Cargojet Inc., the Canadian cargo carrier, announced a seven-year deal with Canada Post that it estimates is worth about C$1 billion ($906.08 million) in revenue.
Under the agreement, Cargojet will provide Canada-wide air cargo for the Canada Post Group of Companies, which includes Purolator Courier Ltd’s national air cargo network. The deal includes three 36-month renewal options not included in the revenue estimate, Cargojet said.
RBC Capital Markets analyst Walter Spracklin said the contract is “transformative” and could add more than C$143 million annually to Cargojet revenue, nearly doubling its expected 2013 sales of C$174 million.
“More importantly, this contract allows Cargojet to optimize its fleet and significantly improve operating efficiency,” he wrote in a note to clients.
“Additional revenue opportunities and optimization strategies will also present itself as Cargojet employs an enhanced and larger network. With a near doubling of anticipated revenue and margin leverage, we see this contract win as driving a significant increase in Cargojet share price - with potential for further upside.”
Shares of Cargojet, which said it would expand its Canadian overnight network for the contract, peaked at C$19.25 on the Toronto Stock Exchange on Wednesday before edging back to C$17.60.
Mississauga, Ontario-based Cargojet said in November that it was exploring opportunities for cargo and airline operations with Air Canada, the country’s largest airline. (Reuters)