Mullen Group Ltd. (TSX: MTL) owns a network of independently operated businesses. The company is the supplier of trucking and logistics services in Canada providing a wide range of service offerings including less-than-truckload, truckload, warehousing, logistics, transload, oversized, and specialized hauling transportation.

Key Highlights:

• Increased revenue: During Q1FY22, the company reported an increase in the total revenue to CAD 456.9 million as compared to the total revenue of CAD 290.5 million in Q1FY21. The less-than-truckload segment generated the total sales of CAD 175.6 million in the reported period (Q1FY22) against the revenue of CAD 120.7 million in pcp, of the total increase, the incremental revenue of CAD 44.3 million was generated from the acquisitions. The logistics and warehousing segment also saw an uptick in the sales to CAD 142.5 million during Q1FY22 vs the sales of CAD 91.3 million in Q1FY21.

Source: Company presentation

• Higher adjusted OIBDA: In Q1FY22, the company reported an increase in the adjusted OIBDA (operating income before depreciation and amortization) to CAD 60.3 million against the adjusted OIBDA of CAD 41.1 million in Q1FY21. The less-than-truckload segment reported a growth of approx. 26.2% in the adjusted OIBDA, logistics & warehousing segment reported a rise of 73.5% in adjusted OIBDA, which helped the company attain overall higher adjusted OIBDA in Q1FY22.

Source: Company presentation

• Higher dividend yield: The company recently declared a monthly dividend of CAD 0.06 per common share which is 20% higher than the previous dividend of CAD 0.05 per share. This brings the stock dividend yield close to 5.742%, which is very lucrative, especially among regular income-seeking investors.

Risks associated with investment

The company is majorly exposed to any economic slowdown, and restrictions and lockdowns related to COVID-19, which can slow down the transportation, severely impacting the company’s financial health. Also, the group is facing other challenges such as currency volatility, credit risk, liquidity risks, and rising interest rates, to name a few.  

Financial overview of Q1FY22 (Expressed in thousands of CAD)

Source: Company Filing

• The group reported an increase in the total revenue to CAD 456.87 million during Q1FY22, against CAD 290.50 million during Q1FY21. The sales from the less-than-truckload and logistics & warehouse segment in Q1FY22 on account of the increase in the economic activity helped the company to generate higher sales in the reported period.
• During Q1FY22, the OIBDA rose to CAD 60.26 million vs the OIBDA of CAD 47.07 million in Q1FY21. The impact of higher revenue was partially offset by the increase in direct operating expenses and selling and administrative expenses, resulting in the limited increase of OIBDA in Q1FY22.
• The group reported net income of CAD 16.44 million during Q1FY22 as compared to net income of CAD 12.96 million in Q1FY21.

Valuation Methodology (Illustrative): EV/ EBITDA based

Analysis by Kalkine Group

Stock Recommendation:

During Q1FY22, the group reported an increase in revenue to CAD 456.87 million against CAD 290.50 million in Q1FY21, and the net income also rose to CAD16.44 million in the reported period (Q1FY22) vs the net income of CAD 12.96 million in pcp. The management is optimistic for the foreseeable future, where the demand for the overall freight transportation is expected to be strong, which is a key positive. The dividend yield of the stock is offering is close to 5.7%, which is very much on the radar of regular income-seeking investors. The adjusted OIBDA also surged to CAD 60.3 million in Q1FY22 when measured against the adjusted OIBDA of CAD 41.1 million in Q1FY21. On the valuation front, the stock is measured on the EV/ EBITDA based relative valuation multiple and currently, the stock is trading at 1.0x against the industry (industrials) median of 1.5x, implying the stock is still undervalued. We have considered Westshore Terminals Investment Corp., Marten Transport Ltd., 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 MTL at the last closing price of CAD 12.54 on June 1, 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 1, 2022). Analysis by Kalkine Group

Note: The reference data has been partly sourced from REFINITV

Technical Analysis Summary

Disclaimer

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