NFI Group in position to take advantage of opportunities

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This article was published 26/08/2023 (776 days ago), so information in it may no longer be current.

NFI Group has been through a lot the past couple of years.

It’s share price hit bottom in May after being badly hurt by post-pandemic supply chain shortages.

The stock has risen by more than 50 per cent since then, even if actual production numbers aren’t rising that fast, but it is an indication of investors’ confidence in the company’s market opportunity and its determination to rebuild its financial underpinnings.

After the pandemic pushed the company into default of its bank covenants, the company has been furiously negotiating a complicated refinancing, which was officially and successfully concluded on Friday.

Its shares got a solid two per cent bump, but mostly the markets had already priced it into the equation.

The fact that the second largest shareholder, Coliseum Capital Management, LLC, committed to a US$133 million private placement of new equity and then also a US$180.4 million debt financing — at 14 per cent, now the going rate for such commercial debt in this new era of elevated interest rates — might have provided enough of a signal to the market.

If such a significant investor — Coliseum’s CEO, Adam Gray, has been on the NFI board for about a dozen years — was willing to take a chance, maybe it just might work.

(After originally committing to the private placement, Gray recused himself from the board and was not privy to the details of the re-organization.)

On Friday, Paul Soubry, CEO of NFI, acknowledged that Gray’s commitment had an impact on him.

“If a board member and second largest shareholder wants more (Coliseum is now the largest shareholder) and is willing to loan us money, they must believe in the business,” Soubry said, “So I take it as a vote of confidence, not a concern about conflict.”

What Gray would know, as would anyone who reads NFI’s filings and knows anything about the public transit business, is that despite the monumental disruption of the pandemic and subsequent supply chain logjam, funding for public transit infrastructure across the U.S. and Canada is at historic levels.

In a statement, Gray acknowledged the “tremendous upside potential” for NFI.

“The refinancing plan provides NFI with the runway and flexibility required to capitalize on the strong market tailwinds in public transportation and the transition to zero- emission mobility, while allowing management to remain focused on operational excellence,” said Gray.

Last quarter, NFI submitted more bids than in any other quarter in the company’s history.

Another reason for investors to believe in NFI, even after its debt exposure might have been enough to put a lesser company into receivership, is the fact that it already has the production capacity on hand to address that “tremendous upside potential.”

It’s not like it has to go out and blow all that new liquidity on additional capacity. It’s already in place.

In 2019, across all its operations, it produced 6,200 buses. In 2022 it was down to 3,000. This year it’s expected to reach 3,800. In 2025, the forecast is to get back to 6,000.

With the demand for zero-emission buses now institutionalized in municipalities across North America and in Europe — where NFI’s Alexander Dennis unit is also a market leader — NFI’s order book is stacked.

NFI did not lose any market share through these turbulent few years and while the so-called “bid universe” has risen dramatically, key competitors are falling off. Earlier this month, Proterra, an all-electric bus manufacturer once the darling of venture capitalists, filed for bankruptcy protection. In June, Nova Bus, a Volvo subsidiary, announced that it would be exiting the U.S. market after 2025.

It’s not to say that all that business will fall into NFI’s lap, but it would be fair to say that it will create even more opportunities for NFI to win even more of it bids.

And this is not a company that over-promises and under-performs. This is a company that has been making buses since 1930.

In a note to his clients, Cameron Doerksen, an analyst with National Bank of Canada Financial Markets, said that with balance sheet flexibility and demand for buses continuing to be very strong, he believes financial results will improve this year and beyond, which will support a higher share price.

In an interview Friday, Soubry breathed an audible sigh of relief.

“The ball is back in our court now,” he said. “Instead of worrying about banking and finance, now it is an execution story.”

martin.cash@freepress.mb.ca