NFI Group Inc

NFI Group Inc (TSX: NFI) is a Canada-based bus and motorcoach manufacturer and parts distributor in North America, with approximately 32 fabrication, manufacturing, distribution and service centres located across Canada and the United States.

Key highlights

• International orders win: Recently, the group received an order from Stagecoach for 46 zero-emission buses in Scotland. The order is for 24 single deck and 22 double-deck buses. It also received another order from New Zealand to build two electric buses. The group is continuously expanding its international presence in zero-emission electric mobility.

• Positioned for growth and margin enhancement: For FY21, the group provides healthy guidance and expects revenue within the range of USD 2.8 to 2.9 billion, higher than the revenue of FY20 (USD 2.4 billion). The improvement is expected through market recovery in NA Bus and Coach and UK transit, persistent growth of ARBOC in cutaway and medium-duty markets, and expansion in Europe and APAC regions. The group expects its Adjusted EBITDA within a range of USD 220 to 240 million. Electric vehicle production is expected to more than double in Fiscal 2021.

Source: Company

• Dividend distribution: The Company remains focused on maintaining a quarterly dividend. Recently, it paid a quarterly dividend of CAD 0.2125 per share on April 15, 2021. The stock is offering a yield of ~3%, which is decent considering the low interest rate environment.

• Improved Liquidity: Despite a slowdown within the automobile market, the Company reported higher liquidity of USD 233.5 million at the end of Q4FY20, which increased by USD 24.2 million from Q4FY19. Furthermore, the group has USD 1.25 billion of senior revolving credit facility and £50 million revolving UK credit facility, which seems sufficient to withstand the current challenging time.

• Event update: The company will release its first-quarter 2021 financial results on Thursday, May 6, 2021.

Financial overview of FY2020 (in thousands of USD)

Source: Company

• In FY2020, the company posted revenue of US 2,419.1 million as compared to USD 2,893.4 million in the previous corresponding period (pcp). The decline was primarily attributable to a significantly lower manufacturing revenue due to the idling of production facilities in the second quarter of FY20.
• Gross profit stood at USD 199.255 million, as compared to USD 413.482 million in pcp.
• The quarter was marked by lower Sales, general and administration costs and other operating expenses (USD 231.3 million V/s USD 241.4 million in pcp), along with an Impairment loss on goodwill amounting to USD 50.7 million. Loss from operations stood at USD 81.3 million, as compared to earnings of USD 173.0 million in pcp.
• Net loss stood at USD 157.7 million, as compared to a net profit of USD 57.6 million in pcp.

Risks associated with investment

The company’s operations can be affected by several instances such as new restrictions imposed due to the fresh spread of the virus, fluctuation in the raw material prices, currency volatility etc., which may dampen the overall performance.

Valuation Methodology (illustrative): EV to Sales

All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

In FY21, the company would launch new battery-electric buses and coaches, fuel-cell electric double deck in the UK, North America’s first Level 4 automated transit bus and medium-duty battery electric bus to take the advantage of the growing market, which is a key positive. The management expects that FY21 would likely to remain as a transition year, while growing demand is expected from government stimulus. Furthermore, it is receiving international orders and expanding its international presence in zero-emission electric mobility. The group is also positioning itself for higher revenue and margin enhancement. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating at the closing price of CAD 28.44 as on April 26, 2021. We have considered Martinrea International Inc, Linamar Corp, TFI International Inc, etc. as the comparison's peer group.

1-Year Price Chart (as on April 26, 2021). Source: Refinitiv (Thomson Reuters)

Jamieson Wellness Inc.

Jamieson Wellness Inc. (TSX: JWEL) is engaged in the manufacturing, distributing, and marketing of branded natural health products, like vitamins, minerals, and supplements.

Key Highlights:

• Elevated Top-line and Profitability: The company reported consistent growth over the years backed by product innovation, geographic expansion, strategic acquisitions etc. During FY16 to FY20, the company’s income showed a CAGR of 13%, while adjusted EBITDA, during the period, grew at a CAGR of 17.1%. Moreover, the adjusted EBITDA margin remained elevated during recent years, which is a key positive.                    

Source: Company Presentation

Enhancing International Footprints: The company’s reached new heights when the company marked its presence across the new geographies other than North America. During FY16 to FY20, the International segment grew at a CAGR of 23.7%, supported by brand & quality recognition, coupled with strong distribution partnerships. Currently, the company’s products are available across 45 countries. Notably, the International segment contributed ~20% of FY20’s revenue, signficantly higher than ~15% in FY19. The company expects international revenue to increase in the range of 15% to 25% in FY21.

Source: Company Presentation

• Event Update: The company would disclose its first quarter FY21 result on May 05, 2021.

FY20 Financial Highlights:

• JWEL announced its full-year result, wherein the group posted revenue of CAD 403.661 million, grew 17% on y-o-y basis. The increase was driven by strong growth from Jamieson Brands and Strategic Partners.
• Gross profit stood higher at CAD 144.756 million from CAD 129.734 million in FY19, thanks to higher revenue, partially offset by the increased cost of sales (CAD 258.905 million v/s CAD 215.246 million FY19). Gross profit margin stood at 35.9%, lower than 37.6% in the previous year.
• Earnings from operations stood at CAD 63.572 million compared to CAD 55.449 million in FY19. The period witnessed a surge in selling, general and administrative expenses, and a slight increase in share-based compensation expense.
• Adjusted EBITDA stood at CAD 75.299 million as compared to CAD 62.592 million in FY19.
• Net income stood at CAD 41.598 million, as compared to CAD 31.657 million in FY19.

FY20 Income Statement Highlights (Source: Company Report)

Risks: The healthcare products are subjected to several regulatory approvals, and a delay in the same would hinder the company’s upcoming product launches. In addition to this, currency fluctuations and change in consumer preferences might affect the company’s overall performances.

Valuation Methodology (Illustrative): Price to Earnings

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

In the recent past, the group reported an increase in its dividend distribution, backed by solid cash flow growth, which indicates operational resiliency. For FY21, the company anticipates its revenue within the range of CAD 421.0 to CAD 438.0 million, representing an annual growth of 4.3% to 8.6%. JWEL estimates adjusted EBITDA in between CAD 95.0 to CAD 100.0 million for FY21, while the adjusted diluted earnings per share is expected in the range of CAD 1.24 to CAD 1.32.

Source: Company Presentation

We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered Industry (Food & Tobacco) mean on NTM basis. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of JWEL at the closing price of CAD 39.06 on April 26, 2021.

One-Year Price Chart (as on April 26, 2021). 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.