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 is mainly operating in three segments: Rubber Compounding, Engineered Products and Automotive.

Key highlights

• Strong uprise in revenues: Consolidated net sales for the fiscal year ending December 31, 2021, climbed 17.0% to USD 586.8 million, up from USD 501.5 million in FY 2020. Despite ongoing pandemic and logistics issues, this increase in revenue was mostly attributable to the HHS nitrile patient examination glove contract, which was supported by a considerable rebound in volumes at the Rubber Solutions and Engineered Products divisions.

Source: Company Filing

• Capital investment in support of longer-term growth: In addition to the acquisitions made in 2021, and despite the challenging environment, AirBoss continued to engage in a series of major projects across the business with a strategic focus on productivity, innovation, and diversification. Capital expenditures for 2021 were USD16.9 million (excluding leases) and are likely to be robust as the company continues to invest in its future at a rate far higher than in the past.

• Strong liquidity profile: The company's liquidity ratio is improving sequentially, which is a significant positive. In FY2021, the company's current ratio improved to 2.11x against 2.03x in FY2020. Moreover, this ratio was higher against the industry median of 1.92x in FY 2021. This improved ratio in comparison to the industry suggest that the company's short-term liabilities are expanding at a slower rate than its resources to fulfill them, which is a positive sign.

• Minimizing Cash Cycle days: The company is minimizing its Cash Cycle (Days) on the sequential basis, which is a key positive. In Q4 2021 its cash cycle days stood at 64.5 days much lower compared to 125.5 days in Q3 2021. Furthermore, it lowered its cash cycle days in FY 2021 to 45.6 days against the industry median of 65.6 days, implying the company takes less days to convert its inventory to cash.
  

Risks associated with investment

Commodity prices are a key risk issue for the company. Commodity price risk might have a negative influence on the company's business, operations, and financial performance. Economic conditions, reliance on major clients, cyclical tendencies in the tyre and automotive sectors, and sufficient supply of raw materials are all risk concerns for the Company. 

Financial overview of FY 2021

Source: Company

• In FY 2021, the company’s revenue increased 17% to USD 586.8 million against USD 501.5 million in pcp. An increase in revenue was mainly dur to healthy performance from all segments, especially from rubber solutions segment.

• The company witnessed higher cost of sales in FY 2021, which stood at USD 450.5 million compared to USD 365.6 million in pcp, still it posted a marginal growth in its gross profit at USD 136.2 million in FY 2021 against USD 135.9 million in pcp.

• On the back of higher operating expenses in the reported period of FY 2021, an operating profit stood at USD 58.7 million much lower compared to USD 82.1 million in pcp.

• Primarily due to above stated reasons the company clocked lower net income of USD 46.7 million in FY 2021, against USD 56.2 million in pcp, partially supported by lower income tax expense.
  

Valuation Methodology (Illustrative): EV to EBITDA based Valuation Metrics

*1USD=1.25CAD

Analysis by Kalkine Group

Stock recommendation

Despite the significant hurdles posed by the COVID-19 pandemic on the global economy, including as extraordinary supply issues and record raw material price hikes, the company continued to expand the business while making smart investments in long-term growth, efficiency, and innovation. AirBoss had another good year in terms of growth, profitability, and free cash flow creation in fiscal year 202,1. Its capacity to generate results in a highly complicated business environment has been boosted by two important acquisitions, Blackbox Biometrics, Inc. ("B3") and Ace Elastomer, LLC ("Ace"), which have solidified the firm's medium to long-term scale as it continues to execute on the strategic plan.

Therefore, based on the above rationale and valuation, we recommend a "Buy" rating on the stock at the last closing price of CAD 35.60 as on March 31, 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 on March 31, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Disclaimer

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