Dollarama Inc.

Dollarama Inc. (TSX: DOL) is a Canada-based company that has retail operations across Canadian province. The Company offers an assortment of general merchandise, consumable products and seasonal products, including private label and nationally branded products.

Key highlights:

• Rise in Comparable store sales:Despite government controls on retailers, including several forced store closures in the first and second halves of Fiscal 2021 to combat the spread of COVID-19, the corporation saw increases in comparable store revenue and the overall number of Dollarama stores over the past year (from 1,291 stores on February 2, 2020 to 1,356 stores on January 31, 2021). In Fiscal 2021, comparable store sales increased 3.2% over the previous equivalent year, owing to a 29.1% growth in average transaction size and a 20.1% reduction in transaction volume due to lower consumer frequency of store visits but higher purchases of merchandise at one time relative to the same period last year.

• New Long-term Store Target: The management expects that within the next ten years, or by 2031, it would expand its Canadian retail network to about 2,000 outlets, with an estimated new store capital payback time of around two years. This is up from the previously stated long-term store target of 1,700 locations in Canada by 2027.

• Rise in cash flows from operating activities: Cash flows generated from operating activities totaled CAD 889.1 million, compared to CAD 732.5 million for fiscal 2020. The rise was primarily attributable to an increase in cash flow from working capital explained by lower inventory purchases in fiscal 2021 compared to the previous corresponding period.

Source: Company

• Ample liquidity: The Company’s operations generated enough cash to finance its expected expansion in Canada and Latin America. The Company had CAD 439.1 million in cash on hand and CAD 798.9 million available under its Credit Facility as of January 31, 2021. 

Financial overview of period end Jan 31, 2021 (Expressed in thousands of CAD)

Source: Company

• In FY 2021 the Company’s sales increased by 6.3% to CAD 4,026.2 million, compared to CAD 3,787.2 million in the previous corresponding period. The rise in revenue was primarily due to growth in comparable store sales and in the total number of Dollarama stores.
• Gross profit in the reported period stood at CAD 1,765.0 million or 43.8% of sales, compared to CAD 1,652.3 million or 43.6% of sales in the pcp. Higher sales of higher-margin products primarily drove the increase in gross margin.
• The Company reported muted net income at CAD 564.3 million, compared to CAD 564.0 million in FY 2020. The rise in net income was primarily due to above-stated reasons, partially offset by higher G&A expenses and higher depreciation.

Risks associated with investment

The Company’s ability to pay the principal and interest on its debt, or to generate sufficient funds for operations and planned capital expenditures depend on its future performance, which to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, or other factors that are beyond its control.

Valuation Methodology (Illustrative): Price to Earnings

All forecasted figures and peers have been taken from Thomson Reuters. 

Stock recommendation

In Fiscal 2021, the company achieved solid results. In Q4 2021 the company’s strong sales momentum was interrupted by the introduction of more stringent public health measures in several provinces in the month of December. Despite the restrictions, it witnessed growth in comparable store sales and in the total number of Dollarama stores over the past 12 months, which is notable. With such restrictions gradually lifted starting February, strong sales momentum returned in Fiscal 2022. The management is carefully evaluating the market potential and dynamics, and they are increasing their long-term growth target in Canada to 2,000 stores by 2031. We have valued the stock using price to earnings based valuation and arrived at a target price offering a single digit upside potential (in % terms). Therefore, based on the above rationale and valuation, we recommend a "Watch" rating at the closing price of CAD 55.38 on May 5, 2021 and suggest investors to wait for the better entry levels.

One-Year Price Chart (as on May 05, 2021). Source: Refinitiv (Thomson Reuters)

WSP Global Inc

WSP Global Inc (TSX:WSP) provides engineering and design services in the fields of transportation & Infrastructure, Property and Buildings, Environment, Power and Energy, Resources, and Industry sectors. Additionally, WSP offers strategic advisory services. The firm operates mainly in four regions namely, Canada, America, EMEIA and APAC.

Key highlights 

• Acquisition of B+P:  On 21 April 2021, WSP global has acquired b+p baurealisation, an engineering and consulting firm. The acquisition of b+p was financed using WSP’s available cash and credit facilities. The acquisition facilitates WSP’s 2019-2021 global strategic objectives to expand service offering into strategic advisory areas besides expanding the company’s footprint in the new geographies with larger client base.

• Offering of Senior unsecured Notes: On 15 April 2021, the group announced an offering of CAD 500 million aggregate principal amount of 2.408% senior unsecured notes due on April 19, 2028. The Notes would be issued at par for aggregate gross proceeds of CAD 500 million and interest is payable semiannually until maturity on the 19th day of April and October in each year beginning on October 19, 2021.

• Diversified Revenue Stream: The group has good geographic mix of revenue, where America and EMEIA constitutes 35% of total revenue, APAC contributes 16% and Canada contributes 14% of the total revenue. Considering the revenue by service, Transport & Infrastructure constitutes 54% in total revenue, Property & Buildings contributes 25% while Environmental services consists of 13% in total revenue.

