Mullen Group Ltd.
(MTL-T) C$14.48
Q4/23; Results Continue Demostrating Relative Stability
Event
Mullen Group reported Q4/23 EBITDA of $79.2 million ($82.1 million excl.
restructuring charge) vs. our estimate of $82.4 million and consensus of $79.0
million. Adjusted basic EPS of $0.34 (we estimate $0.37 excl. restructuring charge)
compared to our estimate of $0.37.
Impact: SLIGHTLY POSITIVE
We are increasing our target to $22.00 from $21.00 and maintaining our BUY
recommendation. Our higher target reflects the net impact of a shift forward in our
valuation period by one quarter, and lower valuation-period net debt. Our earnings
forecasts are biased lower by an immaterial amount, reflecting the net impact of
carrying forward a portion of Q4/23 results (weaker-than-expected LTL and stronger
L&W), updated D&A assumptions, and other minor modelling updates.
Mullen generated Q4/23 EBITDA growth (excl one-time items) of 6% despite a
5% decline in organic revenue. This is a strong result in the current environment
and relative to comparables which reported an average y/y EBITDA decline of
8%. Mullen's largest segment (LTL) generated an 18% EBIT margin compared to
LTL comps (ex-ODFL) which averaged 14.7%. L&W continues to outperform our
expectations. Approximately 40% of Mullen's debt ($243 million) matures in Q4/24.
We believe the company will be able to refinance its debt, albeit at a higher interest
rates, creating a manageable estimated diluted EPS headwind of $0.03.
We view management's near-term outlook as substantially unchanged relative to
its December introduction. According to management, retail inventory destocking is
essentially complete. B&R restructuring provides at least a 100 bps tailwind to 2024
LTL margin. The ContainerWorld acquisition (Q2/24 close) will drive L&W growth.
Despite LTL weakness exiting Q4 and a sluggish economy, the business is set to
maintain adjusted EBITDA at a minimum in 2024 and growth based on already
announced acquisitions (B&R) and future tuck-ins. Our forecasts do not factor in a
contribution from B&R or the utilization of significant balance sheet capacity for M&A.
TD Investment Conclusion
We believe the recent share-price performance, Mullen's current valuation multiples
relative to its history and comp group, and our prudent forecast offset the current
industry backdrop of negative year-over-year growth and supports a higher share
price over the next 12 months.