Mullen Group Ltd.

Mullen Group Ltd. (TSX: MTL) is a logistics company which has a network of independently operated businesses.  The corporation has a prominent presence across Canada and provides a wide range of services like less-than-truckload, truckload, warehousing, logistics, oversized and specialized hauling transportation.

Key Highlights:

• Stable Dividend Payment: Despite a sluggish macro scenario, the group has consistently paid dividends to its shareholders, while most of the companies are suspending the dividend payment in order to retain the liquidity levels. The above is backed up by robust cash flow generation. At the last traded price, the stock of MTL carries a dividend yield of ~3.639%, which looks decent considering the persisting interest rate scenario.

Five Years Dividend Payment, Source: Refinitiv

• Recent Acquisition: On May 03, 2021, the company acquired International Warehousing & Distribution Inc., which is located in Mississauga, Ontario, and provides customs sufferance warehousing services, air import/export deliveries, including full container deliveries across the Greater Toronto Area. The above acquisition is expected to support the company’s upcoming business prospects.

Q1FY21 Financial Highlights:

• MTL announces its quarterly results, wherein the company posted revenue of CAD 290.507 million, lower than CAD 318.234 million in the previous corresponding period. The YoY decline of 8.7% was primarily due to 28.8% decline from Specialized & Industrial Services to  CAD 79.3 million coupled with a 5.1% decline in logistics & warehousing segment to CAD 91.3 million, partially offset by higher income from the less-than-truck segment ( up 6.9% y-o-y to CAD 120.7 million)

Q1FY21 Segment Highlights (Source: Company)

• Operating income before depreciation and amortization stood at CAD 47.072 million, as compared to CAD 45.210 million in pcp. The improvement was majorly driven by lower direct operating expenses (CAD 204.880 million v/s CAD 232.414 million in pcp) coupled with lower selling and administrative expenses (CAD 38.555 million v/s CAD 40.610 million in pcp).
• Income before income taxes soared CAD 16.212 million, v/s CAD 8.487 million in Q1FY20, thanks to higher operating income.
• The company reported a net income of CAD 12.960 million, significantly higher than CAD 4.662 million in pcp.
• The company reported a cash and cash equivalent of CAD 117.680 million, while total assets stood at CAD 1,709.563 million.

Data Source: Company

Risks: A portion of the operations is related to the hospitality and air-travel industry, and continuation of the restrictions would likely dampen the company’s performance.

Valuation Methodology (Illustrative): Price to Cash Flow Based 

Stock Recommendation:

The group is one of the leading suppliers of trucking and logistics services in Canada having diversified services across the logistics segment and has a prominent client-base. Recent upthrust from the Canadian e-commerce segment has supported the company’s operations in the recent past, while we believe the segment offers sufficient room for the company due to the changing consumer preferences, which is a key positive.                           

Source: Company Presentation

We have valued the stock using P/CF based relative valuation approach and arrived at a target price offering single-digit upside side potential (in % terms). We have considered peers like Precision Drilling Corp, Trican Well Service Ltd. Hence, considering the above-mentioned facts, we give a ‘Hold’ rating on the stock of MTL at the last traded price of CAD 13.19 on May 21, 2021.

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

One-Year Price Chart (as on May 21, 2021). Source: Refinitiv

High Liner Foods Incorporated

High Liner Foods Incorporated (TSX: HLF) is a Canadian company which is mainly engaged in the manufacturing and distribution of prepared and packaged frozen seafood products. The group has a presence across U.S., Canada and Mexico under the brand name of high liner, fisher boy, Mirabel, Sea Cuisine and catch etc. and are available in most grocery and club stores.

Key Highlights:

• Impressive Profitability margins: The company enjoys improved margins over most of its peers, supported by favorable changes in product mix coupled with reduced labor costs due to the estimated wages etc. Operating and pretax margins stood at 11.10% and 9.40%, respectively, higher than the industry median of 8.80% and 7.40%, respectively. Net margin stood at 7.30% as compared to the industry median of 6.20%.                      

Source: Refinitiv

• Increase in Dividend payment amidst Economic Turbulence: In the recent past, the performance food industry took a hit due to the restrictions imposed on account of COVID 19, and most of the peers reduced or suspended its dividend payments in order to retain liquidity. Despite the sluggish sectoral outlook, the group has increased its dividend payment to USD 1,851 million in Q1FY21 compared to USD 1,195 million in pcp, which is encouraging. 

• Ample Liquidity: At the end of the first quarter of FY21, the group reported USD 125.9 million of unused borrowing availability coupled with USD 300.0 million of term-loan facility. Hence, we believe the company has ample liquidity to finance its short-term and long-term operations. Moreover, the company does not expect any major loan repayments or unplanned capital expenditures in FY21, which would result in the retention of liquidity along with the firm.

Q1FY21 Financial Highlights:

• HLF announced its quarterly result, wherein the company reported sales of USD 243.413 million, lower than USD 268.588 million in the previous corresponding period (pcp). The decline was majorly attributable to the Sales volume of 69.8 pounds, reflecting a 9.7% slide over the previous corresponding period due to the impact of COVID-19 on the foodservice industry.
• Gross profit stood marginally lower at USD 57.677 million, as compared to USD 58.768 million in Q1FY20, partially supported by improved cost of sales (USD 185.736 million v/s USD 209.820 million in pcp).
• Net income stood higher at USD 17.828 million v/s USD 14.227 million in pcp. The quarter was marked by slightly higher distribution expenses (USD 12.963 million v/s USD 12.845 million in pcp), increase in selling, general and administrative expenses (USD 25.101 million v/s USD 20.531 million in pcp), partially offset by a finance income of USD 3.535 million v/s a finance cost of USD 5.520 million in pcp).

Q1FY21 Income Statement Highlights (Source: Company )

Risks: A decline in footfall across the hospitality segment has resulted in tepid demand for foodservice segment, and the continuation of the above trend would likely dampen the company’s overall performance. Moreover, other factors like seasonality, change in consumer’s preferences might impact the company’s sales volumes as well.

Stock Recommendation:

The group reported a reduction in the net debt of USD 244.780 million in Q1FY21 v/s USD 267.968 million in Q4FY20, which depicts a lower Net Debt to Adjusted EBITDA ratio of 2.9x v/s 3.0x in Q4FY20. With the gradual ease of restriction norms coupled with reopening of tourism and hospitality would likely support the company’s sales volume in the coming days. The company has a well-balanced and diversified portfolio, which acts as a safeguard during the economic cycles and is a key positive.

Source: Company Presentation

The stock of HLF is trading at a discount of EV to Sales of 0.7x on NTM basis, as compared to the industry (consumer non-Cyclicals) median of 2.0x. Hence, considering the above factors, we recommend a ‘Hold’ rating on the stock of HLF at the last closing price of CAD 13.19 on May 21, 2021.

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

One-Year Price Chart (as on May 21, 2021). Source: 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.