* Major new contract: Minimum of $44 million USD in sales over the next four years to the Ditch Witch division of The Toro Company (NYSE:TTC)
* Increasing visibility/trading volume since OTCQX listing in May 2022
Tornado Global Hydrovacs Ltd., “Tornado Global” (OTCQX: TGHLF $0.42 USD TSXV: TGH.V $0.55 CAD) provides a rare opportunity to invest in an ever-emerging industry leader. Recent developments, interviews with Company management and the $1.0 Trillion Dollar Infrastructure Bill passage reinforce First Bridge Finance’s previous projections of earnings growth.
- MAJOR NEW DEAL: The Toro Company (NYSE: TTC), based in Minnesota with over 100 years of operating history, a market cap of $8 billion and annual revenue of $4 billion, is building on its Ditch Witch division’s leadership in the underground construction industry by selecting Tornado Global for its entry into the hydrovacs market. Co-developed and manufactured by Tornado Global, the new product line for Ditch Witch will be the first hydrovacs industry innovation of its kind to be delivered in over a decade. Link to press release.
- Since acquiring Ditch Witch parent company Charles Machine Works in February 2019, The Toro Company continues to seek opportunities around infrastructure and no doubt plans to make an impact with its new, ‘Tornado Global-manufactured’ product line to maintain its position as “The Underground Authority”.
- Custom Truck One Source continues to be an important distribution partnership. Their $1.5 billion combination with Nesco Specialty Rentals[1] has allowed Tornado to work with a vast rolodex of customers and unite elite management teams with decades of experience focused on servicing the oil and gas, construction, telecom and utilities industries – where Tornado plans to diversify its product towards better positioning in particular. Both companies continue to strategically grow together to outperform the marketplace and expand into new sectors.
- Tornado insiders represent over 50% ownership and are aligned with the Company’s growth.
- Experienced management team led by new President/CEO Brett Newton, a hydrovac industry leader with 25 years of experience that was formerly a partner of Rival Hydrovacs, a Tornado competitor that sold ~500 hydrovacs into the municipal market in the past five years.
- New 63,500 square foot facility in Red Deer, Alberta, has tripled Tornado’s hydrovac production capacity from 80 units in a former leased facility to now 240+ units annually in an owned facility, eliminating outsourcing entirely (See video for facility overview VIDEO )
- Unparalleled cash flow efficiency: Tornado carries zero finished goods inventory and effectively zero receivables given that most ($2.5 million) is < 30 days. Business cash flow is not tied up, rather supporting cost reductions with effective supply chain management practices in place.[2]
- 2021 Annual and Q1 2022 Quarterly Financial Statements showed great revenue growth amid increasing demand in the United States. Q1 2022 revenue of $9.9 million is up 25% YOY with two consecutive quarters of ~$9.5+ million in revenue or $19.4 million over the past 6 months
- 2021 revenue of $32.9 million was below our projection one year ago of $37.7 million but management confirmed industry-wide supply-chain issues had an impact (changing plans for its parts and services business) and $2.6 million in one-time write-downs and charges lowered EBITDA unexpectedly[3]
- With the strong end to 2021, a 25% gross profit margin in the first quarter of 2022[4] and “a healthy Q2 expected amid very high demand and increasing build capacity”, we still expect tremendous EBITDA growth will take place going forward that could exceed $7 million in 2022 from revenues of $47+ million. We have slowed down our revenue projections from one year ago but increased our margin expectations based on the strong showing in Q1 2022. *** The Ditch Witch contract is not included in projections.
- Visibility of the Company’s public equity has greatly increased since it began trading on the OTCQX exchange on May 5, 2022, making it more easily available to U.S. investors;
Over 50,000 shares trading daily on average vs. 10,000 shares daily on average just 3 months ago (based on a combination of the volumes of the U.S. and Canadian exchanges)
Tornado’s Stock Continues to Trade at a Discount
Although the price of the shares has appreciated over the past 12 months since we first projected a rise to $1.50 (see Initiating report for industry overview, discussion of the Infrastructure bill and a distribution overview), that was based on revenue growth that has been starting to take hold. At a current share price that’s only 1.3x projected 2022 revenue and 8.5x projected 2022 EBITDA, Tornado remains undervalued as it enters a new era of industry leadership in design, development, and manufacturing.
