GDI Integrated Facility Services Inc.

GDI Integrated Facility Services Inc. (TSX: GDI) is engaged in the facility services sector and operates through segment includes Janitorial Canada, Janitorial USA, Technical services and Complementary Services.

Key Highlights:

• Higher Cash from operations: The group’s cash flow from operations increased drastically to CAD 52.8 million Q1FY21, as compared to CAD 20.2 million in Q1FY20. The increase was due to a higher operating income of CAD 18.7 million coupled with the decline of non-cash operating assets and liabilities amounting to CAD 26.8 million, partially offset by higher income taxes paid amounting to CAD 14.9 million.
• Reduction in total debt: The company reported total debt of CAD 189.6 million at the end of Q1FY21, as compared to CAD 264.4 million in Q1FY20. A decline in debt would result in a higher financial flexibility and is a key positive. Moreover, repayment of the debt indicates prudent capital management.

Q1FY21 Financial Highlights:

• GDI announced its quarterly results, wherein the group posted revenue of CAD 383.601 million, up 8.1% on y-o-y basis. The increase was driven by the positive impact of Acquisitions coupled with the depreciation of the U.S dollar relative to the Canadian dollar.
• Operating income stood at CAD 27.237 million, significantly higher than CAD 8.542 million in pcp, supported by higher revenue, while a higher cost of services (CAD 295.472 million v/s CAD 288.916 million in pcp), and higher selling and administrative expenses (CAD 56.130 million v/s CAD 47.234 million in pcp) remained a drag. Moreover, the company’s performance was supported by a positive impact from the Canadian Emergency Wage Subsidy and related expenses amounting to CAD 7.2 million.
• Net income stood significantly higher at CAD 13.076 million v/s CAD 4.302 million in pcp, partially offset by higher operating income while a higher net finance expense (CAD 8.861 million v/s CAD 0.770 million in pcp), coupled with a higher Income tax expense (CAD 5.300 million v/s CAD 3.470 million in pcp).

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: Due to an unprecedented market challenges on account of extended Government restrictions, the operations might get impacted, which may result in the delay or default in the collection of trade and other receivables.

Valuation Methodology (Illustrative): Price to Earnings based

(Note: All forecasted figures and peers have been taken from Thomson Reuters).

Stock Recommendation:

The company reported ample liquidity of CAD 159.8 million of credit available on its Revolving Credit Facility, along with CAD 22.8 million of cash balance. The company reported an adjusted EBITDA of CAD 33.5 million, as compared to CAD 20.0 million, representing an increase of 67.2% on y-o-y basis. The Janitorial Canada Segment and the Janitorial USA segment maintained the leadership position within the industry through prudent advising on the various sanitation processes. We expect the demand for group offerings to improve once the restrictions would ease out. We have valued the stock using P/E based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like Boyd Group Services Inc, Savaria Corp etc. Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of GDI at the last traded price of CAD 53.15 on May 11, 2021.

Price Chart (as on May 11, 2021). Source: Refinitiv (Thomson Reuters)

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