The domestic auto industry seems to be in dire straits with major manufacturers like Holden, Ford, and Toyota planning to scale back production, which might even entail stopping production completely for some factories here. Separate from regular passenger cars and trucks, I have five reasons for being bullish on a domestic truck manufacturer and services provider that is on the move right now.
Specialised industry
Logistics and shipping companies rely on different vehicle manufacturers from the big auto producers, and naturally the more they use them, they will wear out and need replacement. Maxitrans Industries (ASX: MXI) is a domestic manufacturer and supplier of semi trailers and road transport equipment for freight, both general and temperature-controlled, as well as for bulk transport. It also services its vehicles in its after-sales market.
Market leader
It operates 12 brand names such as Skeletal, Freighter, Maxi-CUBE, Hamelex White and Lusty EMS. Within the Motor Vehicle Body and Trailer manufacturing industry, it is number two, with 5.4 % of market share after Jayco Corporation, but Jayco predominantly produces RVs and camper trailers, so that's a separate class. Number three is Fleetwood Corporation (ASX: FWD), which also is an RV and camper trailer manufacturer mostly.
Growing earnings and revenue
The company has been growing earnings since 2009, up from $5.77 million in 2010 to $26.22 million in 2013. As the economy recovers more, and consumer spending increases, more freight will need to be shipped across the country to supply stores and warehouses. The vehicles have to be serviced and eventually replaced, so the company can supply both needs.
Acquisitions
In 2013, NPAT growth was up 111% from $12.5 million to $26.2 million, due to the full integration of three previous acquisitions in calendar year 2012, Queensland Diesel Spares and AZMEB Global Trailers, in addition to the South Australian vehicle dealer Transport Connection.
AZMEB will give the company more exposure to the resources and waste management industries, and Queensland Diesel Spares will expand its spare parts and servicing business unit.
Entry into the ASX 300
In September, the company was added to the S&P ASX 300 Index (ASX: XKO), which will give it exposure to larger institutional investors that may have restrictions on buying stock in companies that are not in the index.
Since entering, the share price did take a big hit in share price after the October AGM where the company announced it was experiencing softer order intake due to subdued consumer and business demand. Weaker demand is prompting price competition, it stated.
The share price has started to recover, and closed at $1.14.
Foolish takeaway
A short-term setback such as the current market flatness could be an opportunity to start a position, and see how the company performs over the next year or two. Buying or selling based on short-term movements is a risky business, so investors must consider the long-range past history to see the durable competitive advantage of a business.
Understand the industry players it competes with, and where new sources of income or business opportunities are being planned and exploited. These five reasons for being bullish on Maxitrans Industries suggest a good growth trajectory for the future.
