My Q2 Preview: Rate Improvement vs Moderating Volumes…What a run in the stock since we did this 3 months ago with our Q1 preview. I will start by disclosing I have taken a third off as it has rallied real hard. Tempted to add it back as our first look at the larger CDN peers TFII.TO and MTL.TO have put up great Q2 numbers. Here’s How I see it;
Operating Environment
You have had great monthly data out of Transcore which provides data on Cdn trucking. Q2 2018 saw broader trucking volume down (18)% QoQ but up 24% YoY. Seeing that Q1 YoY volumes were up 41% YoY and TTR put up 52.5% revenue growth it’s a good guide to use.
The key thing to look for can the market stay tight enough where rate improvement can offset the softer Q2 volumes like what you saw with TFII.TO and MTL.TO where revenue growth for both those two companies was up QoQ. If you were to see that at TTR.V you would take another dramatic leg higher.
So tough to call…
Revenue
Look for the Truck Transportation Revenue division to moderate a touch as it will be more sensitive to volume numbers QoQ. Looking for 22.5M for the division.
The torque to the upside has been driven by the explosion of their logistics division from the Windsor based terminal. Up 122% YoY in Q1 was quite the number. Cross border remains real strong in the Transcore data so look for continued strength. Looking for 18.5M for the division.
Consolidated Revenue of 41M or 25% revenue growth driven by continued strength in the logistics division and industry pricing staying firm making up for moderating QoQ volumes.
Profitability
Continued double digit EBITDA margins is key. Any incremental wage inflation should be offset by rate increases. Doesn’t sound like a lot but the difference between a 11% EBITDA margin or 10% figure is almost 2M in annual EBITDA. Makes a big difference.
Margin profile of the logistics division should continue to strengthen as they generate economies of scale out of the Windsor terminall.
Going to be optimistic here and look for 11% EBITDA margin or 4.5M in EBITDA.
On Valuation
On my 176M in Revenue and 19M in EBITDA for 2018 equates to 3.5x EBITDA. If you include debt of 45M (ex net finance leases) you get an enterprise value of 110M which equates to an EV/EBITDA multiple of 5.8x relative to TFII.TO EV/EBITDA of 8x with negative organic growth. What would you rather own…
Just Speculating
TFII.TO management believes it could spend 150-200M on acquisitions in 2018 relative to the 66M its spent YTD.
Just going to float the idea that TFII.TO cold pay 8x EV/EBITDA to acquire TTR.V within that remaining acquisitions spend for 2018.
OR…
You could listen to management;
Management is guiding to 170M in revenue with a 18M EBITDA figure (10.6% EBITDA MARGIN), I still think that number is conservative.
LONG