Our view: The weaker Q1 results in our view should be largely dismissed and the real focus should be on the significant wave of demand coming on, combined with MTL's capacity to execute on accretive deals. While we remain focussed on potential congestion and disruption, we see meaningfuly more upside than we do risk. Reiterate OP.
Key points:
Q1 results below expectations. Adjusted EBITDA of $41.1MM (excl. $6MM of CEWS) was below consensus of $47MM and our estimate of $45.7MM. Results were below our expectations due to shipment delays, projects put in COVID-19 protocols and increased lock-downs. We see these as non- systemic and therefore put less focus on their impact longer term.
Outlook updated to reflect acquisitions. Following the two fairly sizable acquisitions announced YTD, mgmt updated its revenue guidance to $1.3B to $1.4B for 2021 (from $1.2B to $1.3B) as a result of the partial year add of the ~$200MM in acquisitions (we note that mgmt also provided an indication of 2022 revenue of $1.4B to $1.5B). It is unclear to what extent consensus had incorporated the acquisitions, so comparing the guide to prior consensus is likely less meaningful. Nevertheless, what is clear is that mgmt is showing it is able to accentuate an increasing demand environment with thoughtful acquisitions, which in our view is a very attractive playbook.
Estimates revised higher. We are taking our numbers up on MTL on the back of the Bandstra acquisition (we had previously adjusted for APPS) as well as the incremental upside we see evident in a strengthening demand environment and higher commodity prices. As a result, our EBITDA goes to $228MM (from $227MM) for 2021 and $257MM (from $240MM) for 2022.
Target up. We remain positive on the MTL shares as we see a positive dynamic playing out where: 1) higher demand overlays on a tight transportation grid (across all modes) in North America; 2) MTL complements this growth with accretive acquisition; and 3) strong FCF generation adds further upside through share repurchases when warranted. The positive backdrop has prompted us to take up our target multiple to 7.0x (from 6.5x), which together with our higher estimates results in target going to $15 (from $13). We reiterate our positive view on the shares and maintain our Outperform rating.