EVA Focus: New Flyer Industries (NFI)


New Flyer Industries Group is a not well known Canadian company headquartered in Toronto operating in the transit bus industry. Its shares have increased more than five-fold in the last five years, making it one of the best S&P/TSX performers. Since May, the stock fell -15% after the U.S government announced it would implement a 25% tariff on Canadian Steel and a 10% tariff on Canadian aluminum.

Limited Tariffs Impact

We believe the impact of these measures will be limited for three reasons: First, NFI is not using more than $10,000 of steel for a new bus worth half a million. Second, NFI signed fixed cost contracts for the next 2 years. Third, NFI will most likely be able to pass through the cost increased to its customers.

Competitive Advantage

The company is evolving in an oligopoly mature market. In the last decades, competitors have gone bankrupt, left the market or been acquired. Since then, NFI emerged as North America’s leading transit bus manufacturer and parts supplier as the company now controls nearly half of the market shares.

A Quality Company

Its SPscore of 72% is the highest in the industrials sector which hints the company is generating value for its shareholders. The return on capital is high, at 16.3% and increased steadily over the past three years. The NOPAT has also been growing at an impressive pace of 43% per year in the past 5 years, along with its invested capital. The growth was fueled both by internal growth and strategic acquisitions.

NFI’s accounting performance is also robust. The revenues and earnings per share grew at an astounding CAGR of 28% and 76% respectively over the past 5 years as the company managed to increase its market shares. To reward its long-term investors, NFI increased its dividend, at an average rate of 22% per year. The dividend yield is projected to be 2.57% in the next 12 months, which is attractive for a mid cap.

The payout ratio is 53% and consistent with its positive free cash-flows. Finally, its total debt to equity ratio is at 0.75, above the industry’s average of 0.29 but still reasonable for other small strategic acquisitions. Finally, gross and net margins are increasing as seen on the chart below which suggests the company is most likely going to keep its bargaining power on both its consumers and its suppliers.

NFI Price vs. Gross Margins TTM and Net Margins TTM

Source: FactSet Research Systems


 At A Reasonable Price

When it comes to valuation, the stock is currently trading well below its intrinsic value, at a 0.54 P/IV ratio, reflecting a potential upside of close to 85%. The discount is even more interesting considering that the stock hasn’t traded at this valuation level since 2015 which makes it an attractive entry point.

The Future Growth Value (FGV) of -41% tells us the enterprise value is smaller than the current operating value, even though the latter is growing well. Other more traditional ratios also suggest the multiples are very conservative: the price-to-earnings is at 13.5, and the price-to-cash flow is at 10.6.


We believe the recent price dip to be an opportunity considering current valuation and limited tariffs impact on the company’s operations. Moreover, NFI’s dominant position should remain unchallenged, at least for now, as its rolling its next generation battery-electric bus Xcelsior Charge. Meanwhile smaller competitors like Grande West Transportation are still in the process of designing electric buses.

A great way to indirectly invest your client’s money in NFI along with other 24 quality Canadian companies is to purchase the Horizons Inovestor Canadian Equity ETF (INOC). The ETF is holding NFI since its inception. For more information about INOC, please click here to visit Horizons ETF website.