NFI Group Inc.

NFI Group Inc. (TSX: NFI) is a Canadian automobile manufacturer and operates through two segments: Manufacturing operations and Aftermarket operations. Manufacturing operations derives the major revenue and is focus on the manufacture of transit buses for public transportation and motor coaches.

Key Highlight:

• Sign of recovery: The company reported an increase in vehicle delivery in the second quarter, amidst the economic turmoil, which indicates a revival in the vehicle demand within Heavy-Duty Transit, Motor Coach and Medium-Duty / Low-Floor Cutaway segment. The above is impressive and continuation of the trend would lead to improved performance. Moreover, the company expects to see improvements the coming days, supported by government investments in public transportation.
• Encouraging Guidance: The Management expects its FY21 sales to remain with USD 2,800 to 2,900 million, depicting a growth of 16% to 20% from FY20. Adjusted EBITDA is expected in between USD 220 to 240 million for FY21, which is ~40% to 50% higher than FY20. On a longer-term basis, the group targets its revenue to grow at a CAGR of 8% to USD 3,900 to 4,100 million in FY25, while adjusted EBITDA to reach within USD 400 to 450 million in FY25, depicting a CAGR of 16%.

Q2FY21 Financial Highlights:

• NFI announces its quarterly result, wherein the company posted revenue of USD 794 million, increased from USD 333.334 million in Q2FY20. The surge was primarily due to improved revenue from both Manufacturing and Aftermarket segments.
• Gross profit stood at USD 514 million, as compared to a gross loss of USD 17.379 million in Q2FY20. The improvement was primarily due to a significantly higher topline, partially offset by a higher cost of sales (USD 513.280 million v/s USD 350.713 million in pcp).
• The quarter was marked by lower sales, general and administration costs and other operating expenses (USD 49.794 million v/s USD 52.186 million in pcp), higher interest on long-term debt, along with a gain from interest rate swap.
• Net earnings stood at USD 2.587 million, as compared to a net loss of USD 74.050 million in Q2FY20.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks:  The company’s performance is directly correlated to the international automobile market, and a change in consumer preferences due to postponement of capital expenditure by both public and private bodies, imposition of fresh restriction due to rise in COVID 19 cases might impact the company’s performances.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company has ample liquidity of USD 389 million, which increased by USD 70 million from the previous quarter. The liquidity includes cash on-hand and available capacity under its credit facilities. We believe the above is sufficient to meet its working capital needs. The company reported a higher dividend payment in Q2FY21 at USD 11.995 million, higher than USD 9.503 million in pcp despite the ongoing economic turbulent. Notably, the stock of NFI carries a dividend yield of ~2.9%, which looks decent considering the current interest rate scenario. We have valued the stock using the price to cash flow based relative valuation method and have arrived at a single-digit upside (in percentage terms) upside. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 28.89 on August 09, 2021.

One-Year Technical Price Chart (as on August 09, 2021). Analysis by Kalkine Group

Exco Technologies Limited

Exco Technologies Limited (TSX: XTC) is a global designer, developer and manufacturer of dies, moulds, components and assemblies, and consumable equipment for the die-cast, extrusion and automotive industries.

Key Highlights:

• An income play: The company reported a consistent dividend payment amidst the economic turmoil, backed by stable cash flows. Notably, during 9MFY21, the company reported a dividend payment of CAD 11.585 million, consistent with CAD 11.170 million, a year ago. Moreover, the stock carries a dividend yield of ~3.9%, which looks decent considering the persisting interest rate scenario.
  

• Positive Outlook from Management: In the third quarter of FY21, the company reported a strong momentum from the automotive solutions segment, while its casting and extrusion segment also impressed with its performance during the quarter. This indicates a hint of revival, which is a key positive. For the rest of FY21, the group expects favorable scenario across most of the company’s line of business.