In Depth Look: Ongoing Innovation
Ditch Witch/Toro seems to agree with long-time customers that Tornado Global is a leader in bringing innovations to the production of hydrovacs. Innovations that demonstrate an appreciation of the fact that operators spend more time working in their hydrovacs than they do at home when not on the road.
| 2005 ‘Top gun’ boom design replaces side boom design for better mobility and increased operational efficiencies. |
2012 Transition from roots blowers to the Robushi product line. |
2015 Introduction of lighter Eco tank design for greater fuel-economy and on-site performance. |
| 2016 New tank design for improved weight distribution and load dumping. |
2017 New boom design, 400 pounds lighter Eco tank and rear door locking innovations. |
2020 New Red Deer facility for significantly increasing production. |
Currently the Company is exploring new air only offerings (no water or slurry disposal needed), remote monitoring technology for owners to keep an eye on their fleet in the field and the design of fiberglass/conductive separators with insulated booms for ongoing safety enhancements.
With a strong marketing push, ever-expanding distribution throughout North America and a new generation of Tornado products that will compete heavily in the energy and utility markets, more and more customers are expected to take part in the Company’s growth.
In Depth Look: A Management Team with Deep Industry Expertise and Financial Reporting Excellence
In June 2021 the Company hired CEO Brett Newton, a hydrovac industry leader. He was the Vice President of Operations and Fleet Manager for Badger franchises in Toronto, Hamilton and Niagara, before starting his own hydrovac service operation in Ontario (utilizing Tornado trucks). For the past five years before joining to lead Tornado Global, Brett was a co-founding partner of Rival Hydrovacs where he oversaw the sale of almost 500 hydrovacs into the municipal market. Brett is utilizing his network of over 30 years in the industry to attract additional top-tier talent to Tornado Global from the hydrovac industry. In the past few months, highly regarded salespeople, fitter/fabricators and tank designers have joined the Company to build on over 130 years in combined industry experience in upper management. Individuals that have led hydrovac design, fabrication and production innovations elsewhere are coming together at Tornado Global “with the freedom to create and build the right way”. This also means further cost efficiencies including new chassis production improvements at the OEM level.
With an eye on new product innovation, expansion, and meeting market demand, Tornado Global began trade on the U.S. OTCQX exchange in May of this year; an important step in attracting new investors on a path that we expect will also lead to a further up-listing in the United States. The OTCQX market is the top tier according to OTC Markets where the 400+ companies trading must “meet high financial standards, follow best practice corporate governance, demonstrate compliance with U.S. securities laws, be current in their disclosure, have a board of directors with at least two independent directors and an audit committee.”
Chief Financial Officer Al Robertson and Vice President of Finance Derek Li lead the financial reporting and investor relations responsibilities. Tornado Global Chief Financial Officer Al Robertson has held the position since July 2017. Prior to this he was Chief Financial Officer of CYGAM Energy Inc., a TSX Venture Exchange listed oil and gas company with operations in Tunisia and Italy. From 1982 to 1996, he had a 14-year career culminating as Senior Vice President and Chief Financial Officer of Nowsco Well Service Ltd., a TSX and NASDAQ listed oilfield service company with operations in Canada, the US and internationally. He is also a former Director and Chairman of the audit committee of Wentworth Resources Ltd (formerly Artumas Group Inc.), an Oslo listed public company involved in oil and gas and power generation, with operations in East Africa. Vice President of Finance Derek Li has spent over 15 years in finance positions at businesses in the greater hydrovac industry. For the last 5 years he has been overseeing finance at Tornado Global; previously he was regional finance manager for Clean Harbors.
Disclaimer
Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal, tax advice, or investment matters and readers are advised to consult their own professional advisers. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
First Bridge Investment Group does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any discussion in this document of past or proposed outcomes should not be relied upon as any indication of future outcomes. First Bridge Investment Group does not have any duty to you, whether in contract, tort, under statute or otherwise with respect to or in connection with this publication or the information contained within it. To the fullest extent permitted by law, First Bridge Investment Group disclaims any responsibility to liability to for any loss or damage suffered or cost incurred by you or by any other person arising out of or in connection with you or any other person’s reliance on this publication or on the information contained within it and for any omissions or inaccuracies.
[1] On April 1, 2021, Custom Truck was acquired for $1.475 billion by Nesco Specialty Rentals, another leader in the industry focused significantly on utilities and utility contractors, with an equity investment of $850 million by Platinum Equity (a previous Nesco owner) and $100 million from existing shareholders Blackstone Group, Energy Capital Partners and Capitol Investment.
[2] ‘Secured key manufacturing components, including chassis, into future years through strategic relationships.’ , 2021 10K Filing
[3] Includes $0.4 million repayable to the government for wages based on new claw-back provision in Canada’s COVID Wage Subsidy, $0.4 million for moving expenses to Red Deer, and the write-down of $1.8 million of intangible assets, non-core hydrovac equipment, and inventory equipment that is no longer useable due to product design changes and improvements.
[4] Management stated there were production efficiencies including labor utilization at the Red Deer facility, state-of- the-art production tools/technology updates and strategic relationships with suppliers.
Note: Actual Hydrovacs sold is our own estimate, not confirmed by the Company
