Titanium Transportation Group Inc (TSXV: TTR) is assets-based transportation and logistics firm that provides services like, truckload, dedicated, cross-border trucking services, freight logistics, warehousing, and distribution. The company is organized into two segments namely, the Truck Transportation segment and the logistics segment.

Key highlights 

• Robust Q3 2021 results: The company delivered a fifth consecutive quarter of record revenue, an increase of 93.2% to CAD 101.7 million mainly driven by significant growth in both the Truck Transportation and Logistics segment. Surpassing the CAD 100 million milestone for the second consecutive time in the company's history. Even an increase of 31.3% was witnessed in an adjusted EBITDA at CAD 7.2 million, while EBITDA stood at 7.2 million.
  

• Integrating ITS Group: The company's plans for integrating the ITS Group, which was acquired in Q1 2021, have gone according to plan, and despite a softening of margins in the trucking segment, profitability is expected to improve in the coming quarters as it targets more operational efficiencies along with improving market conditions.

• Overcoming the challenging conditions: The company is constantly responding to the difficult operating conditions that have had an impact on margins in both business areas, such as considerable supply chain restrictions, strong inflationary pressure, and tighter labor markets. In navigating through the ever-changing economic situation, the Titanium team has proved its focus and adaptability.

• Healthy guidance for 2021: As economic conditions improved, in part reflecting the loosening of some of the restrictions relating to the ongoing COVID-19 pandemic, Titanium’s strategic investments in growth opportunities and focused execution helped the management in Increasing its FY2021 annual guidance to clock the revenue of approximately CAD 350 million and an EBITDA of CAD 33 million, is a key positive.
  

Financial overview of Q3 2021 in thousands of CAD

Source: Company 

• In Q3 2021, the company reported revenue increased 93.2% to CAD 101.6 million, against CAD 52.6 million in the previous corresponding period. The increase in revenue reflected a combination of rapid organic U.S freight brokerage growth and contribution from the ITS acquisition.
• On the back of higher revenue, the total expenses increased to CAD 94.4 million in Q3 2021, against CAD 45.9 million in pcp. Total expenses as a % of revenue increased to 92.9% from 87.3%.
• Operating income in the reported period for the company increased to CAD 5.4 million against CAD 3.1 million in Q3 2020.
• The company posted lower income before income tax at CAD 1.8 million against CAD 3.5 million, primarily due to higher depreciation.
• Primarily due to above discussed rationales the company’s net income for the reported period stood at CAD 1.3 million against CAD 2.6 million in the previous corresponding period.
  

Risks associated with investment

The Company's business is subject to several risk factors, including duration and impact of the COVID-19 pandemic to the global economy. Further, the company is exposed to forex risks as majority of the group’s revenue comes from the abroad market, especially U.S Dollars. 

Valuation Methodology (Illustrative): EV to EBITDA based Valuation Metrics 

Stock recommendation

The company’s Q3 2021, delivered record top line revenue growth and sustained profitability, are a testament to Titanium’s business strengths, including the ability to successfully execute and integrate a transformative acquisition and enter new US markets during a period of economic uncertainty. The integration of the ITS Group is also paying off well. Looking ahead, and despite a somewhat uncertain economic environment, the company remains focused on profitability and strategic execution of growth initiatives, both organically and through acquisitions, including expanding its U.S. Logistics operations, is a key positive. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 2.91 on November 18, 2021. We have considered Mullen Group Ltd, Algoma Central Corp, Heartland Express Inc etc., as a peer group for comparison purpose.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Summary Analysis

One-Year Technical Price Chart (as on November 18, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Kelso Technologies Inc.

Kelso Technologies Inc. (TSX: KLS) is a railway equipment supplier that produces and sells tank car service equipment used for the safe loading, unloading, and containment of hazardous materials during transport. 

Key Updates:

• Prudent working capital management: At the end of Q3FY21, the group reported its quick ratio and current ratio of 3.73x and 8.29x, respectively, as compared to the industry median of 1.32x and 2.05x, respectively. The above indicates that the company has adequate current assets to meet its short-term liabilities.

• Operational Update: Recently, the company reported that it has finalized two new contractors Vector Truck Designs, and Kinetic Drive Solutions, which would provide a team of automotive engineers, control system designers and software specialists which would guide the company to a regulatory compliant final production-ready HD prototype. The above is likely to support the company with safety and efficiency and would also provide environmental and cultural responsibility for vocational wilderness transportation applications.

• Diversified Clientele: Apart from rail tank car equipment manufacture, the company is marking its mark across new avenues, which is a key positive and would reduce the dependence on one segment. The transportation industry seeks improved equipment performance, environmental safeguards and more efficient use of time. Considering the above requirements, the company is highly poised to meet the growing needs of innovative products within the sector.

Source: Company Presentation 

• Positive outlook: For FY22, the management anticipates a gradual demand recovery supported by the new product offerings within the trucking tank trailers, pressure rail cars and compliance requirements for the ethanol industry. Moreover, as per the current industry requirements, a significant number of tank cars are expected to due for re-certification, and hence company expects an improved demand from the tank cars segment in the coming days. The above is expected to support the company’s upcoming performance.
  

Q3FY21 Financial Highlights:

• KLS announced its quarterly year result, wherein the company posted revenue of USD 2.093 million, jumped from USD 1.586 million in the previous corresponding period (pcp).
• Total expenses stood lower at USD 1.258 million, as compared to USD 1.304 million in Q3FY21, primarily due to the absence of share-based expense, and lower research costs. However, a higher management fees, increase in accounting & legal expense, and a significantly higher travel costs remained as a drag.
• The company reported a net loss of USD 0.433 million, as compared to a net loss of USD 0.681 million in pcp. The quarter witnessed an income tax expense amounting USD 0.019 million, as compared to recovery of USD 0.022 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: The company reported increase in management fees costs, higher cost of sales and an increase in office & administrative expenses, and continuation of the above trend is likely to dampen the company’s upcoming cash flows and profitability.

Stock Recommendation:

The company reported a lower D/E ratio of 0.02x in Q3FY21, as compared to the industry median of 0.43x, which indicates higher financial flexibility and efficient capital management when compared to the industry median. The stock of KLS is available at an EV to Sales multiples of 0.81 on next twelve months (NTM) basis, as compared to the industry (industrial) mean of 1.4x. For the above purpose, we have considered peers like GreenPower Motor Company Inc, Westport Fuel Systems Inc, FreightCar America Inc and Manitex International Inc. Hence, considering the above rationale, we give a ‘Speculative Buy’ rating on the stock of KLS at the last traded price of CAD 0.74 on November 18, 2021. 

Technical Summary Analysis

One-Year Technical Price Chart (as on November 18, 2021). 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.