Calian Group Ltd.

Calian Group Ltd. (TSX: CGY) operates through four segments namely Advanced Technologies, Health, Learning, and Information Technology.

Key Updates:

• Issuance of Equity amounting to CAD 75 million: On March 08, 2021, the company has granted its underwriting option to a syndicate of underwriters co-led by Desjardins Capital Markets and Acumen Capital Finance Partners Limited, wherein the underwriters have agreed to buy 1,240,000 common shares at a price of CAD 60.50 per share, with a total price consideration of CAD 75 million. The group intends to use the above funds for  strategic growth initiatives, including acquisitions, and for general corporate purposes.
• Impressive Q1FY21 Performance: During the first quarter of FY21, the company added CAD 112 million of new signings to its backlog and has enhanced its presence across Europe through learning and advanced technology segments. The above is expected to contribute to the company’s future growth.

Q1FY21 Financial highlights:

• CGY announced its quarterly result, wherein the company posted its total revenue of CAD 116.201 million, as compared to CAD 99.244 million in the previous corresponding period (pcp). The increase was driven by strong momentum from the health segment (CAD 47.052 million versus CAD 30.010 million in pcp).
• Gross profit stood higher at CAD 26.222 million, higher than CAD 20.255 million in pcp, thanks to the higher revenue, partially offset by higher cost of revenues (CAD 89.979 million versus CAD 78.989 million in pcp).
• The quarter was marked by higher selling and marketing expense (CAD 3.364 million versus CAD 2.777 million in pcp) and a surge in General and administration costs (CAD 11.616 million versus CAD 8.658 million in pcp).
• The group reported a lower net profit of CAD 2.484 million as compared to CAD 4.333 million in Q1FY20. The decline was due to a higher income tax expense, inclusion of Deemed compensation expense amounting to CAD 1.847 million and higher amortization of acquired intangible assets.
• The company reported cash and cash equivalents of CAD 30.280 million, while total assets were recorded at CAD 331.527 million.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The company’s operation requires constant innovation and upgradation in order to stay afloat within the industry. Moreover, certain ongoing contracts accounts for a significant part of the revenue, and any exit of the above clients would likely to impact the company’s overall performance.

Valuation Methodology (Illustrative): Price to Earnings based

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation:

The group reported its Adjusted EBITDA of CAD 10.405 million, higher than CAD 8.406 million in pcp. The Company has completed fourteen acquisitions during the last ten years and would focus on other acquisition in order to enhance diversification and innovation. Moreover, in order to retain its consistent cash flows, the company would continue its delivery excellence, maintain a valued relationship with current the customer base. 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 peers like Computer Modelling Group Ltd, Tecsys Inc and Dexterra Group Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 60.26 on March 11, 2021.

One-Year Price Chart (as on March 11, 2021). Source: Refinitiv (Thomson Reuters)

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