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

Key Highlights:

• Increased revenues: For Q1FY22, the company reported an increase in the total sales to USD 144.47 million as compared to the total sales of USD 107.32 million in Q1FY21. The AirBoss defense group segment reported revenue of USD 63.96 million in the reported period (Q1FY22) when measured against the sales of USD 45.06 million in pcp. To add more, the rubber solution segment reported a revenue of USD 56.70 million in Q1FY22, which is higher than the sales in Q1FY21 of USD 37.21 million. Overall, the strong demand and higher volumes sold pushed the overall sales at an elevated level.

• Higher EBITDA: The group witnessed a surge in the EBITDA of USD 19.69 million during Q1FY22, whereas the EBITDA in Q1FY21 was USD 14.39 million in pcp. The higher profit, increase in depreciation, amortization, and impairment along with higher income tax expenses in Q1FY22, were major driving factors for the higher EBITDA. 

• Sequential improvement in the margins: During Q1FY22, the company reported strong revenue numbers which were supported by the higher volumes sold, though the rise in the expenses slightly offset the positive impact, still the group managed to improve the various profitability margins, compared sequentially, which are depicted below.

Source: Refinitiv, Analysis by Kalkine Group

• Strong liquidity profile: The company’s quick ratio for Q1FY22 was reported at a higher level of 1.34x, as compared to the industry median of 1.24x. Further, the company’s current ratio was stated at 2.45x for Q1FY22, against the industry median of 1.87x. The higher quick ratio and current ratio represent the company’s ability to meet its short-term obligations falling within one year time, without any hindrance, ensuring the smooth running of the business operations.
  

 Source: Refinitiv, Analysis by Kalkine Group 

Risks associated with investment

The company is vulnerable to the slowdown in economic activity, and rising interest rates, which could slow and hamper the demand for its products. Also, the increase in the input costs because of inflationary pressure, supply chain disruption, etc are a few other challenges that the company is facing.  

Financial overview of Q1FY22 (Expressed in thousands of USD)

Source: Company Filing 

• During Q1FY22, the company reported an increase in its total revenues to USD 144.47 million as compared to USD 107.32 million in Q1FY21. The increase in sales was majorly derived from HHS nitrite patient examination glove contract deliveries, the boost in the volumes of rubber solutions, etc. 

• The gross profit of the company also increased to USD 31.60 million in the reported period (Q1FY22) as compared to the gross profit of USD 25.77 million in the pcp. The cost of sales increased to USD 112.87 million in Q1FY22 when measured against USD 81.55 million in pcp, which partially negated the impact of higher revenues.

• The company witnessed a higher net profit and comprehensive income of USD 9.57 million in Q1FY22, as compared to USD 6.31 million in Q1FY21. 
  

Valuation Methodology (Illustrative): EV to Sales based

Analysis by Kalkine Group

Stock Recommendation:

Recently the group declared a dividend of CAD 0.10 per common share which is to be paid on July 15, 2022. To meet the future targets the group is focused on evolving the core rubber growth segment by positioning it as a specialty supplier across the North American market and capitalizing on the ADG’s (AirBoss Defense Group) absolute scale and value creation opportunities. The group reported an increase in cash and cash equivalent of USD 13.61 million during Q1FY22 as compared to USD 7.13 million in Q4 FY21. The EBITDA of the company rose to USD  19.69 million during Q1FY22, as compared to USD 14.39 million in pcp, and the net income reported an increase of USD 9.57 million in the Q1FY22 as compared to the USD 6.31 million in the pcp.  On the valuation front, the stock is measured on the EV/ Sales based relative valuation multiple and the stock is currently trading at 0.5x as compared to the industry (basic materials) median of 1.3x, suggesting the stock is still undervalued. We have considered Chemtrade Logistics Income Fund., Tredegar Corp., etc as the peer group for the comparison.

Therefore, based on the above rationale, and valuation, we recommend a “Buy” rating on the stock of BOSS at the last closing price of CAD 15.96 on June 17, 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 of June 17, 2022). Analysis by Kalkine Group

Note- The reference data has been partly sourced from REFINITV 

Technical Analysis Summary

Disclaimer

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