Decent Business Prospects are driven by Higher Logistics Volumes: Cargojet Inc. (TSX: CJT) is a leading provider of time-sensitive premium overnight air cargo services within the North American Region. The company carries more than 8 million pounds of cargo on a weekly basis. The company provide services across 15 major cities and selected international destinations and operates a fleet of 26 aircraft.

Key Highlights:

• The business is witnessing expressively higher demand and volumes driven from e-Commerce and health care and essential segments. The company is ensuring several major steps to safeguard its interest in fulfilling the increased demand.

• Further, the Management is taking several steps like adjusting capacity to serve domestic and Transborder needs, preserving proper hygiene, safety and security of the cargo and ensuring Health and safety of the staffs amidst the outbreak of coronavirus (COVID-19). 

• The business is focused on boosting its integrated supply chains of Canada-USA-Mexico routes which are needed to maintain timely access of essential supplies. For meeting the higher demands, the group is redeploying aircraft which are presently working for International scheduled and charter routes back to the Canadian Overnight network. The Management further indicated that it would deploy its daytime flights in case volumes surpass the overnight network capacity on certain main routes.

Financial Performance for the year ended 31^st December 2019

Key FY19 Income Statement Highlights (Source: Company Reports)

For the period ended 31^st December 2019, the business reported total Group’s revenue was CAD 486.6 million, an increase of 7% on a y-o-y basis, including fuel surcharges. The growth in the top-line was aided by improved e-commerce volume and introduction of ACMI (Aircraft, Crew, Maintenance and Insurance) routes between Canada, US and Mexico. Gross Profit stood at CAD 119.2 million, witnessed an increase of 6.1% from the previous year. Adjusted EBITDA stood at CAD 156 million, up 21.9% on a y-o-y basis.

Stock Recommendation: The stock of CJT is quoting at CAD 95.56 along with a market capitalization of CAD 1.49 billion. The 52-weeks low and high of the stock stood at CAD 67.87 and CAD 123.75. The year was marked by record volumes during peak season while delivering exceptional service to its customers. The business successfully implemented costs efficiencies which resulted in better margins with optimization to its fleet utilization. The company is focusing to increase its product offerings in order to enhance the utilization and margin improvement. The business has a competitive advantage as it offers next day service for the courier industry to more than 90% of the Canadian population. Amidst the COVID-19 crisis, the company is on-track to keep its vital logistics moving within Canada and Transborder. The stock is currently trading at a forward P/E multiple of ~54x which we believe is justified as the group is the only player in Canada in Air Freight and Logistic segment. We believe this multiple to expand further as the group is facing higher demand and is an important part of the Canadian supply Chain. Hence, we recommend a ‘Buy’ on the stock at the closing price of CAD 95.56 as on 23^rd March 2020.

CJT Daily Technical Chart (Source: Thomson Reuters)

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