Toromont is a heavy equipment dealer primarily selling Caterpillar trucks and equipment across the country.

The company is known for providing specialized capital goods and services to a range of customers in a variety of end markets. The company operates in two business areas: Equipment Group (Toromont CAT, Battlefield, Sitech) and CIMCO (refrigeration business).

The equipment group is the larger segment, accounting for ~ 95% of total sales. Most of his companies are industry leaders in the areas in which they operate. Toromont CAT is one of the world’s largest Caterpillar dealers; Battlefield is an industry leading rental company; and CIMCO is a leader in the design, engineering and after-sales support of cooling systems in industrial and leisure markets.

New and used equipment accounted for 42% of sales in 2019, followed by product support (42%), rental (11%) and refrigerators (5%). The company has more than 150 locations in Canada and the USA.

Owning an extensive network of branches and dealers, fleets of service vehicles and proven logistics and technology skills are Toromont’s strong competitive advantages.

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Plant data

Sales growth & market presence

With more than five decades of existence, Toromont has a proven track record of steady growth. The company has established a strong position in a variety of markets that offer significant long-term growth opportunities.

Toromont supplies specialized capital goods to a wide variety of customers and industries. Toromont’s vast network of sales channels, leading product lines, and strong relationships with suppliers and business partners were critical to achieving the growth goals.

Approximately 70% of Toromont’s revenue comes from the CAT dealer, which is a predictable source of income. In addition, the company has a good diversity in terms of regions, customers, products and markets.

By sector, construction (30% +) and mining (20% +) are the largest. The company has increased the percentage of product support and rental revenue as a percentage of total revenue to improve profitability. It also plans to expand its geographic footprint and increase market share.

Toromont is growing organically and through acquisitions. The largest acquisition was that of the Hewitt Group of Companies in 2017, which expanded Toromont’s reach in eastern and central Canada and the far north. The company is making good progress with integration.

As Canada’s largest heavy equipment dealer, Toromont is expected to benefit from an increasing presence in Quebec and Atlantic Canada. The growth opportunities in the rental market are enormous, as Toromont now owns only 14% of the total market share.

Toromont’s sales in the second quarter declined 13% due to lower economic activity as a result of the pandemic. Construction stoppages and slowdowns resulted in lower machine sales. Product support and rental income also decreased 16% and 31%, respectively, while device sales decreased 6%, driven by lower new device sales in most markets.

Toromont owns a company with constant revenues exceeding $ 1 billion a year. The merger with the Hewitt group of companies is expected to result in annual sales of nearly 3 billion US dollars.

Before the outbreak, the long-term outlook for infrastructure projects and other construction activities was positive in most areas. The company has a large mining customer base and prospects for mine expansion are positive in the long term. Toromont should do well once economic activity resumes.

Dividends

Toromont is a dividend aristocrat who has paid dividends since 1969 and has increased them for more than 30 consecutive years. It is among the few Canadian companies with the longest streak of dividend growth.

The company has increased its dividends by more than 12% CAGR over the past decade. Most recently, the company announced a 14 percent increase in its regular quarterly dividend. Toromont has a modest dividend yield of 1.65% but has a reasonable payout ratio of 39%.

The integration of Hewitt and the transformation process are progressing well. The increase in earnings since the transaction was concluded has also exceeded expectations for a relatively short period of time.

The acquisition contributed more than $ 1.5 billion to sales over the past two years (2018 and 2017). Significant investment opportunities come in the form of the rental footprint rollout, where the bulk of the expenses are incurred in the initial period while the income is generated in a recurring manner.

Over the past five years, the company has continued to invest heavily in its rental fleets, branches and plants. It ended the quarter on a backlog of $ 228 million, up 54% year over year, and the company expects nearly 70% of backlog to be recognized as revenue this year, depending on business resumption and the COVID infection rate.

Toromont has a strong financial position with cash of $ 537 million, available cash of $ 616 million and a strong balance sheet. The acquisition of Hewitt also represents a significant growth opportunity for Toromont Industries, strengthening the company’s expertise and activities in the mining, construction, energy systems, etc.

Toromont (TIH) historic return
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competition

The only major competition for Toromont Industries is Finning International in Canada. Most of the Caterpillar dealer network is mainly operated by Toromont or Finning.

Finning International is the world’s largest Caterpillar dealer with a large presence in Canada, the UK, Ireland and South America. The company has been around for 85 years and serves a wide variety of customers in a variety of industries including mining, construction, petroleum, forestry and energy systems.

The company operates in very competitive equipment and hardware stores. Wajax and SMS Equipment are the other top competitors.

Bottom line

The company serves critical businesses such as food, power generation, critical infrastructure, transportation, and emergency response. Diversified businesses and financial strength are well positioned for the current crisis situation.

Toromont’s investments in rental equipment, product support technology development, and large product lines should also contribute to long-term growth once things return to normal. The company has a solid 52 year track record of paying dividends and should continue on its dividend growth trajectory.

Toromont (TIH) historical Pe
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