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. 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 challenging 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. Below is the graphical representation of how the company has improved its Earnings, Sales, and Net Earnings from FY17 to FY21.

Source: Company Filing, Analysis by Kalkine Group

• Registering sequential growth in the operating matrix: The Company maintained its pace and witnessed spirited performance across its operating margin profile in FY 2021. Also, its margins are leaping over 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 operating 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 the company to strengthen its presence in markets its 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.

Risks associated with investment

The company is subject to several 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’s of CAD)

Source: Company Filing

• The company’s consolidated sales reached CAD 1,440 .4 million, an increase of CAD 312 .6 million or 27.7% over CAD 1127.8 million in FY 2020, of which 22.8% from internal growth and 4.9% from acquisitions.
• 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 % of 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 were at CAD 194.7 million compared to CAD 117.7 million in pcp.
• In FY 2021, the company posted elevated net earnings of 142.3 million against CAD 85.6 million, partially offset by higher income tax.

Valuation Methodology (Illustrative): EV to EBITDA 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 last closing price of CAD 36.47 as of April 29, 2022.

One-Year Technical Price Chart (as on April 29, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Disclaimer

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