TFI International Inc.

TFI International Inc. (TSX: TFII) is a transportation and logistics company domiciled in Canada. The company organizes itself into four segments: package and courier, less-than-truckload, truckload, and logistics. 

Key Highlights:

• Reduction in Debt: The group has successfully reduced its debt component to USD 1,228.5 million in FY20, as compared to USD 1,701.8 million in FY19. The decline in the debt component has led to lower finance costs, which is a key positive. Finance costs stood at USD 56.686 million, as compared to USD 64.392 million in FY19.
• Acquisition of Fleetway Transport Inc.: The company confirmed the acquisition of Fleetway Transport Inc, a North American leader in the transportation and logistics industry and provides truckload and heavy-haul transportation solutions and logistics services, with flatbeds, roll-tites, step decks, and other transportation modes. The company derives ~CAD 25 million of annualized revenue. The above acquisition would enhance the company’s presence across Mexico, which augers well for improved business prospects in the coming quarters.
• Stock Hovering above long-term support levels: The stock of TFII is closed above the long-term support levels of 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish price trend. Moreover, in the recent past, the stock appreciated ~53% and ~122%, in the last six months and nine months, respectively. 

(Source: Refinitiv, Thomson Reuters)

FY20 Financial Highlights:

• TFII announced its full-year results, wherein the company posted a total revenue of USD 3,781.134 million, as compared to USD 3,903.545 million in FY19. The group reported improved traction from Truckload, package and courier segment and logistics segment, partially offset by less than truckload segment.
• The company reported total operating expenses of USD 3,364.567 million, lower than USD 3,520.677 million in the previous year. The improvement was driven by lower materials and services expenses (USD 2,051.835 million versus USD 2,134.720 million in FY19), and lower personnel expenses (USD 888.185 million versus USD 980.785 million in FY19).
• Operating income stood at USD 416.567 million in FY20, as compared to USD 382.868 million in FY19.
• Net income from continuing operations USD 275.675 million, as compared to USD 244.225 million in FY19.
• The group posted cash and cash equivalents at USD 4.297 million, while total assets stood at USD 3,849.364 million.

FY20 Income Statement Highlights (Source: Company Reports)

Risk: The company reported a lower income in Less-Than-Truckload segment, which remains a key concern, and continuation of the above trend would likely to dampen the overall performance.

Valuation Methodology (Illustrative): Price to Earnings-based

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

Despite the recent downturn, the group reported impressive operational efficiency and reported higher operating margin and net at 11% and 7.4%, respectively in FY20, as compared to the industry median of 8.5% and 6.4%, respectively. Adjusted EBITDA grew to USD 699.6 million in FY20, higher than USD 649 million in FY19, which indicates strong operational efficiency and is a key positive. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Canadian National Railway Co, Union Pacific Corp, Norfolk Southern Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 91.63 on February 25, 2021.

TFII Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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