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:

• Strong FY22 Outlook: For FY22, the company expects its consolidated revenue in between CAD 450 to 470 million, versus CAD 399.4 million in FY21. Additionally, the company expects its adjusted EBITDA in between CAD 38 to 43 million, higher than CAD 31.3 million in FY21. To expand its business presence, 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.

• Stupendous Growth from the Logistics segment: The company derives most of its income from the logistics segment (~64%) and reported its revenue of CAD 87.9 million in Q1FY22, reflecting a growth of 85% on y-o-y basis. The significant growth was driven by higher revenues from the U.S. freight brokerage expansion coupled with organic growth from the Canadian freight brokerage. Notably, EBITDA from the segment stood at CAD 9.1 million, significantly higher than CAD 3.9 million in pcp. EBITDA margin also improved to 11.5% in Q1FY22, as compared to 8.8% in pcp. This indicates better pricing power and higher operational efficiencies.

• Favorable Industry Dynamics: The trucking industry in the North America is characterized by unique requirements such as strict regulatory norms, constant upgradation of technology, rising equipment costs etc. Hence, these cannot be easily adopted by smaller carriers, or any new player. Hence, the existing players enjoys strong market share due to high entry barriers. Moreover, due to the ample borrowing power and superior asset utilization, the company has a prominent market share. Moreover, sophisticated IT/IS systems, and innovative team allows the company to better customer solutions and enhance customer experience. 

• Balanced Risk Profile: The company caters to a diversified client base, such as Manufactured Goods, Food & Beverage, Retail, Automotive, to name a few. This is expected to lower the dependence on a specific sector and would provide a balanced risk profile. As per the recent trend, the industry is witnessing growing traction from 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 Report

• 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.
• Increase in dividend payment: In Q1FY22, the company reported its total dividend of CAD 0.8 million v/s CAD 0.7 million in pcp. This is impressive as most of the companies are lowering their dividend distribution in order to retain liquidity. Moreover, the stock of TTR is also carrying a dividend yield of ~3.347% on an annualized basis, which looks impressive considering the persisting interest rate scenario. Moreover, on May 02, 2022, the company declared a quarterly dividend of CAD 0.02 per common share, with a payment date of June 15, 2022.

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.

Q1FY22 Financial Highlights:

Q1FY22 Income Statement Highlights (Source: Company Report)

• Strong revenue growth: TTR declared its Q1FY22 result, wherein the group reported a revenue of CAD 135.9 million, jumped from CAD 85.6 million in pcp. The growth was supported by strong momentum from both Truck Transportation and Logistics segments.

• Rise in input costs: Operating expenses at CAD 122.0 million, stood significantly higher from CAD 78.1 million in pcp, due to an increase in the Carriers and independent contractors’ costs coupled with an increase in Vehicle operating expenses. However, EBITDA was recorded at CAD 13.9 million, surged from CAD 7.5 million in pcp, supported by higher revenue as mentioned above.

• Growth in net earnings: Net income stood at CAD 5.9 million, soared from CAD 1.1 million in pcp, supported by higher EBITDA, partially offset by a higher depreciation expense and an increase in finance costs. Moreover, a higher income tax expense also remained as a drag.

Top-10 Shareholders:  Top ten 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 27.78% and 7.17%, 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:

Despite the current slowdown and sluggish macro scenario, the company delivered a robust growth in revenue and profitability, driven by a focused growth strategy for the company’s core businesses. This is impressive despite rising global energy and fuel costs, supply chain challenges and tighter labor markets. The company is focusing to expand its presence across the US, with the opening of the Atlanta centre and is planning to open two more centers this year. Within the Trucking segment, the company successfully closed the acquisition of Bert & Sons Cartage Limited (BSC) in a key market in Canada which operates through five centres inc Canada. This would lead to improved prospects 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 Universal Logistics Holdings Inc, USA Truck Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of TTR at the last closing price of CAD 2.39 on May 17, 2022. 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 May 17, 2022). Analysis by Kalkine Group

*Recommendation is valid on May 18, 2022, price as well. 

Note: The reference data in this report has been partly sourced from REFINITIV 

Technical Analysis Summary

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.