Wajax Corporation (TSX: WJX) operates through an integrated distribution system providing sales, parts and services to a wide range of customers across construction, forestry, mining, industrial and commercial, oil sands, transportation to name a few.

Key Highlights:

• Weak Margin profile: The company reported its EBITDA and operating margin of 9.1% and 6%, respectively, in Q1FY22, as compared to the industry median of 13.7% and 10%, respectively. This indicates weak operational efficiencies and poor cost management. Moreover, the company posted a lower net margin of 3.7% in Q1FY22, as compared to the industry median of 6.5%.

• Poor Liquidity profile: In Q1FY22, the company’s quick ratio and current ratio stood at 0.76x and 1.80x, respectively, lower than the industry median of 1.17x and 2.11x, respectively. This indicates that the company has higher current liabilities as compared to its current assets, reflecting a weak working capital management.

• Lengthy Cash Conversion period: In Q1FY22, the company reported its cash conversion period of 104.2 days, which is significantly higher than the industry median of 77.7 days. A lengthy cash conversion period indicates that the company is taking higher time to convert its investments to cash flows.

 Valuation Methodology (Illustrative): EV to Sales- based

Analysis by Kalkine Group

Stock Recommendation:

In Q1FY22, the company reported a drastic fall in its cash from operations of CAD 19.4 million in Q1FY22, as compared to CAD 77.2 million in pcp. This might hinder the company’s short-term working capital requirement and capital investments. We have valued the stock using the EV to Sales-based relative valuation method and have arrived at a double-digit downside (in percentage terms). For the said purposes, we have considered peers like Doman Building Materials Group Ltd, Russel Metals Inc etc. Considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock of WJX at the last closing price of CAD 23.70 on June 03, 2022.

One-Year Technical Price Chart (as on June 03, 2022). Analysis by Kalkine Group

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