Still good prospects for Cargojet, according to Beacon
Beacon Securities analyst Ahmad Shaath’s expectations for Cargojet (Cargojet stock quote, charts, news, analysts, financials TSX: CJT) saw slight turbulence in a report to clients on Monday, as he lowered its price target at $ 265.00 / share versus $ 275.00 / share. to go hand in hand with a maintained âBuyâ rating.
Founded in 2005 and headquartered in Mississauga, Cargojet provides air freight services across North America, the Caribbean and Europe. Its primary air cargo business is to operate a domestic overnight air cargo co-loading network between various Canadian cities, while also providing international air cargo services, dedicated aircraft charters and aircraft contracts, dedicated crew, maintenance and insurance (AMCI).
Shaath, who attributes the lowered target price to general multiples contracted due to softer domestic growth expectations, higher fuel costs and continued strength in the company’s all-inclusive charter revenues, provides its latest analysis after Cargojet reported its third quarter financial results, which Shaath called mixed.
Cargojet’s financial data was featured by the company producing $ 190 million in revenue for the quarter, beating Beacon Securities’ estimate of $ 180 million and consensus projection of $ 179 million.
One of the main reasons for the drop in revenue was that Cargojet’s all-inclusive charter revenue was $ 24 million compared to Beacon Securities’ estimate of $ 15 million, although the revenue from the nationwide network are slightly below expectations ($ 80 million compared to Beacon’s projection of $ 83 million, largely due to the entry into force of a new CMI contract with Amazon), the other sources of Company revenues (ACMI, fuel and other passthrough, and leases, FBO and others) being either in line or slightly above expectations.
The company’s expanded relationship with Amazon Canada includes the company’s acceptance to operate two Amazon-owned B767-300BDSF aircraft as part of the Amazon Air network under an initial four-year contract, with three renewals of two years also incorporated into the agreement.
âMaritime and land transport supply chains remain obstructed across the world, creating short and medium term opportunities for air cargo. We are seeing this reflected in our ACMI activity and we expect this to continue until the next holiday season, âsaid Dr. Ajay Virmani, President and CEO in the press release of the November 1 company. âAs economies and businesses reopen, consumers are keen to go out and experience the shopping in person. But our long-term outlook for e-commerce remains strong, especially given the dramatic increase in digital adoption over the past 18 months. “
The Company’s quarterly EBITDA of $ 71 million was in line with expectations, although the EBITDA margin proved insufficient at 37.4% compared to the Beacon projection of 40.2% and the consensus expectations of 38.5%. Shaath notes that the lack of margin is mainly due to higher crew costs (annual salary increases according to the collective agreement, positioning and training costs) and, to a lesser extent, higher commercial costs (e.g. , insurance, disembarkation, navigation, etc.).
“Management said much of the increase in costs was related to the ramp-up of new operations as well as retraining costs as the newly trained staff were drawn to their former employer of passenger airlines. “Shaath said.
The recent results have led to changes in Shaath’s financial projections for the company, as he now projects revenue to reach $ 731 million in 2021 instead of his original projection of $ 714 million, yielding potential growth of 9 , 3% year on year. For 2022, Shaath now forecasts revenue of $ 805 million from the original estimate of $ 765 million, producing potential growth of 10.1% year-over-year.
However, Shaath lowered his 2021 EBITDA projection slightly to $ 283 million from $ 285 million, with the 2022 projection remaining at $ 306 million. Shaath’s EPS projection is also affected in his latest analysis, lowering his 2021 estimate to $ 5.61 / share from $ 7.05 / share, with a revised 2022 estimate of $ 6.66 / share from $ 7. , $ 11 / share.
Despite a few lower values, Shaath’s valuation data still presents Cargojet in a positive light, as it predicts the EV / sales multiple to drop from 5.3x reported in 2020 to 4.8x projected in 2021, followed by a slight decline. to 4.6x in 2022. The EV / EBITDA multiple is expected to increase slightly to 12.5x in 2021 from 12x in 2020, although Shaath projects a decline to 11.6x in 2022, with the P / E multiple following a similar path, passing from 31.1x reported in 2020 to a projection of 33.5x in 2021, then a projection of 28.2x in 2022.
Overall, Shaath remains positive about Cargojet’s ability to dominate the skies and maintain its market.
âGoing forward, the impact of Amazon’s move to a CMI contract is now well understood, with the newly acquired B757s providing sufficient capacity for CJT to pursue new high-margin ACMI activities beyond what we are modeling. currently, âShaath said.
Overall, the Cargojet share price is down 14.2% year-to-date, hitting a high of $ 222.48 / share on January 7 before falling to a low of 162.24 $ / share on March 31, although it has rebounded well with growth of 11.1% since then. At the time of going to press, Shaath’s goal of $ 265 represented a one-year expected return of 42%.