MANUFACTURING INDUSTRY REPORT - Q1 2021 - Whitehorn Capital Inc.
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MANUFACTURING
INDUSTRY REPORT
Q1 2021
Q1 2021 Industry
Performance & Trends
Whitehorn Merchant Capital Inc.’s Manufacturing Industry Report includes performance trends and transaction activity observed in the past quarter. This
industry is comprised of Canadian companies active in Rubber and Plastics, Fabricated Metals, Industrial and Commercial Machinery, Transportation
Equipment and Miscellaneous Manufacturing. All financial data has been sourced from Thomson Reuters Eikon.
Average Industry Revenue Growth
20%
15%
10%
5% 15.3% 9.5%
-0.2%
0% -2.6%
-12.2%
-5%
-10%
-15% 2017 2020F 2021F
2018 2019
• The overall Canadian manufacturing sector is expected to experience a 9.5 per cent revenue increase in 2021 following a material decline in
2020 due to COVID-19. The 2021 revenue growth has been revised from the previous flat revenue projected for 2021 at the end of 2020.
• The expected 2021 gross margin is 26.6 per cent, which would represent a five-year high if realized. We believe the gross margin increase can
be partially attributed to the increase in pricing by Canadian manufacturers.
• 2021 expected average EBITDA margin is 12.3 per cent, a five-year high as well if realized. This can be attributed to cost cutting measures
implemented during COVID-19 and gross margin increases.
Average Gross Profit & EBITDA Margins
30.0%
25.0%
20.0% 25.8% 25.3% 25.6% 25.0% 26.6%
Gross Margin
15.0%
10.0%
EBITDA Margin
5.0%
10.0% 10.5% 10.1% 10.0% 12.3%
0.0%
2017 2018 2019 2020F 2021F
2 Q1 2021 Manufacturing Industry Report
Q1 2021 Key Highlights
& Index Market Cap
Q1 2021 Key Highlights
• According to Statistics Canada, Canadian manufacturing sales rose 3.1 per cent to $56.2B in January 2021 to top its pre-pandemic mark back in
February 2020.
• The Government of Canada announced $2.75B in funding over five years beginning in 2021 to enhance public transit systems and switch them to
cleaner electrical power, including supporting the purchase of zero-emission public transit and school buses.
• Burnaby based hydrogen fuel cell producer Loop Energy filed for a $100M IPO in early February, intends to list on the TSX.
• General Motors to invest US$800 million to bring electric vehicle production to its CAMI manufacturing plant in Ontario by late 2021, Canada’s first
large scale commercial EV manufacturing plant.
We present the Whitehorn Manufacturing Index’s total market cap below. The chart covers the period from January 1 to March 22, 2021.
• From January 1 through March 22, 2021, the Whitehorn
$120 Whitehorn Manufacturing Index Market Cap Manufacturing index experienced a 20.5 per cent increase in its
($ billions) overall market cap. This is more than double the S&P/TSX Composite
Index’s return of 7.9 per cent in the comparable period.
Market Cap ($ billion)
$110
• The best performing subsector during the period was the Rubber and
Plastics subsector with a 40.5 per cent increase. The worst performing
subsector was the Miscellaneous Manufacturing subsector with a
$100 14.5 per cent increase.
• According to Statistics Canada, monthly manufacturing sales in
constant dollars were up by 1.1 per cent in January 2021. The
$90 increase was primarily driven by a surge in wood product, computer
and electronic product, and primary metal industries.
$80
Jan-01 Jan-16 Jan-31 Feb-15 Mar-02 Mar-17
We now investigate the subsectors within our Index. All stock references are for the period between January 1 and March 22, 2021, unless
otherwise stated.
Fabricated Metals
The Fabricated Metals subsector experienced an overall market cap change of +34.4 per cent. The subsector had a 66.2 per cent capacity
utilization rate in January 2021, a 3 per cent increase from December 2020. However, the capacity utilization rate was still lower than the 70.3
per cent recorded in January 2020.
$550 • Market cap increased by 76 per cent. Despite that the company’s market
Shawcor
cap was still 20 per cent lower than what it was on March 1, 2020.
$500 • We believe the increase can be attributed to:
Market Cap ($mil)
$450 • 2020 earnings beat analyst expectations, assisted by continued
strength in non-oil and gas related businesses as well as its offshore
$400 pipe coating business outperforming.
• Successful sale of its Pipeline Performance Products business for
$350
US$91.5M at the end of 2020 that materially strengthened its
$300 balance sheet.
