GDI Integrated Facility Services Inc. 

GDI Integrated Facility Services Inc. (TSX: GDI) is a leading integrated commercial facility services provider operates with wide a range of services across Canada and the United States. The Company provides services to the owners and managers of a variety of facility types including office buildings, educational facilities, industrial facilities, healthcare establishments, stadiums etc. 

Key highlights:

• The Company had exercised its right to redeem its 5.00% convertible unsecured subordinated debentures maturing on December 31, 2021, for an aggregate principal amount of CAD 26,166,000. As reported, the Company will pay the redemption price in cash, along with accrued and unpaid interest.
• The Company reported that Birch Hill Equity Partners Management Inc. had increased its stake in GDI through purchase and sale transactions concluded between BHEPMI and its affiliated funds. The Company invested an amount of CAD 208,961,503.57 at a price consideration of CAD 32.51 per share.

Q1FY20 Financial Highlights: GDI announced its quarterly report and reported revenue of CAD 354.85 million significantly higher than CAD 305.3 million reported in the previous corresponding period (pcp). The increase was driven by decent growth in all the reportable segments coupled with a positive impact from acquisitions.  Adjusted EBITDA stood higher at CAD 20 million, reflecting a growth of 11.7% from Q1FY20, positively impacted by ESC acquisition in the recent past. The Company reported a lower adjusted EBITDA margin of 5.6%, as compared to 5.9% in the previous corresponding quarter.Net income soared to CAD 4.30 million against CAD 1.49 million in the previous corresponding period. Cash increased considerably from CAD 3.87 million in FY19 to CAD 13.40 million in Q1FY20, while total assets stood at CAD 764.24 million.

Q1FY20 Income Statement (Source: Company Reports)

Risks: Any extension to the current containment restrictions would lead to buildings closures, which might result in higher vacancy rates due to various social distancing measures. Consequently, demand for the group’s janitorial and technical services might foresee a tepid demand which might dampen the top-line growth in the coming days.

Stock Recommendation: The stock of GDI corrected ~13% so far this year due to a steep correction in the equity market driven by weak investors’ sentiment on account of COVID 19. In the recent past, the company observed a slowdown in demand due to the temporary office closures coupled with sluggish demand from retail customers. Since the states are easing the lockdown restrictions and allowing businesses to operate, we expect a rise in demand for the company’s offerings driven by the higher occupancy rate. The stock corrected ~10% correction in the last one month, and we believe, the current correction offers a good entry point. On the valuation front, the stock is available at a discount compared to the industry. The stock is trading at a forward EV/Sales multiple of 0.7x, as compared to the industry (Professional & Commercial services) median of 1.7x. Hence, considering the above-mentioned points, price movements and risk factors, we recommend a ‘Speculative Buy’ Rating on the stock at the closing market price of CAD 29.22 as on July 10, 2020.

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

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