TFI International Inc (TSX: TFII)

TFI International Inc (TSX: TFII) is a transportation and logistics company domiciled in Canada. The company organizes itself into four segments: package and courier, less-than-truckload, truckload, and logistics.

Key highlights

• Higher cash from operating activities and higher free cash flow: Net cash from continuing operating activities stood at USD 155.2 million during Q1 2021 compared to USD 137.2 million in the prior-year period. The 13% increase was due to robust operating performance, favorable contributions from working capital of recently acquired companies, and contributions from business acquisitions. Free cash flow from continuing operations stood at USD 143.5 million compared to USD 129.1 million in 2020, represented a Y-o-Y growth of 11%.

• Acquired UPS freight division: Recently, the company closed its previously announced acquisition of UPS Freight, the less-than-truckload (LTL) and dedicated truckload (TL) divisions of United Parcel Service, Inc. Approximately 90% of the acquired business would operate independently within TFI International’s LTL business segment under its new name, “TForce Freight”, while acquired dedicated TL assets would join TFI’s TL business segment.

Financial overview of Q1 2021

Source: Company 

• In Q1 2021, the company posted revenue of USD 1,148.8 million, up 24%, or USD 224.3 million, compared to USD 924.5 million in the previous corresponding period. The increase was mainly attributable to the contribution from business acquisitions, partially offset by a decrease in fuel surcharge revenue.
• Despite the higher operating expenses in Q1 2021, the company’s operating income from continuing operations rose by USD 14.4 million to USD 101.7 million compared to USD 87.3 million in the same quarter in 2020.
• The company reported higher net income at USD 66.8 million against USD 55.7 million in the previous corresponding period, primarily on the back of higher revenue and higher operating income.
  

Risks associated with investment

The risks involved with the business, which can affect the financial health and operations of the company include increased crude prices, low volume of goods, unavailability of workforce etc.

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

In Q1 2021, TFI International delivered a strong result, including a 17% increase in operating income and a 26% increase in adjusted diluted EPS. UPS Freight's division acquisition, along with the previous acquisitions, has put the firm in a great position to take advantage of the current economic recovery and produce significant cash flow that could be used to expand the business strategically. Furthermore, the company would profit from the rise of eCommerce, which presents a potential for both growth and margin expansion for its P&C and Logistics businesses. Therefore, based on the rationales discussed above and valuation, we recommend a "Hold" rating on the stock at the closing price of CAD 112.04 on June 21, 2021. We have considered Union Pacific Corp, Cargojet Inc, Canadian National Railway Co, etc., as the peer group for the comparison.

One-Year Technical Price Chart (as on June 21, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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