$250
$200
Jan-01 Jan-16 Jan-31 Feb-15 Mar-02 Mar-17
Q1 2021 Manufacturing Industry Report 3
Q1 2021 Industry
Index Market Cap
Rubber & Plastics
The Rubber & Plastics subsector experienced an overall market cap change of +40.5 per cent. The subsector achieved a capacity utilization rate
of 71.5 per cent in January 2021 (69.9 per cent in December 2020). January 2021’s capacity utilization rate was higher than the 70.1 per cent
recorded in January 2020.
$1,100 Airboss of America
• Market cap increased by 140.9 per cent, the overall best performer
$1,000 among the Whitehorn Manufacturing Index constituents.
$900
Market Cap ($mil)
• In addition to its acquisition of military lightweight wearables company
$800 BlackBox Biometrics, the company announced it was awarded a
contract worth up to US$576M by the US Department of Health and
$700 Human Services for the sale of nitrile patient examination gloves.
$600
$500
$400
$300
Jan-01 Jan-16 Jan-31 Feb-15 Mar-02 Mar-17
Transportation Equipment
The Transportation Equipment subsector experienced an overall market cap change of +25.6 per cent. According to Statistics Canada, the 74.8
per cent capacity utilization rate reported in January 2021 was below both December 2020 (80.0 per cent) and January 2020 (78.4 per cent)
levels.
$400 Grande West Transportation Group $2,250 Westport Fuel Systems
$350 $2,000
Market Cap ($mil)
Market Cap ($mil)
$300
$1,750
$250
$1,500
$200
$1,250
$150
$100 $1,000
$50 $750
Jan-01 Jan-16 Jan-31 Feb-15 Mar-02 Mar-17 Jan-01 Jan-16 Jan-31 Feb-15 Mar-02 Mar-17
• Aldegrove, BC based manufacturer of electric and clean energy • The Vancouver based clean transportation manufacturing and
transit vehicles experienced a market cap increase of 68.2%. technology company experienced a market cap increase of 63.5
• We believe the increase can be partly attributed to: per cent.
• The addition of Manuel Achadinha as its new COO, a • We believe the increase can be attributed to:
prominent transportation industry veteran and the former • Announced an agreement in February to supply over 1,000
head of BC Transit. natural gas truck engines to Amazon as part of a joint venture
• Its decision to pursue a share consolidation and a name with Cummins.
change to Vicinity Motor Corp. as it prepares to be listed • The successful inclusion of its shares in the S&P/TSX
on the NASDAQ. Composite Index in March.
• Strategic US distribution agreement announced with ABC • Better than expected Q4 2020 earnings driven by strong
Companies, a motorcoach and transit equipment provider OEM sales (32 per cent increase in OEM segment revenue).
as part of its US expansion plan.
4 Q1 2021 Manufacturing Industry Report
Q1 2021 Industry
Index Market Cap
Industrial & Commercial Machinery
The Industrial & Commercial Machinery subsector experienced an overall market cap change of +16.5 per cent.
$1,800 Xebec Adsorption • A -28.6 per cent change in market cap, the worst performing company
of the Whitehorn Manufacturing Index in Q1 2021.
$1,600
• The company announced in March it was the target of a class
Market Cap ($mil)
$1,400 action lawsuit filed in Quebec. The claim alleges Xebec made
misrepresentations in its disclosure documents for Q3 2020 and other
$1,200 financial reporting violation steps. Following the allegations, Xebec
experienced a 31 per cent decline in its share price on March 11.
$1,000
$800
$600
400
Jan-01 Jan-16 Jan-31 Feb-15 Mar-02 Mar-17
Miscellaneous Manufacturing
The Miscellaneous Manufacturing subsector experienced an overall market cap change of +14.5 per cent. According to Statistics Canada, the
subsector’s manufacturing capacity utilization rate was 76.5 per cent in January 2021, compared to the 74.4 per cent in December 2020 and
the 74.9 per cent in January 2020.
$400 DIRRT Environmental Solutions Ltd. $1,100 Mercer International
$360 $1,000
Market Cap ($mil)
Market Cap ($mil)
$320 $900
$280 $800
$240 $700
$200 $600
Jan-01 Jan-16 Jan-31 Feb-15 Mar-02 Mar-17 Jan-01 Jan-16 Jan-31 Feb-15 Mar-02 Mar-17
• The Calgary based interior construction company that designs, • The Vancouver based manufacturer of northern bleached
manufactures and installs fully customizable environments softwood kraft (NBSK) pulp and wood products experienced
experienced a market cap increase of 32.9 per cent. a market cap increase of 40.3 per cent.
