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 Updates:

• Consistent Dividend payout: Historically, the group has paid continuous dividends to its shareholders irrespective of economic cycles. Moreover, at the last traded price, the stock was offering a dividend yield of ~3.9%, which looks decent considering the persisting interest rate scenario.

Ten Years Dividend Payment

• Growing traction from the eCommerce segment: Recent upthrust in the Canadian eCommerce segment has backed the company’s operations. This was due to the changing consumer preferences on account of the COVID 19 pandemic. We believe the above segment offers sufficient room for expansion, while the group is highly poised to take advantage of it.

     Source: Company Presentation

Q1FY21 Financial Highlights:

• MTL declared its quarterly results, wherein the group reported revenue of CAD 290.507 million, down from CAD 318.234 million in the previous corresponding period (pcp). The decline was primarily due to a lower income from Specialized & Industrial Services, followed by a 5.1% decline in the logistics & warehousing segment. However, increase in revenue from the less-than-truck segment partially supported the topline.
• Operating income before depreciation and amortization stood at CAD 47.072 million, as compared to CAD 45.210 million in pcp. The increase was due to a decline in the 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 stood significantly higher at CAD 16.212 million, compared to CAD 8.487 million in Q1FY20, thanks to higher operating income.
• The company reported a net income of CAD 12.960 million, considerably grew from CAD 4.662 million in pcp.

 Q1FY21 Income Statement Highlights (Source: Company Report)

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

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The group has prudent capital management and has successfully lowered its total debt to CAD 601.6 million, reflecting a decline of ~7% on y-o-y basis. Over the years, the group has evolved from a conventional logistics company to a specialized transportation company, as the company constantly served the growing demand of its clients related to logistics and related services. Thus, due to the transition to a specialized service provider, the group has been able to generate better margins as well, which is impressive. We have valued the stock using the P/CF based relative valuation method and have arrived at a single-digit upside (in percentage terms) upside. For the said purposes, we have considered peers like Repsol SA, Schlumberger NV etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 12.33 on June 25, 2021.

One-Year Technical Price Chart (as on June 25, 2021). Analysis by Kalkine Group

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 Updates:

• Surge in operating cash flows: HLF posted a robust growth in its operating cash flows in Q1FY21, which stood at USD 26.552 million, as compared to USD 2.042 million in Q1FY20. The growth was driven by higher net earnings coupled with improved working capital management.

• Diversified Portfolio: The company offers a diversified portfolio of frozen seafood and operates through both retail and foodservice channels. Moreover, apart from its own homegrown brands, the company also supplies other renowned brands, which indicates a substantial market share within the foodservice industry. Currently, the company’s value-added products constitute ~70% of the total revenue, which has subsequently added to the company’s margins.

 Q1FY21 Financial Highlights:

• In the first quarter of FY21, the company posted sales of USD 243.413 million, declined from USD 268.588 million in the previous corresponding period (pcp). The slide was primarily attributable to lower sales volume, down 9.7% y-o-y to 69.8 million pounds on account of COVID-19 restrictions on the foodservice industry.
• Gross profit stood at USD 57.677 million, slightly lower than USD 58.768 million in Q1FY20 primarily due to reduced sales however curb in the cost of sales (USD 185.736 million v/s USD 209.820 million in pcp) help in marginal reduction of gross income.
• Net income stood higher at USD 17.828 million v/s USD 14.227 million in pcp primarily attributed to the finance income of USD 3.535 million, compared to a finance cost of USD 5.520 million in pcp.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: Restriction imposed in restaurants has led to lower footfalls, which further resulted in a sluggish demand from the foodservice segment. Continuation of the above trend would likely take a toll on 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:

Despite the ongoing economic jolt and a fall in demand across the foodservice industry, the company commanded a higher margin than its peers. Operating margin and net margin stood at 11.10% and 7.30%, respectively in Q1FY21, as compared to the industry median of 8.8% and 6.2%, respectively. Moreover, the group has reduced its total debt by ~27% on y-o-y basis to USD 272 million inQ1FY21, which is a key positive and indicates higher financial flexibility. The company is focusing on continuous improvement of its products and services, also emphasizing growth strategies and increasing its investment across operations which is expected to result to EBITDA growth. On the valuation front, the stock is trading at an EV to Sales multiple of 0.7x on an NTM basis compared to the industry (consumer non-Cyclicals) median of 2.0x. Hence, considering the above factors, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 13.57 on June 25, 2021.

One-Year Technical Price Chart (as on June 25, 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.