Taiga Building Products Ltd.

Taiga Building Products Ltd (TSX: TBL) is a Canadian based company which is engaged in the production and wholesale distribution of building products. The company’s products range includes composite decking, engineered wood, flooring, insulation, lumber, moduling, panels, polyethylene, preserved wood, roofing, and siding.

Key Updates:

• Strong EBITDA growth supported by revival in operation: The company reported a strong revival in its operations supported by robust demand across the building products, which resulted to improved selling prices. The group’s performance was supported by strong growth across the Canada region, (CAD 1,084.598 million in H1FY21, jumped from CAD 523.856 million in pcp). Moreover, increase in export sales to United States and Asia also supported the growth. Notably, EBITDA stood at CAD 129.597 million in H1FY21, significantly higher than CAD 37.005 million in pcp.
• Positive Macros: The company’s operation is directly co-related to the housing market across North America. In Canada, housing starts are expected within the range from 221,100 to 230,000 units in the CY21 compared to the 217,802 starts in CY20. Additionally, housing market in U.S. is also expected to remain positive in 2021, wherein housing starts are forecasted at 1,643,000 units in CY21, higher than 1,380,000 units in the previous calendar year.

• Positive Technical: The stock of TBL closed its immediate support levels of 50-days and 30-days simple moving averages (SMA) of CAD 2.49 and CAD 2.48, indicting a positive sign. Moreover, 14-days RSI stood lower at 48.46, indicting possibility of bullish price action.

Q2FY21 Financial Highlights:

• TBL announces its quarterly resulted, wherein the company posted sales of CAD 786.732 million, jumped from CAD 356.894 million in the previous corresponding period (pcp). The growth was supported by improved commodity prices for the building material supported by a surge in housing construction.
• Gross margin soared CAD 147.903 million, from CAD 42.741 million in Q2FY20, thanks to elevated revenue, partially offset by higher cost of sales (CAD 638.829 million v/s CAD 314.153 million in Q2FY20).
• The quarter marked by higher distribution cost (CAD 6.820 million v/s CAD 6.238 million pcp) and significantly higher selling and administration cost (CAD 58.938 million v/s CAD 18.384 million in pcp), coupled with a surge in finance expense.
• Net earnings for the year stood at CAD 58.468 million, as compared to CAD 13.148 million in pcp.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The company reported significantly higher selling and administrative expenses during the quarter, which is a reason for concern and continuation of the above trend would dampen the company’s profitability. Moreover, a fall in building prices due to lower construction activities might dampen the company’s overall performance.

Stock Recommendation:

The group reported an improved debt to Equity ratio of 0.83 at the end of Q2FY21, improved from 1.19 in Q1FY21, which indicates prudent capital management. Notably, long term debt to total capital stood lower at 24.1% in Q2FY21, as compared to 25.7% in Q1FY21, which looks impressive.  The stock of TBL is available at a price to earnings multiples of 2.0x on TTM basis, as compared to the industry (Paper & Forest products) average of 5.7x. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of TBL at the last closing market price of CAD 2.50 on August 30, 2021.

One-Year Technical Price Chart (as on August 30, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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