NFI Group Inc

NFI Group Inc (TSX: NFI) is a Canada-based bus and motorcoach manufacturer and parts distributor in North America, with approximately 32 fabrication, manufacturing, distribution and service centres located across Canada and the United States.

Key highlights

• Building new partnerships:Recently Alexander Dennis Limited (ADL) a subsidiary of NFI Group Inc. and "BYD" allied to design and assembly chassis for electric single and double deck buses for the British market, ensuring completed vehicles are completed built-in ADL's facilities in the UK. 
• The bullish stance of management:The management reaffirmed its financial guidance for FY 2020, expecting an Adjusted EBITDA in a range of USD145-155 million and for FY 2021, the group anticipate adjusted EBITDA in a range of USD220-240 million driven by market recovery, increased sales of zero-emission buses and continued realization of fixed and variable cost reductions from its transformational initiative.
• Liquidity: The Company holds liquidity of USD414.5 million. The group remains focused on to deleverage its balance sheet and is working closely with banking partners on an extended covenant relief package providing additional flexibility in 2021.
• Dividend: The Company declared a quarterly dividend of CAD0.2125 per common share. While the dividend distribution was reduced by 50%, the continued payment reflects its confidence in the business while maintaining the financial health required to operate during this uncertain period.

Financial overview of Q3 2020 (In thousands of U.S. dollars)

Source: Company

• In Q3 2020 the Company generated Total Revenue of USD 664 million, decreased 8.5% against USD 725 million in Q3 2019, due to the decline in vehicle deliveries. Aftermarket parts sales were also down by 10.6%.
• Cost of sales reported by the Company in Q3 2020 stood at USD 617 million, increased as a percentage of revenue to 93% as against 88% in the previous corresponding period. The rise in sales cost was primarily due to lower production volumes absorbing more fixed overhead on a per-unit basis.
• Losses from operations in Q3 2020 posted by the Company were USD16.5, compared to a profit of USD 25.2 million in Q3 2019.
• In Q3 2020 the Company posted a net loss of USD24.9 million, against a loss of USD 1 million in the previous corresponding period. The rise in losses was mainly driven by lower revenues combined with higher overhead and SG&A costs.

Risks associated with investment

Covid-19 pandemic has affected the group’s operations and performance. Due to this, the company’s manufacturing operations were closed temporarily. Though, the group resumed manufacturing processes, further breakout of the pandemic may result in a shutdown of facilities again, which would affect the overall performance.

Valuation Methodology (Illustrative): EV to Sales

All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

As most of the Company's vehicles are used for public transit, which remains a vital mode of transportation for millions of users, the company expects the demand to return along with higher Adjusted EBITDA in FY21. their new partnership along BYD in the UK is to design and assembly of chassis for electric single and double deck buses for the British market is likely to drive growth. Therefore, based on the above rationale and valuation, we have given a "Hold" rating at the closing price of CAD 30.56 on January 12, 2021. We have considered Martinrea International Inc, Linamar Corp, Boyd Group Services Inc, TFI International Inc, etc. as the peer group.

Source: Refinitiv (Thomson Reuters)

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