TSX:FTT - Post Discussion
Post by
retiredcf on Feb 10, 2022 8:47am
RBC Report
Their upside scenario target is now $57.00. GLTA
Outperform
TSX: FTT; CAD 36.96
Price Target CAD 47.00 ↑ 43.00
Finning International Inc.
Strong finish to 2021; Momentum continues into 2022
Our view: We maintain our positive outlook on Finning International Inc. (“Finning”) following the strong Q4 results and favorable outlook commentary on 2022. We see a supportive demand environment across the company's 3 major regions, and the company is also managing well through the supply chain and inflationary headwinds. Raising our price target +$4 to $47; reiterate our Outperform rating.
Key points:
Good Q4 results and favorable outlook – Finning reported strong Q4 results, with Net Revenue and all earnings metrics ahead of RBC/Street forecasts. While the shares were up ~5% on the day, we believe the results warranted a stronger reaction. Key highlights from the quarter include: 1) Q4 EPS of $0.65 (+24% vs. $0.52/$0.53 RBC/consensus) and ROIC of 16.4%, which exceeded the company's "mid-cycle" targeted timeline by two quarters. 2) Expectations of "up-cycle" market conditions in 2022, which management expects should drive EPS growth in the "mid- teens and above" range. 3) Good inventory position and solid progress with directing customers to used equipment/rentals/rebuilds & repairs in situations where new equipment has not been available. Looking ahead, the demand environment remains supportive across the company's regions, and management continues to manage the business well amidst supply chain and inflationary headwinds.
Backlog in good shape... and growing – The backlog stands at $1,860MM (+142% YoY; +17% QoQ), with strong order growth from Canadian customers during the quarter (management noted an order for 20 CAT 797F ultra-class trucks in the oil sands). Recall that the South American and U.K. backlogs already reflected sizable orders from large customers/ projects (i.e, QB2, Codelco, HS2, etc.). Finning had $1,687MM of inventory on hand exiting Q4 (+14% YoY; +4% QoQ), with the $210MM YoY inventory increase in the quarter largely driven by parts. Dealership inventory turns improved from 2.79x in Q4/20 to 3.09x in Q4/21.
Update on inflationary pressures and supply chain disruptions – On the inflationary front, Finning has undertaken several cost reduction initiatives to improve the company's operating leverage, including warehouse optimization and procurement spend management, while also passing through some pricing. These initiatives should, in our view, help address the inflationary pressures the company is facing. On labor availability, the company continues to recruit talent in key markets (+400 technicians hired in South America over the last year) and is offsetting higher labor costs by adjusting (lowering) other fixed costs across its platform. In line with recent commentary from the Machinery space, the ongoing supply chain challenges are likely to result in longer lead times for equipment and parts in 2022. Management is mitigating the impact of longer lead times by directing customers to used/rental channels and also offering rebuilds/ repairs where possible.
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