TFI International Inc.

TFI International Inc. (TSX: TFII) is a transportation and logistics company domiciled in Canada. The company organizes itself into four segments: package and courier, less-than-truckload, truckload, and logistics. 

Key Highlights:

• Margin Improvement: During FY20, the company showcased improved margins as compared to the previous financial year. EBITDA margin and operating margin stood higher at 17.1% and 11%, respectively in FY20 compared to 16.3% and 9.8%, respectively in FY19. Notably, the company reported a higher net margin of 7.4% in FY20, v/s a net margin of 6.3% in FY19.

Source: Refinitiv (Thomson Reuters)

• Bullish Management Stance Amidst Challenging Circumstances: The company notified that it is well prepared to navigate any further disruption arising on account of the second wave of the COVID 19 pandemic. The Management would continue to implement an improved cost structure to stay afloat during the economic cycles. Notably, the company remained operational during FY20 and witnessed solid growth from essentials, medical related products etc.  The company expects growth from the recently expanded eCommerce segment, which is a key positive considering the change in consumers preferences.

• Dividend Announcement: The group reported a quarterly dividend of USD 0.23 per common share, payable on April 15, 2021.

FY20 Financial Highlights:

• TFII announced its full-year results, wherein the group posted revenue of USD 3,781.134 million, down 3% from FY19.
• During FY20, total operating expenses stood at USD 3,364.567 million, declined from USD 3,520.677 million in FY19. The improvement was driven by lower materials and services expenses (USD 2,051.835 million v/s USD 2,134.720 million in FY19), coupled with lower personnel expenses (USD 888.185 million v/s USD 980.785 million in FY19).
• Operating income was recorded at USD 416.567 million in FY20, as compared to USD 382.868 million in FY19.
• Net income from continuing operations stood at USD 275.675 million, as compared to USD 244.225 million in FY19. The increase was partially supported by lower net finance costs (USD 53.910 million v/s USD 62.107 million in FY19).
• The group posted cash and cash equivalents at USD 4.297 million, while total assets stood at USD 3,849.364 million.

FY20 Income Statement Highlights (Source: Company Report)

Risk: The company reported a lower income in Less-Than-Truckload segment, which remains a key concern, and continuation of the above trend would likely to affect the overall performance.

Valuation Methodology (Illustrative): Price to Earnings-based

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

In FY20, the company reported a massive reduction in its total debt of ~38% on y-o-y basis to USD 1,228.5 million, which is encouraging. A lower debt component also reduces the finance costs and drives higher profitability. Moreover, the company reported significantly higher free cash flows from operations of USD 544.644 million in FY20, as compared to USD 347.698 million in FY19.

Source: Company Report

We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Canadian National Railway Co, Union Pacific Corp, etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of TFII at the closing price of CAD 98.86 on April 23, 2021.

One-Year Price Chart (as on April 23, 2021). Source: Refinitiv (Thomson Reuters)

B2Gold Corp.

B2Gold Corp. (TSX: BTO) is a gold mining company, that operates in mines and numerous exploration projects and have a presence across four continents in various countries, like Nicaragua, the Philippines, Namibia, Mali, and Burkina Faso. 

Key Highlights:

• Encouraging First-Quarter Production: The company showcased an impressive production during Q1FY21, which stood at 205,643 ounces, 9% higher than the budget. The company reported its first quarter gold revenue of USD 362 million, which includes an average price of USD 1,791 per ounce. The company’s major mine, Fekola mill reported its throughput at 2.07 million tonnes during the period which was 9% above budget and 19% higher than the first quarter of FY20.

• Significant Decline in total Debt: At the end of FY20, the company reported a considerable reduction in total debt at USD 110.022 million, as compared to USD 261.851 million in FY19. The reduction in the debt is likely to increase the overall financial flexibility of the company and would also reduce the finance cost, which would further support the company’s profitability.

FY20 Financial Highlights:

• BTO impresses with its full-year result, wherein the company posted Gold revenue of USD 1,788.928 million, higher than USD 1,155.637 million in FY19.
• Gross profit surged to USD 958.287 million, significantly higher than USD 450.460 million in the previous year, thanks to the higher revenue, partially offset by higher total cost of sales (USD 830.641 million v/s USD 705.177 million in FY19).
• Operating income stood at USD 1,052.934 million, higher than USD 508.008 million in FY19. The period was marked by lower general and administrative expense (USD 45.605 million v/s USD 54.558 million in FY19), followed by an income from reversal of impairment of long-lived assets (USD 174.309 million v/s USD 100.477 million in FY19).
• Net income from continuing operations soared to USD 672.413 million, as compared to USD 308.859 million in FY19, thanks to the higher operating income coupled with a lower interest and financing expense (USD 15.803 million v/s USD 26.550 million in FY19).
• The Group reported its cash and cash equivalents of USD 479.685 million, while total assets were recorded at USD 3,362.379 million.

