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

• Enhanced financial metrics on sequential basis: On a year-to-date and sequential basis, the Company's top-line and profitability have improved gradually, showing a demand resurgence, which is a crucial positive. In Q1 2022, revenue and adjusted EBITDA were CAD 136 million and CAD 13.9 million, respectively, reflecting a 58.7% and 85.2% year-on-year increase. Furthermore, net income was CAD 6.0 million at the same time, compared to pcp of CAD 1.2 million. These improved earnings were mostly attributable to continuing productivity improvements and significant organic growth in both categories in the United States and Canada.

• Strong Segmental performance: The corporation had outstanding results in each of its operational segments, which is a significant plus. The Truck Transportation division increased sales by 25.9% in Q1 2022, to CAD 49.3 million, compared to CAD 39.1 million in pcp. EBITDA and net profits were also up. The rise was mostly the result of higher pricing (freight rates) and a full quarter contribution from ITS. The logistic division had similar increases, owing mostly to incremental income from its U.S. freight brokerage expansion and organic growth from its Canadian freight brokerage.

• Diversified sources of revenue: The firm is the most powerful operator in transportation and logistics services in North America, with income coming from a variety of industries. This is important since the company's revenue is not biased toward a single source. The manufactured goods sector, food and beverage industry, and retail industry account for a large amount of revenue (more than 68%).

• Healthy guidance for 2022: The company expects FY 2022, to be a strong year of growth with additional acquisition opportunities. A notable positive is that it estimates to deliver consolidated top line revenue between CAD 450 – 470 million, while an EBITDA would be in a range of CAD 38 – 43 million.

• Solid balance sheet: The company has a healthy balance sheet, which allows it to grow organically and inorganically. Working capital improved to CAD 2.2 million on March 31, 2022, from CAD 4.1 million on December 31, 2021. The firm continued its strong capital management technique in Q1 2022, allowing it to strengthen the debt-to-equity ratio. In the reporting period, the net debt to equity ratio declined from 1.13 to 1.12. We believe the Company's operating cash flows are sufficient to fund its day-to-day operations and meet its scheduled loan repayment obligations.

• 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 declared a quarterly cash distribution of CAD 0.02 per common share, payable on June 15, 2022. Moreover, at the last closing price of CAD 2.36, the stock is offering a decent dividend yield of 3.4%, which looks decent considering the current macros and interest rates.

• Trading at discounted valuations: The company’s shares are available at an NTM EV/Sales multiple of 0.3x compared to the sector (Industrials) median of 1.5x. while on NTM Price to earnings multiple the stock is trading at 7.0x compared to 14.1x. 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.

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 Q1 2022 (Expressed in thousands of CAD)

Source: Company Filing 

• Robust rise in revenues: In Q1 2022, the Company’s reported revenue increased 58.7% to CAD 135.9 million, against CAD 85.6 million in the previous corresponding period. Rising freight rates were the key reason for the revenue increases for all of the segments, as well as a full quarter of revenue from acquisition of ITS.

• Higher operating expenses: On the back of higher revenue, the total expenses increased to CAD 122.0 million in Q1 2022, against CAD 78.1 million in pcp. However, the total expenses as a % of revenue decreased to 89.8% from 91.2%.

• Income before income tax: In the reported period, Income before Income tax for the company increased to CAD 8.1 million against CAD 1.5 million in Q1 2021, mainly due to higher operating income.

• Elevated net income: Primarily due to above-discussed rationales the company’s net income for the reported period increased multifold to CAD 5.9 million against CAD 1.1 million in the previous corresponding period, partially offset by higher income tax.
  

Top 5 Shareholders 

The top 5 shareholders hold around 35.45% of the total shareholding. Trunkeast Investments Canada, Ltd. and Daniel Theodore hold the company's maximum interests at 27.78% and 7.16%, respectively. The company's ownership of the strategic entities stood at 35.20%.

Valuation Methodology (Illustrative): EV to EBITDA based

Stock Recommendation

The company's first-quarter 2022 results are a record start to the year, with the largest quarterly revenue in its history, a seventh consecutive quarter of top-line sales growth, and dramatically better profitability. Sales increased by 58.7 percent to CAD 136 million, thanks to significant growth in both the Truck Transportation and Logistics areas. The company's ability to boost prices throughout the client base and successfully navigate the present operating climate generated robust revenue growth and greatly increased operating margins.

Additionally, the management increased FY2022 annual guidance for revenue, which ranges in between CAD 450 – 470 million along with EBITDA in a range of CAD 38 -43 million. Furthermore, the company hold a strong balance sheet.

Hence, considering all above discussed rationales and valuation we recommend a ‘Speculative Buy’ rating on the stock at the last closing price of CAD 2.36 as on June 7, 2022. Additionally, the 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 June 7, 2022). Source: REFINITIV, Analysis by Kalkine Group 

*Recommendation is valid on June 8, 2022, price as well. 

 Technical Analysis Summary

Disclaimer

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