Recommendation: Buy
| Entry Date | Symbol | Recommendation | Entry Price (CAD) | Target 1 (CAD) | Target 2 (CAD) | Holding Duration | Potential Upside* |
|---|---|---|---|---|---|---|---|
| 23 Jan, 25 | FTT | Buy | CAD 38.2 | CAD 42.402 | CAD 44.946 | 13 days | 17.7% |
*Potential Upside (%) indicates the expected percentage increase from the Entry Price to the Target 2 Price.
Data Powered by EOD Historical Data (“EODHD”).
Finning International Inc. sells, services, and rents heavy equipment, engines, and related products in Canada, Chile, Bolivia, the United Kingdom, Argentina, Ireland, and internationally. The company offers articulated trucks, asphalt pavers, backhoe loaders, cold planers, compactors, dozers, drills, electric rope shovels, excavators, hydraulic mining shovels, material handlers, motor graders, off-highway trucks, pipelayers, road reclaimers, skid steer and compact track loaders, track loaders, underground-hard rock, wheel loaders, and wheel tractor-scrapers, as well as mobile and stationary generator sets. It also provides blades, buckets - skid steer loaders, forks, hammers, augers, brooms, material handling, mulchers, grapples, couplers " loaders, backhoes, buckets "telehandlers, trenchers, stump grinders, multi-processors, buckets " loaders, electric power controls, rakes, couplers " excavators, bale grabs, cold planers, compactors, flail mowers, buckets " mining shovels, pulverizers, nursery products, buckets " compact wheels loaders, buckets " backhoe rears, bale spears, tillers, shears, buckets " backhoe fronts, tilt rotate systems, adapters, rippers, saws, snow products, and buckets " excavators. In addition, it offers power systems for electric power generation, oil and gas, industrial, and marine power systems; and rents generators, power distribution products, and air compressors. Further, the company provides aftercare, fluid analysis, finning managed, financing, warranty, customer training solutions, as well as rebuilds, rentals, and repair services. It serves agriculture, construction, forestry, electric power generation, industrial and waste, industrial OEMs, marine, mining, oil and gas, paving, and quarrying industries. The company was formerly known as Finning Ltd. and changed its name to Finning International Inc. in April 1997. Finning International Inc. was incorporated in 1933 and is headquartered in Surrey, Canada.
Higher Revenue
(CAD 2,829 mn in Q3 2024 vs CAD 2,704 mn in Q3 2023)
Higher EBITDA margin
(10.99% in Q3 2024 vs 10.67% of Industry Median)
Lower Net Income
(CAD 102 mn in Q3 2024 vs CAD 155 mn in Q3 2023)
Higher Long term debt
(CAD 1,378 mn in Q3 2024 vs CAD 949 mn in Q4 2023)
Key Risks and Challenges: Slide in the order book, drop in selling or renting prices, shortfall in demand, inflationary pressures, etc.
| Entry Price | Support* | Target 1 | Target 2 |
|---|---|---|---|
| 38.2 | 32.2 | 42.402 | 44.946 |
Data Source: REFINITIV, Analysis: StockNextt
*Support can be considered as an indicative stop-loss, and if prices move below that level on closing basis individuals may evaluate exiting the position depending on their risk appetite, previous holdings, and other factors considered. The support and resistance levels may need to be re-evaluated within 4-6 weeks’ time frame depending on the stock price movements from the date of recommendation on the stock.
1. Financial Performance Highlights- In Q3 2024, the company achieved strong financial performance, reporting free cash flow of CAD 346 million, an increase compared to Q3 2023. This improvement was driven by enhanced invested capital velocity. Over the past 12 months, cumulative free cash flow reached CAD 746 million. Revenue for the quarter totaled CAD 2.8 billion, with net revenue of CAD 2.5 billion, reflecting a 5% and 4% increase, respectively, compared to Q3 2023. Notably, new equipment revenue rose 7%, while product support revenue increased by 2%.
2. Earnings and EBIT Performance- For Q3 2024, EBIT amounted to CAD 170 million, and EBIT as a percentage of net revenue was 6.7%. When excluding an estimated loss for receivables from a customer placed into receivership and severance costs, Adjusted EBIT was CAD 203 million. However, Adjusted EBIT as a percentage of net revenue decreased by 230 basis points to 8.0%, primarily due to lower margins in the Canadian business. The company reported an Adjusted EPS of CAD 0.93, a 13% decrease from the same period in the previous year.
