Mullen Group Ltd. T.MTL

RBC

[retiredcf]

July 15, 2022

Transports: Cdn. Trucking and Diversified Industrials

Q2/22 Preview

RBC Compass

In this report we update our Q2 estimates for recent trends and our own channel checks. Overall, our Q2 estimates remain unchanged. However, we took higher our NAV discount for WTE, reflecting rising interest rates. See Exhibit 3 for a summary of our estimates and price target updates.

Key drivers expected to impact Q2 reporting. We expect the freight demand outlook (for CJT, MTL and TFII) as well as the M&A pipeline (for AND, MTL, SJ, and TFII) to be in focus during the quarter. Moreover, we highlight disruption in passenger operations among peers as a discussion point for CJT.

Best-positioned stock going into Q2 reporting

• CJT: Q2 estimate unchanged; price target remains at $302; CJT top Transportation idea. Our Q2 estimate is unchanged at $80MM (cons. $79MM). We view CJT as well positioned into Q2 and point to potential upside resulting from disruption in passenger operations among peers, which management highlighted to us during recent meetings. We expect focus in Q2 to remain on the company's fleet, and continue to view an upcoming Investor Day as more of a catalyst than the Q2 report.

• TFII: Q2 estimate unchanged and below consensus; price target remains at US$100; maintain Outperform. Our Q2 estimate remains unchanged at $1.70, below consensus of $1.80. However, we nevertheless view TFII as well positioned into Q2, reflecting indications at our Industrials Conference and from FedEx that demand remains solid - we therefore see risk to the upside. We expect focus to remain on the outlook as well as on capital allocation between share repurchases and potential M&A, which we could see pulled forward, driven by recent decreases in public market valuation.

Neutral-positioned stocks going into Q2 reporting

• AND: Q2 estimate unchanged; price target remains at $48; maintain Sector Perform. We are making no change to our Q2 EBITDA estimate of $38MM (cons. $38MM). Key focus on the call will be on M&A.

• MTL: Q2 estimate unchanged; price target remains at $15; maintain Outperform. We are making no changes to our Q2 estimate of $64MM (cons. $65MM). Key on the call will be colour on pricing, the M&A environment as well as the potential benefit to the Specialized & Industrial Services segment

  due to surging energy prices.

• SJ: Q2 estimate unchanged; price target remains at $40; maintain Sector Perform. Our Q2 estimate

  remains unchanged at $134MM and above consensus of $129MM. Key into the quarter will be

  commentary on M&A.

• WTE: Q2 estimate unchanged; price target decreases to $40, from $43; maintain Outperform. Our

  Q2 EBITDA estimate remains unchanged at $46MM and below consensus of $48MM; and our Q2 throughput estimate of 7Mt is a touch above management guidance for 6.8Mt. Our 2023 EBITDA estimate is above street (RBC: $186MM (unchanged); cons. $173MM), reflecting our view that strong met and thermal coal demand will continue into next year. Our price target decreases to $40, from $43, reflecting an increase to our NAV discount to 10% (from 0%) due to rising interest rates.

  Preferred names in the group

  CJT: top name in transportation. We continue to expect positive trends in ACMI to benefit CJT as it accepts delivery of its expanded fleet. We point to CJT's strategic agreement with DHL, which we view as reducing overcapacity risk associated with the new aircraft. Key is that we do not believe the long- term growth potential is reflected in valuation, and see implied upside of >100% at current prices.