FY20 Income Statement Highlights (Source: Company Report)

Risk: The company’s revenue is directly co-related to the international gold prices, and a price volatility would likely to affect the company’s revenue and cash flows.

Valuation Methodology (Illustrative): Price to CF -based

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

The stock of BTO carries a dividend yield of ~3.2%, which looks decent considering the current interest rate scenario. For FY21, the company is expecting its gold production within the range of 970,000 - 1,030,000 ounces, while cash operating costs is expected in between USD 500 – USD 540 per ounce. Also, total consolidated all-in sustaining costs is anticipated in between USD 870 and USD 910 per ounce. We have valued the stock using the Price to CF based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Kirkland Lake Gold Ltd, Alamos Gold Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 6.33 on April 23, 2021.

One-Year Price Chart (as on April 23, 2021). Source: Refinitiv (Thomson Reuters)

ATS Automation Tooling Systems Inc.

ATS Automation Tooling Systems Inc. (TSX: ATA) is an automation solutions provider. The Company is engaged in planning, designing, building, commissioning and servicing automated manufacturing and assembly systems, including automation products.

Key highlights

• Growing higher-margin after-sales service business: The Company is trying to raise after-sales operation revenues as a percentage of total revenues over time, which could help the company’s consumers to balance their capital spending cycles. In comparison to the first half of the fiscal year, the Company generated more revenue from its aftersales service market in the third fiscal quarter.

• Rising Order Backlog:  The company reported a backlog of CAD 985 million, higher than CAD 939 million in Q3 FY20. Higher-Order Bookings primarily drove the rise in order backlog in the life sciences and consumer products markets. Higher backlog indicates future revenues. In the third quarter of fiscal 2021, management expects to convert Order Backlog to revenues in the 35% to 40% range.

Source: Company

• Robust cash flow generation: Operating activities produced cash flows of CAD 78.9 million in Q3 2021, compared to (CAD 7 million) in the previous corresponding period. Lower working capital investment and higher profitability benefited the group. On a year-to-date basis, the company produced CAD 128 million in free cash flows.

Source: Company

• Acquiring BioDot Inc: BioDot, Inc, a major maker of automatic fluid dispensing systems, is being acquired by the company for USD 84 million (CAD 106 million), with the deal scheduled to close in the second calendar quarter of 2021. We assume that the inclusion of BioDot would strengthen its role in clinical diagnostics lab automation and extend its Life Sciences capabilities in accurate, low volume fluid dispensing.

• Healthy Liquidity: The company holds CAD 224.5 million under its cash balance and CAD 750 million under its consolidated credit limit. The management believes this liquidity would be sufficient to fund its requirements for investments.

Financial overview of Q3 FY21

Source: Company

• In Q3 2021 the Company registered muted growth of 1% in revenue to CAD 369.7 million, against CAD 367.1 million in the previous corresponding period. The rise was primarily due to revenues clocked from acquired companies.
• On the back of lower cost of sales and lower restructuring expenses in Q3 2021, the Company’s EBIT stood at CAD 32.2 million, compared to CAD 10.3 million in Q3 2020.
• The Company posted Net Income of CAD 18.8 million in Q3 2021, as against CAD 4.1 million in the previous corresponding period, partially offset by higher income tax expense. 

Risks associated with investment

Due to the tepid economic scenario, the business might witness a reduction in the order book, which might lead to lower revenue. The existing macro challenges might lead to delay in the payment activities by the clients, which might act as a major setback to working capital management.

Valuation Methodology (Illustrative): EV to EBITDA

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

Over the long term, the Company would be increasing its overall investment in non-cash working capital to support its business growth. The goal is to maintain its investment in non-cash working capital as a percentage of annualized revenues below 15%. Furthermore, the Company caters to a unique segment, and the demand for medical instruments is likely to remain robust. The Company also managed to curtail their long-term debts by CAD 282 million and enjoy a healthy balance sheet, which is a key positive. Therefore, based on the above rationale and valuation, we suggest a “Hold” recommendation at the closing price of CAD 29.75 on April 23, 2021. We have considered Abc Technologies Holdings Inc, Ritchie Bros. Auctioneers Inc, Toromont Industries Ltd, etc. as the peer group for the comparison.

1-Year Price Chart (as on April 23, 2021). Source: Refinitiv (Thomson Reuters)

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.