NFI Group Inc.

NFI Group Inc. (TSX: NFI) is a leading independent global bus manufacturer providing a comprehensive suite of mass transportation solutions in ten countries under brands: New Flyer ^® (heavy-duty transit buses), Alexander Dennis Limited (single and double-deck buses), Plaxton (motor coaches), MCI ^® (motor coaches), ARBOC ^® (low-floor cutaway and medium-duty buses), and NFI Parts™.

• Bullish Technical Indicators: Technical indicators are showing a price strength in the NFI counter on TSX. The stock closed above the long-term support levels of 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish price trend. Moreover, the stock of NFI appreciated ~68% and ~100% in the last three months and nine months, respectively, driven by revival in the demand.

Source: Refinitiv (Thomson Reuters)

• Sequential Improvement in performance: The group reported strong growth in revenue to USD 663.9 million in Q3FY20, as compared to USD 333.3 million in Q2FY20, while posted a gross profit of USD 34.2 million, as compared to a loss of USD 41.3 million in Q2FY20. Operating loss reduced to USD 16.5 million, from USD 72 million, a quarter ago. Moreover, the corporation reported adjusted EBITDA of USD 60.885 million, against an adjusted EBITDA loss of USD 24.226 million in Q2FY20. We believe the momentum to continue in the coming quarters supported by the recovery in tourism, return to work and improved commuter traffic.
• Fund Raising: Recently, the group reported issuance of 8,446,000 common shares, which would be bought by Scotiabank, BMO Capital Markets and CIBC Capital Markets at a price consideration of ~CAD 250 million. The above funds would be used to reduce the outstanding balance under its revolving senior credit facility. 
• New order received:  Recently, the group received an order of 20 sixty-foot zero-emission, battery-electric Xcelsior CHARGE™ heavy-duty transit buses from King County Metro. Earlier, the group confirmed a fresh order from the Westchester County Department of Public Works and Transportation for 66 Xcelsior ® forty-foot hybrid electric buses.

Q3FY20 Financial Highlights:

• NFI announced its quarterly results, wherein the group posted USD 663.934 million, as compared to USD 725.347 million in the previous corresponding period (pcp).
• Gross profit stood at USD 46.783 million, lower than USD 86.133 million in pcp, due to lower revenue.
• The group reported a loss from operations at USD 16.453 million, as compared to a profit of USD 25.200 million in pcp. The decline was primarily due to a lower gross profit and a higher sales, general and administrative cost and other operating expenses.
• Net loss stood at USD 24.912 million, increased from a loss of USD 1.085 million in pcp.
• The group reported a cash balance of USD 1.176 million, while total assets were recorded at USD 2,697.412 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The group reported a considerable decline in the private coach segment, which has resulted in a lower traction from the Canada and U.S. Motor Coach segment, dampening the overall performance of the company. Continuation of the above trend would take a toll on the income and cash flows.

Valuation Methodology (Illustrative): Price to CF based

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

Stock Recommendation:

The company expects its Adjusted EBITDA for FY20 within USD 145 million to USD 155 million, while expenditure for plant property equipment is expected at USD 25 million. The stock of NFI appreciated ~68% and ~92% in the last three months and six months, respectively. 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 Martinrea International Inc, Uni-Select Inc and Air Canada. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 28.74 on February 10, 2021.

NFI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Calian Group Ltd

Calian Group Ltd (TSX: CGY) is a Canada-based company which delivers innovative solutions that help the world communicate, learn, lead healthy lives and stay safe. The Company operates in four segments including, Advanced Technologies, Health, Learning and Information Technology.

Key Highlights

• Guidance on Critical financial numbers: The management pours their full confidence in maintaining a growth profile in this new fiscal year. Its diversified segments with a mix of domestic and global customers positions would help in navigate through the challenges created by COVID-19. The company has guided some of the critical financial numbers for 2021, which are as follow (numbers are in CAD thousands).

Source: Company

• Substantial realizable backlog: The Company’s realizable backlog at December 31, 2020 stands at CAD 1,335 million with terms extending to fiscal 2030. Contracted backlog represents maximum potential revenues remaining to be earned on signed contracts. Health segment grabs the lion’s share of CAD 862 million from the total backlog. This realizable backlog provides a revenue cushion to the company.

Source: Company

Riding on the acquisitions: Recently the company made two new acquisitions, which we believe will turn as a key milestone for them. A) Cadence, located in the United Kingdom, will allow the company to further expand the learning footprint in Europe, and B) InterTronic Solutions, Canada’s foremost producer of high-performance antenna systems. It brings new assets for the company in the satellite ground system market and entry into the North American space exploration and defence sector.

Financial overview of Q1 2021 (Canadian dollars in thousands)

Source: Company

• In Q1 2021, the company reported total revenue increased by 17% to CAD 116.2 million, against CAD 99.2 million in the previous corresponding period. The increase in revenue can be attributed to 2% from organic growth, and 15% from acquisitions.
• Gross profit stood at CAD 26.2 million in the reported quarter, against CAD 20.2 million, on the back of higher revenues.
• The company reported net profit of CAD 2.4 million, down from CAD 4.3 million in the previous corresponding period. The net profit was impacted by higher amortization of intangibles and deemed compensation expenses from recent acquisitions.

Key risks associated with investment

The company is vulnerable to many risks, including the impact of price competition, the low number of qualified professionals, the result of rapid technological and market change, loss of business or credit risk with significant customers, technical risks on fixed price projects, general industry and market conditions. 

Valuation Methodology (Illustrative): Price to Earnings

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

Stock recommendation

The first quarter of 2021 demonstrated the Company’s consistent dedication to growth, and the stability through diversification. The Company entered 2021 with a strong backlog of work and added CAD 112 million in new signings. The group also saw a geographical extension of revenue into Europe with 11% of consolidated revenues in the quarter generated in the EU through the learning and advanced technology segments. Furthermore, recently the company also acquired InterTronic Solutions which would bring new assets for the company in the satellite ground system market and entry into the North American space exploration and defence sector. With no debts on the book, along with a fair amount of realizable backlog along with steady dividend distribution, the Company holds sufficient liquidity to meet all operating requirements for the foreseeable future. Therefore, based on the above rationale and valuation, we have recommend a “Hold” rating at the closing price of CAD 60.81 on February 10, 2020. We have considered Computer Modelling Group Ltd, Stella-Jones Inc, Kraken Robotics Inc, etc. as the peer group for the comparison.

(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.