GDI Integrated Facility Services Inc.

GDI Integrated Facility Services Inc. (TSX: GDI) is a leading integrated commercial facility services provider operates with wide a range of services across Canada and the United States. The Company provides services to the owners and managers of a variety of facility types including office buildings, educational facilities, industrial facilities, healthcare establishments, stadiums etc. The Company operates in four major segments, namely On-call services, Project, Manufacturing and distribution and Other revenues.

Q1FY20 Financial Highlights: GDI impresses with its quarterly results, wherein the Company reported revenue of CAD 354.85 million, as compared to CAD 305.3 million in the previous corresponding period, aided by a decent growth from all the reportable segments. Operating income remained more or less flat at CAD 8.54 million owing to a higher cost of services, a considerable increase in Selling and administrative expenses and higher depreciation and amortization expenses. Net income improved to CAD 4.30 million against CAD 1.49 million in the previous corresponding period underpinned by a decline in net finance expense. Adjusted EBITDA stood at CAD 20 million, improved 11.7% over Q1FY19. Cash increased considerably from CAD 3.87 million in FY19 to CAD 13.40 million in Q1FY20, while total assets stood at CAD 764.24 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock stood resilient, amidst a drastic correction in the broader market, and the stock generated a positive return of ~18% in last one year. Investors should note that the stock is trading above its 200-days Simple Moving Average of CAD 31.35, indicating a long-term bullish pattern. The group’s revenue was affected by recent office shutdowns and sluggish demand from retail customers. As buildings are reopened, and occupancy rates begin to rise, we expect the demand for the group’s offerings would be higher, which is likely to result in stable performance in the near to medium term. The group has a healthy balance-sheet followed by ample liquidity to combat the current crisis. We remain upbeat on the business model and expect the Company to retain its growth rate in the coming days. Further, the Company is emphasizing on the operational efficiency in order to mitigate the impact of business volume declines to maintain cash flows. The stock is trading at an EV/EBITDA of 0.6x on NTM basis, as compared to the industry median (Professional and Commercial services) of 1.8x. Hence, we recommend a ‘Speculative Buy’ on the stock at the closing price of CAD 33.01 on May 28, 2020.

GDI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

CAE Inc.

CAE Inc. (TSX: CAE) is a global leader in training for civil aviation, defence & security, and healthcare. The company has more than 160 training locations across more than 35 countries. The company operates through three major segments, namely, Civil, Defence and Healthcare.

FY20 Financial Highlights: CAE declared its full-year financial results, wherein the Company reported its revenue at CAD 3,623.2 million, as compared to CAD 3,304.1 million in the previous corresponding period. The higher revenue was primarily due to higher contribution from each segment. Gross profit improved to CAD 1,083.6 million from CAD 941.5 million in Q1FY19, thanks to higher revenue. Operating profit stood higher at CAD 537.1 million, improved from CAD 480.6 million in pcp, primarily driven by a higher gross profit, while offset by higher selling, general and administrative expenses. Net income stood lower at CAD 318.9 million, as compared to CAD 340.1 million in the previous corresponding quarter, due to an elevated finance expense and higher income tax. Further, to add this, the Company reported an operating loss of CAD 41 million from the Healthcare segment. The Company exited the financial year with a Cash and cash equivalent of CAD 946.5 million and a total asset of CAD 8,483.6 million.

FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock made a stiff correction of ~40% in the last three months, due to subdued performance from the Aviation industry across the North American market. The ongoing COVID 19 restriction took a toll on the group’s businesses, especially in the Civil Aviation Training Solutions segment. We believe, the training programs related to pilot and aircrew is likely to be muted in coming quarters. Further, the group is witnessing the delay in awarding and execution of new contacts, which is likely to take a toll on the financials in the near term. The stock is trading at a forward EV/EBITDA multiple of 12.9x against the Industry (Professional and Commercial Services) Median of 10.3x. Hence, based on the aforementioned reasons we recommend a ‘Watch’ stance on the stock at the closing market price of CAD 21.5 on May 28, 2020 and look for the growth catalyst in the near future. 

CAE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)