Our view: Q4 results came in ahead of consensus ex. one-time items and were in line with Mullen's pre-release in December. Moreover, management reaffirmed 2024 guidance. That said, somewhat surprisingly in our view, the shares are down -5% on the day. We largely viewed commentary from the call as consistent with our positive thesis and our upgrade from last month - namely that the shares represent a solid value opportunity (14% FCF yield) and that the M&A environment remains attractive on the back of discounted valuations. Reiterate OP.
Key points:
Q4 results above expectations ex. items. MTL reported adjusted EBITDA of $79MM, which included a one-time charge of $3MM related to the B&R integration. Adjusting for that implies results came in ahead versus consensus $80MM (RBC: $81MM) and in line with the company's pre- release in December. Revenue of $499MM was in line with consensus $499MM (RBCe: $502MM) as was margin. See Exhibit 1.
2024 guidance reiterated and implies a mid-teen FCF yield. Management today reaffirmed 2024 targets laid out in Mullen's 2024 Business Plan. Targets assume underlying macro conditions remain weak and suggest potential upside in the back half should macro conditions turn more favourable. Key is that despite muted macro assumptions Mullen shares yield 14% on a FCF basis on our 2024 estimates leaving lots of optionality for tuck-in M&A, share repurchases, and debt repayment, in addition to a 5% dividend yield, all of which we view very favourably.
M&A environment remains attractive. Last month, we upgraded Mullen shares on discounted valuation (see above) and reflecting an attractive M&A environment. Commentary from the call reaffirmed our view that acquisition multiples are discounted in the current environment, with management noting many competitors are struggling with low profits and high debt levels. Key is that we see this as creating a significant opportunity to deploy capital to acquire struggling carriers at discounted valuations.
Adjusting estimates. We adjust our 2024 EBITDA estimate to $338MM (from $345MM), to moderate the timing of improvement of margins at ContainerWorld. Our estimate is ahead of 2024 guidance for EBITDA of $325MM, which we note does not include the impact of M&A and which we view as incorporating conservatism. We continue to expect management to achieve full synergy benefit from ContainerWorld in 2025, and our 2025 EBITDA estimate remains unchanged $360MM.
Price target unchanged at $17. No change to our 2025 estimate and target multiple of 6x. We continue to build M&A into our valuation methodology and continue to see a solid investment opportunity in Mullen shares at current levels. PT remains $17.