LifeWorks Inc. (TSX: LWRK) is a Canadian firm that delivers personalized, digital health solutions and a variety of features to help employees when and how they need it. It provides clients with technology-enabled solutions that assist them to enhance their people resources' mental, physical, social, and financial well-being. 

Key Highlights:

• Decline in the liquidity: During Q1FY22, the company stated a decrease in the free cash flow to CAD 6.56 million when compared to CAD 36.60 million in the pcp. Also, the cash flows from the operating activities were reported at CAD 23.75 million in Q1FY22, which is lower than CAD 57.82 million in Q1FY21. The decline in liquidity is a major concern for the company to manage its business operations smoothly and carry out its growth plans.

• In-efficient debt management: The group is inefficient in managing its debt when compared to the industry median, also the company reported higher long-term debt in the Q1FY22. Below is the graphical presentation, of how the company is placed against the industry on the various debt metrics and ratios.

Source: Refinitiv, Analysis by Kalkine Group

• Decrease in adjusted EBITDA and adjusted EBITDA margin: During Q1FY22 the company witnessed a decrease in the adjusted EBITDA to CAD 48.43 million against the adjusted EBITDA of CAD 52.76 million in Q1FY21. The decrease was mainly on account of the higher cloud software costs in the reported period (Q1FY22). Further, the adjusted EBITDA margin also declined to 18.7% in Q1FY22 when measured against the adjusted EBITDA margin of 20.5% in Q1FY21.

Valuation Methodology (Illustrative): EV/ Sales based

Analysis by Kalkine Group

Stock Recommendation:

The company reported lower free cash flows in Q1FY22 of CAD 6.56 million against the free cash flow of CAD 36.60 million in pcp, and the cash flow from operating activities also declined to CAD 23.75 million in the reported period (Q1FY22) against the CAD 57.82 million in the Q1FY21. During Q1FY21, the adjusted EBITDA also decreased to CAD 48.43 million from the adjusted EBITDA of CAD 52.76 million in the pcp.  On the valuation front, the stock is measured on the EV/ Sales based relative valuation multiple and we have considered TrueBlue Inc., HeadHunter Group PLC., etc. as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock of LWRK at the last closing price of CAD 18.47 on June 6, 2022.

One-Year Technical Price Chart (as of June 6, 2022). Analysis by Kalkine Group

Note- The reference data has been partly sourced from REFINITV

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