Boralex Inc

Boralex Inc (TSX: BLX) is an electric utility company which operates in the development, construction, and operation of renewable energy power facilities. The group controls a portfolio of electricity-producing plants that utilize wind, hydroelectric, thermal, and solar fuel sources.

Major Highlights:

• Increase in Net Installed Capacity: In the past few years, the company has increased the net installed capacity both organically and through acquisitions. The group strategically focused on expanding its footprints across the key markets. Net installed capacity increased at a CAGR of 15% during FY14 to FY20.                       

Net Installed capacity (Source: Company Presentation)

• Improved Financials with Ample liquidity: The company has lowered its net debt to total market capitalization to 41% in FY20, from 56% in FY19. A lower ratio indicates higher financial flexibility. Moreover, BLX has CAD 280 million under its corporate credit facility and CAD 182 million for its ongoing capital investments in France. We believe, with the above funds, the group would be able to meet its working capital and other requirements.                  

Source: Company Presentaion

• Event Update: The group announced that it would disclose its Q1FY21 result on May 05, 2021.

FY20 Financial Highlights:

• BLX announced its full-year result, wherein the group reported revenue of CAD 633 million, higher than CAD 574 million in FY19. The increase was driven by improved power production of 4,727 GWh, v/s 4,371 GWh in FY19, supported by higher than the expected production from the wind power generation.
• The company witnessed cost optimization and reported its total costs at CAD 461 million, less than CAD 484 million in FY19. The improvement was supported by significantly lower impairment costs and amortization expense, partially offset by a higher operating cost.
• Net earnings stood at CAD 61 million v/s a net loss of CAD 43 million. The improvement was due to higher operating income and lower finance costs (CAD 113 million v/s CAD 143 million in FY19).
• Total debt was recorded at CAD 3,516 million, slightly higher than CAD 3,067 million in FY19.
• Cash and cash equivalents were stood at CAD 277 million, higher than CAD 168 million in FY19. As of December 31, 2020, the group reported total assets amounting to CAD 5,314 million.

FY20 Income Statement Highlights (Source: Company Report)

Risks: The company derives almost ~83% of its revenue from the wind segment. Hence, any adverse weather conditions might impact the company’s operations and might dampen the cash flows as well.

Valuation Methodology (Illustrative): Price to CF

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

The company’s operation is related to the utility segment, which is immune to the economic cycles. In the recent past, most of the developed nations are leaning towards renewable energy to reduce carbon emission, which indicates a positive long-term outlook. Moreover, BLX follows a conservative approach and generates its major income from long-term contracts, primarily with clients that have strong financial positions, which also ensures a balanced risk profile.

Source: Company Presentation

We have valued the stock using P/CF based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like Innergex Renewable Energy Inc, TransAlta Renewables Inc etc. Considering the above-mentioned facts, we give a ‘Hold’ rating on the stock at the closing price of CAD 40.72 on April 08, 2021.

One-year Price Chart (as on April 08, 2021). Source: Refinitiv (Thomson Reuters)

GDI Integrated Facility Services Inc.

GDI Integrated Facility Services Inc. (TSX: GDI) is engaged in the facility services sector and operates through segment includes Janitorial Canada, Janitorial USA, Technical services and Complementary Services. It generates maximum revenue from the Janitorial Canada segment.

Key Highlights:

• Higher Cash from Operations: The company posted a jump in cash from operations at CAD 96.092 million in FY20, from CAD 66.575 million in FY19. The growth was primarily driven by higher operating income during the period.

Source: Company Reports

• Reduction in Total Debt: In Q4FY20, the group reported total debt of CAD 173.4 million, reduced by 9.86% and 41.1%, respectively, from Q3FY20 and Q2FY20, respectively. The improvement was mainly attributable to debt repayments from the company’s strong cash flow generations. This would improve the overall financial flexibility and leads to a decline in interest costs.                                            

FY20 Financial Highlights:

• GDI announced its quarterly results, wherein the group posted revenue of CAD 1,411.611 million, higher than CAD 1,285.102 million in pcp. The increase was driven by the positive impact of acquisitions.
• Operating income stood at CAD 90.495 million, significantly higher than CAD 35.389 million in FY19, supported by higher revenue, while a higher cost of services (CAD 1,105.800 million versus CAD 1,050.314 million in pcp), and an increase in selling and administrative expenses (CAD 206.903 million versus CAD 162.270 million in pcp) remained a drag.
• Net income stood higher at CAD 47.991 million v/s CAD 6.756 million in pcp, supported by higher operating income and a lower net finance expense (CAD 21.188 million v/s CAD 23.031 million in pcp).

