Our View: We are taking a neutral view (positive bias) on MTL's 2022 Business Plan reflecting a largely in line guide, with our positive bias stemming from the meaningful dividend hike. Management noted that excess liquidity will be used to pursue M&A, and we will look for further colour during our RBC hosted mgmt meetings tomorrow. Overall, we view the update as reaffirming solid underlying business trends, which we view as consistent with our base case estimates. Continue to see opportunity in the shares at current levels. Reiterate OP.
First impression:
Financial guidance largely in line. MTL guided to 2022 revenue of $1.6B to $1.7B and to EBITDA of $260MM (excluding potential M&A). The revenue and EBITDA guide were both slightly below consensus $1.76B (RBC: $1.74B) and $268MM (RBC: $266MM), respectively. We view MTL's financial guidance as incorporating a touch of conservatism and as a result we view it as neutral to sentiment. See Exhibit 1.
Dividend increased meaningfully. The Board announced today a 25% increase in its dividend to $0.60 (from $0.48), above our and consensus 2022 estimates of $0.53 and $0.51, respectively. We view the increase in the dividend as a positive, especially for yield orientated investors, and note that it represents a 5% dividend yield as of today's closing price. Moreover, management highlighted their intent to renew the share buyback program in April 2022.
Capital Budget in line with consensus. The Business Plan outlined a capital budget of $70MM for 2022, with $60MM allocated toward maintenance capital and $10MM toward sustainability initiatives. We note that the capex guide roughly aligns with consensus $67MM (RBC: $61MM) and that we view positively MTL's planned investment in sustainability initiatives.
FCF guide below expectations. Mgmt guided to FCF of $100MM in 2022, below consensus $129MM (RBC: $140MM), and therefore negative to sentiment in our view. The guide was somewhat surprising given the EBITDA and capex guides were largely in line, and we will look to mgmt for colour during the RBC hosted mgmt meetings tomorrow.
Acquisitions. Management noted that the balance sheet has ample liquidity and that these funds will be used to pursue strategic acquisitions, with focus on the consumer economy. We note that leverage as per mgmt's definition is 2.65x and that this implies ~$190MM of dry powder.
RBC hosted mgmt meetings with MTL CEO tomorrow. We will be hosting tomorrow a series of 1x1 and small group investor meetings with MTL management. Joining from MTL will be Murray Mullen (CEO). We hope to get more colour on the 2022 Business Plan during tomorrow's meetings, specifically with regards to the M&A pipeline and organic growth opportunities in the transportation segments.