Post by
pibopibopibopib on Jun 22, 2023 8:09am
Key competitor exit US
Key competitor to exit U.S. transit bus market This afternoon, one of NFI's key competitors in the North American transit bus market, Nova Bus, announced plans to exit bus production in the U.S. by 2025 to concentrate manufacturing activity at its plants in Quebec. This announcement has positive competitive implications for NFI Group: • Nova Bus exiting the U.S. market. Because all contracts for transit buses from U.S. public transit agencies must be compliant with Buy America legislation (requiring at least 70% U.S. content on all buses), this announcement effectively means that Nova Bus will no longer compete for future transit bus contracts in the U.S., which is a much larger market than the Canadian market. Nova Bus has historically held the #3 market position for transit buses in North America with an estimated market share prior to the pandemic of about 20% (NFI #1 at over 40% share). While Nova Bus's recent order success has been mainly in Canada (most recently with an order for up to 541 EV buses for Toronto's TTC and up to 1,229 EV buses for cities in Quebec), the company has historically also competed for U.S. orders and has a sizeable installed base with some of the largest transit bus operators including New York's MTA and Chicago's CTA. Nova Bus has also won several smaller orders from U.S. transit agencies in 2023. With the exit of Nova Bus, NFI's New Flyer subsidiary will now mainly compete against privately-held Gillig for contracts in the U.S. (with ENC the only other player of any size). • Nova Bus exit follows on Prevost's exit from U.S. public transit motor coach market. The Nova Bus U.S. market exit follows on the announcement last year that its sister company, Prevost (also owned by Volvo), would end production of motor coaches in the U.S. to shift all production to Canada. This move also precludes Prevost from bidding on any commuter coach public transit contracts in the U.S., leaving NFI's MCI as effectively the only eligible bidder on future contracts in the U.S. • Is Nova Bus still core to Volvo? There has been ongoing industry speculation that Nova Bus is no longer a core business for Volvo and that the business could ultimately be divested. In its press release today, Nova Bus notes: “The extent of the impact this decision will have on the Canadian organizational structure remains under analysis by Nova Bus and will continue to be defined as the restructuring takes place over the next 24 months.” Given the overlap in product and NFI's focus on deleveraging, we would not consider Nova Bus to be an M&A target for NFI. Maintain Outperform as NFI's competitive position improving Nova Bus's exit of the U.S. transit bus market is a clear positive for NFI, solidifying its already market leading competitive positioning. With funding for public transit buses in the U.S. strong and active bids up 99% y/y to a record high as of the end of Q1, the company's visibility on new orders is excellent and this news only enhances the prospect of more contract wins. With the recently announced refinancing easing balance sheet concerns for NFI and the supply chain gradually improving, we believe NFI is poised for significant EBITDA improvement over the next several years. We therefore maintain our Outperform rating and $12.00 target (based on a 7.5x EV/EBITDA multiple applied to our 2024 forecast).