With the shares of Winnipeg-based NFI Group (CA:NFI) down more than 6% year-to-date and 82% over the past five years, investors could use a bit of good news.

Perhaps that came on Monday with the announcement that its New Flyer Industries Canada ULC subsidiary received a five-year contract from the Toronto Transit Commission (TTC) to build 40-foot battery-electric buses.

“Building on our partnership with TTC spanning over half a century, this new order supports the TTC’s efforts towards net zero goals for a healthier and more sustainable future,” said Chris Stoddart, president of North American Bus and Coach, NFI.

Toronto has announced that it will convert 50% of its fleets into electric buses by 2050. The TTC has installed 10 fast-charging stations along a busy transit corridor.

Investor reaction was underwhelming. NFI stock added less than 1% in below-average volume trading. Still, this could be early days of a ride into double digits again for the shares.

Building Backlog

The contract adds 186 Xcelsior CHARGE NG heavy-duty battery-electric transit buses to the company’s backlog. In addition, the TTC can purchase an additional 435 buses over the five-year contract.

“These next-generation battery-electric buses will help TTC, which operates one of the largest fleets of battery-electric buses in North America, meet its goal of converting its entire fleet to zero emissions by 2040, as outlined in the TTC Green Bus Technology Plan,” NFI’s press release stated.

NFI finished the first quarter with firm orders for 4,910 buses, with options for an additional 5,161 buses in the future. As a result, the company’s 10,071 equivalent-unit backlog was 9.6% higher than in Q4 2022, valued at $6.7 billion. The increase was due to new awards from North American and UK transit operators.

The company’s book-to-bill ratio — defined as firm orders plus options divided by new deliveries — in the trailing 12 months ended March 31, was 131.3%. That’s 650 basis points higher than the same 12-month period a year ago.

Of the backlog, 3,661 (36.4% of the total) are zero-emission buses (ZEBs), up from 2,627 (28.6%) in Q4 2022.

NFI sells buses to the 25 largest transit authorities in North America. Of those, 17 operate some of its electric buses. It is also adding ZEBs to all the primary UK transit operations. A growing list of North American cities and transportation authorities have installed high-capacity charging stations along major transit corridors to support electric buses.

NFI buses and coaches have more than 115 million electric service miles driven, with many millions more to come.

Losses Decline

The good news from NFI’s Q1 2023 results was the 14% increase in revenue to $524 million. And while it lost $38 million on an adjusted basis — bad news, perhaps — that was $3 million lower than a year earlier. For the trailing 12 months, revenue fell 5% to $2.12 billion, while its adjusted loss was $157 million, $166.8 higher than in the same 12-month period a year earlier.

NFI was significantly hampered by Covid-19, both in terms of its supply chain and the prices it paid for parts and supplies to manufacture its buses. However, the company believes both of these areas are getting better. When combined with record demand for its products, it expects positive growth over the next three years.

“NFI is maintaining its plan to increase new bus production rates in the second half of 2023, subject to continued and sustained supply performance,” stated its Q1 2023 press release. “The company anticipates it will hire an additional 150 to 200 direct labour team members before the end of 2023, to support higher production rates and deliveries.”

It expects 2023 revenue of $2.65 billion at the midpoint of its guidance, $3.4 billion in 2024, and approximately $4.0 billion in 2025. More importantly, its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) are expected to grow from $45 million in 2023 to $275 million in 2024 and approximately $400 million in 2025. That’s nearly a 200% compound annual growth rate.

Road Ahead

NFI stock hit an all-time high of CA$60.83 in March 2018. That year, its enterprise value averaged nearly 10x EBITDA, according to S&P Global Market Intelligence.

Should NFI meet its 2025 target, its enterprise value could be upward of $4.0 billion (CA$5.4 billion), more than double what it is now.

In the last 12 months, NFI stock holders have seen the share price decline 34%. Peer bus maker Blue Bird (US:BLBD) is up more than 100%; Proterra (US:PTRA) stock is down more than 83%.

The TTC announcement is one of many that will happen over the next six months and into 2024. It might not move its share price higher immediately, but it should help push its stock into double digits in the weeks ahead.

This article originally appeared on Fintel

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