An Acquisition Story: CDN Trucking Trading @ 33% Discount...This is one of my favourite industry groups for 2018 as on every single call since Q3 ’17 these three trucking plays TFII.TO MTL.TO and TTR.V have been talking about improved pricing environment on top of overall volume growth.
These asset heavy business models are highly levered and have significant margin expansion pent up for 2018. Throw on top of that the backed up rail lines with commodities more and more demand is created for these trucking services. TFII.TO & MTL.TO have already confirmed this thesis with strong Q1 ’18 reports while quoting a strong pricing environment. (TTR.V earnings Tuesday will show follow through of this trend)
There is too much on the line for the US with regards to NAFTA to let it fall through. It would not make sense for the US to fight a two-front trade war with China and NAFTA. There us a deal to be made between NAFTA partners, China I am not so sure. As a result, you are getting great entry point in some of these names and making the smaller players more accretive in an acquisition scenario.
ON THE NUMBERS – TFII.TO MTL.TO TTR.V
TFII.TO – 9x EV/VEBITDA ’17 and 8x EV/EBITDA ’18 (Revenue Growth FLAT & 14% EBITDA Growth)
MTL.TO – 11x EV/EBITDA ’17 and 10x EV/EBITDA ’18 (Revenue Growth 15% & FLAT EBITDA Growth)
TTR.V – 8x EV/EBITDA ’17 and 6x EV/EBITDA ’18 (Revenue Growth 23% & 27% EBITDA Growth)
So the two larger players average 9x EV/EBITDA with 7.5% Revenue Growth and 7% EBITDA Growth with TTR.V with 3x the growth trading at essentially half the price if you look out to a 2019 EBITDA figure. Something has to give…
Mullen Group to Acquire TTR.V for 2.00/Share up 80%+ at 4.5x EBITDA
Between TFII.TO and MTL.TO have acquired 6 businesses comparable to TTR.V since the start of 2017 and with TTR.V trading at a deep discount with superior growth that makes a take scenario even more likely.
With Trunkeast Investments owning 33% of the company and there being no liquidity in the name I am sure acquisition would make for a well supported case.
Why MTL.TO? They continue to transition their business away from O&G and the ability to acquire an Ontario based trucking company will help them diversify away from Western Canada at the same time gaining US exposure. (TTR.V Revenue mix Canada 65% & 35% US)
Don’t count out TFII.TO they could look to sneak into the bidding war as well, with their last acquisition in Quebec it would not be too far down the 401 for a complementary business growing robustly with an Ontario base.
Will just add AVE.V another logistics player just got taken out for 150% premium inclusive of the earnout target. Larger players are looking for growth and willing to pay up for it….Personally, I think MTL.TO had to be sniffing around that deal.
Industry Stealth Kicker – TRAK.V Acquisition
The regulatory change to forced Electronic Log Tracking on Trucks has been a tougher for smaller sole proprietor truck owner/operators to adjust to since it came into law across the border Jan 1.
Trackopolis IoT has a leading SaaS offering for ELD and a complementary lone Worker gas detection solution for the O&G industry. With Mullen group already having a strategic partnership with TRAK.V the incremental value they could add in both business lines could make for an interesting tuck in deal.
A bit out there on a tech acquisition but the industry is going through a disruptive regulatory change and even just the partnership with TRAK.V puts Mullen group on the right side of change.
2018 is for the Truckers!
LONG MTL.TO, TTR.V & TRAK.V