CanWel Building Materials Group Ltd. (TSX: CWX) is a Vancouver, British Columbia-headquartered Company, which is engaged in the distribution of building material and related products. The Company was established in 1989, and presently, it operates with six divisions across Canada and the United States.

Trading Update (for the three months ended 31^st March 2020)

(Source: Company Website)

As on 14^th May 2020, the Company reported its first-quarter 2020 (Q1 FY20) update and reported a 15.9 per cent increase in revenue to $326.7 million from $281.9 million in Q1 FY19. The gross margin stood at 13.3 per cent (increased 6.1 per cent from $41.0 million in Q1 FY19 to $43.5 million in Q1FY20) while EBITDA increased by 9.5 per cent to $16.5 million in Q1 FY20, despite the operational slowdown amid the COVID-19 disruption. As a result of decent performance, the quarterly dividend was paid as $0.14 per share on 15^th April 2020. Regarding the liquidity and capital resources, the Company consumed $1.1 million in cash in Q1 FY20 versus generation of $4.0 million in cash in Q1 FY19. However, the revolving credit facility was increased by $80.2 million in Q1 FY20, compared to $94.0 million in Q1 FY19.

Share Price Performance

Daily Chart as on 21 May 2020, (Source: Refinitiv, Thomson Reuters)

CWX’s shares are trading at CAD 3.29 on 21 May 2020. Stock's 52 weeks High is CAD 5.71 and Low is CAD 2.73. From the technical standpoint, 3 days, 9 days and 14 days relative strength index of the stock was unfavourable, and the price could fall further from the current trading level.

Conclusion

Despite the disruption presented by the COVID-19 contagion, the Group delivered a strong performance in both Revenue and EBITDA.  The Company has been classified as a provider of essential services and thus, able to continue to business. However, the uncertainties and restrictions are certainly deviating the operations from the average level. Hence, the Company is seeking financial assistance from the government, while adopting several cost-cutting measures such as employ layoffs, slashing non-essential operating expenses, deferring capital expenditure plans, among others. The rapidly evolving and fluidic state of pandemic puts immense pressure on future earnings of the Company. Moreover, it can disturb the demand and supply patterns in the market. Further, in 2020, the management expects a decline in revenues and net profits. However, in the long run, the Group expect the recovery in demand post the temporary chaos of the pandemic.

Based on the above rationale, we have given a “Watch” recommendation at the current price of CAD 3.29 (as on 21 May 2020), while we look for any upcoming catalysts in the near term.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.