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:

• Growth from the Rubber Segment: In the first quarter of FY22, the company derived ~36% of total revenue from the rubber solutions segment, which witnessed a sustained demand dynamics during the period. This helped the company to exceed its volumes from Q1FY21 supported by a healthy backlog, coupled with the successful implementation of the bulk material handling. Additionally, the company witnessed strong demand dynamics of specialized products, and expanded production 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.

• Robust Business 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

• Strong Working capital management: In Q1FY22, the company reported its quick ratio and current ratio of 1.34x and 2.45x, respectively, as compared to the industry median of 1.25x and 1.86x, respectively. This indicates that the company has sufficient current assets to meet its short-term liabilities.

• Healthy balance sheet: In Q1FY22, the company reported its debt-to-equity ratio of 0.51x, as compared to the industry median of 0.73x. This indicates that the company has a higher financial flexibility than the industry median. 

Q1FY22 Financial Highlights:

Q1FY22 Income Statement Highlight (Source: Company Report)

• For the first quarter of FY22, the company reported 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, grew from USD 9.7 million in pcp, driven by 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 result 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:

The first quarter’s FY22 performance was encouraging as the company reported the highest quarterly net sales of USD 587 million. This is impressive from the operational point. Moreover, the Company remains well positioned for continued future growth, including a record pipeline of over USD 1.5 billion, the largest in the company’s operating history, indicates strong demand for the company’s products. 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 19.10 on June 06, 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 of June 06, 2022). Analysis by Kalkine Group

The reference data has been partly sourced from REFINITV  

  Technical Analysis Summary

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