY21. In addition, the company is focusing on exploring new acquisition opportunities across both in US and Canada in FY22. Notably, in the recent past, the Company added two new locations (total four locations in US) with dedicated teams in Chicago and Denver also focusing of mark its presence in the fifth U.S. city in Atlanta, Georgia, which is in line with its company’s strategy of ramping up operations.

• Both Logistics and Truck Transportation delivered stupendous numbers: In Q4FY21, the company reported a 68.7% y-o-y jump in revenues from its Logistics operations to CAD 68.2 million, driven by the strategic expansions across the key US cities like Chicago, Denver etc., coupled with increased traction from the North America market on the backdrop of economic revival in Q4FY21. On the other hand, revenue from the Truck Transportation segment also surged 66% on y-o-y basis to CAD 44.5 million in Q4FY21. This resulted in a solid topline growth of 69% to CAD 111.3 million in Q4FY21.
  

• Diversified customer base: The company caters to a diversified clients base, such as Manufactured Goods, Food & Beverage, Retail, Automotive to name a few. This is expected to lower the dependence on a specific industry and would provide a balanced risk profile. As per the recent trend, the industry is witnessing growing traction from the eCommerce and home deliveries, and hence, the trucking volumes in North America is expected to grow at an average of 2.6% per year on a CAGR basis till 2024. TTR is highly poised to take advantage of the growing demand by leveraging its capacity, expertise and technologies, which is a key positive. 

Source: Company Reports

• Investing in advanced technologies: In order to improve its input costs such as repairs expenses, fuel and insurance costs, the company has invested in BlackBerry Radar trailer tracking technology, which has resulted in increasing equipment utilization and profitability. Moreover, the recent collaboration of Blackberry Radar with the ISAAC Open Platform is likely to deliver more value within the comprehensive fleet management solution for commercial fleets. As per the management, the company would continue to develop new Power BI tools that allow for better and faster decision making and would subsequently help in operational efficiencies.

• Surge in Dividend Payment: In FY21, the company paid a higher dividend of CAD 3.3 million, which is significantly higher than CAD 0.7 million in FY20, backed by stable cash flows. This is impressive, as most of the companies are lowering their dividend distribution in order to retain liquidity. Moreover, the stock of TTR carries a dividend yield of ~3.077% on an annualized basis, which looks impressive considering the ongoing interest rate scenario.

• Improved Cash conversion period: In FY21, the company reported a lower cash conversion period of 25.5 days, which is lower than 29.2 days in FY20. A lower cash conversion period indicates that the company is taking a lower time to convert its investments to cash flows.

Risk associated with the investment:

The company’s reported higher input costs, due to inflationary pressures, ongoing challenges in the global supply chain and tighter labour markets. Continuation of the above is likely to affect the company’s operations in the coming quarters.

FY21 Financial Highlights:

FY21 Income Statement Highlights (Source: Company Report) 

• Strong revenue growth: TTR announced its full-year result, wherein the company posted its revenue of CAD 399.4 million, jumped from CAD 200.7 million in FY20. The growth was supported by strong momentum from both Truck Transportation and Logistics segments.

• Operating Expenses: Operating expenses stood significantly higher at CAD 368.1 million in FY21 from CAD 177.6 million in FY20, due to an increase in the Carriers and independent contractors’ costs coupled with an increase in Vehicle operating expenses.

• Slide in net earnings: Net income stood at CAD 5.0 million, down 19.6% on y-o-y basis, primarily due to higher depreciation expense, increase in finance costs combined with inclusion of transaction costs amounting to CAD 0.8 million. Moreover, a slightly higher income tax expense also contributed to the lower bottom line.

Top-7 Shareholders:  Top seven shareholders of the company together hold approximately 35.85% stake, Trunkeast Investments Canada, Ltd., and Daniel Theodore are the major shareholders in the company with an outstanding position of 27.80% and 7.19%, respectively.

Source: REFINITIV, Analysis by Kalkine Group

 Valuation Methodology (Illustrative): EV to Sales based

Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

In the recent past, the group took meaningful steps and has increased its presence across the key markets of North America, which has delivered strong business prospects in the recent past. Moreover, the addition of the fifth U.S. hub in Atlanta is likely to improve the company’s operations in the coming quarters. We expect the positive momentum is likely to continue and is expected to support the company’s overall performance in the coming days. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like USA Truck Inc, Covenant Logistics Group Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of TTR at the closing price of CAD 2.60 on March 15, 2022.

One-Year Technical Price Chart (as on March 15, 2022). Analysis by Kalkine Group

*Recommendation is valid on March 16, 2022, price as well. 

Technical Analysis Summary

Disclaimer

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