Prudent Strategies to Battle COVID-19 Crisis: Recipe Unlimited Corporation (TSX: RECP) operates and franchises some of the most well-known restaurant brands. The company has several renowned brands under its portfolio, such as Swiss Chalet, Harvey's, St-Hubert, The Keg, Milestones etc.

The group distributed a quarterly dividend of CAD 0.1177 per ordinary share. During FY19, total dividend distribution stood at CAD 26.92 million, at par with CAD 26.60 million in FY18.

In view of the challenges related to Covid-19, the company announced several steps:

• Voluntary suspension of compensation for the CEO followed by suspension of dividend payment, until further notice.
• The company has provided additional support to its franchisees through temporary cancellation of royalty fees and advertising payments followed by higher compensation while offering higher compensation and benefits to its staffs.

FY19 Financial Highlights: For the period ended December 31, 2020, RECP announced its full-year results, wherein the company reported total gross revenue of CAD 1,252.45 million, as compared to CAD 1,191.93 million in FY18 on account of higher retail and catering sales and benefits from the addition of Keg. Operating income decreased to CAD 79.47 million from CAD 126.93 million in the previous corresponding period. The y-o-y decline reflected higher SG&A expenses and impairment charges. The company reported net earnings of CAD 43.91 million, stood lower than CAD 73.79 million in FY18. The decline was due to the lower operating income and higher finance cost. The company exited the year with substantial growth in its total assets of CAD 2,264.06 million from CAD 1,591.08 million in the previous financial year. Free cash flow stood flat at CAD 155.9 million, as compared to CAD 158.7 million in FY18.

FY19 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock of RECP is trading at CAD 10.35 with a market capitalization of CAD 584.9 million. The stock corrected by ~14.95% and ~43.78% during the last one month and three-months, respectively. However, RECP stock showed sharp recovery in the last five trading sessions, resulting in a ~27.78% return, outperforming the index by 17.45%. The group has taken a few measures which is going to help it in curbing the cost and better allocation of capital. However, due to the uncertain environment, the group has suspended the dividend, which is a negative for the investors. In addition to this, the group’s fundamentals are also not impressive. Hence, we recommend a ‘Watch’ stance on the stock at the closing market price of CAD 10.35 as on April 13, 2020 and look for the growth catalyst.

RECP One-Year Daily Price Chart (Source: Thomson Reuters)

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