December 10, 2020
Mullen Group Ltd.
2021 Business Plan highlights focus on transportation
Our view: MTL’s Business Plan update provided both a strategic overview and updated financial targets. The financial targets were in line with our expectations coming into the call and our estimates therefore remain unchanged. Elements of focus were M&A as well as mgmt's continued focus on the LTL and Logistics & Warehousing segments, which we view positively reflecting their exposure to the consumer economy. Overall, we view the update as reasonable given the uncertain macro environment.
Key points:
Revenue and EBITDA targets in line. Management outlined 2021 EBITDA guidance of $200MM to $220MM, which is in line with our unchanged $217MM estimate. The EBITDA guide implies growth of +1% to +11% off our 2020 EBITDA estimate. Management also guided to revenue of $1.2B to $1.3B (RBC: $1.21B).
Acquisitions remain a key catalyst. Management highlighted on the call that the M&A pipeline remains robust and that they expect to use balance sheet capacity to fund acquisitions in the LTL and Logistics & Warehousing segments. However, management emphasized that they are proceeding cautiously due to increasing valuations as well as reflecting difficulty in conducting due diligence during the pandemic. While we do not factor acquisitions into our estimates, we do build them into our valuation and would view a pick-up in activity as a key catalyst for the shares.
Dividend increased meaningfully. Management announced an increase to MTL’s dividend to $0.48 per year (from $0.36). This was above our expectations and we therefore increased our dividend estimate to $0.48 (from $0.36) to align with disclosures. Management also highlighted their intent to renew the share buyback program in April 2021 and reiterated their previously disclosed 3-year plan for $100MM of repurchases – we note that this implies $50MM of repurchases over the next two years.
Capex guidance of $60MM in line with expectations. Management announced a capital budget of $60MM for 2021, exclusive of M&A. The Capital Plan targets $50MM towards maintenance and allocates $10MM to growth, which we believe will be used to position the company more closely towards the consumer economy. The Capital Plan aligns with our expectations and our capex estimate ($61MM) remains unchanged.
Our take on the stock. We believe that management navigated the pandemic well and positioned the company successfully for a potential recovery in 2021. We believe MTL is well positioned to take advantage of a recovering consumer economy as well as to be opportunistic in its oilfield services business. While the shares have rallied, we expect further opportunity in M&A, which we believe would act as a meaningful catalyst for the shares. Reiterate Outperform.