Goodfood Market Corp.

Goodfood Market Corp. (TSX: FOOD) is a leading online grocery company in Canada, which provides fresh meal solutions and groceries to the retailers via the eCommerce segment. 

Key Highlights:

• Positive Macros: The company operates in the online grocery segment, and it has witnessed strong customer traction in the recent past, due to the change in consumer preference in post pandemic. The sector provided ample scope of expansion, while the company is highly poised to increase its basket sizes by investing in highly targeted marketing campaigns, capacity expansion through additional facilities and investments in automation, increasing its product offering and in continuing to expand its national platform.

• Growing Active Subscribers: The company reported a constant surge in its active subscribers, which is a key positive, as it indicates organic expansion. An elevated active subscriber’s base also indicates greater acceptability of the company’s offerings, which is a key positive. 

• Collaboration with Microsoft: Recently, the company reported its collaborated with Microsoft , wherein it will build customized technology solutions enabling advanced order orchestration and delivery processes. The above would help the company to track real-time e-commerce grocery footprint, and would help to deliver 4,000 products on a same-day or faster basis.
  

Q3FY21 Financial Highlights:

• FOOD impresses with its second quarter result, wherein the company posted a 24% y-o-y surge in revenue at CAD 107.795 The growth was driven by the expansion of the company’s same-day delivery option across the two new metropolitan cities in Canada. Moreover, the group reported an increase in the average basket size and higher-order frequency, which positively contributed to the company’s topline.
• Gross profit stood significantly higher at CAD 37.732 million, jumped from CAD 24.910 million in Q3FY20, thanks to an elevated revenue, partially offset by a higher cost of sales (CAD 70.063 million v/s CAD 61.690 million in pcp).
• The quarter was marked by an increase in selling, general and administrative expense (CAD 36.875 million v/s CAD 19.486 million in pcp), higher depreciation and amortization (CAD 2.379 million v/s CAD 1.484 million in pcp), partially offset by a lower net finance cost (CAD 0.431 million v/s CAD 1.154 million in pcp).
• The group reported a net loss of CAD 2.014 million, as compared to a net profit of CAD 2.786 million in pcp.   

Q3FY21 Income Statement Highlight (Source: Company Reports)

Risks: The group witnessed a surge in its input costs due to a surge in the company’s wages and salaries coupled with higher operational expenses due to expansion of the company’s distribution network. Continuation of the above trend is likely to weigh high on the company’s cash flows and margins. Notably, adjusted EBITDA margin stood lower to 1.6% in Q3FY21, as compared to 6.9% in pcp.

Stock Recommendation:

In the recent past, the group launched its new unlimited same-day grocery delivery service, Goodfood WOW, which offers flexible and convenient online grocery experience, allowing members to order any combination of meal kits, groceries, prepared meals and other products as frequently as needed during the week, with same-day delivery included for all orders over CAD 35, for a monthly subscription fee. The above has gained traction and is expected to support the company’s overall performance in the coming days. The stock of FOOD is available at an EV to Sales multiples of 1.5x on an NTM basis, as compared to the industry (Technology) median of 4.3x. Hence, considering the aforesaid facts, we give a ‘Hold’ rating on the stock of Food at the last closing price of CAD 9.80 on 27 August.

One-Year Technical Price Chart (as on August 27, 2021). Analysis by Kalkine Group

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

Alcanna Inc.

Alcanna Inc. (TSX: CLIQ) is a private sector retailer of alcohol in North America and the largest in Canada in terms of number of stores, operating more than 170 locations in Alberta and British Columbia under the Wine and Beyond, Ace Liquor Discounters and Liquor Depot banners. 

Key Updates:

• Total Debt is on a downtrend: The company successfully reduced its total debt in the recent quarters, which is a key positive considering the current sluggish economic conditions. In order to retain the liquidity levels, most companies have increased their borrowings. However, CLIQ has reduced its total borrowings, which is an indication of prudent capital management. Notably, the total debt remained lowest in the last five quarters, which is impressive and indicates lower finance costs.           

Source: Kalkine Analysis

• Growing traction from the Cannibis segment: The company has been benefitted from the growing traction from Cannabis products, which is a key positive. Notably, Cannabis sales stood at CAD 48.083 million in H1FY21, representing 14.52% of the total sales, jumped from CAD 30.070 million, reflecting 9.35% of the total revenue. The above growth was supported by the reopening of seven new retail cannabis stores in the last one year. Moreover, the recent acquisition and re-branding of Nova Cannabis banner stores have supported the growth.

• Shift in consumer preference to support growth: In the recent past, the company witnessed a shift in customer consumption habits on account COVID-19 pandemic, where customers shifted away from on-premises alcohol consumption establishments and adopted alcohol purchased from retail liquor stores. Notably, in Q2FY21, same-store liquor sales climbed 10.6% from Q2FY19 (pre-Covid levels), which is a key positive.

Q2FY21 Financial Highlights:

• CLIQ announces its quarterly result, wherein the company posted sales of CAD 188.967 million, improved from CAD 183.469 million in the previous corresponding period (pcp). The quarter witnessed 106.6% y-o-y growth from the Cannabis segment to CAD 29.7 million.
• The company reported its gross margin of CAD 40.689 million, slide from CAD 42.591 million in pcp, due to a rise in the cost of sales (CAD 148.278 million v/s CAD 140.878 million in pcp).
• The quarter was marked by a surge in administrative expenses while selling and distribution expenses remained higher than the previous corresponding period. Operating profit before depreciation, remeasurements and provisions stood lower at CAD 8.890 million, as compared to CAD 14.580 million in pcp.
• The company reported an operating loss of CAD 0.823 million, as compared to an operating profit of CAD 8.244 million in pcp. The difference was primarily due to higher depreciation costs coupled with lower operating profit before depreciation, remeasurements and provisions.
• Net loss stood at CAD 2.882 million, as compared to a net profit CAD 35.164 million in pcp.

Q2FY21 Income Statement Highlights (Source: Company Reports)

Risk: Despite higher revenue, the company encountered rising costs which has resulted in a depressing  bottom-line, and continuation of the above trend is likely to dampen the overall prospects of the firm. 

Stock Recommendation:

The group reported growth from the Ace Liquor discount banner, which was initiated in 2019, supported by an increase in customer demand, which is impressive. Moreover, the company opened twenty-eight cannabis retail stores in the recent past, which led to strong growth from the segment, and subsequently supported overall performance. The stock of CLIQ is available at a lower valuation of EV to Sales multiples of 0.2x on an NTM basis, significantly lower than the industry (Consumer non-cyclicals) mean of 4.5x. Hence considering the above facts, we give a ‘Hold’ rating on the stock of CLIQ at the last closing price of CAD 6.52 on August 27, 2021.

One-Year Technical Price Chart (as on August 27, 2021). Analysis by Kalkine Group

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

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.