3. Healthy backlog and cash flows- The company's consolidated equipment backlog of CAD 2.3 billion at September 30, 2024 was up 4% from June 30, 2024 reflecting strong order intake from mining and power systems customers. Furthermore, its deliberate actions to generate strong cash flow coupled with tougher market dynamics resulted in more challenging margin performance, free cash flow in Q3 2024 stood at CAD 346 million.
4. Balanced Portfolio- A significant advantage is that the company's income is not dependent on any certain market segment, business line, or geographic area. This lowers the potential of being unduly dependent on a single piece. Canada accounted for nearly 50% of sales in Q3 2024, with South America contributing nearly 37% and the United Kingdom and Ireland contributing 13%, which is a significant positive.
5. Dividend Growth- Finning International has demonstrated its commitment to returning value to shareholders with a consistent quarterly dividend of CAD 0.275 per share, most recently announced for Q3 2024. This reflects the company’s ongoing financial stability and confidence in its operations, despite global economic uncertainties. The consistent dividend payments signal strong cash flow generation and effective capital management.
Considering the expected valuation upside, higher production, higher production, healthy guidance, improving cash flow profile, decent dividend yield, current trading levels and key business risks a ‘Buy’ recommendation has been given on the stock at the last closing price of CAD 38.20, as on January 22, 2025.
Data Powered by EOD Historical Data (“EODHD”).
Sector: Industrials Industry: Industrial Distribution
| Company | Change (CAD) | Price (CAD) | Trailing PE (x) | Forward PE (x) | Price Sales TTM (x) | Price to Book Value (x) | Enterprise Value to Revenue (x) | Enterprise Value to EBITDA (x) |
|---|---|---|---|---|---|---|---|---|
| FTT Finning International Inc. |
-0.19 0.47% | 40.30 | 11.86 | 9.65 | 0.53 | 2.25 | 0.77 | 6.76 |
| TIH Toromont Industries Ltd. |
0.38 0.34% | 113.01 | 19.55 | 18.80 | 1.97 | 3.37 | 1.98 | 10.62 |
| RUS Russel Metals Inc. |
0.35 0.89% | 39.66 | 13.65 | 10.30 | 0.56 | 1.50 | 0.59 | 7.38 |
| ADEN ADENTRA Inc. |
0.70 2.54% | 28.29 | 14.38 | 8.24 | 0.45 | 1.13 | 0.56 | 7.29 |
| DBM Doman Building Materials Group Ltd |
-0.02 0.29% | 6.82 | 12.10 | 10.18 | 0.31 | 1.24 | 0.64 | 8.78 |
Data Powered by EOD Historical Data (“EODHD”).
Related Risks: This report may be looked at from high-risk perspective and recommendations are provided are for a short duration. Recommendations provided in this report are solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc.
Note 1: Past performance is not a reliable indicator of future performance.
Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is January 22, 2025. The reference data in this report has been partly sourced from REFINITIV.
Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.
Target: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Target 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Target 2 may act as the crucial resistance level for the stock.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
Disclaimer :
This report has been issued by StockNextt which has an Ontario Business Identification Number 1000958347 and British Columbia registration Number FM1051529 is a trade name under Kalkine Canada Advisory Services Inc. having Business Number 761925130BC0001. Kalkine Canada Advisory Services Inc. and StockNextt are collectively referred to as “StockNextt”, “we”, “us”, and “our”. The website https://stocknextt.com and associated pages are published by StockNextt. The information in this report and on the StockNextt website has been prepared from a wide variety of sources, which StockNextt, to the best of its knowledge and belief, considers accurate. StcokNextt has made every effort to ensure the reliability of information contained in its reports, newsletters, and websites. All information represents our views at the date of publication and may change without notice. The information in this report does not constitute an offer to sell securities or other financial products or a solicitation of an offer to buy securities or other financial products. Our reports contain general recommendations for investing in securities and other financial products. StockNextt does not offer financial advice based upon your personal financial situation or goals, and we shall not be held liable for any investment or trading losses you may incur by using the opinions expressed in our reports, publications, market updates, news alerts and corporate profiles. StockNextt does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. StockNextt’s general advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested. Please also read our Terms and conditions for further information. Employees and/or associates of StockNextt and its related entities may hold an interest in the securities or other financial products covered in this report or on the StockNextt website. Any such employees and associates are required to comply with certain safeguards, procedures and disclosures as required by law.
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