Expect Q3 beat to be well-received, especially within the context of macro and discounted valuation
TSX: MTL | CAD 14.19 | Outperform | Price Target CAD 17.00
Sentiment: Positive
Our view: We expect the MTL shares to react positively on the back of a strong quarter, especially impressive given industrial headwinds flagged by other transports in our coverage during reporting and within the context of the company's valuation (>10% FCF yield), which represents a meaningful discount to peers. In the press release management commented "an excellent quarter for our group even though the economy remains in neutral" - and we believe that sums up the quarter quite nicely. The beat was driven by higher margin and strong margins in both Logistics & Warehousing and Specialized & Industrial Services (LTL slightly below), as mgmt executed on effective cost control. Overall, a very solid quarter for Mullen. Key areas of focus for the call will be an update on margins (their sustainability and further opportunity), the M&A pipeline, and the trucking environment (both demand and pricing).
First impression
Q3/24 results above consensus. MTL reported adjusted EBITDA of $95MM, above consensus $90MM (RBCe: $89MM). Revenue of $532MM was above consensus $524MM (RBCe: $523MM). Margins of 17.9% were above our 17.0% primarily due to the integration of B. & R. Eckel's Transport Ltd.'s LTL operations as well as cost control measures. Highlights by segment as follows, with details shown in Exhibit 1.
• LTL – EBITDA below (EBITDA $36MM; RBCe $38M). Revenue of $189MM (RBCe: $194MM) was down -3% y/y due to a softening in overall freight demand from demarketing underperforming business. EBITDA margin of 18.9% was below our 19.6%.
• LogisticsandWarehousing(L&W)–EBITDAabove(EBITDA$35MM;RBCe$29MM).EBITDAwasaboveourestimatesonmargin. Revenues were up +23% due to acquisitions ($34MM), which was somewhat offset by $1.4MM of lower organic revenue due to a lack of capital investment in the private sector, from competitive pricing pressures in certain markets and from shippers electing to keep a tight rein on inventory levels. EBITDA margin of 20.8% was well above our 18%.
• Specialized and Industrial Services – EBITDA above (EBITDA $29MM; RBCe $25MM). Revenues increased +5% y/y on greater activity levels in the Western Canadian Sedimentary Basin due to the commencement of plant turnaround and maintenance projects undertaken by large E&P companies in western Canada.
• U.S. & International Logistics – EBITDA below (EBITDA $0.3MM; RBCe $0.8MM). EBITDA down 6% y/y due to to a combination of freight volumes remaining stagnant with an excess supply of trucking capacity creating a competitive operating environment.
Conference call details
Today at 10:00AM ET; dial-in 1-844-763-8274