• We believe the increase can be attributed to: • Improved pulp pricing and moderately low fiber costs were
• Q4 and full year 2020 earnings beat expectations despite key factors behind its Q4 2020 results that beat expectations.
lower revenue and earnings due to COVID-19 impact. Q4 2020 European NBSK prices were up $40 per ADMT
• Continued optimism around commercial construction activities whereas average net prices in China were up $65 per ADMT
for the rest of 2021 and increase in attention on flexible and compared to Q3 (ADMT = air dried metric ton).
adaptable commercial spaces as the result of the pandemic. • The lumber market fundamentals seem to indicate a continued
• Successful closing of a $40.25 million convertible unsecured upward pricing trend due to strong global demand, which will
subordinated debentures facility, which includes $5.25 million further benefit Mercer going forward.
in an over-allotment option to improve cash flow position.
Q1 2021 Manufacturing Industry Report 5
M&A Activity
Recent Canadian Manufacturing Transactions
The below pie charts summarize highlight transactions in the manufacturing sector involving companies in North America that are active in
mergers and acquisitions. Transactions this quarter include expansion into new geographies and service line offerings.
M&A Activity
Q1 2021 Manufacturing M&A Activity by Sector Q4 2020 Manufacturing M&A Activity by Sector
5%
32% 33%
42% Industrial and Commercial Machinery 31%
Industrial and Commercial Machinery
Transportation Equipment
Transportation Equipment
Rubber and Plastics
Rubber and Plastics
Miscellaneous Manufacturing
Miscellaneous Manufacturing
Fabricated Metals
Fabricated Metals
8%
12%
14%
13% 10%
• There were 38 M&A transactions involving Canadian manufacturers in Q1 2021, compared to the 42 transactions tracked in Q4 2020 and
the 24 transactions in Q1 a year ago.
• 16 or 42 per cent of the 38 transactions tracked had disclosed transaction values amounting to $2.5 billion. The largest transaction was
Drax Canadian Holdings’ $825 million acquisition of Richmond, BC based Pinnacle Renewable Energy, a manufacturer of industrial wood
pellets.
• The Miscellaneous Manufacturing subsector led all subsectors with 16 transactions, followed by 12 transactions involving Industrial and
Commercial Machinery companies.
• Since Q3 2020, there has been an average of 38 transactions involving Canadian manufacturers per quarter compared to the 21 average
for the last 36 months prior to Q3 2020. We continue to expect more M&A activities within the sector with industry consolidation and
market share traction being key drivers.
6 Q1 2021 Manufacturing Industry Report
Key Manufacturing Trends
For This Year
Top 4 Trends For The Manufacturing Industry This Year
As we welcome a new year, we look at several key trends that are happening in the manufacturing sector. These trends can help companies stay ahead
of the curve. The year 2021 has much in store for the manufacturing industry, including four key trends: IoT & AIoT, employee safety, sustainability and 3D
printing.
1. IoT & AIoT
IoT & AIoT has been on the rise in the manufacturing industry in recent years and it will continue Did You know?
to be an important aspect in 2021. If you want to learn more about IoT and AIoT, click here. AIoT
More than 23,000 companies offer IIoT (Industry
can include big data, predicative maintenance, industry 4.0 and more. A company inviting in
Intelligence of Things) solutions worldwide.
technology and IoT is Siemens. Over the past 10 years, Siemens has spent more than $10 billion
acquiring software companies and currently employs more than 24,500 software engineers.
2. Employee Safety
Employee safety has always been the top priority for the manufacturing industry, but since the
COVID-19 pandemic, safety has become even more critical. 2021 will bring a stronger focus on
employee safety and tracking. Many companies may introduce smart protective gear so data from the
employees can be collected to help monitor their health and safety.
The sector will be spending more on personal protective equipment (PPE) and sanitation in 2021. In
addition to controlling COVID-19, these measures should help increase productivity and employee
morale as well as prevent employees from becoming ill and being distracted or worried about their
working conditions.
3. Sustainability
We believe sustainable manufacturing will continue to be a key trend. There are many benefits including
reduced costs, increased profit margins and the potential to attract new customers. For more information on
the benefits of sustainable manufacturing, click here.
Ballard Power Systems Canada is a great example of a manufacturing company being sustainable. Burnaby
based Ballard is a developer and manufacturer of proton exchange membrane fuel cell products for markets
such as heavy-duty automotive, portable power, material handling, as well as engineering services. It has
manufacturing facilities in Canada and its vision is to help Canada reach a place where there are zero
emission fuel cell vehicles. Ballard is dedicated to both improving the environment and localized production.