Q3FY21 Financial Highlights:

• XTC announced its quarterly result, wherein the company posted a higher revenue of CAD 114.967 million, as compared to CAD 70.962 million in the previous corresponding period (pcp). The increase was driven by strong momentum from the automotive segment coupled with improved performance from Casting and Extrusion segments.
• Total expenses stood at CAD 105.059 million, jumped from CAD 71.901 million in the previous corresponding period. The increase was primarily due to a rise in the cost of sales, increase in Selling, general and administrative expenses, partially offset by lower Depreciation and Amortization.
• The company reported its EBITDA of CAD 15.221 million, considerably higher than CAD 4.680 million in pcp. EBITDA margin stood at 13.2%, as compared to 6.6% in pcp.
• The company reported a net income of CAD 8.682 million, as compared to a net loss of CAD 0.848 million in pcp.

Source: Company Report

Risks: Due to any unforeseen circumstances like delay in logistics, supply-chain management, rise in raw material costs, lower-order book due to lower demand scenario are likely to dampen the company’s overall performances.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The group operates in the Casting & Extrusion Segment and the demand of the products are expected to remain amidst the acceptance of electric vehicles across the globe, which indicts operational resiliency. The company has a leading market share and has a premium clientele, and we expect the above to remain in the coming days, supported by innovative offerings as per the client’s needs. We have valued the stock using the price to cash flow based relative valuation method and have arrived at a single-digit upside (in percentage terms) upside. For the said purposes, we have industry (Automobile & Auto parts) median on an NTM basis. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of XTC at the last closing price of CAD 10.11 on August 09, 2021.

One-Year Technical Price Chart (as on August 09, 2021). Analysis by Kalkine Group

Polaris Infrastructure Inc.

Polaris Infrastructure Inc. (TSX: PIF) is engaged in the acquisition, exploration, development and operation of geothermal and hydroelectric energy projects. 

• An Income Play: In the recent past, the company reported a consistent dividend payment backed by stable cash flows, which is a key positive. In H1FY21, the group paid a total dividend of USD 5.306 million, higher than USD 4.756 million in pcp. Moreover, the PIF stock has a dividend yield of ~4.2%, which looks impressive considering the current interest rate scenario.

• Growth in Cash from operations: The company reported a surge in its cash from operations of USD 24.152 million in H1FY21, higher than USD 18.416 million in pcp. The growth was driven by improved working capital management. A growth in the cash flow is a key positive as it enhances the company’s liquidity and also helps the company to run its operations during the economic cycles.

• New Contract win: On August 04, 2021, the company received a new order from Ormat Technologies Inc., to supply a 10 MW (net) Binary Unit at its San Jacinto facility in Nicaragua. The installation of the above contract is expected to take almost 15 to 18 months and is expected to be operational in early Q1FY23.

Q2FY21 Financial Highlights:

• PIF announced its quarterly results, wherein the group reported revenue of USD 14.161 million, lower than USD 18.923 million in the previous corresponding period (pcp). The slide was primarily due to lower revenue from the Nicaragua facility (USD 12.437 million in Q1FY21, v/s USD 17.462 million in pcp).
• Operating income stood at USD 3.443 million, down from USD 8.209 million in pcp due to lower revenue and increase in direct cost from Nicaragua facility.
• Adjusted EBITDA was recorded at USD 9.978 million, lower than USD 15.121 million in pcp.
• The group reported a net profit of USD 0.159 million, as compared to a net loss of USD 1.025 million in pcp.

Source: Company Report

Risks: Due to the inherent nature of the operations, the group might witness setbacks from the global economic trends, risks related to local social, political, environmental, and economic conditions, as well as currency and inflation-related risks within the markets within which it operates.

Stock Recommendation:

The company’s operation is immune to the economic cycle as power generation comes under the essential services. Despite the lockdown restrictions, the operations of the company remained unaffected, which is a key positive. On the valuation front, the stock is trading at an EV to EBITDA of 8.2x on NTM basis, as compared to the industry (Electric Utilities &IPPs) median of 11.4x. Hence, considering the above rationale, we give a ‘Hold’ rating on the stock at the last closing price of CAD 18.00 on August 09, 2021.

One-Year Technical Price Chart (as on August 09, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.