TSX:MTL - Post Discussion
Post by
retiredcf on Apr 24, 2022 8:03am
RBC Report
Their upside scenario target is $18.00. GLTA
Outperform
TSX: MTL; CAD 12.84
Price Target CAD 15.00 ↑ 14.00
Mullen Group Ltd.
Solid Q1; sentiment likely remains positive as guidance increase expected next quarter
Our view:
MTL posted a better than expected Q1/22 and mgmt commentary on the conference call suggested in our view that guidance would be revised higher next quarter. Trends were very solid in March -and the momentum at quarter-end resulted in the positive commentary on the call. M&A remains an unknown and could add further lift to the shares should mgmt ramp up activity on that front. We continue to see value in the MTL shares at these levels and reiterate OP rating.
Key Points
Q1 results slightly ahead. Adj. EBITDA of $60MM was slightly above consensus $58MM (RBC: $58MM). Revenue of $457MM was well ahead of consensus $420MM (RBCe: $425MM), partly offset by lower margins reflecting fuel surcharge lag. Notable was that the company indicated that March was the best month of the quarter - which set a very positive trend going into Q2. Overall a solid quarter for MTL.
Guidance maintained, but likely goes higher. Mgmt indicated on the call that they are deferring any update to guidance until next quarter; but admitted based on the trends in March that bias is certainly to the upside. Recall that the current guide is for EBITDA of $260MM, and consensus was not far off going into the quarter at $261MM. Based on the conf call commentary, we see it as likely that consensus does go higher (note we are already at $266MM (unchanged)).
Management reviewing a number of M&A opportunities. Management highlighted during the call that they expect to be active in M&A, in line with commentary from the release in which they noted that they continue to pursue acquisitions that improve lane density, or expand network coverage, and that they are actively reviewing a number of files. We would view a pick-up in activity as a meaningful catalyst for the shares and note that we build M&A activity into our valuation methodology. Moreover, we view the balance sheet as well positioned for potential deals at 2.5x leverage (versus debt covenants for 3.5x), which implies ~$250MM of dry powder.
Estimates unchanged. As noted above, our 2022E EBITDA is already above guidance and consensus - both of which we see moving higher. Accordingly, we are leaving our 2022 and 2023 estimates unchanged at $266MM and $274MM, respectively.
Price target to $15 (from $14); maintain Outperform. We remain positive on MTL shares post Q1 results reflecting a >10% FCF yield on our 2023 estimate as well as due to potential upside on the back of M&A, increased pricing and a pick-up in capital spending in Western Canada. Our target price increases to $15 (from $14) reflecting our unchanged 2023 estimate applied to our target multiple of 7.5x (from 7x), which we brought higher to reflect a more positive outlook on the capital economy in Western Canada. We reiterate our positive view on the shares and maintain our Outperform rating.
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