Grande West Transportation Group Inc.

Grande West Transportation Group Inc. (TSXV: BUS) is a Canada-based bus manufacturer, which designs, engineers and manufactures mid-size buses for transit authorities and commercial enterprises. The company focuses on selling the Vicinity branded transit buses. 

Key highlights 

• Robust order book: The Company holds a decent order book of over CAD 40 million, which it would deliver before the second half of 2021. This is a positive step towards regaining profitability and increased liquidity after the pandemic's negative results. The company has started delivery of a large order of over 90 buses. Approximately 75% of these buses are being delivered, and the remaining 25% of this order would be delivered during the first quarter of 2021. 

• Expecting electric results from EV segment: The Company is all set to enjoy phenomenal revenue growth after entering the battery-electric bus market this year. The group expects the first electric bus, the Vicinity Lightning, to be completed and ready to promote to customers in early 2021. The first delivery to customers for EV buses is scheduled for 2021. The company has already started receiving large bus orders from the United States. It has a sizable delivery backlog to be cleared during the first half of 2021 that would boost liquidity and profitability in 2021. 

• Healthy Liquidity: Recently, the company renewed its revolving credit facility agreement for a three-year term with a financial institution for a maximum amount of CAD 20 million and held a cash balance of CAD 1.2 million as on 30th September 2020, increased against CAD 0.7 million as on 31st December 2019. 

• Expanding capacity: The Company's operations remain healthy as they are receiving a healthy order. The company is currently looking to expand a manufacturing plant in the US as the demand is expected to increase in North America.  

Financial overview of Q3 2020

Source: Company 

• In Q3 2020 the company clocked a CAD 8.9 million revenue, compared to CAD 1.6 million in the previous corresponding period. An incredible increase of 456% in revenue was represented by delivering 20 buses in this quarter compared to nil in the previous period.
• The company's gross margin in Q3 2020 stood at CAD 0.566 million, against a negative gross margin of CAD 41.582 million in the previous corresponding period.
• The company minimized its net losses to CAD 1.3 million in Q3 2020, against a net loss of CAD 2.1 million in Q3 2019. The group controlled the expenses which helped in minimizing the losses. 

Risks associated with investment 

The Company is prone to many risks associated with the nature of their business which could hamper its performance. Some of these risks include disruptions from the supply chain, technological change, increased prices of raw materials and commodities, etc. 

Stock recommendation

The management expects to maintain its strong market segment leadership position in Canada and continue to make progress in the U.S. with private operators and public transit agencies. We believe once the COVID-19 pandemic is over, the outlook for them would be very positive, including significant growth in the U.S. The Company would be acknowledging a considerable amount of revenue in the early phase of FY2021, as they would deliver a substantial chunk of its order book. The Company also ventured in the EV segment, and the first delivery for EV buses to customers is scheduled for 2021, which would be a huge milestone. We believe that this EV bus launch attracted market attention for the stock as its shares have almost tripled during January 2021. From the Bollinger Band© standpoint, shares of BUS traded above its Upper Bollinger Band© which is 2 times from 20-day SMA, interoperates for a potential pull back from the current trading level. Also, the 14-day RSI is hovering in a steep overbought zone, indicates that the stock up for some price consolidation. Although the prospect seems promising, we believe the stock has soared significantly in the past one month and expect some consolidation. Hence, we prefer to remain on the side-line and wait for the better entry point. Hence, based on the above rationale, we recommend a ‘Watch’ stance on the stock, at the closing price of CAD 4.3 as on 21 January 2021.

Source: Refinitiv (Thomson Reuters)

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