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NFI Group (NFI) previously New Flyer

27K views 60 replies 23 participants last post by  AltaRed 
#1 ·
I was wondering if any of you guys follow this stock. I have taken a small position in this one recently after selling some stocks which I felt were worth taking profits on. This is a company that makes heavy duty transit buses and also has business divisions that focus on after market parts and repairs/maintenance. They are just coming off a couple of small acquisitions that should be quite accretive with their existing operations. They currently have a market cap of about $513M, PE 9.9, Div yield 5.6%. They are a dominant player in CNG buses and now have a better total package to offer municipalities after their acquisitions. They have just announced a few big deals and have a big backlog (about $2.7B at their last update a couple of months ago or about 5 times their current market cap with 2/3rds of that firm and 1/3rd options).

In terms of recent major business deals a dominant Brazilian bus company Marcopolo SA has bought a 19.9% interest in the company for $116M that will be invested in NFI's production capabilities. This deal should open up the Brazilian market for them and their CNG buses. They also recently made an acquisition of Daimler's North American bus aftermarket parts division that rounds out their portfolio of services and decrease the cyclicality of their business.

They are presently the leader in CNG buses (powertrain from Cummins). With municipalities trying to produce cleaner air choices and decrease operating expenses that can give them an advantage. They do offer other powertrains including diesel, LNG, electric and diesel-electric hybrids but CNG appears to be their strength. Many municipalities are stuck with ageing, fuel inefficient and heavily polluting fleets that lack modern features such as security cameras and wheelchair accessibility while trying to deal with increased ridership. This should give them a long runway of steady demand for several years.

On the negative side of the ledger it seems as though much of their orders come from municipalities who may be struggling under debt burden. If the federal and state governments now come under further stress from sequestration that could affect future orders and even some of their current backlog. The other thing about them is their earnings tend to be a bit lumpy from quarter to quarter so that could lead to a fair bit of volatility.

Anyhow, this company looks like they are strong right now and are in a very favorable industry for the next decade or so. They are very shareholder friendly with what looks like a sustainable dividend. Their appears to be quite a bit of room for growth with their big backlog. Management also seems to understand how to deploy capital with their decision to leave manufacturing of less profitable bus lines to competitors and their focus on higher end CNG alternatives.

Any thoughts on this one are appreciated.
 
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#2 ·
I've taken a look at this company a couple times, but never came to a buying decision. Anytime I dug into the financials, it seemed like their profits were low and dividends were high. Although the P/E is being reported at 9-10, in their Q3 report they had net earnings of $8M over the previous 3 quarters (and a loss in Q3 itself), which works out to a much much higher P/E than 10 - more like 50. Not enough consistent profitability for me. And the stock is up quite a bit despite a cut in the dividend by 32% in July after they redeemed a pile of debentures, presumably to limit the total value of dividends spread over more shares. They may have growth that renders the negatives moot points but it's not for me.
 
#3 · (Edited)
Thanks for the reply doctrine. This is a very small position for me right now and I had mostly looked into it as it was a Fabrice Taylor recommendation. They do have a long history of being a dividend payer (about 7.5 years) and had recently converted from a trust to a corporation so that may account for the cut in the distributions.

This was one where there is some income and some growth and a small enough capitalization and a ramp for growth.

I had liked the move deeper into servicing and repairs. I also liked the move into higher profit buses. I also liked the deal with the Brazilian company that should open up international markets. Some of those factors should increase profits overall while also decreasing cyclicality.
 
#28 ·
I dont own NFI but recently been buying BUS.V who competes in the same market. They announced last week a 112 Bus deal.with Vancouver and today announced Grande Prairie and Lethbridge have both placed. Orders.

I know NFI is definitely the dominant player in this category and the dividend is amazing!

Cheers
 
#30 ·
The conversion price is $10 /share right? I guess it depends on how you feel about NFI. It has had a great run the question is can that continue or is it due to pull back?Me, I sold out of it I thought it was getting ahead of itself. But the dividend increases have been good and they are selling lot of units.
 
#33 ·
I don't think it is a $10 conversion price - maybe I'm misunderstanding the conversion option - I've been informed by my broker that each bond gives me 10 shares.

I look at NFI and am not ready to jump out yet as I think it may go higher. At some point I may want to convert or sell the bonds to capture the cap gain.
 
#34 ·
Yes the conversion price is $10 that's why the debentures which started at $100 will convert to 10 shares. $100 = 10 shares =$10 per share conversion price.

That's why they are trading at $308.23 now since the shares are so far above the conversion price.
 
#36 ·
FYI: NFI Industries (NFI)

Hi all:

Just an FYI for anyone who owns or is considering NFI Industries (NFI) previously New Flyer Industries.

The stock was doing well, and then dove somewhat on concerns and rumous about Trump auto tariffs and metals tariffs. I spoke with Investor Relations and after a while got this info from them:



Dear Investor:

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

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