Hardwoods Distribution Inc.

Hardwoods Distribution Inc. is a Canadian company engaged in the wholesale distribution of hardwood lumber and related sheet goods and specialty products. The Group operates the regions of across Canada and US.

On March 9, 2020 the Company acquired Diamond Hardwoods, a Norther California based wholesale distributor, at a price consideration of US$ 3 million. To weather the current COVID19 pandemic, the Group executed several prompt measures like lowering the workforce by 10% and contracting variable compensation followed by cutting down of its non-essential operating expenses and deferring its capital expenditures. The Company declared a quarterly dividend of CAD 0.085 per share, payable on July 31, 2020.

Q1FY20 Financial Highlights: Hardwoods Distribution posted a stellar quarterly number, wherein it reported total sales of CAD 325.10 million, representing a significant improvement from CAD 287.08 million in pcp. The increase was underpinned by the recent acquisition (6.8%) and organic sale (5.4%). Gross profit stood higher at CAD 62.61 million, as compared to CAD 51.03 million in the previous corresponding quarter, thanks to higher income. Both selling & distribution expense and administration cost stood higher than Q1FY19. The Group reported a considerable growth of 57% y-o-y in its net profit to  CAD 9.40 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The Company witnessed a lower demand during April 2020 due to a decline in construction activities, which is likely to impact Q2FY20 result. However, we believe the current downturn is short-term, and the Company would return to its growth phase as soon the economy recovers. The Group is well-positioned and has liquidity of CAD 101.9 million, which seems to be sufficient enough to sail through the difficult times. The business of HDI is well diversified and scattered across a broader Geography and caters to a wider customer base, which implies proper mitigation of risk, ensuring constant cash flow to the business. The stock trading above its 50-days simple moving average of CAD 11.02.  The group is trading at a forward EV/Sales multiple of 0.3x against the industry (Paper and Forest Product) average of 0.8x.  Hence, we recommend a ‘Speculative Buy’ rating on the stock at the current price of CAD 11.37 as on May 15, 2020

HDI One-Year Daily Price Chart, Source: Refinitiv (Thomson Reuters)

Information Services Corp

Information Services Corp (TSX: ISV) is a support services company based out of Canada. It provides information and registry solutions to companies from the private and public sector.

Financial Highlights - Q1 FY2020 (31^st March 2020)

(Source: Quarterly Report, Company Website)

As on 5^th May 2020, the Group reported the results for first-quarter of the financial year 2020, driven by an increase in the revenue from Technology Solutions and Services businesses for the period, the revenue surged by 3.5 per cent to CAD 29,596 thousand as against CAD 28,607 thousand in the Q1 of FY2019. The adjusted EBITDA stood at CAD 7.9 million in Q1 FY2020 versus an adjusted EBITDA of CAD 7.8 million in the Q1 of FY2019, and the adjusted EBITDA margin stood at 26.7 per cent for the period. The reported EBITDA surged by 6.4 per cent in Q1 FY2020 from CAD 7.4 million in Q1 FY2019 to reported EBITDA of CAD 7.8 million in the first quarter of the financial year 2020. The Group’s profit for the period stood at CAD 3,470 thousand in the first quarter of the financial year 2020 versus CAD 3,011 thousand in the first quarter of the financial year 2019. The basic and diluted earnings per share stood at 0.20 cents in the first quarter of the financial year 2020 as against the basic and diluted earnings per share of 0.17 cents in Q1 FY2019. The free cash flow surged to CAD 6.4 million in Q1 FY2020 versus CAD 5.3 million in Q1 FY2019. The cash balance stood at CAD 21.2 million as on 31^st March 2020 versus cash balance of CAD 23.7 million as on 31^st December 2019. The total debt stood at CAD 17.5 million as on 31^st March 2020 versus total debt of CAD 18 million as on 31^st December 2019.

Share Price Performance

Daily Chart as of 15^th May 2020, (Source: Refinitiv, Thomson Reuters)

Information Services Corp shares is trading at CAD 13.70 at the time of writing on 15^th May 2020. Stock's 52 weeks High is CAD 17.07 and Low is CAD 12.02.

Conclusion

The Company has shown an increase in the financial performance for the first quarter of the financial year 2020. Both the top-line and the bottom-line performance have improved for the period with reduced net debt. The market conditions in which the company operates is full of challenges and might impact the operational performance and financial performance. Any change in regulations and government policies could affect the overall business of the company. The Group need to manage operating expenses effectively as it will negatively impact operational performance in the future. The group operations are significantly impacted by the outbreak of coronavirus, and the revenue for registry operations had declined in the first quarter. ISV continue to monitor the situation and expect covid-19 pandemic to impact adversely on short-term revenue, EBITDA and transaction volume. In the long run, the group is well-positioned to manage uncertain challenges.

Based on the factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of CAD 13.60 (as on 14^th May 2020), with support from few catalysts needs to be evaluated at a later stage.

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.