Mullen Group Ltd. T.MTL

TD

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Outlook Update to Reflect Recent Volatility & Data TD Investment Conclusion

We are maintaining our BUY recommendations on TFI International, Mullen Group and Cargojet, and HOLD recommendation on Andlauer Healthcare Group. We are making immaterial adjustments to our forecasts (Exhibit 1) to reflect updated macro- assumptions and other minor modelling updates. Due to the recent downward bias to economic expectations, pull-back in fuel prices, moderating industry volume and pricing data, and heightened equity market multiple pressure, we have reviewed all our financial and valuation assumptions.

Our review supports our existing expectations, with the recent rate of decline in industry volume and pricing coming in-line with our existing assumptions. We assume that North American trucking volume declines by 1-2% in 2023 and that pricing benchmarks reach a level by the end of 2022 that represents a 3% CAGR from the 2019 average, leading to a 17% y/y decline in 2023. We assume that global air cargo volume declines by 6-7% in 2023 with pricing returning to a level by the beginning of 2025 that represents a 3% CAGR from the 2019 average. These long- term assumptions are only the backdrop for our company specific assumptions. Company specific forecasts also reflect other factors including the dependence of each on contracted revenue, regional considerations for volume and competition, material customer specific agreements, the type of services provided (LTL, TL, P&C, Logistics, ACMI, Charter, temperature-controlled, etc.), and other factors. In the case of AND, in particular, its focus on healthcare industry specific transportation significantly reduces its exposure to consumer habits and economic conditions relative to other companies in the group.

Our estimates for the group remain below consensus by 2-17% for 2023 and 2024 with the greatest differences in 2023 for MTL and TFI. We believe that current market valuations for the group are already reflecting lower earnings than implied by consensus for the next two years, and that current forward valuation multiples are at or very close to trough levels. Historical precedents suggest that multiples increase by approximately 2x over the 12-month period following trough multiples, as reflected in our target valuation multiples which imply the start of a rebound. However, in the short-term, we believe that it is possible multiples remain stuck at trough levels while consensus forecasts move lower towards our estimates. This implies further short-term pressure on share prices, before multiples begin to expand and reflect the longer-term (higher) earnings potential and look past the anticipated weakness in 2023.

Cargojet remains our top pick in the group, although we believe that TFI and MTL share prices also provide attractive entry points. We believe that the very strong investment attributes of Andlauer Healthcare Group make it the lowest risk opportunity for investors who are particularly negative on the economic outlook or equity market trajectory.