Toromont Industries Ltd

Toromont Industries Ltd (TSX: TIH) is a Canadian industrial company, which operates through two segments, namely, Equipment Group and CIMCO. Equipment Group derives a major part of the revenue, including a Caterpillar dealership and rental operation of construction equipment.

Key Highlights:

• Strong growth in Backlog: Despite a sluggish economic scenario, the company reported a higher backlog at the end of Q1FY21 at CAD 911.5 million compared to CAD 567.0 million in the previous corresponding period (pcp). The surge was primarily attributable to elevated bookings from the Equipment Group in the last two quarters. Higher backlog is a key positive as it contributes to the higher future income.
• Prudent Capital Management and ample liquidity: The company has maintained disciplined capital management and has a manageable debt level of CAD 500 million. Excluding the above, the group does not have any debt maturities till FY22. Moreover, the company has strong liquidity of CAD 1,234 million, which includes a credit facility of CAD 470 million, a cash balance of CAD 614 million and accordion of CAD 150 million.

Data Source: Company

• Net debt to market capitalization ratio is on a downtrend: The company reported drastic fall in its net debt to market capitalization ratio at 2% in Q1FY21 as compared to 18% in Q1 FY 20, which is commendable and indicates higher financial flexibility.

Q1FY21 Financial Highlights:

• Toromont Industries Ltd declared its quarterly result, wherein the corporation reported revenue of CAD 806.238 million, significantly higher than CAD 715.459 million Q1FY20. The increase was primarily driven by an 11% y-o-y growth from the Equipment group at CAD 727.3 million coupled with a 37% y-o-y surge in revenue from the CIMCO segment to CAD 78.9 million.
• Gross profit stood at CAD 187.378 million, grew from CAD 170.858 million in Q1FY20, supported by higher revenue, partially offset by a higher cost of goods sold.
• The group’s operating income was recorded at CAD 70.216 million compared to CAD 55.241 million in pcp, supported by higher gross profit, partially offset by higher selling and administrative expenses (CAD 117.162 million v/s CAD 115.617 million in pcp)
• Net earnings of the company were recorded at CAD 47.956 million as compared to CAD 37.396 million in pcp.
• The company reported a cash balance of CAD 613.942 million, while total assets were recorded at CAD 3,336.233 million.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: Various provinces across Canada have begun to ease restrictions from February 2021 onwards, but the growing emergence of COVID-19 variants due to higher communicability and higher health risks might lead to a slowdown in construction activities, which might lead to lower business activity.

Valuation Methodology (Illustrative): Price to Earnings 

Stock Recommendation:

The company’s CIMCO segment has reported strong growth in the recent past, supported by strong momentum from both the recreational and industrial segments. Moreover, a jump in package revenues also contributed to the growth. We have valued the stock using the Price to Earnings based relative valuation approach and arrived at a target price offering lower single-digit upside potential (in % terms). We have considered industry (Machinery, tools, heavy vehicles, trains & Ships) mean on an NTM basis. Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the at the closing price of CAD 106.64 on May 26, 2021.

1-Year Technical Price Chart (as on May 26, 2021), Analysis by Kalkine

Superior Plus Corp

Superior Plus Corp (TSX: SPB) is a diversified business corporation which operates via following reportable operating segments: Energy Distribution, and Specialty Chemicals. 

Key Highlights:

• An Income Play: SPB has a solid history of consistent dividend payment amidst the economic cycle, which indicates business resiliency. Dividend distribution during Q1FY21 stood at CAD 37.7 million compared to CAD 28.5 million in Q1FY20. Notably, at the last closing price, the stock was offering a dividend yield of ~4.781% on an annualized basis, which looks impressive considering the current interest rate scenario.           

Last five years Dividend Payment, Analysis by Kalkine Group

• Strong Bullish Pattern: The stock of SPB surged ~25% and ~59% in the last six months and one year, respectively, due to growing investor’s interest. Moreover, the stock is trading in an uptrend for the last one year and closed above the long-term moving averages of 50-days and 200-days, respectively.

Technical Chart, Analysis by Kalkine Group

• Positive Long-Term targets: The management is expecting its FY21 adjusted EBITDA within the range of CAD 370 million to CAD 410 million. Moreover, the group is targeting its FY26 EBITDA at CAD 700 million to CAD 750 million, driven by the inorganic growth with attractive synergy opportunities and markets. The company is targeting its aggregate Free Cash Flow within the range of CAD 2.6 billion to CAD 2.8 billion from 2021 to 2026.

Q1FY21 Financial Highlights:

• SPB announced its quarterly result, wherein the company posted revenue of CAD 5 million, significantly higher than CAD 682.6 million in the previous corresponding period (pcp). The increase was driven by higher revenue from both U.S. Propane Distribution and Canadian Propane Distribution segments.
• Gross profit increased marginally to CAD 349.1 million, from CAD 346.2 million in pcp, thanks to the elevated sales, partially offset by a higher cost of sales (CAD 490.4 million v/s CAD 336.4 million in pcp).
• The quarter was marked by higher selling and administrative costs (CAD 221.0 million v/s CAD 194.5 million in pcp), significantly higher finance expense (CAD 62.3 million v/s CAD 27.8 million in pcp), partially offset by gains on derivatives and foreign currency translation of borrowings amounting CAD 36 million.
• Net earnings were reported at CAD 1 million, jumped from CAD 11.4 million in pcp, thanks to lower total expense (CAD 247.3 million v/s CAD 334.0 million in pcp).

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: Factors like sluggish economic scenario, decline in production profile due to lower demand, interest rate fluctuations, etc. would have a negative impact on the company’s performance.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company caters to the utility segment and is a leading player across the North America geography, which serves both the retail and wholesale energy markets. The company reported an elevated EBITDA margin during the period of FY15 to FY20, which is an indication of improved performance.

Margin Comparison, Analysis by Kalkine Group

We have valued the stock using 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 Cardinal Energy Ltd (Alberta), Clean Energy Fuels Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the last traded price of CAD 15.06 on May 26, 2021.

One-Year Technical Price Chart (as on May 26, 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.