Mullen Group Ltd. (TSX:MTL) “remains well positioned for more acquisitions over the next 12 months with continued strong free cash flow generation,” says one analyst
Capital Ideas Media | June 11, 2021 | SmallCapPower: COVID-19 restrictions weighed heavily on economic activity in 2020, including cross-border trade between Canada and the United States.
(Originally published on Capital Ideas Media on April 27, 2021)
Despite this, Mullen Group Ltd. (TSX:MTL), one of Canada’s largest trucking and logistics services providers, had what it described as a “pretty good” year “with operating profitability up year over year along with one of the strongest cash generating years we have ever had,” ending 2020 with more than $100 million in cash on its books.
And 2021 is shaping up to be even better for the Company, as it is expecting a boost in freight demand and improved margins as the Canadian economy continues to open up following aggressive COVID-19 vaccination efforts.
Mullen Group CEO Murray Mullen told analysts recently, “we only need to look to the U.S. for guidance: that the economy is on fire and freight demand has never been better.”
Mullen Group’s near-term growth should also get a lift from its two recently-announced acquisitions of established Canadian trucking brands Bandstra Transportation Group of British Columbia and Ontario’s APPS Transport Group, which Mullen anticipates will grow its market share and enhance its profitability.
APPS is expected to contribute about $90 million in annual revenue, while an additional $85 million in yearly sales is anticipated from the Bandstra Group.
“Even after two material acquisitions of likely similar sizes, which could together cost $150-million to $175-milion (enterprise value), we believe MTL remains well positioned for more acquisitions over the next 12 months with continued strong free cash flow generation and access to an upsized credit facility,” Scotia Capital analyst Konark Gupta wrote.
BMO Nesbitt Burns analyst John Gibson, meanwhile, noted: “We continue to view MTL stock as appealing given its inexpensive valuation relative to peers combined with its growth strategy. In addition, the company is well positioned for another dividend increase this year.”
Along with trucking and logistics, the Company also provides warehousing, water management, environmental reclamation, and fluid hauling services and owns a network of real estate holdings and facilities.
Mullen Group is also a leader in less than truckload freight shipping (LTL), or last-mile delivery of general freight consisting of smaller shipments, packages, and parcels. Its LTL segment operates one of the largest final mile networks in western Canada and Ontario with service capabilities extending into the United States, which should continue to grow rapidly with an expanding e-commerce economy.
We see this stock as a Canadian economy reopening play beginning in the second half of 2021 with a business model that’s shifting more towards consumer deliveries. The Company is also showing patience with its acquisition strategy, which has thus far been employed with minimal shareholder dilution (MTL has less than 100 million shares outstanding).
In the meantime, investors are getting paid to wait with a nearly 4% dividend yield.
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