Calian Group Ltd (TSX: CGY) is a Canada-based company which delivers innovative solutions that help the world communicate, learn, lead healthy lives and stay safe. The Company operates in four segments including, Advanced Technologies, Health, Learning and Information Technology.

Why Should Investors Book Profit?

• Lower margin profile v/s Industry: In Q4 2021, the company failed on maintaining its pace and witnessed lower performance under operating margin matrix, consisting of gross margin, EBITDA margin, operating margin, and net margin. Furthermore, the Company is witnessing decline in margins on a sequential basis, which exhibits the extreme pressure on the company.

Source: REFINITIV, Analysis by Kalkine Group

• Long cash cycle days: The company’s Cash Cycle (Days) has increased compared to the previous sequential quarters, implying the company is taking more days to convert its inventory to cash. In Q4 2021, its Cash Cycle stood at 110.2 days against 108.3 days in Q3 2021. Also compared to industry median its very high, which is at 37.6 days only.

• Higher average collection period: CGY is having a higher average Accounts Receivable day of 79.2 days, against the industry median of 53.5 days. A higher average collection period indicates that the organization is collecting its payments at a slower pace. This may create a difficulty for the company to have enough cash on hand to meet their financial obligations.

• Bearish technicals: The stock of CGY is trading below the immediate support levels of 50-days and 100-days simple moving averages (SMA), respectively, indicating a bearish pattern.
  

Valuations Methodology (Illustrative): EV to EBITDA

Stock recommendation

For the year ended September 30, 2021, the Company reported revenues of CAD 518 million, a 20% increase from the CAD 432 million in the previous year, however the accounting treatment of acquisitions along changes in fair value related to contingent earn-out, dented the group bottom-line. Furthermore, the company's performance was weaker in the operating matrix, where it had a lower margin against an industry, implying pressure. Moreover, when compared to an industry median, its cash cycle days are on the high side, as well as the average Accounts Receivable days are on the higher side, indicating a weak liquidity profile. Hence, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 58.26 on December 13, 2021.

One-Year Technical Price Chart (as on December 13, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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