Titanium Transportation Group Inc (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

Brief History

Source: Company Presentation

Investment Rational

• Reaffirmed FY21 Guidance: as the group reaffirmed its FY 20 guidance where revenue is expected to increase to approximately CAD 330 million and EBITDA to increase to approximately CAD 33 million.

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

Revenue by Industry. Source: Company Presentation

• Truck Segment Performed Well in Q4FY20: The Truck Transportation segment experienced an increase in revenue of CAD 0.5 million or 1.9% for the three-month period ended December 31, 2020. The increase in the three-month period reflects the steady recovery since May 2020. Pricing softness due to the pandemic continued as revenue per mile decreased by 2.11% year-over-year, but total miles has increased by 5.14% for the three-month period ended December 31, 2020, reflecting the recovery of freight demand in North America. 

• Logistic Segment Recorded Robust Performance in both Q4FY20 and Full-Year FY20: The Logistics segment saw an increase in revenue of CAD 22.3 million or 122.9% for the three-month period ended December 31, 2020, and an increase of CAD 37.2 million or 60.3% for the year ended December 31, 2020, when compared to that of 2019. The remarkable increase in the segment despite the pandemic was largely a result of the company’s U.S. freight brokerage operations, which contributed CAD 24.2 million to the segment in the three-month period ended December 31, 2020, or a 560% increase from CAD 3.7 million in the same period in 2019. Canadian operations revenue also increased by 12% to CAD 16.2 million from CAD 14.4 million in 2019 for the same three-month period. The economic recovery in the second half of 2020 was the leading contributor to revenue increases in the segment, and the company’s strategic expansion to Nashville capitalized on the improving market conditions. 

• Leading Edge Technology-Infused Company: Titanium would continue to be at the leading edge of this 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: In the past five 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% in the same time. This implies robust performance of the company over the past 5-years.

Source: Refinitiv (Thomson Reuters)

• Near-term Breakout: Shares of TTR gaining technical strength, as its shares in the last trading session settled at a 1-Month high. If it managed to trade above the immediate resistance of CAD 4.15 for the next few trading sessions, the stock would start moving towards the next resistance level of CAD. 4.34. However, 14-day RSI hovering in the neutral zone, with bullish biases at 61.28, which implies the trend could continue to favor bulls in the near term.

Technical Price Chart (as on April 13, 2021). Source: (Refinitiv) Thomson Reuters.

• Bullish Trend: TTR shares were hovering in a steep bullish trend with shares traded well above the crucial short-term as well as long-term support levels of 30-day, 50-day and 200-day SMAs, which implies that the stock is trading in a long-term bullish zone. Moreover, moving averages also rising, which is another bullish indicator. Further, the Moving Average Convergence Divergence (MACD) is rising higher, with the difference between 12-day EMA and 26-day EMA is positive, another bullish indicator. The MACD oscillator is hovering above the 9-day SMA signal line. Given the technical strength and momentum in the stock, stock is set for a potential upside movement from the current trading levels.

Technical Price Chart (as on April 13, 2021). Source: Refinitiv (Thomson Reuters)

• Risk Associated to Investment: The Company's business is subject to several risk factors, including duration and impact of the COVID-19 pandemic to 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 majority of the group’s revenue comes from the abroad market, especially U.S Dollars.

Financial Highlights: Q4FY20 and FY20

Source: Company Filing

• For the Q4FY20 and full year ended December 31, 2020, the company's consolidated revenues increased by CAD 22.6 million or 52.1%, and CAD 33.7 million or 20.2%, when compared to the fourth quarter and year, ended December 31, 2019, respectively. The increase in revenue for the three-month period and year ended was a result of strong growth in the company's U.S. Logistics segment, which began operations in Q2 2019 and added its second office in Nashville in Q3 2020. The logistics segment also benefited from strong U.S. economic recovery as government-mandated closures relaxed.
• The Truck Transportation segment experienced an increase in revenue of CAD 0.5 million or 1.9% for the three-month period ended December 31, 2020, and a decrease of CAD 4.0 million or 3.6% for the year ended December 31, 2020, when compared to the same periods in 2019.
• The Logistics segment saw an increase in revenue of CAD 22.3 million or 122.9% for the three-month period ended December 31, 2020, and an increase of CAD 37.2 million or 60.3% for the year ended December 31, 2020, when compared to that of 2019. The remarkable increase in the segment despite the pandemic was largely a result of the company's U.S. freight brokerage operations, which contributed CAD 24.2 million to the segment in the three-month period ended December 31, 2020, or a 560% increase from CAD 3.7 million in the same period in 2019.
• For the Truck Transportation segment, operating expenses increased by CAD 0.7 million or 3.2% for the three-month period ended December 31, 2020, and decreased by CAD 5.4 million or 5.8% for the year ended December 31, 2020, when compared to the same periods in 2019. The decrease in operating expenses for the year reflects assistance received from the CEWS program recognized as a decrease in wages and casual labour expenses.
• For the Logistics segment, operating expenses increased by CAD 19.8 million or 114.9% for the three-month period ended December 31, 2020, and increased by CAD 33.7 million or 57.3% for the year ended December 31, 2020. The significant increase in expenses correlates with the 122.9% increase in segmented revenue, driven largely by U.S. operation growth.

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: 2020 was one of the most challenging operating environments in history, reflecting the global impact of the COVID-19 pandemic. Notwithstanding these challenges, Titanium delivered a solid year of financial and operating performance, achieving record fourth-quarter and full-year revenue. 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 a number of the company’s 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 we were able to quickly focus on the group’s assets.

Further, the company reported stellar performance over the past five years, with robust CAGR in various financial metrics, and the management has reaffirmed its FY21 guidance. Also, from a technical standpoint, TTR shares trading in a bullish zone, and the stock has recorded a breakout on the daily price chart.

Therefore, based on the above rationale and valuation, we suggest a “Speculative Buy” recommendation at the closing price of CAD 4.15 on April 13, 2021. 

1-Year Price Chart (as on April 13, 2021). Source: Refinitiv (Thomson Reuters)

*Recommendation is valid on April 14, 2021 price as well.

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