NFI Group (was New Flyer Industries) (Symbol - NFI.TO)

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NFI Group (was New Flyer Industries) (Symbol - NFI.TO)

Post by Hogwild »

Hi everyone:

Does anyone know what might have prompted the drop in NFI (New Flyer Industries) the last few days? It's down about $5.00 a share or roughly 10%.
The timing seems to coincide with the Q3 report, but those numbers seemed pretty decent, except for the parts division and they are working on that.

I'm considering buying near this price, so would welcome some input.

Thanks

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AltaRed
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by AltaRed »

I have watched this on and off for a few years. My take is FCF is way off YTD (by 22.6%) and that does not sit well with a stock that has high valuations, e.g. P/E circa 17 and P/B circa 3.5, and an appreciating loonie.

You have to expect that kind of market reaction when a stock is priced, in my opinion, to near perfection. At $50, it is still worth way over its 52 week low of $36 and I would expect more softness. No doubt I've got that wrong now that I have said it.
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by Dudsy »

The FCF drop is related to capital spending, which everyone's been aware of this year, so I don't think that was the reason. Their revenue was a bit light compared to expectations this quarter so it looks like some profit taking to me. The market seems a little skittish this week for some of these growth stocks.

Where it goes in the short-term... who knows?? Their backlog keeps growing which provides visibility on growth. Unless the broader economy starts to slow down, I wouldn't be too concerned from here.
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Re: New Flyer Industries (Symbol - NFI.TO)

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Fair enough though I think the market could question whether that expenditure will be value added. Point taken though.
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by Hogwild »

Thanks. I had not noticed the drop in free cash flow. (D'oh!) Glad you pointed it out. I'm waiting to get in on this stock, but I still am not sure
where. I think long-term it's a good hold.

Are there any concerns that the Trump government might apply tarriffs? I Googled for it, and I couldn't find anything relating to buses/coaches, but I thought I'd ask just in case.
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by Hogwild »

For anyone still reading, I sent an email to Jon Kofman, Investor Relations contact at New Flyer. From my reading, the important points in his email were that:

90% of New Flyer's customer base for new buses is in the US. The other 10% Canadian.
They have 2 coach manufacturing facilities in Canada and 4 in the US.

Based on percentage of purchases, 75% of their suppliers are in the US.
Most of the remainder are in Canada.

He said that they didn't feel they could quantify the risks associated with NAFTA/Free trade with the US, because not enough is known about what's going to happen. (no kiddin' with Trump as chief).

However, he said, part of the risk would be mitigated by "the current and planned future levels of the Company's U.S. manufacturing operations and U.S supply chain". He said NFI was sell positioned for that. Which I assume means their proportion of manufacturing facilities and/or parts suppliers leans more towards the US.

The rest was formal business gobbledigook.

This seems at least mildly encouraging to me, even though I can't quite quantify it.
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by AltaRed »

Good information, which validates what I thought anyway. Based on their financials, I thought they would be relatively insulated from a NAFTA collapse, some tariffs on cross-border parts notwithstanding.

I suspect most businesses with a substantial US presence would find a way to minimize cross-border 'taxation'. Though I believe NAFTA will survive in some form, it won't be 'as good' as it is currently, and thus I have pretty much positioned my portfolio stocks to be 'relatively immune to cross-border trade....notwithstanding that a significant NAFTA degradation will deal a blow to GDP in both countries that will depress equity markets in general, e.g. banks, engineering companies, etc. because business overall will be down.