4. 3D Printing
3D printing has been on the rise for a while. We believe it will continue to be a trend for manufacturing in
2021. In addition to increased affordability, 3D printing is being used to create critical parts, molds, jigs
and fixtures for the manufacturing process. In most cases, the custom part can be produced in-house within
hours instead of contracted externally with delivery in months. 3D printing also allows companies to make
cost effective prototypes that allow product designers to test and troubleshoot new products in a matter of
days with significantly reduced waste and lost time.
Conclusion
We believe these four trends will be the most prominent for many different reasons, including: IoT & AIoT can help companies collect more data leading
to better decision making to help save money and increase production. Employee safety will continue to be a priority for companies to keep employees
healthy and to boost morale. Sustainability can help reduce costs and make a company more appealing to consumers. Lastly, 3D printing will continue to
change the manufacturing industry with the number of different items it can produce in a cost-efficient manner within a short time frame.
Read the full article here
Q1 2021 Manufacturing Industry Report 7Featured Articles
Where Does Oil Go From Here?
This article looks at where the price of oil may be going in the coming years.
Over the past 12 months, global oil prices have ranged from under $20 a barrel
to its current high of around $65. In early 2021, most economists predicted a
stable price for the duration of 2021 with some modest upside – ranging from
$45 to $55 at best. Since oil prices passed most predictions in the first few weeks
of 2021, where does the price go from here? Does anyone know?
Read the full article here
Green Engineering & Construction
This article highlights different green engineering and construction practices
and the benefits that they hold. As the world becomes increasingly aware of
the importance of sustainability, green and sustainable practices are reshaping
the engineering and construction industry more than ever. With legislation
and energy codes becoming increasingly stringent, green engineering and
construction have become the standard for developers, homebuyers, building
owners, and tenants.
Read the full article here
8 Q1 2021 Manufacturing Industry ReportM&A Transactions
Whitehorn has been actively tracking M&A activities in various sectors. The majority of transactions tracked in this quarter involved acquiring
companies seeking to diversify product and service offerings and customer base.
Date Acquirer Acquirer Location Target Target Location
January 2021 Savaria Corp. (TSX:SIS) Laval, QC Handicare Group AB (STO:HANDI) Sweden
$521M acquisition of mobility solutions manufacturer with sales in 40 countries to further increase market share in the accessibility
market.
February 2021 Drax Group (LSE:DRX) United Kingdom Pinnacle Renewable Energy (TSX:PL) Prince George, BC
$652M cash acquisition of industrial wood pellets manufacturer and distributor used by larger-scale thermal power generators.
February 2021 Astro Aerospace Ltd. Lewisville, TX Horizon Aircraft Inc. Lindsay, ON
Acquisition of electric vertical take-off and landing aircraft manufacturer targeting passenger and cargo transport, medevac, search
and rescue, and military applications.
March 2021 Quintic Electronic Ltd. Vancouver, BC Corry Micronics Warrendale, PA
Acquisition of RF and microwave components and subsystems manufacturer specializing in high power and broadband solutions to
complement existing RF portfolio.
March 2021 AirBoss of America Corp. (TSX:BOS) Newmarket, ON BlackBox Biometrics Inc. Rochester, NY
US$27M acquisition of the developer of the Blast Gauge System of lightweight wearable blast overpressure sensors to further drive
growth in the military and healthcare markets.
March 2021 TricorBraun St. Louis, MO RODA Packaging Montreal, QC
Acquisition of rigid packaging distributor specializing in the chemicals, sealants, and adhesive markets to further expand into Eastern
Canada.
March 2021 East West Manufacturing LLC Atlanta, GA Varitron Inc. Montreal, QC
Acquisition of integrated electronics manufacturing services provider including advanced printed circuit board assemblies, box-build
assemblies, testing and new product introduction services.
March 2021 ATS Automation Tooling Systems Inc. Cambridge, ON CFT S.p.A (BIT:CFT) Italy
(TSX:ATA)
Acquisition of 94% of the outstanding shares of global food and beverage equipment machine and systems manufacturer via voluntary
public tender offer.
March 2021 Investor group Private New Look Vision Group Inc. (TSX:BCI) Montreal, QC
$800M acquisition of ophthalmic products manufacturer and retailer including prescription and non-prescription glasses, contact
lenses and sunglasses.
Q1 2021 Manufacturing Industry Report 9You can also read
