Calian Group Ltd

Calian Group Ltd (TSX: CGY) is a Canada-based company, which provides professional services. The Company operates in four segments including, Advanced Technologies, Health, Learning and Information Technology.

Key highlights 

• Improved Cash and Cash Equivalents: The company reported an improvement in Cash and Cash equivalents level in Q3 2020. At the end of the quarter, the company had a balance of CAD 46.2 million.

Source: Company

• Eighth consecutive quarter of revenue growth: This is the eighth consecutive quarter in which the company registered growth in revenue.  Also, this the 75th consecutive quarter where the company reported a positive bottom line.

• Solid backlog: Sales efforts continued to show positive momentum in the quarter with the announcement of multiple large contract renewals and new wins. Health segment secured new business with SNC-Lavalin PAE Joint Venture, worth up to CAD 26 million in revenue in the first phase, IT segment secured a contract renewal of CAD 22-million for cybersecurity and Learning segment renewed its contract with the Canadian Forces School of Aerospace and Defence with a value of CAD 54M. Overall, the group captured CAD 154 million in new contracts during the quarter, ending the period with a revenue backlog of approximately CAD 1.3 billion.

• Upward revision in estimates: The company expect the revenue to be in a range of CAD 415 – 435 million. Adjusted EBITDA to be in the range of CAD 36 – 38 million. Adjusted net profit to be in a range of CAD 22.6 – 24.6 million.

Source: Company

Financial overview of Q3 2020 (Canadian dollars in thousands, except per share data)

Source: Company 

• Revenue grew by 19% to CAD 106 million compared to CAD 89 million for the same period in the previous year. The increase in revenue was attributed to 13% from organic growth, and 6% from acquisitions.
• Adjusted EBITDA in this quarter was CAD 9.0 million, an increase of 34% from CAD 6.7 million in the same quarter of the previous year.
• Net profit for the third quarter was CAD 3.9 million, a decline of 9% from CAD 4.3 million in the same period of the prior year. Higher amortization and higher income tax expense were the main reason behind this decline. 

Revenue bifurcation

Source: Company 

Risks associated with investment

The company is vulnerable to many risks, including the impact of price competition, the low number of qualified professionals, the result of rapid technological and market change, loss of business or credit risk with significant customers, technical risks on fixed price projects, general industry and market conditions. 

Valuation Methodology (Illustrative): EV to Sales

All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The Company has transitioned themselves on working remotely, and customer delivery will not be impacted in coming time. The Company is reliant on this alternative work arrangement to minimize the impact of an outbreak on its financial results. Furthermore, the Company has sufficient liquidity to meet all operating requirements for the foreseeable future. Therefore, based on the above rationale and valuation, we have given a “Hold” rating at the closing price of CAD 66.40 on 29 October 2020. We have considered Photon Control Inc, K-Bro Linen Inc, Alithya Group Inc, mdf Commerce Inc etc. as a peer group for the comparison.

CGY daily technical chart. Source: Refinitiv (Thomson Reuters)

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