National Bank With supply chain issues and inflationary “challenges” lingering with the COVID-19 pandemic, National Bank Financial analyst Michael Robertson sees a “supportive commodity price backdrop moving forward” for TSX-listed diversified industrial companies with exposure to the energy industry.
“As we enter year three of a world disrupted by COVID-19, we are optimistic the recent surge in global case counts will speed a transition from pandemic to endemic in 2022, hopefully setting the table for a less volatile year ahead and a return to some semblance of normalcy in our daily lives,” he said. “While our crystal ball refuses to illuminate the future trajectory of COVID-19, what we can see clearly in 2022 are several ripples lingering in the wake of the pandemic, including disrupted supply chains, inflationary pressures, and a tight labour market (expected to persist through the early innings of the year, at minimum). We see widespread implications from those challenges with our management teams implementing a variety of counter measures to mitigate negative impacts where possible, across our diverse coverage list.”
“With the Bank of Canada commodity price index up significantly relative to recent historical levels, we see a supportive backdrop in 2022 for our names under coverage with segments exposed to oil and gas industry activity levels, including (to varying degrees) CEU, EFX, GIP, PSI, MTL and SCL. Similarly, strength in grain prices continues to offer support for farmer income levels facing inflationary headwinds related to input costs (with AFN’s backlog at record highs entering 2022). While we suspect rising input costs (be it related to labour, fuel or raw materials) will continue to impact the majority of our coverage space in the early quarters of 2022, we note that in most cases we expect inflationary pressures to be passed on in the form of higher prices with little more than a transitory impact on margins.”
Concurrently, Mr. Robertson said Mullen Group Ltd. (MTL-T, “outperform” and $16.50 target) and Shawcor Ltd. (SCL-T, “outperform” and $8.50 target) and Green Impact Partners Inc. offer “the most appealing risk/reward balance.”
He added: “We highlight Mullen and Shawcor as our top picks at present owing to what we perceive as attractive valuations coupled with stable leverage profiles. While MTL is not immune to inflationary pressures surrounding labour, fuel and maintenance expenses, we view the company as relatively well-positioned in our coverage to pass through cost increases. We continue to highlight Shawcor as a deep value pick given the transformative changes SCL has implemented over the past two years, right-sizing the company’s global footprint and expanding business lines best positioned for growth. Lastly, while more speculative given a limited operating history, we continue to highlight considerable upside potential in Green Impact Partners’ shares as the company progresses development of several clean energy projects.”