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On today’s Breakouts report, there are 51 stocks on the positive breakouts list (stocks with positive price momentum), the majority of which (75 per cent) are energy stocks. Meanwhile, there are 34 securities on the negative breakouts list (stocks with negative price momentum).

Discussed today is a security that would have appeared on the positive breakouts list, however, its market capitalization is below the $200-million market capitalization screening threshold - Titanium Transportation Group Inc. (TTR-X).

The stock was initially featured in the Breakouts report in July 2018 when the share price was under $2. By April 2021, the share price had more than doubled in value, closing at a record high of $4.15 on April 13. Since then, the share price has retreated 18 per cent. As such, this micro-cap stock is best suited for consideration by investors with a high risk tolerance as the share price can be volatile.

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The company is covered by three analysts and has a unanimous ‘buy’ recommendation. Target prices are concentrated with two at $6 and one at $6.25. The average 12-month target price suggests the share price has nearly 80 per cent upside potential over the next year (a total return of over 80 per cent including the 2 per cent dividend yield).

A brief outline on Titanium is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Bolton, Ont,-based Titanium Transportation Group Inc. is a trucking company with a fleet of approximately 800 tractors (the front end of a transport truck where the driver sits) and 3,000 trailers (where cargo is transported). Titanium is the 12th largest transportation company in Canada.

The company provides services across North America and operates two core divisions: a truck transportation segment and a logistics segment. Management targets an even split, having roughly 50 per cent of its revenue from each segment.

Titanium has a diversified customer base with over 1,000 customers from a variety of industries. According to its May 2021 investor presentation, the top industries its clients operate in are manufactured goods (29 per cent), food and beverage (23 per cent), retail (12 per cent), and automotive (9 per cent).

Investment thesis

  • Positive industry fundamentals.
  • Fragmented industry provides acquisition opportunities.
  • Steady U.S. expansion as management opens new freight brokerage centres. Management targets opening one additional centre by year-end and having 10 U.S. freight brokerage centres by 2024. Management estimates that each U.S. location will generate, on average, roughly US$25-million in annual revenue.
  • Rising freight rates given tight supply conditions.
  • Increasing fuel costs are passed on to its customers for the most part (i.e. fuel surcharge).
  • Realize synergies from its acquisition of International Truckload Services Group (ITS) driving margins higher.
  • Healthy balance sheet. Net debt-to-equity ratio stood at 0.96 at the end of the second-quarter.
  • Fair valuation. Stock is trading near historical multiples with room for multiple expansion.
  • Potential risks to consider: 1) hiring and retaining truck drivers; 2) wage inflation; 3) higher acquisition costs with rising multiples paid for acquisitions by industry peers; 4) truck delivery delays due to component shortages. The company is waiting for its order for 80 trucks to be delivered; and 5) low trading volume, which can increase price volatility.

Quarterly earnings

After the market closed on Aug. 10, Titanium reported its second-quarter financial results.

Revenue came in at a record $100.8-million, surpassing the consensus estimate of $85.7-million. Revenue from the logistics segment was $57.7-million and revenue from the truck transportation segment was $44.8-million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $7.5-million fell short of expectations. The Street’s forecast was $8.2-million. The adjusted EBITDA margin was 8.1 per cent down from 8.7 per cent reported during the same period last year. Adjusted earnings per share came in at 2 cents, below the consensus estimate of 3 cents.

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The following trading day, the share price rallied 11 per cent to $3.33 on high volume with over 230,000 shares traded, well above the three-month daily average trading volume of approximately 54,000 shares.

Management revised its 2021 revenue guidance, now expecting revenue of roughly $350-milion up from its previous guidance of $330-million. Management maintained its 2021 EBITDA target of $33-million.

