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:

• Stable operating-model: During the last three 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. Moreover, the group has diversified its customer base in order to mitigate the risk of economic and contractual cycles and develop natural hedges.

Source: Company Presentation

• Growth from the Rubber Segment: The Rubber Solutions segment (derives ~36% of total revenue) saw sustained demand in Q1FY22, that helped the company to exceed its volumes from Q1FY21. This was supported by a healthy backlog, coupled with the successful implementation of the bulk material handling and delivery system in Scotland Neck, North Carolina. Moreover, the company witnessed strong demand dynamics and enhanced its line of specialized products, and expanded production of a broader array of compounded products which subsequently resulted in a better revenue-mix. Notably, in Q1FY22, the company posted its External net sales from the Rubber Solutions of USD 52.1 million v/s USD 32.2 million in pcp.
• Improved profitability margins amidst challenging macros: In Q1FY22, the company reported gross margin and EBITDA margin of 21.9% and 13.6%, respectively, higher than 20.7% and 10.8%, respectively, in Q4FY20. This is impressive as major manufacturing companies are struggling with their input costs which has resulted to depressed margins. Notably, the company’s net margin stood higher at 6.6% in Q1FY22, as compared to 6.1% in Q4FY21.

Q1FY22 Financial Highlights:

Q1FY22 Income Statement Highlight (Source: Company Report)

• For the first quarter of FY22, the company reported its net sales of USD 144.4 million, which is considerably higher than USD 107.3 million in pcp. The growth was driven by strong traction from both AirBoss Defense and Rubber Solutions segments.
• Gross profit surged to USD 31.6 million, increased from USD 25.7 million in pcp, thanks to the elevated sales as mentioned earlier, partially offset by increase in cost of sales.
• Results from operating activities grew to USD 14.1 million, surged from USD 9.7 million in pcp, due to a higher gross profit, partially offset by a higher selling & marketing expenses coupled with an increase in research & development costs.
• The company reported its net income of USD 9.5 million, surged from USD 6.3 million in pcp, supported by a higher results from operating activities, while a higher finance costs and income taxes expense stood as a drag.

 Valuation Methodology (Illustrative): Price to Earnings based

Analysis by Kalkine Group

Stock Recommendation:

Despite rising raw material prices along with logistic challenges, BOS ended its first quarter on a positive note driven by better revenue mix and improved operational efficiencies. Moreover, the company reported a dividend distribution of USD 2.1 million in Q1FY22, as compared to USD 1.4 million in pcp. This is impressive as most of the companies are reducing their dividend payment in order to retain liquidity.

We have valued the stock using the price to earnings based relative valuation approach and arrived at a target price, which suggests a double-digit upside potential (in % terms). For the said purpose, we have considered peers like Westlake Chemical Partners LP, Core Molding Technologies Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of BOS at the last closing price of CAD 20.26 on May 17, 2022.

One-Year Technical Price Chart (as of May 17, 2022). Analysis by Kalkine Group

The reference data has been partly sourced from REFINITV 

Technical Analysis Summary

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