November 30, 2020
Mullen Group Ltd.
MTL 2021 Business Plan update likely to highlight solid guidance
Our view: MTL’s upcoming 2021 Business Plan is expected to include new 2021 guidance on revenue and EBITDA, as well as provide a directional outlook by segment. We also believe that mgmt will give an update on shareholder returns and the capital plan. The growth message we expect will centre around a recovering Canadian economy and increasing consumer spending. We expect it to be well received and we remain constructive on the shares.
Key points:
2021 Business Plan. MTL will release its 2021 Business Plan after market close on December 9 and will host a conference call the following morning to discuss its 2021 outlook. We expect mgmt to provide revenue and EBITDA guidance as well as a directional outlook by segment. We also believe that they will update on shareholder returns and the capital plan.
The setup into 2021: revenue and EBITDA guidance expectations. We believe that MTL is well positioned into 2021 and expect a recovering Cdn economy as well as increasing consumer spending to drive growth into next year, especially in MTL's LTL and Logistics & Warehousing segments. We are therefore calling for management to guide to revenue of $1.2B and to EBITDA of $200MM to $220MM, which implies growth of ~flat to up +11% off our 2020 EBITDA estimate and which would be in line with our and consensus 2021 estimates of $217MM and $213MM, respectively. Overall, we believe this guidance will be neutral to sentiment but would view as sentiment positive: 1) increased confidence surrounding the rebound; 2) more clarity on the M&A pipeline and on potential activity in 2021; and/or 3) a meaningful increase to shareholder returns.
Shareholder distribution policy. We expect MTL to outline its shareholder distribution targets in its Business Plan. We expect mgmt to remain committed to shareholder returns, and while the dividend payout ratio is below historical trends, we expect a renewed buyback as a strong likelihood.
We expect increased capex in 2021. We highlight that capital spending was affected in 2020 by COVID-19-related uncertainty, resulting in an expected capex level of $48MM in 2020, which compares to historical levels of $68MM in 2019. We expect capex spend to be up in 2021 as MTL positions itself for growth. We are modelling for 2021 capex of $61MM and believe that guidance will directionally align with our estimates.
Our take. We believe that management navigated through the crisis remarkably well, especially given MTL's exposure to energy and Western Canada. We now view the business as well positioned to benefit from a recovering economy and Cdn consumer. We also see opportunity surrounding M&A and potentially in a recovering energy sector in 2021.