Colabor Group Inc.

Colabor Group Inc. (TSX: GCL) is a wholesaler and distributor of food and related products in Canada. The company operates in two segments Distribution and Wholesale segment. The company distributes products under its own brand labels Menu, Menu Haute-Cuisine and Multi Choice and other national brands.

Key Highlights:

• Improved Financial Flexibility: In the recent past, the company successfully managed to bring down the net debt component and has consistently increased its Adjusted EBITDA levels. The group adopted the deployment of several operational optimization measures, which is impressive. Going forward, we expect the trend to continue, which is likely to support the company’s future performance.

Source: Company Reports

• Diversified Customer base: The company caters to both retail and wholesale customers, which have cushioned the company’s order-flow, despite a slide in domestic consumption. In the recent past, most food businesses witness a dip from the restaurant and institutional clients due to the ongoing social distancing norms imposed by the Governments. However, the company reported improved traction from the retail clients, which has supported the company’s performance.                  

Source: Company Presentation

Q3FY20 Financial Highlights:

• GCL announced its quarterly results, wherein the company posted sales of CAD 120.931 million, as compared to CAD 165.803 million in the previous corresponding period (pcp). The decline was primarily attributable by the termination of a contract within the Specialized distribution activities, coupled with non-renewal of less-profitable contracts in Broadline activities distribution.
• The company reported an improved adjusted EBITDA of CAD 10.1 million, as compared to CAD 5.1 million in the previous corresponding period (pcp) while EBITDA margin improved to 8.4% versus 5.1% in Q3FY19.
• Net earnings stood at CAD 3.4 million, as compared to CAD 3.7 million in the previous corresponding period.

Q3FY20 Financial Highlights (Source: Company Reports)

Risks: Further breakout of COVID-19 may impact the demand from the food industry as it might result in the closure of food outlets.

Stock Recommendation:

Despite the ongoing pandemic, the company posted cash flow from operating activities at CAD 26.068 million for 9MFY20, as compared to CAD 23.551 million, a year ago, which is a key positive. The company has extended the maturity of its credit facility and subordinated debt, which is expected to support the company’s overall liquidity during the ongoing pandemic. We expect the company to be benefited from the easing of lockdown restrictions as the demand from the restaurant and food outlets would increase. The stock closed above the long-term support levels of 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish trend. On the valuation front, the stock trades at an EV to EBITDA multiple of 6.6x on NTM basis, as compared to the industry (Food & Drug Retailing) median 7.8x. Hence, considering the above facts, we have given a ‘Hold’ rating on the stock at the closing price of CAD 0.73 on December 29, 2020.

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

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