Mullen Group Ltd.
(MTL-T) C$12.88
Great Q2/22 Results With Encouraging Outlook Event
This morning before market open, Mullen Group reported Q2/22 results. EBITDA of $93.9 million (up 59% y/y) vs. our estimate of $65.0 million and consensus of $65.6 million. Adjusted diluted EPS of $0.47 compared to our estimate of $0.22 and consensus of $0.23.
Impact: POSITIVE
We are maintaining our BUY recommendation and adjusting our target price to $17.00 from $14.00. While we believe that sector valuations could remain under pressure and volatile through the end of 2022, we believe that Mullen will demonstrate growth through year-end, strong FCF, disciplined capital deployment, and the sustainability of its divided, all of which we believe will take the share price higher over 12-months.
Mullen reported very strong Q2 results with revenue above our forecast in all four segments while EBITDA was above in three-out-of-four. The company increased its formal 2022 revenue guidance by 8% and EBITDA guidance by 15%. While the press release acknowledged the potential for growing economic/consumer headwinds and moderating growth, we believe that the guidance, which implies approximately 20% higher H2/22 EBITDA than our previous forecast, provides the company with a strong foundation from which to address any economically driven pressure in 2023. This should be reassuring to investors that are concerned about 2023 earnings risk.
We acknowledge that there is downside risk to estimates due to the knock-on effects of rising interest rates on the cost of living and in turn consumer spending and therefore the demand for trucking transportation services. However, we have accounted for downside through recent updates to our economic assumptions, the net result of which is our forecast for a modest decline in EBITDA in 2023 before growth resumes in 2024.
TD Investment Conclusion
We believe that Mullen's limited exposure to spot pricing, commitment to raising rates to offset inflation, improving efficiencies as supply-chain congestion moderates, recent M&A activity, attractive dividend, and valuation support a higher share price over the next 12 months. We are factoring in our estimate downside risk to pricing through 2023 and beyond, but believe that the impact on Mullen's earnings will be limited.