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Mullen Group wins price target raise at Industrial Alliance

Mullen Group
Mullen Group
Based in Alberta, Mullen Group is recognized as the largest provider of specialized transportation and related services to the energy industry in western Canada and one of the country’s leading suppliers of trucking and logistics services.

With second-quarter results expected on July 21, there’s no need to mull over the attractiveness of Mullen Group (Mullen Group Stock Quote, Chart, News, Analysts, Financials TSX:MTL) as a strong stock option, says Industrial Alliance Securities analyst Elias Foscolos, who has maintained his Buy rating on the company while increasing its target price to $17.00/share from its previous target of $15.50/sh.

The increase comes amidst the company’s activity relating to mergers and acquisitions over the course of 2021. It’s the busiest the company has been since at least 2014, with an improved growth profile in the works over the next decade fueled by a 9x EV/EBITDA valuation through the next four quarters, according to Foscolos.

“Although MTL’s revenue has remained essentially flat over the past decade, it is important to note that this revenue profile can be attributed to the collapse of the oilfield services business from 2014-2016, resulting in almost $400M in lost revenue (~30% loss),” he said. “At the same time, MTL grew revenues in its trucking and logistics business segments at a CAGR of ~7.5% from 2010-2020 (~9.5% before COVID-19) while returning over $850M to shareholders via dividends and buybacks, which in our view reflects effective use of capital.”

Based in Alberta, Mullen Group is recognized as the largest provider of specialized transportation and related services to the energy industry in western Canada and one of the country’s leading suppliers of trucking and logistics services.

Despite the $400M lost revenue Foscolos mentioned, Mullen has operated in 10-figure revenues for years, with quarterly revenue exceeding $250M in each quarter since 2019’s first quarter, and Foscolos’ projections positioning Mullen Group to take a jump to approximately $400M in quarterly revenue beginning with 2021’s third quarter.

According to Foscolos, Mullen Group’s EBITDA is forecast to continue growing, with 2021 projected to hit $225M and 2022 forecast at $249M. The EV/EBITDA and price-to-earnings ratios are both forecast to remain solid as well; the EV/EBITDA is forecast to remain in the 7.0x range, while price-to-earnings is projected to jump to 19.6x in 2021, with a slight dip to 17.1x forecast for 2022.

Mullen Group has been busy with acquisitions in the last three weeks, announcing the pickup of APPS Transport Group Inc., and Tri Point Intermodal Services Inc. on June 24, followed by the global, technology enabled, non-asset based 3PL service provider QuadExpress on June 30, before concluding its run on July 2 by announcing the acquisition of Winnipeg-based R.S. Harris Transport, an industry leading trucking and brokerage company specializing in open deck transportation, with more than 35 years of experience serving customers throughout North America in the steel, agriculture equipment, industrial, construction, rail products, and energy industries.

“This acquisition reinforces what we have articulated to shareholders for some time – we will always invest in opportunities that strengthen our existing Business Units,” said Murray K. Mullen, Chairman and Chief Executive Officer, in the company’s July 2 press release. “Harris has an established name in the Canadian trucking industry with a solid reputation for customer service as well as being a formidable competitor.“

“Today I am pleased to announce that we have acquired another good Canadian company. Over the next few months, we will work with the customers and employees to transition the business of Harris into the Gardewine Group of Companies, the best way to realize synergies,” he said.

Though the acquisitions have made headlines in 2021, Foscolos remains bullish on Mullen Group’s real estate holdings, as well as its equity stake in Kriska Transportation Group Ltd., potentially adding $1.00/sh in equity value not presently accounted into the stock price.

Furthermore, despite the company’s compound annual growth rate averaging out around one per cent through the 2010s, future growth in the Less-Than-Truckload (LTL) and Logistics & Warehousing (L&W) segment has Foscolos feeling optimistic regarding Mullen Group’s path going forward.

“We expect MTL’s recent acquisitions to add significant LTL and L&W revenue through 2022, resulting in these business lines comprising ~75% of total revenue,” he said. “Keeping the analysis very simple, if the S&IS segment (~25% of the business) stabilizes from here on out and the LTL and L&W segments (~75% of the business) grow at historical rates, MTL should grow its revenue at >5% per year for the foreseeable future.”

Mullen Group closed Monday trading at $12.98/share, down $0.02 from Friday.

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About The Author /

Geordie Carragher is a staff writer for Cantech Letter
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