Dividend policy

In Nov. 2020, the company initiated a quarterly dividend. In a news release, the co-founder, president, and chief executive officer Ted Daniel said, “This decision is a significant milestone for the company and demonstrates the confidence we have in our balanced capital deployment strategy. As we near the end of our fifth year as a public company, we remain vigilant in our capital allocation, however, we are cognizant of our commitment to our shareholders and we are excited to add this element into our capital deployment strategy. The amount of the dividend was set to ensure it did not sacrifice other priorities such as repayment of debt, opportunistic share repurchases and accretive acquisitions.”

The company pays its shareholders 2 cents per share quarterly or 8 cents per share yearly, equating to a current annualized yield of 2.4 per cent.

Analysts’ recommendations

This micro-cap stock with a market capitalization of $149-million is covered by three analysts on the Street, and all three analysts have “buy” recommendations.

The firms providing research coverage on the company are: Cormark Securities, Desjardins Securities, and Paradigm Capital.

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Revised recommendations

Target prices have remained stable, unchanged over the past several months.

Financial forecasts

The Street is forecasting revenue of $374-million in 2021, rising 14 per cent to $429-million in 2022. The consensus EBITDA estimates are $35-million in 2021 and $44-million in 2022. The consensus earnings per share estimates are 19 cents in 2021, jumping to 33 cents in 2022.

In recent months, revenue forecasts have increased slightly while earnings expectations have remained stable. For instance, three months ago, the consensus revenue expectations were $360-million for 2021 and $415-million for 2022. The consensus EBITDA estimates were $34.7-million in 2021 and $43.5-million in 2022. The consensus earnings per share estimates were 18 cents for 2021 and 31 cents for the following year.

Valuation

According to Bloomberg, the stock is trading at a price-to-earnings (P/E) multiple of 10.3 times the 2021 consensus estimate and at an enterprise value-to-EBITDA multiple of 5.0 times the 2021 consensus estimate. These multiples are in-line with the three-year historical average P/E multiple of 10.5 times and three-year historical average EV/EBITDA multiple of 5.1 times.

The average 12-month target price is $6.08, suggesting the share price has 79 per cent upside potential over the next year. Individual target prices are as follows in numerical order: two at $6 and $6.25.

Insider Transaction Activity

In the second half of 2021, there has only been one trade in the public market reported by an insider.

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In a relatively small transaction, chief financial officer Alex Fu purchased 4,700 shares at a price per share of $2.95 on Sept. 15, increasing this particular account’s position to 115,391 shares.

Chart watch

Between Nov. 2020 and April 2021, the share price rallied to over $4 from around the $1.50 level. On April 13, the stock price closed at a record high of $4.15. Afterwards, the share price has steadily retreated, making a 50 per cent retracement to below $3 in late-Sept.

The share price has since stabilized and is rebounding. Year-to-date, the stock price is up 36 per cent.

Looking at key technical resistance and support levels, the stock has an initial ceiling of resistance around $3.50. After that, there is overhead resistance between $4 and $4.15 (at its record closing high of $4.15). Looking at the downside, there is technical support between $2.80 and $3.

This micro-cap stock is thinly traded. The three-month historical daily average trading volume is approximately 54,000 shares, and on some days less than 10,000 shares are traded in the public market. Consequently, the share price can be volatile. For instance, with a thinly traded stock it may be difficult to sell a position at a reasonable price if there are few buyers in the market.

