K-Bro Linen Inc

K-Bro Linen Inc (TSX: KBL) is a healthcare and hospitality laundry and linen processor in Canada. It operates in major cities across Canada, and two distribution centers, providing management services and laundry processing of hospitality, healthcare, and specialty linens.

Why should investors exit?

• Rising uncertainties: The ongoing COVID-19 pandemic caused world governments to institute travel restrictions, impacting travel both in and out of Canada and the UK. This has had and is expected to continue to have a significant adverse impact on the Corporation's hospitality business, the duration of which is unable to predict with any degree of accuracy.
• Margin contraction: In the third quarter just gone by, the company recorded EBITDA margin contraction to 18.9% from 24.7% over the comparable period of FY20. Net earnings in Q3FY21 decreased by CAD 1.3 million to CAD 2.1 million compared to CAD 3.4 million in the comparative period of FY20, and as a percentage of revenue net earnings lower by 3.2% to 3.5%. Further, adjusted EBITDA margin decreased to 15.1% in Q3FY21 from 21.0% over the comparable 2020 period.
• Technical weakness: KBL shares are trading well below its crucial long-term as well as short-term support levels of 200-day and 50-day SMAs, implies a long-term bearish trend in the stock. Also, the 14-day RSI oscillator is hovering in a neutral zone with bullish bias at 38.67.

Technical price chart (as on December 24, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Stock recommendation

The COVID-19 pandemic will have a continued significant negative impact on the company’s hospitality revenue and margin profile.  KBL shares are hovering in a long-term bearish zone, as its shares trading well below its crucial long-term as well as short-term support levels of 200-day and 50-day SMAs, and 14-day RSI indicating a further downside as it is hovering in a neutral zone with bearish bias at 38.67. Hence, we recommend a “Sell” rating on KBL shares at the closing price of CAD 34.31 (as on December 24, 2021)

1-year price chart (as on December 24, 2021). Source: REFINITIV, Analysis by Kalkine Group

Kelso Technologies Inc.

Kelso Technologies Inc. (TSX: KLS) is a railway equipment supplier that produces and sells tank car service equipment used for the safe loading, unloading, and containment of hazardous materials during transport. 

Why Investor’s Should Book Profit?

• Weak profitability margin: At the end of Q3FY21, the company reported a negative EBITDA and operating margins of 14.2% and 19.8%, respectively, as compared to the industry median of 15.5% and 11%, respectively. Moreover, the company’s reported a negative net profit margin of 20.7%, as compared to the industry median of 7.5%.

• Lengthy cash conversion period: In Q3FY21, the company reported a weak operational metrics and posted its cash conversion period of 465.3 days, as compared to the industry median of 101.5 days, which indicates that the organization is taking considerable time to convert its inventory to cash flow.

• Degrading operating metrics: For 9MFY21, the company reported its revenue of USD 5.429 million, significantly lower than USD 9.754 million in pcp. Moreover, during the period, the group reported an adjusted EBITDA loss of USD 1.204 million, as compared to USD 9.754 million in pcp. The above indicates weak operational performance, and the continuation of the above trend remains a major concern.

Stock Recommendation:

The stock of KLS corrected ~13% and ~24%, respectively in the last one month and three months, respectively and closed below its 50-days and 100-days simple moving, indicating a bearish signal. The stock of KLS is available at an EV to Sales multiples of 3.34x on next twelve months (NTM) basis, higher than the industry (industrial) mean of 2.0x. Hence, considering the above rationale, we give a ‘Sell’ rating on the stock of KLS at the last traded price of CAD 0.60 on December 24, 2021.

One-Year Technical Price Chart (as on December 24, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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.