AirBoss of America Corp. (TSX: BOS) is a Canada based manufacturer of rubber-based products for the resource, military, automotive and industrial markets. The group operates through three segments, namely Rubber Solutions, Engineered Products and AirBoss Defense Group. 

Key Updates:

• Improved traction from Defense and Rubber Solutions segment: The group reported impressive performance from both AirBoss Defense Group and Rubber Solutions segment which has resulted to a 17% y-o-y growth in the company’s top-line. Income from AirBoss Defense Group segment surged 9.1% y-o-y to USD 329.9 million due to a continued delivery under the nitrile patient examination glove contract from the U.S. Department for Health and Human Services (HHS), as a part of the U.S. government's response to the COVID-19 pandemic. Additionally, the company’s net sales from Rubber Solutions segment boomed 44% on y-o-y basis to USD 171.5 million, supported by strong demand dynamics from the major sectors amidst supply chain issues.

Segment Performance (Source: Company Reports)

• Diversified Business-model: The group has diversified its customer base in order to mitigate the risk of economic and contractual cycles and develop natural hedges.  Over the years, the company reported a consistent growth in its top-line and profitability, which is a key positive and indicates company’s competitive advantages through product innovation and higher client’s satisfaction.         

• Increase in Dividend Payment amidst turbulent times: The company has increased its dividend payment to USD 7.3 million in FY21, which is significantly higher than USD 4.8 million in FY20. This is impressive as most of the companies are lowering its dividend payment in order to retain its liquidity.

• Result Update: The company will disclose its Q1FY22 results on May 12, 2022.

Risks Associated with the Investment:

The company’s business might be adversely affected by fluctuations in the commodity prices, loss of any premium clients etc. Moreover, a weak economic scenario might lead to a fall in demand for the company’s products.

FY21 Financial Highlights:

FY21 Income Statement Highlights (Source: Company Report)

• BOS announced its full-year result, wherein the company posted net sales of USD 586.8 million, grew 17% on y-o-y basis. The growth was supported by strong momentum from the company’s Rubber Solutions along with a decent performance from defense segment.
• Gross profit stood marginally higher at USD 136.2 million from USD 135.9 million in FY20, supported by elevated sales, partially offset by higher cost of sales.
• Results from operating activities slide to USD 58.7 million from USD 82.1 million in FY20, due to a rise in operating expenses (USD 77.5 million v/s USD 53.7 million in FY20). The increase in input costs was primarily due to higher Selling & marketing expenses along with a surge in General & administrative expenses.
• The company reported its profit and total comprehensive income of USD 46.7 million, dipped from USD 56.2 million in FY20. The decline was primarily due to higher input costs as mentioned above, coupled with a higher finance cost partially offset by lower income tax expenses.

Valuation Methodology (Illustrative): Price to Earnings Based

Analysis by Kalkine Group

Stock Recommendations:

The company reported a strong FY21 result driven by solid growth from its rubber segment and a decent performance from its defense segment. The industry is witnessing growing demand for the healthcare products related to protection of medical personnel and first responders. Moreover, the group offers full array of survivability solutions and, recently, it is witnessing increase demand for its defense products due to the upgradation of defense budget by its major clients. We expect these factors would lead to improved prospects for the company and would contribute to the future growth.

We have valued the stock using the P/E based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Core Molding Technologies Inc, Hawkins Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of BOS at the last closing price of CAD 32.64 on April 21, 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 April 21, 2021). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Disclaimer

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