FY20 Income Statement Highlights (Source: Company Report)

Risks: Due to the unprecedented market challenges due to extended Government restrictions, the group’s operations might get impacted on account of the customer’s solvency, which further result in the delay or default in the collection of trade and other receivables.

Valuation Methodology (Illustrative): Price to Earnings based

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

Stock Recommendation:

The Janitorial Canada Segment and the Janitorial USA Segment has maintained their leadership position in the industry through proper advising clients on the various sanitation processes. The Company’s Technical Services Segment reported a gradual revival from the recent lows witnessed during the second quarter of FY20, which is encouraging. As per the Management, in FY21, the organization is likely to witness both organic and inorganic (through acquisitions) growth, which is impressive. Moreover, the company would focus on achieving operating efficiencies across all its business segments through optimizing several business synergies, and integrating the newly acquired businesses, which would likely to support the company’s margins in the coming days. We have valued the stock using P/E-based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like Park Lawn Corp, Boyd Group Services Inc etc. Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 53.22 on April 08, 2021.

GDI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Park Lawn Corporation

Park Lawn Corporation (TSX: PLC) provides goods and services associated with the disposition and memorialization of remains in Canada and the United States. The company generates revenue from the sale of cemetery property, cemetery services and merchandise sales, and funeral services.

Key Highlights:

• Rising Aged Population and Cremation Rates to support Long-term growth: The business model is resilient in nature, wherein the rising aged population provides opportunities for funeral homes and cemeteries. Moreover, the company is uniquely placed to take advantage of the favorable population demographics, from the aging of “Baby Boomers” born between 1946 and 1964. Notably, as per the studies, aged people above 75 have grown in the recent past and is expected to grow in the coming years. The growing nuclear family along with the decline of cultural traditions, have fueled the trend towards cremations.                                      

Source: Company Presentation

• Consistent margin improvement through streamlining of operations: In the recent years, the company reported elevated margin as the it focused on streamlining and improving operational efficiency through the introduction of FaCTS, a new funeral and cemetery technology solution. Moreover, an improved business mix driven by improved traction from high-margin services, which are available within the On-sites and Cremation Gardens projects, further spurred the growth.

Source: Company Presentation

• Impressive Pipeline: The group is working on the development of new projects, like Westminster Visitation Centre, which has a 32,100 square foot facility and is expected to be completed by 2021. The above project was developed to cater to the higher traction for pre-need interment/entombment arrangements. Moreover, the company is developing additional ~ 6,000 lots within its Eternal Sunset Memorial Park & Cemetery, which was acquired in November 2018. The project is strategically located near New York City, one of North America's most densely populated and diverse markets.

FY20 Financial Highlights:

• FY20 total revenue stood at CAD 334.152 million, reflecting a solid 37% y-o-y growth. The growth was driven by the acquisitions done in FY19 and FY20 coupled with increased demand for funeral and cemetery products and services.
• The group reported solid growth in its Adjusted EBITDA at CAD 79.862 million, up 50% on y-o-y basis.
• The company posted its net earnings of CAD 19.030 million, as compared to CAD 6.906 million in FY19.

Source: Company Reports

Risks: The operations might get set back due to change in rules and regulation, decline in traction for the company’s high-margin products and services etc. 

Valuation Methodology (Illustrative): P/E based

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

Stock Recommendation:

The company’s operations remained less impacted due to the COVID 19 pandemic, which shows business resiliency. The stock of PLC appreciated ~54% and ~114% in the last nine months and one year, respectively. Notably, ~75% of PLC’s funeral home services are sold at need. Moreover, the company operates across the markets like Toronto, New York, New Jersey etc., which has high cremation rates, which is a key positive. During the second half of FY20, PLC made a series of purchase agreements across Texas, Wisconsin, North Carolina and Tennessee, which is likely to expand the company’s presence across the markets. 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 Diversified Royalty Corp, K-Bro Linen Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of PLC at the closing market price of CAD 33.39 on April 08, 2021.

One-Year Price Chart (as on April 08, 2021). 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.