After a “strong” earnings beat and “supportive directional guidance,” Scotia Capital analyst Konark Gupta sees Mullen Group Ltd. (
) “pivoting to harvest mode.”
“MTL is in a sweet spot of consumer strength, economic recovery, energy market rebound, and significant inorganic growth, which could result in strong growth heading into 2022 vs. 2019,” he said. “The company’s ability to generate solid FCF (low double-digit yield), along with a reasonable balance sheet, should also support ongoing buybacks and rebound in the monthly dividend to pre-pandemic levels potentially within 6-9 months (current yield is already attractive at 3.7 per cent). The stock also checks the attractive valuation box, trading at 7 times EV/EBITDA on our 2022 estimates vs. TFII, U.S. LTL and U.S. 3PL peers at 9 times (on our 2022E), 9 times, and 10 times, respectively.”
During last week’s post-earnings conference call, Mullen management said the company is now generating almost $1.6-billion in annualized revenue, closing in on its long-term goal of $2-billion in revenue well ahead of schedule.
“This compares to $1.28-billion revenue in 2019,” said Mr. Gupta. “Recall, MTL raised 2021 revenue guidance to $1.3-billion to $1.4-billion in April and had guided $200-million to $220-million EBITDA in December 2020.
“We believe revenue could potentially exceed $1.7-billion in 2022 (up 34 per cent vs. 2019) with a relatively steady 15-16-per-cent EBITDA margin (ex-CEWS), driven by economic recovery on reopening, rebound in oil and gas industry spending, and continued strength in consumer spending. Deferral in some higher-margin pipeline activity from this year should also contribute incrementally in 2022. The company also highlighted that four of the five acquisitions closed in Q2 (Bandstra, Tri-Point, APPS, and QuadExpress) are expected to generate over $400M in annualized revenue going forward, up from $355M in the trailing 12 months (prior to closing). We would take advantage of stock’s attractive valuation to enjoy the harvesting phase over the next 12 months.”
Maintaining a “sector outperform” rating for Mullen shares, Mr. Gupta increased his target by $1 to $16. The average is $15.59.