Calian Group Ltd.

Calian Group Ltd. (TSX: CGY) offers diverse products and solutions for private sector through its advanced Technologies, Health, Learning, and IT and Cyber Solutions.

Key Updates:

• Significant Improvement in Cash Flows: During the first quarter of FY21, the company reported improved working capital management, despite a lower net profit, which is encouraging. Cash from operations stood at CAD 11.529 million, as compared to a cash outflow of CAD 12.579 million in Q1FY20, supported by improved working capital management.
• Win of new Contract from MDA: Recently, CGY has been awarded a new contract from MDA, an international space mission partner, wherein the company would manufacture high-performance satellite flight operations to support the Canadian Space Agency. With the new contract, the company is ready to utilize the growing scope from the satellite-related ground system products.
• Issuance of 78,000 equity shares: On March 17, 2021, the company completed the issuance of 78,000 Common Shares at a total consideration of CAD 79.7 million. These funds would be allocated for the strategic growth initiatives and would be used for general corporate and working capital purposes.
• Event Update: The company would disclose its Q2FY21 result on May 12, 2021. 

Q1FY21 Financial Highlights:

• CGY announced its quarterly result, wherein the company posted total revenue of CAD 116.201 million, higher than CAD 99.244 million in the previous corresponding period (pcp). The improvement was primarily driven by the positive impact of acquisition coupled with improved organic growth.
• Gross profit stood at CAD 26.222 million, as compared to CAD 20.255 million, thanks to the higher revenue, partially offset by higher cost of revenues (CAD 89.979 million v/s CAD 78.989 million in pcp).
• The quarter was marked by higher selling and marketing expenses and an increase in general and administration costs.
• The company reported a lower net profit of CAD 2.484 million, as compared to CAD 4.333 million in pcp. The decline was primarily attributable to higher amortization of acquired intangible assets (CAD 2.118 million v/s CAD 0.889 million in pcp).

Q1FY21 Income Statement Highlights, Source: Company Reports

Valuation Methodology (illustrative): Price to Earnings Based

All forecasted figures and peers have been taken from Thomson Reuters. 

Risks: The industry in which the company operates is very dynamic in nature and is rapidly evolving, which might lead to the entry of any player with unique technological backup. This might lead to a lower demand for the company’s offerings.

Stock Recommendation:

Due to the rise of COVID 19 pandemic, the company witnessed new opportunities, coupled with continued growth within the contract delivery segment, improved prospects from the existing contracts with the Government of Nunavut, continued supply within the Mobile Respiratory Care Units contract with SNC-Lavalin PAE. Moreover, the company offers internally developed products, engineering services and solutions and caters to a diversified industry like communications, nuclear, agriculture, defense, and several government sectors, which also acts as a safeguard to the company during economic cycles, on account of lower dependency on each sector. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered industry (Professional & Commercial Services) median on NTM basis. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of CGY at the last traded price of CAD 58.27 on April 29, 2021.

One-Year Price Chart (as on April 29, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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