Mullen Group Ltd.
(MTL-T) C$9.32
Mullen Reports Exceptional Q3/20 Results Event
Mullen reported Q3/20 EBITDAS of $65.6 million, significantly above our estimate of $52.9 million and consensus of $52.6 million.
Impact: POSITIVE; we expect Mullen to outperform today and our target price increases to $14.00 (from $13.00 previously)
Details: Mullen reported Q3/20 revenue, EBITDAS, and EPSD of $290.9 million, $65.6 million, and $0.26 per share, well above our estimates of $248.0 million, $52.9 million, and $0.14 per share, respectively. Canada Emergency Wage Subsidy (CEWS) proceeds of $10.3 million were comparable with our estimate ($10.0 million) and management’s previous guidance that Q3/20 CEWS proceeds will be similar to Q2/20 levels of $10.9 million. Therefore, we view Q3/20 results as a fundamental beat relative to both our estimates and consensus expectations. Notably, Q3/20 revenues increased 13% sequentially, above management's expectations that it provided along with Q2/20 results that "the next few quarters will be stable and in line with this quarter’s results”, and highlighting Mullen’s better-than-expected exposure to a continued recovery from COVID-19. Details on page 2.
Outlook Commentary: Although management has warned of COVID-19 uncertainty, it remains confident in consumer spending levels, which ultimately drives demand for freight and logistics services. In terms of guidance, management expects profitability to meet or exceed Q4/19 results in Q4/20. Typically, the company releases forward-year guidance in December or January. We have increased our 2020 and 2021 EBITDAS estimates by 3% and 5%, respectively (details on page 3).
NCIB: Management completed its NCIB, repurchasing nearly ~8.0 million shares (or 7.6% of shares outstanding) at an average price of $6.70/share. We view this as accretive to long-term shareholder value.
TD Investment Conclusion
Mullen’s diversified, increasingly consumer-focused business continues to demonstrate its resiliency and materially exceed guidance as well as TD and consensus expectations for the second consecutive quarter. The third quarter’s strong top-line revenue performance is magnified by reduced input costs (fuel) and other cost-rationalization measures undertaken earlier this year. Potential catalysts include continued acquisitions and its upcoming 2021 business plan and guidance update (likely in December or January). We are increasing our target price to $14.00 and maintaining our BUY rating.