TFI International Inc. (TSX: TFII)

TFI International Inc. (TSX: TFII) is engaged in transportation and logistics services across the United States, Canada and Mexico. The company operates into four segments: package and courier, less-than-truckload, truckload and logistics.

Key takeaways from 3Q 2020

• TFI acquired four companies in Q3 and two post Q3. Additionally, TFI has agreed to purchase DLS Worldwide, which is expected to close in the fourth quarter and terminated the previously announced agreement to acquire APPS Transport.
• The company ended September with long-term debt down 27% since the start of the year, and a total of CAD1.5 billion of liquidity.
• The company expects that they will report an EPS of minimum CAD 4 in FY2020. Earlier, they were expecting the EPS to be in the range of CAD 3.4 – CAD 3.75.
• The company expect to generate a minimum free cash flow of CAD 600 million compared to the previous expectation of CAD 425million - CAD 460 million.

Financial Overview of 3Q 2020

Source: Company

The company had an outstanding quarter, as the numbers posted by them reflects the strength of their operations. The group outperformed on almost each line item.

• The company reported revenues of CAD 1.2 billion in 3Q 2020 as against CAD 1.3 billion in the same period last year were down by only 4%. Keeping in mind about the current economy and macro conditions, we have to say that these revenue numbers are excellent.
• Adjusted EBITDA increased 14% to CAD 252 million in this quarter from CAD 221 million in the year-ago period.
• Adjusted net income also increased by 31.4% to CAD 115.8 million in 3Q2020 from CAD 88.1 million as compared in the year-ago period.
• In 3Q 2020 dividend increased by 8% to CAD 0.26 from CAD 0.24
• The company managed generated a Free cash flow of CAD 164.8 million, up from CAD 129.7 million in Q3 2019.

Risks associated to investment

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

Valuation Methodology (Illustrative) – Price to Earnings

All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

Despite the challenges spread by the Covid-19 pandemic, the company managed to report a robust set of numbers. As the economic activities are returning on track, we expect the demand for the group’s offerings to increase. The company has revised its guidance upward and expects EPS of minimum CAD 4 for FY2020, up from the earlier guidance of CAD 3.4 – CAD 3.75. Therefore, based on the above rationale and valuation, we have given a “Hold” rating at the closing price of CAD 65.33 on October 26, 2020. We have considered industry (freight and logistic services) median as target multiple.

TFII daily technical chart. Source: Refinitiv (Thomson Reuters)

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