MNTX - Manitex International: Upside Hidden In Plain Sight

Summary

• Manitex delivered improved performance in Q3 underpinned by optimization measures.
• The company is well positioned to drive strong top-line performance and capitalize on infrastructure bill.
• MNTX is a rarely covered stock, which offers improved prospects and good upside potential.
• I am bullish on MNTX and expect profitability gains stemming from cost optimization and favorable backlog terms.

The strengthening of the business model with a new unit, along with ongoing efficiency optimization turned up new prospects for Manitex International (MNTX). I expect a prominent improvement in the company's margin readings largely due to the rental unit operation and higher profitability of the Manitex cranes, following the favorable market trends and backlog terms. Containment measures affected the truck-mounted cranes industry and resulted in a strong orders uptake and pent up demand for lifting solutions. I am more bullish on infrastructure investments and the oil/gas market, which should drive equipment demand along with low stock pile in the dealer chains and the growing adoption of articulated cranes in the North American market.

Outlook and financial overview

The prospects of the boom truck cranes demand is largely determined by the factors such as infrastructure development and construction activity. With the more than $1 trillion authorization for infrastructure development, the U.S. government will invest in repair, modernization and construction of highways and bridges, rail and public transits. The investments will remain the primary growth driver for the market, in which Manitex is positioned with a strong portfolio of truck cranes equipment and solutions.

In addition, given the decades-long US housing shortage, I am more bullish on residential construction activity, due to the slowdown in housing starts during the pandemic, which should give the positive gearing for rental fleet expansion or renewal.

On the other side, commercial construction spending is suffering from prolonged economic uncertainty on the supply side, while the demand side is recovering slowly. Industrial construction activity should be more resilient, benefiting from a rise in e-commerce, whereas Office and Retail may be less bullish.

While resi and non-resi segments are likely to experience mixed prospects, I see more opportunities for all the products of Manitex brand lines coming from infrastructure bill, utility expansion and mining, especially driven by high commodity prices.

In the third-quarter of 2022 Manitex managed to achieve a strong 27% YoY revenue growth to $65 million.

The top-line performance was due to the increase in the equipment sales by 14.2% YoY, as PM articulated crane business remains in strong growth mode, while straight boom cranes are benefiting from large capacity lifting solutions demand. Moreover, aerial work platforms (AWPs) outpaced the cranes business line by delivering on new contract launch and improved demand. I believe the company's core business will keep on lifting the financial results going forward thanks to the accumulated strong backlog.

The rental business (Rabern Rentals), which is a rookie in the Manitex team, contributed $6.6 billion and accounted for roughly about half of the top-line growth during the quarter. I expect solid performance in the rental division to further strengthen the company's standing in the commercial construction market.

The part sales remained resilient and delivered 7.8% YoY growth. I believe part sales gives the company's business model a fulcrum for profitability, as the parts business margins are generally higher and their percentage in the revenue mix tends to increase in turbulent times.

The company's backlog at the third quarter end came to $207 million, which is a slight deterioration on a sequential basis and a substantial surge compared to the year-ago point. The accumulated backlog is also higher than the 9mo'22 total revenue of $195 million. Moreover, the company announced preliminary fourth quarter results , where Q4 revenue reportedly grew 47.6% YoY to $78.8 million, driven primarily by organic growth in lifting equipment and contributions from the Rabern unit. Manitex also revealed a strong backlog position, evidenced by the following quote:

Backlog, which includes firm orders for equipment which we have not yet shipped as well as orders by foreign subsidiaries for international deliveries, was $230.2 million at the end of the fourth quarter of 2022, up 22% from the end of 2021 and up 11% from the end of the third quarter of 2022. The improvement in backlog was driven by favorable trends in key end markets in both North America and International regions.

The operating efficiency measures also should be highlighted, as the reorganization of PM business and other manufacturing units resulted in a gross margin of 19% in Q3. I believe the company's business is now positioned better to meet the heavy investments in infrastructure projects, positive trends in key markets and a fleet replacement/expansion cycle. In addition, the accumulated backlog was booked at higher and more favorable terms which stipulates a favorable price to operating cost relation and could approximate the gross margin to the short-term target of 20-22%, working through the backlog.

Valuation

Turning to the valuation section on Seeking Alpha, we could spot that Manitex is slightly undervalued on the EV/EBITDA forward multiple. The company estimated an 8.0% adjusted EBITDA margin in Q3, while for the full 2022 year, I expect it to settle at 7.3%.

With the above expectations, EBITDA should arrive at around $20 million for the full year, which puts the MNTX on a 9.4x EV/EBITDA multiple, implying a 17.5% discount to the sector median of 11.4x. Applying the latter multiple should yield an enterprise value of $227 million. The company has a significant IB debt liability pile, which combined with a cash position leads to an equity value of $150 million, or $7.5 per share, and suggests 36% upside potential. The graph on the right side shows the approximation to the once long-term milestones, which have now become short-term targets. I believe Manitex could fill the remaining gap in the EBITDA margin of 10% and cross the revenue bar of $300 million due to the production efficiency initiatives, strong rental business contribution, underpinned by improvement in the AWPs and boom cranes demand steaming from oil/gas and infrastructure developments.

Risk factors

The truck-mounted lifting solutions market follows quite a cyclical pattern, where the prolonged recession could effectively crowd out the infrastructure investments and restrain the demand for Manitex cranes. Despite the passenger car market already gaining moment, the component shortages continue to weigh on commercial vehicles. All this could put a drag on the company's prospects, erode the backlog and leave Manitex struggling with its significant IB debt facilities in the capital structure. The expansion in the net debt position to $86 million came as a result of Rabern expansion and working capital requirements, while the management expects a reduction in the IB liabilities through 2023.

Conclusion

My call is for a Buy action on MNTX sock, as I do believe the operating improvements and expansion of the rental business could be a turning point for the profitability gains. I believe Manitex could hit the top-line target by working out through its strong backlog. In addition, the demand coming from infrastructure investments and the oil and gas market should remain strong and encourage the fleet refresh/expansion activity.

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