TIL Logistics Group Ltd [NZX:TLL] is a freight-and-logistics business headquartered in New Plymouth. It has a market cap of around $64m. The share price today is around 73c.

The company goes back to the 1860s, when it started out as the Hooker Brothers transport company. Growing up in Taranaki, it’s a name I know well.

In 1989, TIL created a new vision: to grow the business and expand nationwide.

Today it owns 2,300 trucks, trailers, forklifts, and delivery vehicles. It has branches from Auckland to Invercargill, and key contracts with Z Energy [NZX:ZEL] and Farmlands.

Investing in growth and facilities has not come without its challenges. The business carries significant debt, with the current debt-to-equity ratio appearing to sit around 260%. This is high. We don’t generally like to see debt-to-equity of more than 100%.

It has been a rocky ride for some shareholders. Over the past year, the share price has fallen from around $1.30. The company looks to have struggled with increasing margin and cost pressures hitting earnings.

 

Why has the [NZX:TLL] share price risen?

 

This morning, the company posted earnings guidance that was more favourable than the market expected:

‘For the financial year ending 30 June 2020 (FY20), EBITDA (excluding impact of IFRS 16) is expected to be between $25m and $27m, down on the prior comparative period (FY19) of $28 million, but ahead of the March 2020 guidance of $23-$24 million EBITDA that was withdrawn at the beginning of the Covid-19 restrictions later that month.’

TIL was proactive in maintaining their business through the challenging COVID-19 period. The government wage subsidy allowed them to retain and pay over 1,500 employees at 80% of their wages.

Director fees and executive salaries were reduced by 25% and 20% respectively.

Management reports this domestically focused business is well-placed to take advantage of opportunities in the ‘new normal’ environment.

 

Where could [NZX:TLL] go from here?

 

In short, TIL is a business I’d like to do more analysis work on. Freight and logistics is a growing area. And I can only see it growing further in this new era of increasing direct-to-customer delivery.

The earnings upgrade in light of recent events is promising. On DCF analysis alone, the firm looks to be worth closer to $1 per share. There could well be a value-gap here.

But I’d also like to see the debt factor reduce. In the last annual report, total liabilities weighed in at about $142m, on assets of only $176m.

I’m sure the business has plans to reduce this debt. And improve its risk profile to the market.

Such plans have likely been hamstrung by the tough coronavirus trading period.

It is good to see some green shoots on the road ahead. For those comfortable with the risks inherent in a small-cap, leveraged business, this could represent an interesting long-term sector play.

 

Regards,

Simon Angelo

Editor, Wealth Morning

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(This information is provided as a general update only. No investment advice is given or should be construed. Please seek independent advice.)