FTI Consulting, Inc.

FTI Consulting, Inc. (NYSE: FCN) is a business advisory company. The Company operates through five segments: Corporate Finance & Restructuring, Forensic and Litigation Consulting, Economic Consulting, Technology and Strategic Communications.

Key Highlights

• Robust Financial Risk Profile: The company’s balance sheet is quite strong, with total asset of USD 2,938.4 million versus total liabilities of 1,449.2 million. Further, the company’s leverage position is quite manageable with total debt/equity ratio of 0.26x at the end of the June 2021 quarter, which was lower than the industry median of 0.45x with robust financial risk protection metrices. Net Debt/EBITDA ratio of FCN at the end of the June 2021 stood at 1.89x, which implies no balance sheet risks for the company. Also, Net Debt/EBITDA ratio of FCN is quite below the John Kerry’s ideal ratio of less than 5x.
• Strong Liquidity: The company is cash rich with Cash and Cash equivalent position of USD 256.9 million at the end of the June quarter of fiscal 2021. Further, the company’s current assets at the end of June 2021 stood at USD 1,213.5 million against total current liabilities of USD 562.6 million, implies current ratio of 2.16x, which is sufficient to cover all its short-term obligations. So, from the liquidity standpoint the company is quite strong.
• Strong Free Cash Flow: The strength of the business can be better gauged through looking at how much free cash it throws. In case of FCN, the TTM Free Cash Flow reported by the company stood at USD 105.8 million which is significantly higher than negative free cash flow of USD 174.61 million in the previous quarter because of unfavorable business dynamics. Also, the company has track record of consistent free cash flow generation.
• Bullish Technical Indicators: At the last closing, FCN Shares, traded well above the crucial short-term as well as long-term support levels of 21-day, 50-day and 200-day SMAs, which is a bullish indicator. Moreover, the Price/200-day ratio stood at 1.16x, implies that stock is trading approximately 16% above its long-term support level of 200-day SMA, higher the spread stronger the bullish trend. Moreover, the leading momentum indicator, 14-day RSI is hovering in neutral zone with bullish bias at ~64, and the Moving Average Convergence Divergence (MACD) is rising, with the spread between short-length 12-day EMA and long-length 26-day EMA is positive and MACD oscillator is hovering above the 9-day SMA signal line, another bullish indicator.

Technical Price Chart, Source: REFINITIV, Analysis by Kalkine

Financial Highlights: Q2FY21

Source: SEC Filing

• Revenue jumped by 17% on a YoY basis to USD 711.5 million compared to USD 607.8 million at the end of the same period of the previous financial year.
• Adjusted EBITDA margin at the end of the Q2FY21 stood at 13% versus 12.5% in Q2FY20.
• Net Income jumped by 30.3% on a YoY basis to USD 62.78 million.
• EPS nudged by 39.4% to USD 1.77 versus 1.27 in the comparable period of the previous financial year.

Valuation Methodology (illustrative):  EV to EBITDA

Stock Recommendation: The company reported decent financial performance in the second quarter of FY21 and have robust balance sheet and liquidity profile. Moreover, technical indicators are showing strength in the prices. Therefore, based on the above rationale, and valuation, we recommend a ‘Hold’ rating on the stock at the closing price of USD 144.15 on August 5, 2021. We have considered Huron Consulting Group Inc, ICF International Inc, and CRA International Inc, etc. as peer group for the comparison purpose.

1-Year Price Chart. Source: REFINITIV, Analysis by Kalkine Group

Nordic American Tankers Ltd

Nordic American Tankers Ltd (NYSE: NAT) owns and operates double hull crude oil tankers. It is an international tanker company that owns double-hull Suezmax tankers. It operates vessels in the spot market or on spot market-related charters pursuant to cooperative arrangements with third parties.

Key highlights

• Improving macros: Normally, a set-back in oil demand is followed by a forceful rebound. Production of oil is steadily going up following increased oil demand, as world oil inventories have decreased rapidly on the back of strong oil demand in the Far East and a cold winter in Europe & US. We believe this marks the turning point for the tanker market as oil producers around the world would start adding barrels to the market in the coming months and years.

• Rising average time charter: Despite OPEC oil production cuts during Q1 2021, the average time charter (TCE) came in at USD 9,400 per day per ship, an improvement on the previous quarter that gave a TCE of USD 8,700 per day per ship. Except for one, all of the company’s ships are working on short term contracts. An upswing in demand would immediately increase the group’s cash flows as the operating costs per ship are about USD 8,000 per day.
• Consistent dividend distribution: Given the strength of a business over the past number of quarters, the company has paid a consistent dividend. Recently the company paid a quarterly dividend of USD 02 per share on June 18, 2021, and it was its 95th consecutive quarterly dividend payment, which is noteworthy. Moreover, at the last closing price (August 5, 2021), the stock was offering a healthy dividend yield of 3.3%.

Source: REFINITIV, Analysis by Kalkine Group

Financial overview of Q1 2021

Source: Company

• In Q1 2021, the company posted lower revenue at USD 18.8 million compared to USD 86.1 million in the previous corresponding period, although on the sequential basis it witnessed some improvement, which reflects that the scenario is changing.
• The company reported operating loss of USD 18.3 million compared to a profit of USD 47.6 million in pcp.
• In the reported period the company registered a loss of USD 25.0 million against a net profit of USD 39.5 million in pcp. Again, on sequential basis the company minimized its net losses.

Risks associated with investment

The recent volatility in the oil prices on the back of resurgence in the delta variant cases across the world is raising a red flag on a potential oil demand recovery. Furthermore, the rise and fall in ship rates, stiff competition and volatility in foreign currency exchange rates add the woes.

Stock recommendation

By maintaining tight client connections with large oil corporations, the firm is on pace to build and maintain a consistent and high-quality fleet. Furthermore, we anticipate that oil demand would improve since global oil inventory has swiftly fallen as a result of high oil consumption in the Far East and a cold winter in Europe and the United States.  This would be a watershed moment for the company, as oil producers throughout the world are expected to begin adding barrels to the market in the next months and years, which is a major plus. Furthermore, given the group's operational expenses are very modest, the growing average time charter combined with a rise in demand would instantly enhance the group's cash flows. On the valuation front, the stock is available at and EV to Sales multiple of 3.9x against the industry peer’s mean of 4.48x. Therefore, based on the rationales discussed above, we suggest a "Hold" recommendation on the stock at the closing price of USD 2.42 on August 5, 2021.

One-Year Technical Price Chart (as on August 05, 2021). Source: REFINITIV, 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.