Good Stock Performance but the Finances Need Attention…

NFI is a leading independent global bus manufacturer offering a comprehensive range of mass transportation solutions. NFI buses are available in clean diesel, natural gas, diesel-electric hybrid, and zero-emission electric makes.

NFI has a global fleet of more than 70,000 vehicles in heavy duty transit buses, 50,000+ vehicles in motor coaches, and 8,000+ vehicles in medium duty and low floor cutaway vehicles. NFI Group’s brands are New Flyer (heavy-duty transit buses), Alexander Dennis Limited (single and double-deck buses), Plaxton (motor coaches), MCI (motor coaches), ARBOC (low-floor cutaway and medium-duty buses) and NFI Parts. Manufacturing accounts for 85% of total revenues and aftermath services constitute the remaining 15%. By products, transit buses constitute the majority of manufacturing revenues (nearly 75%), followed by motor coaches (24%), and medium duty and low-floor cutaway (~2%).

NFI operates more than 50 facilities across ten countries. By geographies, the U.S. accounts for 85% of total revenues, followed by Canada (13%), the U.K. and Europe (2%) and APAC (>1%). The company enjoys market leading positions in the US, Canada, UK, Hong Kong, and New Zealand. It has strong portfolios in Singapore, Malaysia and Mexico and a growing presence in Switzerland and Germany.

Investment Data

Revenue Growth & Market Exposure

NFI Group is a trusted global partner with more than three centuries of combined bus and motor coach design and manufacturing expertise. Its vertically integrated North American fabrication processes and proven propulsion agnostic bus platforms act as strong differentiators. The company regularly invests in technology and innovation and has a solid history of successful innovations like electric trolleys, low-floor transit buses, CNG propulsion, battery-electric, low-entry motor coach, double-deck buses, etc.

Most of NFI brands are leaders in their core businesses. For instance, New Flyer is North America’s largest heavy-duty public transit bus manufacturer while MCI is the North American market leader in motor coaches. NFI Parts is North America’s most comprehensive parts organization, providing replacement parts, training, service, and support. NFI group enjoys a 43% market share in the North American heavy duty transit bus. The North American procurements are expected to continue in 2019. NFI group is all set to gain from a healthy pipeline of orders. Singapore order is expected to begin delivery in 2020 while BVG contract in Berlin (for ~430 vehicles) will begin contribution in 2021.

NFI Group enjoys diversified revenues with a global upside. The group’s revenues are classified by geographies, products, customers, and services. About 80% of NFI’s revenues are driven by public customers. They are generally government funded and thus increase the reliability of secure cash flows.

Dividends

NFI Group has an impressive history of sustainable dividends. It has paid consistent and growing dividends every month/quarter since its IPO in 2005. The company has registered over 13% annual growth in dividend in 2019 and sports a 51% payout ratio.

The company has a solid track record of acquisitions and proven ability of successfully integrating these businesses. NFI’s recent acquisition of ADL, UK’s leading bus manufacturer, further enhances its product portfolio and technical competencies on lightweight chassis and bodies. ADL was a significant acquisition made by the company while keeping NFI’s dividend policy intact.

NFI Group’s focus on growing share in North America through new products should also start bearing fruit in the future. It stands in a good position to leverage its leading position as a global bus manufacturer and benefit from the continued development of electric coach for U.S. and Canadian markets. NFI is North America’s largest bus and coach parts distributor and is expanding NFI parts North American offering and exploring strategic opportunities to leverage NFI and ADL parts.

NFI has provided delivery guidance of 4,095 EUs heavy duty transit buses, 1,140 EUs motor coaches, and 425 vehicles medium-duty and low floor cutaway vehicles in 2019. It should therefore benefit from innovative products, strong pipelines and accretive acquisitions and should continue its double-digit dividend growth streak in the future.

Competition

NFI Group competes with the likes of Volvo, Gillig, Proterra, BYD, Optare, Wright Bus, Scania and MAN in the heavy duty transit bus segment and Van Hool, Daimler, Irizar and TEMSA in the motor coach segment. Forest River, REV Group, Grande West are its biggest competitors in the medium-duty and low floor cutaway vehicles. NFI is well positioned to lead technology developments. It is also leading the way in zero emission buses and infrastructure.

Bottom Line

NFI has been successfully returning cash to shareholders through dividends and share repurchase. The company is in a good position to gain from the growing target markets in the US and UK, and continued development of electric coach for North American markets. NFI should also benefit from its potential to capture both revenue and cost synergies as a result of the ADL acquisition.

Everything appears to look good but I really do not like the Piotroski-F score of 1. A score of 1 implies a company going towards financial trouble and the downward trend over the past year was also a signal. We obviously do not invest in past performance but in future performance which warrants further investigation by investors.

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