GDI Integrated Facility Services Inc.

GDI Integrated Facility Services Inc. (TSX: GDI) is a leading integrated commercial facility services provider operates with wide a range of services across Canada and the United States. The Company provides services to the owners and managers of a variety of facility types including office buildings, educational facilities, industrial facilities, healthcare establishments, stadiums etc. 

Recently, the Company reported that Birch Hill Equity Partners Management Inc. had increased its investment in GDI through its affiliated funds.

Q1FY20 Financial Highlights: GDI Integrated Facility Services Inc. reported a robust topline and bottom-line growth, driven by the positive impact from the acquisition. Revenue, during the quarter stood at CAD 354.85 million as compared to CAD 305.3 million in the previous corresponding period, supported by a decent growth from its all reportable segments. Operating income remained flat at CAD 8.54 million against CAD 8.54 million in pcp, due to a higher cost of services, a significantly higher Selling and administrative expenses and a rise in depreciation and amortization costs. Adjusted EBITDA stood higher at CAD 20 million, reflecting a growth of 11.7% from the previous corresponding quarter. Net income soared to CAD 4.30 million against CAD 1.49 million in the previous corresponding period. Cash increased considerably from CAD 3.87 million in FY19 to CAD 13.40 million in Q1FY20, while total assets stood at CAD 764.24 million.

Q1FY20 Income statement Snapshot (Source: Company Reports)

Risks: A second wave of the novel virus or any extension in current lockdown restrictions would result in building closures and higher vacancy rates due to various social distancing measures. Consequently, demand for the group’s Janitorial and Technical services would be affected adversely, which may lead to a significant decline in revenue.

Stock Recommendation: The stock of GDI corrected ~7% so far this year due to a stiff broader market correction on account of the COVID 19 pandemic.  The group’s revenue was affected by recent office shutdowns and sluggish demand from retail customers. As buildings are reopened, and occupancy rates begin to rise, we expect the demand for the group’s offerings would be higher, which is likely to result in stable performance in the near to medium term. The group has a healthy balance-sheet followed by ample liquidity to combat the current crisis. The stock has closed above its 50-days and 75-days simple moving average of CAD 31.43 and CAD 31.00, respectively, indicating a medium-term bullish trend. However, various social distancing measures are likely to result in higher vacancy rates which could hamper the demand for company’s services. On the valuation front, the stock is trading at a forward EV/Sales multiple of 0.6x, as compared to the industry (Professional & Commercial services) median 1.6x. Hence, considering the aforementioned points and risk factors, we recommend a ‘Speculative Buy’ Rating on the stock at the current market price of CAD 31.625 as on June 18, 2020.

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

Calian Group Ltd.

Calian Group Ltd. (TSX: CGY) offers innovative healthcare technology products to the private sector, government and defence customers across North American and global markets. The company operates through four segments, namely, Advanced Technologies, Health, Learning and Information Technology.

The Company commercially released the Decimator D4, a spectrum analyzer product line designed to monitor radio frequency (RF) communications and detect signal issues. Recently, The group awarded with a Cyber Security Defence Contract valued at CAD 22 million.

Q1FY20 Financial Highlights:  CGY impresses with its quarterly results and reported a ~25% top-line growth to CAD 104.49 million as compared to CAD 83.41 million in pcp. The increase was driven by robust growth from Advanced Technologies and health segments. Gross profit stood significantly higher at CAD 23.50 million, against CAD 18.13 million, thanks to the improved revenue. The Company reported an improved gross margin as the group added higher-margin services within the clinician services followed by an income growth within the psychological assessment segment. Selling & marketing expense and general and administration witnessed a spike during the quarter, while the Company reported a higher amortization of acquired intangible assets. Net profit stood at CAD 5.28 million, as compared to CAD 3.86 million, thanks to a higher gross profit. The company exited the quarter with cash and cash equivalent of CAD 33.21 million while total assets stood at CAD 289.17 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: Due to the ongoing COVID 19 crises followed by a subsequent lockdown scenario, CGY witnessed a delay in certain Health projects which could hinder the near-term cash flows. Any loss of esteemed clientele could result in an erosion of revenue for the company and could impact the margin of the company.

Stock Recommendation: The stock of CGY stood resilient in the recent past, amidst a stiff correction across the broader market and generated a handsome return of ~38% and ~58% in the last three months and one year, respectively. Notably, the stock is trading above its 200-days simple moving average (SMA) of CAD 40.83, indicating a bullish trend. Despite a tepid macro scenario, the Nuclear segment of the Company is operating in full swing and started projects deliveries at a larger scale, which is a key positive. The Company signed new contracts amounting to CAD 140 million in the quarter, which has increased the backlog further. The Company has a strong client base, and it seeks to deliver optimum customer satisfaction through its bespoke products. The group has reaffirmed its FY20 guidance and confident enough to achieve revenue in the range of CAD 380 million to CAD 410 million. We believe, the Company is competent to maintain its top-line growth in the coming quarter, amidst macro challenges. On the valuation front, The stock is trading at a forward Price to Earnings multiple of 19.3x, which is in line with the industry (Professional & Commercial services) median 18.7x. Hence, we recommend a ‘Hold’ Rating on the stock at the current market price of CAD 52.00 as on June 18, 2020.

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

Disclaimer

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