Post by
midard on Oct 18, 2022 3:25pm
National Bank....
Reiterate Outperform rating and $18.00 Target.
Third Quarter 2022 Results Preview Despite rising headwinds, we expect continued strength in Q3 results (to be released before markets open on October 20). While rising interest rates and inflationary pressures continue to weigh on the outlook for economic growth (highlighted by cautionary peer readthroughs surrounding global shipping volume demand), we do not anticipate associated softness in MTL's Q3 results with personal consumption expenditure levels appearing relatively stable in the quarter, supporting the outlook for the LTL segment. We maintain a positive near-term outlook, increasing our Q3/22 EBITDA estimate by 9% to $92 mln (roughly 4% above the street forecast). Slowing fuel costs, higher S&IS activity offer margin support. In addition to moderation in diesel prices (following a rapid rise in H1), we see supportive margin trends in the quarter including continued strength in activity levels for Mullen’s segments tied to drilling activity and the transportation of fluids and servicing of wells, more supportive pipeline construction activity levels, as well as another strong quarter for MTL’s dewatering business (typically relatively higher-margin business lines). Dry powder could help offset slowing organic growth in 2023. While MTL highlighted a conservative approach to M&A on the Q2/22 results conference call, we believe free cash flow generation and potential divestitures could rapidly reduce the draw on MTL’s credit facility through year-end, implying meaningful available dry powder to fund tuck-in acquisitions which could help offset the impact of slowing organic growth in 2023. Assuming the deployment of ~$200 mln in dry powder and an average purchase EV/EBITDA of ~5.0x, we believe MTL could add ~$40 mln in EBITDA via M&A in 2023 (vs. 2022 EBITDA guidance of ~$300 mln). Reiterate Outperform rating and $18.00 Target. We continue to look for 2023 EBITDA of ~$300 mln (in line with MTL's 2022 guidance and ~6% below the current 2023 street forecast) ahead of MTL's Q3 results. We maintain our Outperform rating and $18.00 target, driven by an unchanged 6.8x 2023e EV/EBITDA multiple, half a turn below MTL's post-2018 forward-year EV/EBITDA average of 7.3x (and 20% below MTL's post-2014 forward year trading average).