Mullen Group Ltd. MLLGF

TD Top Pick

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GROWING CONCERN OVER CDN CONSUMER SUPPORTS RISK/RETURN SCENARIOS

THE TD COWEN INSIGHT

Our top 3 picks based on fundamentals, valuation, catalysts, risk and other factors are BBD, EIF and MTL. Given increasing concerns regarding the outlook for the Canadian consumer (TD Economics forecasts 2024/2025 consumer expenditure growth of 1.7%/1.0%), we have compiled estimates of Canadian consumer exposure for our companies under coverage and a share price scenario analysis.

Despite being entirely Canadian-based companies, our coverage group provides average exposure of just 24% to Canadian consumers (based on 2024E revenue). Excluding the four companies with the greatest exposure, the average drops to an immaterial 3%. This report also provides estimates of share price downside risk (including factors beyond Canadian consumer exposure) and upside share price potential. Considering just these factors and valuations vs comps relative to historical precedents, EIF, MAL and BOS stand out as compelling opportunities while limiting direct exposure to the impact of Canadian consumers.

For our coverage with a market cap greater than $2 billion, EIF stands out as the best opportunity with respect to Canadian consumer risk, upside vs downside potential for the share price, and valuation relative to historical precedents. Although there are temporary reasons for more conservative valuations relative to pre-pandemic for certain stocks (BOS, CAE, TRZ), we believe the opposite is true for EIF adding to the appeal of its current valuation. For our coverage with a market cap below $2 billion, MAL appears to have the lowest risk with respect to the Canadian consumer and share price downside while offering one of the greatest potential upside returns starting from a historically depressed valuation relative to comparables.

• Lowest estimated Canadian consumer exposure (Exhibit 1): CHR, MAL, HRX, FSV (less than 3% of revenue).

• Lowest estimated downside share price risk (Exhibit 3): AND, EIF, CAE.

• Greatest estimated share price upside potential (Exhibit 6): TRZ, BOS, MAL (note: TRZ and BOS also have the greatest estimated downside risk).

• Lowest valuation vs comparables relative to pre-pandemic relationships (Exhibit 7): AND, BOS, MAL, MTL (BOS b/s and earnings predictability is weaker than pre-pandemic, in our view).