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Noah Zivitz

Managing Editor, BNN Bloomberg

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NFI Group Inc. bowed to persistent supply-chain pressure on Thursday as the Winnipeg-based bus maker's board announced a big cut to the company's quarterly dividend.

The payment to shareholders will fall 75 per cent to US$0.0531 per share as of April 15. Previously, the company paid a quarterly dividend of US$0.2125 per share.

In a news release, NFI said the board decided the cut was "prudent" amid ongoing supply and logistics disruptions. It added that those challenges are viewed as being temporary, and so it expects to be in a position to boost the dividend in 2023.

"In the near-term, our global supply chain remains highly volatile and unpredictable and we have not yet seen improvement on key parts," said NFI President and Chief Executive Paul Soubry in the release.

In addition to the ongoing supply challenges, Soubry said his company is also dealing with a "particularly painful" setback as a result of a fire at a sub-supplier to its main battery supplier.

NFI said it swung to a net loss of US$8.7 million in the fourth quarter, compared to a profit of US$8.5 million a year earlier, while its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell to US$26.2 million from almost US$65 million. Analysts, on average, were expecting US$32.2 million in adjusted EDITDA. Revenue in the latest quarter slipped two per cent to US$695 million.

The bus maker also said it’s in “detailed discussions” with lenders about covenant relief into the first half of next year to help ease liquidity strains.

“Fourth-quarter results were worse than feared, with the supply chain and inflationary headwinds accelerating across [the fourth quarter] and into 2022,” wrote TD Securities Analyst Daryl Young in a report to clients Thursday. He has a hold recommendation on NFI shares, with a 12-month price target of $22.00 per share.

“Positively, management indicated that bidding activity remains strong, which could lead to new orders and a return to backlog growth through the year,” he added.

Through the close of trading Wednesday, NFI shares had lost almost 38 per cent of their value over the last year.

Of the eight analysts who cover the stock, there are five buy recommendations, two holds, and one sell. The consensus 12-month price target is $25.56, implying a potential return of 32 per cent from Wednesday's close.

National Bank of Canada Financial Markets Analyst Cameron Doerksen told clients in the afternoon he was sticking with an outperform recommendation (the equivalent of a buy), and trimmed his price target to $19.00 per share from $26.00, suggesting a potential total return of 28 per cent.

“We concede that the [fourth-quarter] report and 2022 outlook offered up much to be negative about and few positives. However, we still see value in the stock underpinned by strong demand drivers,” Doerksen wrote in his report.

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