Toromont Industries Ltd

Toromont Industries Ltd (TSX: TIH) is a manufacturing firm based in Canada. Equipment Group and CIMCO are the company's two main segments. Equipment Group, the company's largest revenue sector, includes a Caterpillar dealership and a construction equipment rental activity. CIMCO provides industrial and recreational refrigeration system design, engineering, manufacturing, and installation services.

Why Should Investors Book Profit? 

• Lower Bookings and backlogs in CIMCO segment: The company witnessed lower bookings under CIMCO segment, which fell by 11% mainly on lower industrial orders in Canada, while the backlogs for the same sector also fell by 35%.
• Higher Cash Cycle days: The company’s Cash Cycle (Days) is higher compared to the industry, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is at 118.6 days against the industry median of 66.2 days.
• Stretched Valuation: TIH shares are available at an NTM EV/EBITDA multiple of 12.9x compared to the industry (Industrial) median of 10.4x. This implies that the shares are overvalued against the industry. The matrix below reflects that the company is overvalued against the industry on many multiples.

• Trading above the upper band of the Bollinger Bands®: Recently, the stock witnessed a healthy rally on the daily price chart and has moved above to the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

The company recently shared its Q2 2021 financial numbers, where it posted healthy growth in its top line and bottom line. But it witnessed lower bookings and backlogs under the CIMCO segment by 11% and 35% respectively. Furthermore, the stock is overpriced in comparison to the industry on multiple parameters and has a longer Cash Cycle (Days), which is not a good indication. Moreover, the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationale, we recommend a “Sell” rating on the stock at the closing price of CAD 108.61 on August 19, 2021.

One-Year Price Chart (as on August 19, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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