Cargojet Inc

Cargojet Inc (TSX: CJT) is an industrial transportation company, which is engaged in the business of providing air cargo services over night. The group’s service portfolio include air cargo services internationally, overnight network, dedicated aircraft charter and AMCI contracts. CJT offers air cargo service internationally to Newark in New Jersey, Hamilton and Bermuda.

Financial Highlights – Q1 Financial Year 2020 (31^st March 2020, CAD, million)

(Source: Company Website)

In the first quarter of the financial year 2020, driven by an increase in the revenue from air cargo services and other sources for the period, the revenue stood at CAD 123 million as against CAD 110.4 million in the Q1 of the financial year 2019. The gross profit stood at CAD 32.2 million in Q1 FY2020 versus CAD 21.2 million in Q1 FY2019. The adjusted EBITDA increased by 24.5 per cent to CAD 40.2 million in Q1 FY2020 from CAD 32.3 million in Q1 FY2019. Due to significant increase in the expenses for the period, the company reported an LBT (loss before tax) of CAD 0.9 million in the first quarter of the financial year 2020 versus a PBT (Profit before tax) of CAD 0.7 million in Q1 FY2019. The net loss stood at CAD 1.8 million in the first quarter of the financial year 2020. The group’s basic and diluted loss per share stood at $0.12 in the first quarter of the financial year 2020.

Share Price Performance Analysis

Daily Chart as of ^9th June 2020, before the market closed (Source: Refinitiv, Thomson Reuters)

Cargojet Inc shares are trading at CAD 139.23 at the time of writing before the market close on 9^th June 2020. Stock's 52 weeks High is CAD 142.21 and Low is CAD 67.87.

Conclusion

The Company has a well-positioned balance sheet with a decent operating facility to carry daily operations. The Group has managed to mitigate the negative impact on operational and financial performance through improved cost structures and operational efficiency. The Company has shown a decline in financial performance in the first quarter of the financial year 2020. The top-line performance has improved, while the bottom-line performance has declined significantly and remained in the negative zone for the period. The revenue from core operations has increased with an increase in the cash balance for the period. Due to covid-19 pandemic, the demand for e-commerce increased which resulted in an increase in air cargo services both in domestic market and in the international Market. CJT witnessed an increase in activity from its ACMI and charter businesses and continue to operate in both domestic routes and international routes. At present, the group is not able to predict the impact of coronavirus on revenue and costs. The covid-19 pandemic has increased the demand for company’s services and pricing improved in international business.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of CAD 139.23 (as on 9^th June 2020).

TFI International Inc.

TFI International Inc. (TSX: TFII) is a leading transportation and logistics company based in North America and operates across the United States, Canada and Mexico. The company operates through four segments, namely Package and Courier, Less-Than-Truckload, Truckload and Logistics.

Q1FY20 Financial Highlights:  TFII reported its first-quarter results and posted total revenue of CAD 1,240.5 million, as compared to CAD 1,230.8 million in the previous corresponding period. The quarter was marked by strong momentum within the logistics segment, while truckload segment increases 1% on y-o-y basis. However, Package and Courier and Less-Than-Truckload segments reported a decline. Net cash from operating activities grew 19% on y-o-y basis to CAD 191.7 million, aided by a stronger operating performance followed by a deferral of certain tax payments on account of economic stimulus. Adjusted EBITDA stood at CAD 200.5 million, against CAD 187.6 million in pcp. Operating income, on the other hand, came at CAD 118.5 million, grew 13% on y-o-y basis driven by growth from acquisitions, adoption of the asset-light model and several cost-efficiency strategies. Net income stood at CAD 75.8 million, as compared to CAD 65.1 million in the previous corresponding period. 

Q1FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology: Price to Earnings Based Relative Valuation (Illustrative)

Stock Recommendation: The stock of TFII stood resilient and generated a return of ~11% in last one year. Investors should note that the stock is trading above its 200-days simple moving average (SMA) of CAD 40.14, indicating a long-term bullish pattern. The logistics industry is immune to the economic cycle as it is categorized under essential services. The Management implemented several cost-saving initiatives like lowering staff salaries by 5% to 15%, reduction in director’s fees, followed by a decline in the full-time employees. The above steps helped the company to report an improve bottom-line and a stable cash flow. The stock jumped ~19% in the last one month as the industrial activities are showing sign of strength. We have valued the stock using Price/Earnings based relative valuation approach and considered industry (Freight, Logistics Services) average on TTM basis and arrived at a target price offering single digit upside potential (in % terms).  Hence, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 45.06 as on June 09, 2020.

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

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