TFI International Inc T.TFII

RBC 2

[retiredcf]

Their targets remain the same as previously posted (US$109 and US$173). GLTA

November 11, 2022
TFI International Inc.

Key Message from Investor Day: Focus on Long- term; Trust Our Track Record

Our view: TFII’s investor day provided an overview of the company’s business model and introduced investors to key management personnel, along with solid long-term O/R targets. The consolidated O/R guide is notable in that it represents EPS growth of ~25% to be achieved in the medium term, in our view. Moreover, management highlighted $5B worth of dry powder for large-scale M&A should the opportunity present itself. Capital to this order of magnitude is meaningful, and (combined with the company’s track record thus far) quite compelling.

Key points:
Investor day. We attended TFII's inaugural investor day in New York. The event consisted of highlights from the CEO, fireside chats with the heads of the underlying subsidiary companies, and a financial outlook from the CFO. Highlights as follows:

• Getting to know the team. A key objective of the investor day was to profile TFII’s key executives. To that end – “fireside chat” sessions centred on the five divisions. Outlooks and trends were provided, and we view the event as successful in providing important access to these managers.

• Track record. The CFO profiled the company’s impressive track record of growth through acquisition, earnings power, FCF generation and ROIC. To the company’s credit, these were indeed impressive (Exhibit 3), with a 3- year track record of +34% EBITDA growth, +25% FCF generation achieving ROIC between 12.7% and 31%. Mgmt stressed that it is this track record that investors should use in judging the new long-term targets provided.

• Long-term targets point to substantial margin expansion. Mgmt outlined the O/R targets for each division (Exhibit 2). If achieved, consolidated O/R would improve to 82.7% (vs 86.2% now), firmly establishing +24% potential EPS growth over the medium term.

• Capital deployment looks good. Mgmt committed to a highly attractive capital deployment strategy. Armed with significant FCF ($900MM this year), mgmt pointed to $485MM in buyback, 15-30% dividend payout, and $250-350MM in tuck-in M&A. But the icing on the cake is in the flex- up ability for large-scale M&A.

• And that’s a lot of icing. Large-scale acquisition is the key upside opportunity for TFII. With the company’s current leverage at 1x, and the almost $1B in FCF generated annually, mgmt pointed to $5B worth of dry powder for large-scale M&A should the opportunity present itself. Capital to this order of magnitude is meaningful, and (combined with the company’s track record thus far) quite compelling.

• Wrapping it all up. While mgmt did not provide guidance in the traditional sense, the investor day elements drove home why TFII is the only trucking company we are recommending (despite macro headwinds). $5B is a big number; and when combined with the self- help margin expansion opportunity and strong FCF generation that TFII is known for – it remains a compelling story. Reiterate our OP rating.