Richelieu Hardware Ltd.

Richelieu Hardware Ltd. (TSX: RCH) is a Canada-based company that imports, manufactures, and distributes specialty hardware and complementary products. 

Key Updates:

• Recent acquisitions to spur future operations: In 2020, the company successfully completed five acquisitions across North America at a price consideration of CAD 70 million. The above acquisitions would likely to diversify the company’s revenue base. Notably in Q4FY20, manufacturers market rose 15.8% on y-o-y in Canada and 15.8% in the United States, while the company’s retailers market increased 42.6% on y-o-y in Canada and a whopping 184.3% in the United States. We expect the momentum to continue in the coming quarters as well.
• Improved Margins: The company reported improved gross margin and operating margin of 13.1% and 10.4%, respectively, higher than 11.9% and 8.8% in FY19. Moreover, the net margin was recorded at 7.6% in FY20, higher than 6.4% in FY19 and 3.5% of the industry median.

FY20 Financial Highlights:

• RCH announced its full-year result, wherein the company posted sales of CAD 1,127.840 million v/s CAD 1,041.647 million in FY19. The increase was driven by the positive impact of acquisitions.                             

Revenue Highlights (Source: Company Reports)

• EBITDA stood at CAD 154.461 million, higher than CAD 124.207 million in FY19.
• Net earnings surged to CAD 85.611 million, from CAD 66.671 million in FY19. The increase was driven by higher EBITDA, coupled with lower financial costs, net (CAD 2.682 million v/s CAD 3.060 million in FY19).
• Cash and cash equivalents were significantly higher at CAD 73.928 million, as compared to CAD 24.701 million in FY19.

FY20 Income Statement Highlights (Source: Company Report)

Risks: The company’s operations rely on general economic conditions and the economic factors specific to the renovation and construction industry. A change in economic cycles could lead to a decline in sales and have an adverse impact on the overall financial performance.

Stock Recommendation:

Despite a tepid business environment, the group reported impressive performance in FY20, which is encouraging. The cumulative effect of the acquisitions has uplifted the overall operations, which has been reflected in the stock price too. The RCH stock generated handsome returns of ~44% and ~84% in the last nine months and one year, respectively and currently trading near the upper band of its 52-weeks range of CAD 41.25 and CAD 21.53. On the valuation front, the stock is trading at a forward EV to EBITDA multiple of 13.5, which is significantly higher than the industry (home building and construction supply) medina of 7.7x. Hence considering the recent price gain and stretched valuation, we suggest an ‘Expensive’ recommendation on the stock of RCH at the closing market price of CAD 41.03 on March 30, 2021.

One-Year Price Chart (as on March 30, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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