Richelieu Hardware Ltd (TSX: RCH) is a Canadian company that imports, manufactures, and distributes specialty hardware and related goods. The corporation operates throughout Canada as well as the eastern and midwestern parts of the United States. The majority of the company's revenue is generated from its operations in Canada. Home furnishing manufacturers, residential and commercial woodworkers, hardware merchants, and remodeling superstores are the primary clients of the organization.

Key Highlights

• Robust financial matrix: Despite the turbulent environment, the Company maintained its pace and achieved strong results in sales, EBITDA, and net earnings. Sales and EBITDA climbed to CAD 1,440.4 million and USD 234.4 million in FY2021, from CAD 1,127.8 million and CAD 154.5 million in FY2020, respectively. Even the net earnings increased phenomenally by 66% throughout the same period, demonstrating the company's exceptional success. The Company is working hard to maintain its winning streak and has seen increasing scale on a sequential basis, which is encouraging.

Source: Company Filing, Analysis by Kalkine Group

• Registering sequential growth in operating matrix: Despite the unrest environment, the Company maintained its pace and witnessed spirited performance across its operating margin profile in FY 2021. The Company is continuously working closely to carry this winning momentum and has witnessed higher scale on the sequential basis, which is appreciable. Also, its margins are leaping the industry median numbers on all fronts, another significant plus.

Source: REFINITIV, Analysis by Kalkine Group

• Higher adjusted cash flow from operating activities: The adjusted cash flow from operating activities by the company in FY 2021 increased to CAD 183.0 million, up from CAD 121.1 million in the previous equivalent period. The rise in adjusted operational cash flows is primarily due to profitable business expansion, including profitable acquisition growth, as seen by the 66.2% increase in the net earnings in Fiscal 2021.

Source: Company Filing, Analysis by Kalkine Group 

• Surfing on an acquisition wave: In addition to the five acquisitions completed in Canada and the United States during the year, three more acquisitions were completed after November 30, 2021. These eight acquisitions enable us to strengthen our presence in markets where we were already active, enter new strategic territories, integrate new teams with a solid knowledge of their markets, and add over CAD 180 million in sales annually. As a result of these developments and recent acquisitions, Richelieu’s North American network now consists of 106 strategically located distribution centers, including 57 in the United States.

• Minimizing average collection period: The company is having lower average accounts receivable day of 45.3 days, against the industry median of 51.8 days in FY 2021. Also, the group is minimizing these days on the sequential basis, which is a key positive. A lower average collection period indicates that the organization is collecting its payments at a faster pace. This helps in having enough cash on hand to meet their financial obligations.

Source: REFINITIV, Analysis by Kalkine Group

• Increase in dividend distribution:The Company has an excellent track record of dividend distribution and has increased its distribution over the years, reflecting resilience and healthy cash flow generation. Recently, the Company increased its dividend by 85.7% to CAD 0.13 per share for the first quarter of 2022, which it paid on February 17, 2022. Despite this challenging environment, the company increased its dividend distribution; while most businesses are cutting down or suspending their dividend distribution, this shows the group's financial strength.

Risks associated with investment: The company is subject to a number of risks and uncertainties which could have a material adverse effect on its future profitability and financial position. Such risks and uncertainties include, but are not limited to economic conditions, volatility in metal prices, significant competition, sources of metals supply and supply chain disruptions, labor conflict, etc.

Financial overview of FY 2021 (Expressed in 000 of CAD)

Source: Company Filing

• Strong sales: The company’s consolidated sales reached CAD 1,440 .4 million, an increase of CAD 312 .6 million or 27.7% over CAD 1,127.8 million in FY 2020, of which 22.8% from internal growth and 4.9% from acquisitions.
• Higher operating expenses: In the reported period of FY 2021, an operating expense increased to CAD 1,206.0 million against CAD 973.3 million in pcp. The operating expenses as a % to sales in the same period increased to 83.7% against 79.2% in FY 2020.
• Earnings before amortization, financial costs and income taxes in FY 2021, increased to CAD 234.3 million against CAD 154.4 million despite higher operating expenses, mainly due to higher sales.
• Earnings before income taxes in the reported period was at CAD 194.7 million compared to CAD 117.7 million in pcp.
• Robust net earnings: In FY 2021, the company posted elevated net earnings of 142.3 million against CAD 85.6 million, partially offset by higher income tax.

Top-10 Shareholders 

The top 10 shareholders have been highlighted in the table, which forms around 43.44% of the total shareholding. Mawer Investment Management Ltd. and Lord (Richard) hold the company's maximum interests at 13.80% and 7.52%, respectively. The company's institutional ownership stood at 48.44% and ownership of the strategic entities stood at 7.90%. Higher institutional holding boosts the confidence in the mind of retail investors.

Valuation Methodology (Illustrative): EV to Sales based Valuation Metrics

Analysis by Kalkine Group

Stock recommendation

In Richelieu's financial history, fiscal 2021 stands out as the greatest performing year in terms of results and financial position, as well as one of the most active in terms of strategic expansion. The company effectively capitalized on the expanding demand in the refurbishment industry as well as business acquisition prospects by using its strengths and assets.

Furthermore, the firm has demonstrated its resiliency by sequentially strengthening its operational matrix. Even in FY 2021, it outperforms the industry median margin on numerous fronts, demonstrating the company's competitive edge. Therefore, based on the above rationales and valuation, we recommend a "Buy" rating on the stock at the at the last closing price of CAD 46.38 as on March 30, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 30, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.