New Flyer – NFI

« Back to Previous Page
▲
0
▼
♥ 0

Hi Dan, Dylan, and Mat,

With NFI earnings coming in 2 weeks. I’m wondering if it’s worth addressing this company again and starting a long term position.

What I’m seeing:
– NFI showed a strong Q4 2023 result and a continuation into Q1 2024.
– NFI expects to deliver 5,000 EU’s in 2024, which will generate about US $280 million of EBITDA.
– They took on new debt, which will cost about US $160 million in interest expense annually (and dropping).
– Less than 3% of the legacy bus contracts (with non-inflationary protection embedded) that were impacting the gross margin are estimated to remain in Q2 2024. Once all of these are gone this next quarter, gross margins will improve again.
– Expected EBITDA run rate of US $350M by 2025 and US $400M beyond.
– Blue Bird competitor trading at 11x
– Conservative potential EV = $350*10 = USD $3.5B; Less debt of USD $1.2B; Equity remaining would be USD ~$2.3B or CAD $3.1B
– With outstanding shares of 119M, this would imply a conservative price of CAD 26 per share.

Other pros:
– Record backlog of USD $11.7 billion
– ~50% of bus market in North America
– History of being a dividend stock, but currently has dividend suspended.
– Stock price could pop on the announcement of reinstated dividend (if cash flow recovers as forecasted)

Cons
– Solaris (UK) is potentially entering the US market

I have been following this turn around since the stock bottomed in early 2023. I’ve been trying to get visibility into timing on the turn-around, which could be happening very soon (hench the 2nd opinion I’m seeking).

Thank you and please provide your thoughts.

Attached:
– National Bank Analysis issued June 27th, 2024

Attachments:
Marked as spam
Asked on July 18, 2024 2:25 pm
53 views
▲
0
▼
✔
Private answer

Hi Dan, Thanks for your thoughts. Being in manufacturing through the pandemic was a very difficult time, especially any businesses with electrical supply chain vulnerabilities. With that being said, I think it's reasonable to forgive management for poor guidance through the pandemic if the recovery is transparent and the forecasted milestones continue to be achieved.

I also agree with your thought process of seeing a couple of strong quarters before jumping in.

We'll see what tomorrow brings for Q2..

Marked as spam
Posted by dallonstoddart10@gmail.com
Answered on July 30, 2024 4:22 pm
▲
0
▼
✔
Private answer

Hey there. Pretty in-depth look you've had here. I've struggled with NFI simply because management fumbled the ball HARD in late 2020/2021 and I've had a hard time getting some trust back in that regard.

This used to be a company that generated relatively strong returns on capital, paid a solid dividend, and generated solid free cash flow. Just hasn't been the case since 2021.

I do agree in the fact they're starting to turn it around a bit here and could actually end up free cash flow positive in the next quarter.

Before I'd give some solid commentary on the company I'd really like to see their Q2 earnings on July 31st.

For me, it's going to take me more than just a few solid quarters to ever pull the trigger on a company and management team that has struggled as bad as NFI has. I know in this regard I miss some of the upside (because in reality, if the company does post a couple solid quarters coming up, it probably goes to $20+ and I miss that runup) but I'm perfectly fine with that.

As a bit of a speculative buy based on a turnaround, a smaller position here wouldn't be all that crazy. Trading at only 13x its expected FY 25 earnings.

Marked as spam
Posted by Dan Kent
Answered on July 21, 2024 5:31 pm
« Back to Previous Page