CIBCTheir target is $196.00. GLTA
EQUITY RESEARCH
January 17, 2023 Flash Research
CARGOJET INC.
Extending Master Services Agreement With Canada Post And Purolator
Key Takeaway: Positive impact. CJT announced that it has extended the
Master Services Agreement with Canada Post and Purolator until 2029 with an additional option to renew to 2031. This continues to highlight CJT’s competitive moat and the stickiness of its customers. We also think that the extension of the agreement provides the company with long-term visibility and is supportive of CJT’s fleet plans.
Details Of The Announcement: CJT has extended the Master Services
Agreement with Canada Post and Purolator until September 30, 2029. An
additional option to renew to March 31, 2031 continues to remain available. The company and Canada Post first entered into the agreement in 2014 for a seven-year term, with Canada Post exercising its first three-year renewal option in 2017, extending the agreement until March 31, 2025. The newly extended agreement will also continue to have minimum guaranteed volumes. Given this is an extension, our understanding is that the main components of the agreement are essentially unchanged (i.e., minimum volumes, rate escalators, etc.).
Main Takeaways: We view the announcement positively and highlight the
following:
1. Canada Post renewing its agreement two years before the agreement
expires highlights CJT’s domestic network competitive moat.
2. We have seen a number of key customers extending their contracts with CJT (UPS, TFI, and AND), reflecting the stickiness of CJT’s key
customers. With CJT now having secured extensions with most of its
major customers, this also directly addresses the concerns we hear that
new entrants into the Canadian air cargo business were a threat to CJT’s
domestic operations.
3. The extension of the Canada Post and Purolator agreement, along with the other recent extensions, provides CJT with long-term visibility. This helps further de-risk CJT’s fleet growth plans.