Post by
retiredcf on Oct 25, 2024 12:09pm
CIBC 2
Here's their latest report reflecting the increased price target. GLTA
EQUITY RESEARCH
October 24, 2024 Earnings Update
MULLEN GROUP LTD.
Executing Well In A Tough Market
Our Conclusion
MTL’s Q3 results highlight how the company is executing well in a tough
freight environment. The company continues to act rationally (i.e., not chasing low-margin business) and is seeking M&A opportunities to bolster its portfolio of assets and improve network density. This positions MTL to grow EBITDA Y/Y in 2024 and ahead of its original business plan. This also positions the company well for when the freight cycle does turn. We continue to rate MTL an Outperformer, with our price target moving from $16.50 to $17.50.
Key Points
Tracking Ahead Of 2024 EBITDA Target: Despite a challenging market,
MTL is showcasing its ability to remain disciplined (with respect to both its
operational performance and its pricing) and is expecting to outperform its
2024 EBITDA target of $325MM. It looks likely to be up Y/Y too (MTL
generated $328MM in EBITDA last year). YTD, MTL has generated $247MM
of EBITDA, roughly flat versus the same period for 2023, but Q4 should
benefit from the increased contribution from recent M&A and synergy capture
from deals done in 2022/2023. We are modelling EBITDA of $332MM in
2024. This also sets the stage for a stronger launching point as we look into
2025 (we are modeling 7% Y/Y EBITDA growth, reflecting a modest
improvement in the freight economy, rollover benefits from acquisitions done
in 2024, and synergy capture) with unannounced M&A incremental upside.
Macro Outlook – Things Don’t Appear To Be Getting Worse: MTL
continues to highlight a freight economy that remains challenged, noting that
the demand environment is stable, but the excess supply is taking longer
than expected to exit. The glass half full view though is that it doesn’t appear
that the macro environment is getting worse, and this aligns with our view
that the freight economy should begin to exhibit some recovery in 2025.
Controlling The Controllables: MTL’s earnings strategy continues to be
focused on controlling what it can control. In addition to executing against its
deep M&A pipeline, we continue to see MTL take steps to improve revenue
quality. 1) Within its Specialized & Industrial Services segment, MTL has
noted that it intends to realign some of its operations and is winding down its
drilling operations, TREO Drilling Services and OK Drilling. These
businesses are not a material contributor to MTL’s revenue but are more
capital intensive. This move helps improve revenue quality, ROIC, and FCF
conversion. 2) MTL continues to manage its balance sheet to ensure it has
the available liquidity to execute on future growth opportunities. It noted its
pro forma leverage ratio (total debt to operating cash flow) is 2.54:1.
Subsequent to the quarter, MTL repaid $217MM of the private placement
debt and has an undrawn credit facility of $525MM. 3) We continue to see
opportunities for improved synergy capture. For instance, Q3 results
benefitted from the restructuring at B&R LTL. We expect upside to
ContainerWorld, which was acquired on May 1.