That said, NFI's valuation metrics are, in my opinion, still too rich. IOW, I don't see enough profit growth in their future to warrant current multiples. They'd have to make another acquisition or increase their production significantly, to make a step change in EPS. I might bite in the $45 range though I'd much prefer closer to $40.
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by Hogwild »

Hi AltaRed:

Interesting. It currently shows as having a P/E (TTM) of about 15.7. That's lower than most of the broader market nowadays. Are you going more by the Forward P/E or would you wait either way?
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Re: New Flyer Industries (Symbol - NFI.TO)

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Waiting either way. I don't see enough of a growth story to warrant current valuations. What they have is good backlog....which is different than growth given what I believe limited capacity to increase production rate. Someone needs to convince me they can materially increase production/delivery rate and thus EPS to warrant current numbers. Perhaps others see something I don't see on future growth.
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by Hogwild »

AltaRed:

Always great to your opinions. I will keep this in mind when waiting for a further drop in price. Thanks.
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by AltaRed »

You have to make up your own mind. If I had all the answers, I'd be on my yacht off St. Lucia right now.
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by kcowan »

If you held it, would you hang in? My cost is $10 per share.

(We rented a yacht for the day and went from Castries to Les Gros Pitons. Lots of rum and warm water swimming. But no NFI buses on the island!)
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Re: New Flyer Industries (Symbol - NFI.TO)

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Yes, I would continue to hold it if I had it. I am a 'buy and hold' type guy. I rarely sell something just to hop to something else....until it REALLY pisses me off. But to buy in the first place, especially with a yield under 3%, I have to be convinced of reasonable expectations of capital appreciation. I hate being underwater too long.

Example: I stil hold ENB despite its latest swoon and will continue to hold. My goal is to essentially be able to only look at my 'stuff' once a month or so.
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by kcowan »

Thanks AR. I think we follow the same strategy. You more so than me but I have been retired longer! If I live long enough, I might get to automatic pilot.

We have friends who just bought in Penticton. So if we get there next summer, I will get in touch for a quaffing and sharing.
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Re: New Flyer Industries (Symbol - NFI.TO)

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Sounds like a plan....!
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by Pitboard »

PV could use some new buses BUT could they handle the cobbles and speed bumps. LOL
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Re: New Flyer Industries (Symbol - NFI.TO)

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Pitboard wrote: 20 Nov 2017 16:30PV could use some new buses BUT could they handle the cobbles and speed bumps. LOL
Many of their buses are Mercedes. It only takes a year to destroy their suspension. It would be nice if they had pollution controls...then NFI could sell their products.
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by Peculiar_Investor »

Some background to his post can be found in my recent topic Stock study techniques.

For those interested,
NFI.TO - Toolkit 6.pdf
(74.56 KiB) Downloaded 49 times
I projected the future sales and EPS growth rates to be significantly lower than historical averages because in my judgement the company's business model and target markets doesn't allow these high growth rates to continue. Projecting the future is near impossible, so I generally try to make conservative predictions to provide a margin of safety. In Section 4, again I'm using what I believe to be conservative guesses on future P/E ratios, which are more inline with average P/E ratios for the market.

The bottom line from my analysis is to keep an eye on this stock, but at current prices and valuation it hasn't reach enough margin of safety for me to consider a purchase. Of course, your analysis and valuation might provide a different insight into the company. I'd be quite interested in any comments/feedback/counterpoints that can help to understand the company and its future prospects as an investment.
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by Dudsy »

Peculiar_Investor wrote: 21 Nov 2017 10:30 I projected the future sales and EPS growth rates to be significantly lower than historical averages because in my judgement the company's business model and target markets doesn't allow these high growth rates to continue.
Quantifying is always helpful.

Your tool, in this case, is simply reflecting your pre-conceived notion.

I personally focus on high ROE (with an eye on debt) and growing cash flows over the last 5 years.
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by kcowan »

I hung on during the downturn and was rewarded with their acquisition of ARBOC last week. Definitely accretive with a PE of 10, and revenue growth for 2018 of 40%.
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by Dudsy »

Dudsy wrote: 10 Nov 2017 14:30 Their backlog keeps growing which provides visibility on growth. Unless the broader economy starts to slow down, I wouldn't be too concerned from here.
https://www.newswire.ca/news-releases/n ... 84363.html

NFI is up 16% since November.
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by AltaRed »

It appears I may have missed this one..... :?
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Re: New Flyer Industries (Symbol - NFI.TO)

