PART1: Deep Dive on Marine Segment of Logistec - TSE: LGT.B
A family controlled company operating in 2 segments: maritime and environment, growing revenue at an impressive CAGR of 13.6% in the last 10 years through organic growth and bolt-on acquisitions.
This following is a deep dive article on Logistec. The article constitutes the authors’ personal views and is for entertainment purposes only. Please refer to the disclaimer at the end of this article for more details.
Please note that all figures in this article are in canadian dollars.
Logistec operates in two wonderful business segments. The first deep dive post (Part 1) will cover in depth the maritime segment which represents around 62% of the company revenue according to our rough 2022 estimates (q4 has not been released yet).
Revenue CAGR 14.5%
In the last 10 years, the maritime business has grown revenue at an impressive 14.5% CAGR! This is quite impressive for a slow growth industry. Note that 2022 numbers are based on our 2022 estimates (q4 has not been released yet). We will need to wait until mid March to get the final 2022 numbers. I will make an update then.
UPDATE: On March 22nd 2023, The company has released sales of $ 565 million for the marine services
In 2012, the Maritime business had revenue of $143 million (all figures in this article are in canadian dollars). From 2012 to 2017, revenue was growing at a mid single digit which is aligned with the industry. Then, from 2018 to 2022, the growth trajectory changed completely and accelerated. As you will see in the next section, Logistec did a major expansion in the Gulf Coast and Florida through a series of business acquisitions which have been a major factor in accelerating the growth.
I suspect that a portion of the recent revenue growth is also organic. Logistec has become a master in handling and shipping oversized parts on boats. such as wind energy components like blades, towers and nacelles for wind OEM’s, forwarders, shippers and carriers alike. Better ship those parts on a ship than on the road! The safe handling of over-dimension cargoes is quite complex and growing fast. Specialists like Logistec must be able to charge a hefty price. Logistec was named the terminal operator of the year (worldwide) at the 2022 International Heavy Lift Awards!
This is all about Ports and Terminals…
In 2012, Logistec was operating over 24 ports, mostly along the St-Lawrence River and a few ports in the maritime Provinces and the East Coast. Using WayBackMachine, a screenshot of Logistec’s 2012 website showing the network in 2012 was captured and displayed below:
Maritime Network circa 2012
10 years later, Logistec is operating over 53 ports, having added 10 ports through acquisitions along the Gulf of Mexico and Florida. Still, Logistec was able to organically grow the number of ports by around 19 ports. The presence of Logistec in the St Lawrence River seems ubiquitous now. Logistec has now a very strong presence in the Great Lakes, with strong presence in Lake Erie, Lake Michigan and Lake Huron.
Maritime Network circa 2021
Going through the last 10 annual reports, the business acquisitions related to the maritime segment were captured in the table below:
Logistec did seven (7) acquisitions for a total purchase price of $146.5 million. Logistec seems to be paying an average of 1.1 times sales. As I see, it bought very small operations with 1 or 2 terminals with no significant profit or often losing money. The only exception being the Gulf Stream Marine with 5 Ports and 10 terminals with a significant EBITDA of $10 million. I believe the GSM acquisition was a game changer. I also suspect that Logistec, with its expertise in oversized cargo handling, has turnaround many of these acquired business.
From 2012 to 2022 (estimates), Logistec has grown its maritime revenue by $417 million, of which I estimate that growth directly coming from acquisition is around $135 million. Thus, organic growth of acquired or existing operations represents $282 million. As such, organic growth is twice as important as growth coming for acquisition. This is critical, to understand the sustainability of the future growth.
Another observation is that that Logistec - a smart operator - is ready to pay a bit more than 1 time sales for acquisition. Currently, Logistec trades at a Price to sales of 0.6 !
The market might be underpricing Logistec according to this Price to Sales Ratio. Or Logistec might be paying too much for its acquisitions.
What about the Bottom Line?
The bottom line is pretty much seeing the same CAGR as the top line for the maritime segment. No margin compression here. Note that 2022 numbers are based on my 2022 estimates (q4 has not been released yet). As you can see below the bottom line (EBT) is growing at a CAGR of 14.6%. The same as the revenue line. One thing to note is I project a big jump on the bottom line in 2022 vs 2021, as Q4 2021 was pretty awful with a multi-million dollars write-off related to some Enterprise SW and one non recurring cost of $3 million to move a large equipment out of a terminal - I could speculate here that they might have lost a concession in 2021 and had to move their equipment to another port.
Another observation is that, in contrast to the revenue growth, which was sudden in 2018 and after, the major acquisition made in 2018 took some time to impact the bottom. Logistec might needed a few years to increase the utilization and efficiencies of the newly acquired ports. If we remove the non recurring cost of 2021, 2021 EBT should be closer to $35-37 million. The 2022 operating income boom, which started in 2021, could be related to the ability to offer more complex services in the Gulf coast such as oversized cargo as well as serving the recently booming market of oil related equipment (rigs, pipes, wells). There could be some cyclicality here as well. I do believe the 2019-2021 period was particularly challenging for the oil industry and hopefully the next few years will look more like 2022.
The Hidden Gem port in Montreal
Montreal is a strategic location to ship containers from or to the East (Europe, UK). Logistec manages two of the largest container terminals in Montreal, namely the Maisonneuve terminal and the more recent Viau terminal (operating under Termont Terminal). These assets don’t show up in Logistec top line since it is treated as an equity accounted investment. These terminals can handle 1.1 million TEUs per year. The Termont Terminal is a partnership of 3 parties: Logistec (the local and managing partner), Cerescorp, and the Mediterranean Shipping Company, the largest container shipping company. Logistec owns 25% of the entity.
In 2012, the Company’s share of profit for the year for Termont Terminal was $3.8 million.
In 2018, the Company’s share of profit for the year for Termont Terminal was $4.4 million.
In 2021, the Company’s share of profit for the year for Termont Terminal was $6.9 million.
In 2022, the Company’s share of profit for the year for Termont Terminal was $12.4 million (9mo).
The 2022 final numbers including Q4 need to be confirmed, but if around $12 million, this would signify a very strong jump from previous years. The Viau terminal capacity was expanded around 2020, and Logistec might have started reaping the benefits of this expansion. Even if 2022 is an exceptional year, I can assume that Termont Terminal can generates $10 million of operating profit for Logistec for the next few years.
Furthermore there is plan to increase the Port of Montreal’s capacity in Contrecoeur (South shore of Montreal) and Termont Terminal will surely have a concession there. So future growth is underway.
Based on the last 10 years, the maritime segment could grow organically and through acquisition at a similar rate as in the past 10 years. Logistec has a very long history of growing at a steady state since as it has been the case in the last 70 years of Logistec history as shown in the picture below. There is no guarantee that future acquisitions will occur or will be accretive to earnings. As we have seen, many acquired operations in the past had negative EBT. As an investor or potential investor, we must constantly monitor the progress of the company.
Hope this article helped the reader to have a better understanding of Logistec maritime operations.
I strongly recommend reading Dave Waters update on Logistec:
I will provide a Part 2 of the deep dive of Logistec that will cover in depth the environment segment. Have a nice week! Hopefully I will be able to post Part2 shortly.
Disclaimer: The above article constitutes the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical" and that "past performance is not a reliable indicator of future results and investors may not recover the full amount invested.
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