Source: Company Presentation

• Consistent Organic Growth: The group recorded positive organic growth since the inception of IPO in 2006 from 2019. Although, organically, net revenue contracted 3.6% in 2020, which was in line with the management’s expectations due to the unprecedented factors.

• Prudent Debt Ratio: The net debt to adjusted EBITDA ratio stood at 0.1x. The ratio is significantly lower than 1.1x as on December 31, 2019, mainly due to the repayment of the debt under credit facilities following strong free cash flow in 2020 and the equity financing completed in the second quarter of 2020.

Source: Company Presentation

Financial overview of FY 2020 (in millions of Canadian dollar)

Source: Company 

• In FY 2020, YoY revenue declined by 1.3% to CAD 8.80 billion, compared to the previous corresponding period of CAD 8.91 billion. Organically, net revenues contracted by 3.6%. The reported decline was due to the subdued organic growth from all the geographies, partly offset by organic growth in the APAC region.

• Adjusted EBITDA stood at CAD 1.05 billion, up by CAD 16.9 million or 1.6%, compared to CAD 1.03 billion in 2019. Adjusted EBITDA margin increased to 15.4%, compared to 15.1%.  The increase is largely due to a continued focus on margin improvement including lower costs mainly stemming from cost-containment measures, office lockdowns and travel restrictions during the COVID-19 pandemic.

• The company reported net earnings of CAD 0.277 billion, decreased by 3.0%, compared to CAD 0.285 billion in the previous corresponding period. The decrease was mainly due to higher acquisition, integration and restructuring costs, partially offset by lower net financing expense. 

Risks associated with investment

The temporary shutdown of certain construction sites and other restrictive measures globally has resulted in some delayed projects. It may result in further delay or cancellation of projects as the Covid-19 situation evolves. This could harm the operations and financials of the company. 

Valuation Methodology (Illustrative): EV to Sales 

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

Stock recommendation

The company made a healthy performance throughout 2020, delivered improved adjusted EBITDA margin and record cash flows. The group completed the year with the solid financial position and healthy backlog of CAD 8.4 billion, which reached at highs of 11.5 months of revenues, is quite impressive as it provides a reliable platform for continued success in 2021. We have valued the stock using EV to Sales based valuation metrics and arrived at a target price offering single digit upside potential (in % terms). Hence, based on the above rationale and valuation, we suggest the investors to wait for a better entry point and recommend a “Watch” rating on the stock at the closing price of CAD 128.01 on May 05, 2021. We have considered Bird Construction Inc, Finning International Inc, Stantec Inc, etc. as a peer group for the comparison.

1-Year Price Chart (as on May 05, 2021). Source: Refinitiv (Thomson Reuters) 

Robex Resources Inc

Robex Resources Inc (TSXV: RBX) is an exploration and mining development company. It holds four exploration permits namely Kolomba, Mininko, Sanoula, and Kamasso are all located in Mali, in West Africa. 

Key highlights 

• Scaling down 2021 exploration program: In comparison to 2020, the organization has agreed to scale down its exploration activities in 2021. With only one permanent drill on site now, compared to an average of seven in 2020, the group's key goal is to find new strategic growth opportunities. 

• Increase in income from operating activities: Operating activities before working capital items produced positive cash flows of CAD 65.09 million for the year ended December 31, 2020, compared to CAD 50.96 million in 2019. The growth in income from gold prices is mostly responsible for this upward trend.

Source: Company 

• Minimized long term debts: The healthy operations and higher average realization price helped the company to minimize its long-term debt to CAD 6.5 million as of December 31, 2020 from CAD 13.3 million in the previous corresponding period. 

Financial overview of FY2020

Source: Company 

• In FY2020 the company generated higher revenue of CAD 120.8 million, against CAD 99.1 million. The rise in revenue was primarily due to higher average realized selling price at CAD 2,371 V/s CAD 1,847.
• The higher revenue coupled with lower depreciation cost helped the company to report higher operating income at CAD 48.5 million, against CAD 21.4 million in the previous corresponding period.
• The group witnessed lower financial expenses which stood at CAD 1.1 million, against CAD 2.6 million in pcp.
• The company reported net income of CAD 45.0 million, against CAD 19.1 million in pcp, primarily due to above stated reasons. 

Risks associated with investment

The Company’s financial performance is mostly dependent on the price of gold, which directly affects their profitability and cash flow. Any drawdown in the gold prices would impact the group’s performance.

Stock recommendation

For the first quarter of 2021, the Nampala mine achieved gold production of 10,642 ounces compared to 14,918 ounces of gold in the first quarter of 2020, with a recovery rate that is up 4 points to 92.8%. The company expects a gold production (ounces) of more than 51,000 along improving stripping costs is a key positive. Furthermore, the management has stated that they would scale down its exploration activities in 2021 compared to 2020, which draws a line of caution. On the valuation front, the stock is available at TTM EV/Sales multiple of 1.98x against the peers mean of 1.9x. Hence, considering the aforesaid rationale, we recommend a “Watch” rating on the stock at the closing price of CAD 0.395 on May 5, 2021.

1-Year Price Chart (as on May 05, 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.