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Peculiar_Investor wrote: 21 Nov 2017 10:30 I projected the future sales and EPS growth rates to be significantly lower than historical averages because in my judgement the company's business model and target markets doesn't allow these high growth rates to continue.
Backlog increased 19% to $6 billion; which is now 2.5x annual revenue.

https://www.newswire.ca/news-releases/n ... 84413.html
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Re: New Flyer Industries (Symbol - NFI.TO)

Post by kcowan »

Market reacts to the good news with $60+ up from $54 on year.
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FYI: NFI Industries (NFI)

Post by Hogwild »

Hi all:

I can't remember if it was on here, or on another forum, I was griping about not being able to find out what was going on with New Flyer (now NFI Group) vis a vis the metals tariffs, auto tariffs and Buy American. Full disclosure: I have a full a position.

I recently managed to find out some info. from them, and thought I'd share it. Here is an email I got from the new Investor Relations Rep. at NFI Group.

============================================================================================================

Hi XXXX:

In our Q2 results release we did comment on the NAFTA, U.S. steel and aluminum tariffs, Canadian surtaxes and commodity prices. Here’s the language from the release. You can find all of this on pages 9 and 10 of our Q2 MD&A.

Commodity Price Increases, Tariffs and Surtaxes

The Company uses aluminum, carbon steel and stainless steel in the manufacture of bus and coach frames. However, these raw materials, before processing, comprise less than 3% of total material costs. Management currently anticipates an immaterial impact for the remainder of 2018 from current market increases in aluminum and steel pricing as major components are purchased under fixed price or contract specific quotations. Management expects that any future component cost increases should be substantially recoverable through new contract pricing or through the producer price index (PPI) mechanisms in multiyear contracts.

On June 1, 2018 the U.S. federal government imposed tariffs on Canadian steel and aluminum imported into the U.S. In response the Government of Canada imposed certain surtaxes on U.S. steel and aluminum imported into Canada after July 1, 2018. The majority of the aluminum and steel used at the Company's manufacturing facilities is from U.S. sources, largely in support of the Buy America requirements of U.S. public customers. Canadian surtaxes paid on the importation of U.S. aluminum and steel used in manufacturing products at the Company's Canadian plants that are then re-exported to the U.S. are eligible for full recovery under the current Canadian federal Duty Relief and Duty Drawback Programs.

North American Free Trade Agreement

The Company's manufacturing facilities operate in an integrated manner with parts and components shipping in both directions over the Canadian/U.S. border. The Company's supply chain has been established to ensure compliance with the more stringent U.S. federal Buy America requirements for rolling stock funded by FTA grants. In the case of both New Flyer and MCI public customers, a certain quantity of transit bus and motor coach shells are manufactured in Canada and shipped for final assembly in the United States. In the case of private sector sales, all MCI motor coaches are manufactured in Canada. All ARBOC low-floor cutaway and medium-duty transit buses, used by both public and private customers, are manufactured in the U.S. Under the current NAFTA agreement, all shells and finished buses and coaches move across the border free of any duties. Nearly all the purchased components sourced within the NAFTA region meet the current 62.5% regional content requirement and therefore also move across the border free of any duties. The Company today pays immaterial tariffs for non-NAFTA supply. Any amendments that would impose duties on parts, shells and finished buses and coaches could have a significant financial impact given materials comprise approximately 69% of manufacturing costs and complete buses and coaches are imported to each country on a regular basis. Management continues to closely monitor NAFTA negotiations and is developing contingency plans to mitigate the impact on the Company should changes occur to the current agreement.

End of copied text

With respect to the post-quarter trading, from what I’ve been hearing some of the drop was as a result of two of the largest auto parts manufacturers, Magna and Linamar, also reporting when we did and they had some comments to the effect of they were uncertain what the total potential financial impact NAFTA and tariffs/surtaxes could have on their business. We got tied up with some of that negative noise from the looks of things.

Hope that helps,

Investor Relations

================================================================================================================

TL;DR

Basically, they see no material risk in current happenings related to metal prices, Trump tariffs, or similar. They also just announced
another CDN. order.

Hopefully, this will help someone else.
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