Upgrade IA Capital Markets analyst Matthew Weekes sees Mullen Group Ltd. as a “long-term buy and hold,” believing it “continues to represent a compelling buying opportunity.”
“In the short term, we expect pricing leverage and positive exposure to industrial recovery,” he said. “MTL had renewed headwinds in its S&IS segment in 2021 due to weakness in Premay Pipeline Hauling. Premay will likely continue at similar levels in 2022, but we forecast improved performance from the S&IS segment overall, which includes diversified services that should benefit from improved industrial activity, primarily in the oil and gas sector. Additionally, MTL expects upward trends in Canadian trucking markets, following trends that have been observed in U.S. markets, enabling pricing leverage in trucking and logistics (T&L) operations.”
In a research note released Friday, Mr. Weekes said he expects Mullen’s discount to peer TFI International Inc. , which is approximately 2.5 times on an enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA) basis, is likely to narrow moving forward.
“MTL lost about half of its ROIC from 2014-2016 when oil and gas declined, and since then has been steadily working to grow it back,” he said. “From 2017-2021, the Company has expanded ROIC by over 2 per cent. We expect this to continue as MTL focuses on growing its T&L businesses and achieves a higher overall asset turnover.”
“The acquisition of the U.S.-based third-party logistics (3PL) business in 2021 was overshadowed by declines in Premay and the lower-than-expected 2022 guidance. However, we believe that the entry into the U.S. through the 3PL market, which is one of the fastest growing areas of the logistics market (third-party estimates have pegged 8.5-per-cent CAGR), will provide future organic growth and additional U.S. M&A opportunities.”
Maintaining a “strong buy” recommendation, Mr. Weekes raised his target to $16.50 from $16, seeing the potential to generate long-term returns. The average is currently $14.86.