POSITIVE BREAKOUTSOct. 8 close
ARX-TARC Resources Ltd $12.43
BDGI-TBadger Infrastruture Solution $36.34
BTE-TBaytex Energy Corp $3.76
BEI-UN-TBoardwalk Real Estate Investment Trust $49.31
BNE-TBonterra Energy Corp $6.40
CNQ-TCanadian Natural Resources Ltd $49.62
CWB-TCanadian Western Bank $38.78
CJ-TCardinal Energy Ltd $4.38
CVE-TCenovus Energy Inc $14.06
CEU-TCES Energy Solutions Corp. $2.08
CGX-TCineplex Inc $14.26
CMG-TComputer Modelling Group Ltd $5.10
CPG-TCrescent Point Energy Corp $6.41
CR-TCrew Energy Inc $3.45
DXT-TDexterra Group Inc. $8.72
D-UN-TDream Office REIT $23.75
ENB-TEnbridge Inc $51.59
EFX-TEnerflex Ltd $9.79
ERF-TEnerplus Corp $11.15
ESI-TEnsign Energy Services Inc $2.19
FRU-TFreehold Royalties Ltd $11.54
FEC-TFrontera Energy Corp. $7.95
IMO-TImperial Oil Ltd $42.56
IPCO-TInternational Petroleum Corp. of Sweden $7.23
LA-XLos Andes Copper Ltd. $8.34
MEG-TMEG Energy Corp $10.35
NA-TNational Bank of Canada $100.44
NLC-XNeo Lithium Corp. $5.49
NOA-TNorth American Construction Group Ltd. $19.47
NTR-TNutrien Ltd. $87.52
NVA-TNuVista Energy Ltd $5.82
OVV-TOvintiv Inc. $47.86
POU-TParamount Resources Ltd $20.17
PXT-TParex Resources Inc $25.18
PSI-TPason Systems Inc $9.06
PEY-TPeyto Exploration & Development Corp $10.17
PSK-TPrairieSky Royalty Ltd $15.14
PD-TPrecision Drilling Corp $55.82
SES-TSecure Energy Services Inc $5.36
SCL-TShawCor Ltd $6.24
SDE-TSpartan Delta Corp. $6.13
SRX-TStorm Resources Ltd. $5.99
SMU-UN-TSummit Industrial Income REIT $21.86
SLF-TSun Life Financial Inc $68.50
SU-TSuncor Energy Inc $28.81
TVE-TTamarack Valley Energy Ltd. $3.56
TWM-TTidewater Midstream and Infrastructure Ltd. $1.53
TGL-TTransGlobe Energy Corp $3.94
TCW-TTrican Well Service Ltd $3.17
VB-TVersaBank $14.78
WCP-TWhitecap Resources Inc $7.53
NEGATIVE BREAKOUTS
AT-TAcuityAds Holding Inc. $7.70
AQN-TAlgonquin Power & Utilities Corp $18.10
AMY-XAmerican Manganese Inc. $0.87
APS-TAptose Biosciences Inc $2.72
ORA-TAura Minerals Inc. $13.00
BB-TBlackBerry Ltd $11.70
BLX-TBoralex Inc $35.27
CF-TCanaccord Genuity Group Inc $13.11
CCA-TCogeco Communications Inc $111.37
CGO-TCogeco Inc $87.34
CTS-TConverge Technology Solutions Corp. $9.22
CL-CNCresco Labs Inc. $10.15
CRON-TCronos Group Inc. $6.81
DII-B-TDorel Industries Inc $10.42
DND-TDye & Durham Ltd. $39.38
GTII-CNGreen Thumb Industries Inc. $31.80
HEXO-THEXO Corp. $2.15
INE-TInnergex Renewable Energy Inc $19.08
MRG-UN-TMorguard North American Residential REIT $17.08
MRT-UN-TMorguard Real Estate Investment Trust $5.56
NPI-TNorthland Power Inc $38.24
PPTA-TPerpetua Resources Corp. $5.84
REAL-TReal Matters Inc. $9.33
RECP-TRecipe Unlimited Corp. $18.66
SAP-TSaputo Inc $31.28
SIA-TSienna Senior Living Inc $13.94
SOY-TSunOpta Inc. $10.71
TER-CNTerrAscend Corp. $8.19
LEV-TThe Lion Electric Company $13.30
RNW-TTransAlta Renewables Inc $18.88
VLNS-TValens Company Inc. $2.18
VFF-TVillage Farms International $9.90
WELL-TWell Health Technologies Corp. $6.75
XBC-TXebec Adsorption Inc. $2.60

Source: Bloomberg and The Globe and Mail

Please note that this report is not an investment recommendation. The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

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If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

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