George Weston Limited

George Weston Limited (TSX: WN) is a Canada-based food processing company, which operates in three businesses, namely retail, real estate and consumer goods via its control of Loblaw, Choice Properties and Weston Foods.

The Management Declared a dividend of CAD 0.525 per common share payable July 1, 2020

Q1FY20 Financial Highlights: WN posted an impressive set of numbers, wherein the company reported a net profit of CAD 743 million, as compared to a net loss of CAD 372 million in pcp. The Group reported a decent top-line growth of 10.4% on y-o-y basis at CAD 12,333 million. The increase was driven by positive retail sales due to higher same-store sales growth, followed by a net increase in retail square footage.  Due to ongoing COVID-19 pandemic, the Group witnessed a rise in traffic and basket size, which supported the company’s overall performance. Adjusted EBITDA and Adjusted EBITDA margin improved 12.6% and 20 bps, respectively form Q1FY19. The increase was driven by the favorable impact of the consolidation of franchises amounting CAD 36 million followed by a growth in retail gross profit, while higher selling, general and administrative expenses remained a drag. Cash and cash equivalents stood at CAD 2,784 million, while total assets stood at CAD 47,729 million at the end of the quarter.

Q1FY20 Income Statement Snapshot (Source: Company Reports)

Valuation Methodology (Illustrative):  Price to Earnings based Relative Valuation

Note: All forecasted figures and peers have been taken from Refinitiv (Thomson Reuters), NTM-Next Twelve Months

Stock Recommendation: The stock of WN stood resilient and corrected only ~2.8% in the last one year, while the broader market corrected a big-time. The group’s offering comes in essential services and it witnessed a robust demand for food and drugs. The stock is offering a decent dividend yield of 2.1%, which is attractive considering the current interest rate environment. The Group is further investing in online platform to cater to the growing demand. Within the property segment, the Company has faced some short-term glitches due to delay in construction activities, however WN is confident of constructing high-quality properties at a low-cost budget. We have valued the stock using P/E based relative valuation approach and taken Empire Company Ltd (TSX: EMP.A), Metro Inc (TSX: MRU) and Alimentation Couche-Tard Inc (TSX: ATD.B) as peer group and arrived at a target price offering a double-digit upside potential (in % terms). Hence, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 97.05 on May 15, 2020.

WN One-Year Daily Price Chart, Source: Refinitiv (Thomson Reuters)

MTY Food Group Inc.

MTY Food Group Inc. (TSX: MTY) is a leading Canada-based company franchisor and operator of restaurants in North America, which provides quick-service and casual dining restaurants. The company operates in two segments, namely Canada and US & International. The company operates through a wide network of 7,300 locations including 137 corporates, 7,140 franchises and 23 joint ventures.

To weather the current COVID 19 crisis, the Management is preserving its liquidity and temporarily suspended the dividend.

Q1FY20 Financial Highlights: MTY declared its quarterly results, wherein the company reported revenue of CAD 150.78 million, as compared to CAD 107.29 million in pcp. The increase was driven by substantial growth from each segment and further supported by acquisitions. The company reported robust growth in its system sales at CAD 999.5 million as compared to CAD 687.80 million in the previous corresponding period. The quarter was marked by higher Operating expenses, higher depreciation and amortization and an increase in interest costs. EBITDA during the quarter came at CAD 41 million, up 45% on y-o-y basis. The company reported Net income of CAD 19.01 million, as compared to CAD 14.78 million in the previous corresponding period. Free cash flows stood at CAD 30.7 million, grew 23% over Q1FY19. The company exited the quarter with cash and cash equivalent of CAD 56.78 million.

Q1FY20 Income Statement Highlight (Source: Company Reports)

Stock Recommendation: The stock of MTY made a stiff correction and lost ~68% and ~16% in the last one year and one month, respectively. The company is focusing on re-opening of its temporary closed restaurants and will emphasize on higher product penetration among its existing customers. The company is observing customer behavior very keenly and would offer products as per the demand in order to regain the customer’s confidence.  The company is fundamentally strong and has a good market presence. We believe the company would witness steady growth in coming quarters followed by an economic revival. The stock is available at a cheap valuation of price to earnings multiples of 5.60x on TTM basis as compared to the industry (Hotel & Entertainment Services) median of 9.3x. The stock price has fallen drastically, and we believe most of the negatives have been priced in.  Hence, we recommend a ‘Speculative Buy’ on the stock at the closing market price of CAD 18.29 as on May 15, 2020.

MTY One-Year Daily Price Chart, Source: Refinitiv (Thomson Reuters)

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.