Mullen target price in question despite Gardewine deal

TORONTO, ON – TD Securities says reduced activity in western Canada may offset the benefit to Mullen of its acquisition of the Gardewine Group.

The company is lowering its target price on Mullen stock to C$23.00 from C$25.00, but reiterated its “hold” recommendation.

“Though we view the transaction as a positive, it simply does not outweigh the impact on Mullen of reduced activity in western Canada.”

Mullen Group, a provider of transportation and related services to the oil and natural gas industry, had its coverage resumed at TD Securities, following the closing of the acquisition of Gardewine Group, which was initially announced on in November.

TD Securities said there were tangible benefits related to the acquisition of Gardewine.

“It expands Mullen’s LTL (less than truckload) trucking footprint in central Canada, diversifying its revenue streams away from western Canada, more specifically the oil and gas space,” analyst Scott Treadwell said in a research note to investors today.

Gardewine is based out of Manitoba, with a substantial presence in Ontario, and was one of the largest privately owned transportation carriers in Canada, TD Securities said.

The company’s primary service offering is LTL General Freight hauling, in addition to specialty trucking services. Gardewine’s assets consist of 660 power units, 1,300 trailers (including straight vans, reefer units, decks, and specialized trailers), 23 owned terminals (estimated value of $40 million), with an additional 11 leased and nine partner sites, along with 1,500 employees.

TD Securities said it believes the acquisition has expanded Mullen’s LTL business into Manitoba and Ontario, increasing its total number of owned and operated LTL businesses in Canada to five.

Management expects the acquisition to be accretive, adding $25 million in annual operating income without factoring in substantial synergies, according to the note.

TD Securities believes acquiring Gardewine is expected to diversify Mullen’s revenue streams, as its trucking/logistics group is anticipated to expand from 40 percent of overall revenue to 50 percent this year.

Shares of the Okotoks, Alberta-based company have lost 37 percent in the past six months, giving it a market value of C$1.74 billion.

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