Artko Capital - Shyft Group: Disappointing But Still One Of Our Most Impressive Fundamental Stories

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The pursuing conception was excerpted from this money letter.

Shyft Group (NASDAQ:SHYF)

Shyft Group was down 50% successful 2022, up 30% successful 2023, and down 30% since year-end 2021. Our finance successful Shyft Group (formerly Spartan Motors) while disappointing connected nan banal performance successful 2022, is still 1 of our astir awesome basal stories that we’ve invested in.

Despite nan gloom and punishment of nan ne'er arriving recession, nan institution grew its revenues by 14% to complete $1 cardinal for nan trailing 12 months that ended September 30th, 2022 arsenic good arsenic its past reported backlog to ~$1.1b, a 23% maturation rate. These are awesome numbers for sure, however, for 2022 nan institution announced a $30mm Research and Development finance into nan improvement of an electrical conveyance commercialized truck, BlueArc.

This one-time finance brought down reported EBITDA numbers from $95mm successful 2021 to a apt $75mm number successful 2022 (of people connected an apples-to-apples ground it is simply a $105mm number, if those costs were to beryllium capitalized) and nan short word results-oriented marketplace was not a fan.

We are not complaining arsenic nan BlueArc motortruck is incredible. Unlike galore of its electrical conveyance start-up competitors that person small to nary acquisition successful manufacturing and conscionable person beautiful renderings to hype up their stock, Shyft Group has extended acquisition successful building and scaling prototypes having built dozens of caller models complete nan years and successful September 2022 announced a important 2,000 motortruck bid which they expect will beryllium adjacent to 3,000 by 2025.

The company’s Fleet Vehicle and Services conception whose mean motortruck assemblage bid is astir $30,000 to $40,000 per, expects that each Blue Arc motortruck will bring successful complete 4x those amounts astatine complete $150,000. In different words, they expect this to beryllium a $500mm gross contributor astatine 12% margins wrong a fewer years. While astir companies pinch specified bluster tin and should beryllium taken pinch a atom of salt, our agelong acquisition pinch Shyft Group and its guidance squad has shown them to beryllium thing but boastful and they thin to err connected nan blimpish broadside of their estimates.

We proceed to look past nan short term, particularly pinch this company, which has proven to beryllium a accordant grower done short-term economical challenges. We expect its income growth, excluding nan BlueArc segment, to inclination successful nan 15-20% scope connected nan backmost of continued request for last-mile transportation vehicles driven by maturation successful e-commerce. Including nan Blue Arc conception and further tuck-in acquisitions should lead nan Shyft Group to make complete $2 cardinal successful revenues and adjacent to $250mm successful EBITDA by 2025-2026.

We do not expect this institution to enactment nationalist everlastingly and astatine those levels is wherever we expect nan company’s awesome CEO Daryl Adams to waste nan institution astatine its humanities trading averages of 10x EBITDA aliases astir $75 per share.

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The Partnership’s capacity is based connected operations during a play of wide marketplace maturation and bonzer marketplace volatility during portion of nan period, and is not needfully suggestive of results nan Partnership whitethorn execute successful nan future. In addition, nan results are based connected nan periods arsenic a whole, but results for individual months aliases quarters wrong each play person been much favorable aliases little favorable than nan average, arsenic nan lawsuit whitethorn be. The foregoing information person been prepared by nan General Partner and person not been compiled, reviewed aliases audited by an independent accountant and non-year extremity results are taxable to adjustment.

The results portrayed are for an investor since inception successful nan Partnership and nan results bespeak nan reinvestment of dividends and different net and nan conclusion of costs, nan guidance fees charged to nan Partnership and a pro forma simplification of nan General Partner’s typical profit allocation, if applicable. The General Partner believes that nan comparison of Partnership capacity to immoderate azygous marketplace scale is inappropriate. The Partnership’s portfolio whitethorn incorporate options and different derivative securities, fixed income investments, whitethorn see short income of securities and separator trading and is not arsenic diversified arsenic nan indices, shown. The Standard & Poor's 500 Index contains 500 industrial, transportation, inferior and financial companies and is mostly typical of nan ample capitalization US banal market. The Russell 2000 Index is comprised of nan smallest 2000 companies successful nan Russell 3000 Index and is mostly typical of nan mini capitalization U.S. banal market. The Russell Microcap Index is comprised of nan smallest 1,000 securities successful nan Russell 2000 Index positive nan adjacent 1,000 securities (traded connected nationalist exchanges). The Russell Microcap is mostly typical of nan microcap conception of nan U.S. banal market. All of nan indices are unmanaged, marketplace weighted and bespeak nan reinvestment of dividends. Due to nan differences among nan Partnership’s portfolio and nan capacity of nan equity marketplace indices shown above, however, nan General Partner cautions imaginable investors that nary specified scale is straight comparable to nan finance strategy of nan Partnership.

While nan General Partner believes that to day nan Partnership has been managed pinch an finance accuracy and methodology akin to that described successful nan Partnership’s Offering Circular and to that which will beryllium utilized to negociate nan Partnership successful nan future, early investments will beryllium made nether different economical conditions and successful different securities. Further, nan capacity discussed herein does not bespeak nan General Partner’s capacity successful each different economical cycles. It should not beryllium assumed that investors will acquisition returns successful nan future, if any, comparable to those discussed above. The accusation fixed supra is historical and should not beryllium taken arsenic immoderate denotation of early performance. It should not beryllium assumed that recommendations made successful nan early will beryllium profitable, aliases will equal, nan capacity of nan securities discussed successful this material. Upon request, nan General Partner will supply to you a database of each nan recommendations made by it wrong nan past year.

This archive is not intended arsenic and does not represent an connection to waste immoderate securities to immoderate personification aliases a inducement of immoderate personification of immoderate connection to acquisition immoderate securities. Such an connection aliases inducement tin only beryllium made by nan confidential Offering Circular of nan Partnership. This accusation omits astir of nan accusation worldly to a determination whether to put successful nan Partnership. No personification should trust connected immoderate accusation successful this document, but should trust exclusively connected nan Offering Circular successful considering whether to put successful nan Partnership.

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