Richelieu Hardware Ltd. (TSX: RCH) is a Canada-based company that imports, manufactures, and distributes specialty hardware and complementary products. The majority of the group's revenue originated from its operations in Canada.   The company's product portfolio comprises furniture, glass, decorative, window, and door hardware, lighting systems, and kitchen and closet storage.

Key highlights:

• Higher EBITDA: For Q1FY22, the company witnessed an increase of 40.8% in its EBITDA to CAD 53.7 million vs CAD 38.1 million in Q1FY21. The increase of CAD 15.6 million in the EBITDA during Q1FY22, was majorly due to the increase in sales and the cost reduction. Further, the EBITDA margin was improved to 14.0% in Q1FY22 vs 12.8% in Q1FY21.

• Higher revenues: Revenue for Q1FY22 increased by 29.2% to CAD 384.46 million as compared to CAD 297.58 million in Q1FY21. Out of the 29.2% increase in the sales, 16.3% was derived from the organic sales and the remaining 12.9% was from the sales coming from the acquisitions made. The revenues across the Canadian region grew by 19.3% in Q1FY22 against Q1FY21, and the revenues from USA increased to 48.05 in Q1FY22 when measured against Q1FY21.

• Dividend declaration: The group announced a quarterly dividend on April 7, 2022, of CAD 0.13 per share, of record at April 21, 2022, payable on May 5, 2022.

• Improved profitability margins: Below is the graphical representation of the improved profitability margins in Q1FY22 as compared to Q1FY21.

Source: Refinitiv, Analysis by Kalkine Group

Risks associated with investment

The group is majorly exposed to the economic ups and downs, supply chain disruptions on account of any fresh COVID-19 restrictions, higher transportation costs, labor shortages to name a few.  

Financial overview of Q1FY22 (Expressed in thousands of CAD)

 Source: Company Filing

• The company witnessed an increase of 29.2% in its total revenue to CAD 384.46 million in Q1FY22 vs CAD 297.58 million in Q1FY21. A major increase was reported in the revenues from the Canadian region, up by 19.3% to CAD 230.5 million in the Q1FY22 vs CAD 193.2 million in Q1FY21.

• On account of higher revenues, the operating expenses excluding amortization surged to CAD 330.73 million in the Q1FY22 as compared to CAD 259.41 million in Q1FY21.

• For Q1FY22, the earnings before income taxes rose to CAD 41.59 million as compared to CAD 28.98 million in Q1FY21. The increase in financial costs, Amortization of property plans and equipment, and right to use of the asset during Q1FY22, were the major contributors to the limited increase in earnings before income taxes.  

• The company reported the Net earnings of CAD 30.30 million in Q1FY22, against CAD 21.04 million in Q1FY21.

Valuation Methodology (Illustrative): EV to EBITDA based valuation

Stock recommendation

The company executed its growth strategy very well which helped to garner additional revenues of CAD 100 million on annual basis from the three acquisitions concluded in the USA by the end of December 31, 2021. The group is very cautious in its debt management which can be easily interpreted from its Debt-to-Equity ratio of 0.21x in Q1FY22 vs the industry median of 0.78x. Also, the % of Long term debt to total capital for the company stood at a low of 9.6% in Q1FY22 against the industry median of 30.0%. On the valuation front, the stock is measured on the EV to EBITDA based multiple, and for the valuation, we have considered Transcat Inc., Hardwoods Distribution Inc., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing market price of CAD 38.82 on April 12, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on April 12, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Disclaimer

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