George Weston Limited

George Weston Limited (TSX: WN) is a Canada based company which operates through three segments like retail, real estate, and consumer goods. The company caters to the retail segment through one of the subsidiaries named Loblaw, one of the largest grocers in Canada while the company operates through open-ended real estate investment trust through Choice Properties. The third subsidiary of the Company is Weston Foods, which operates in the bakery across North America.

Q2FY20 Financial Highlights: George Weston announced its quarterly results, wherein the company posted revenue of CAD 12,357 million as compared to CAD 11,603 million in the previous corresponding period (pcp). The increase was aided by decent growth from each reporting segments. The quarter was marked by strong momentum from the retail segment, which was partially offset by a decrease in financial services revenue. Operating Income, during the quarter, declined to CAD 401 million from CAD 770 million in pcp, due to higher cost of inventories sold coupled with an increase in the selling, general and administrative expenses. The Company’s Adjusted EBITDA stood comparatively lower at CAD 1,087 million as compared to CAD 1,313 million in pcp, primarily driven by the decline in Loblaw retail and financial services coupled with higher selling, general and administrative expenses within the retail segment. Loss Before Income Taxes stood at CAD 120 million against an income of CAD 462 million in pcp. The Company posted net Loss stood at CAD 172 million as compared to a net income of CAD 353 million in pcp.

Q2FY20 Financial highlights (Source: Company Reports)

Risks: The real-estate sector might witness a major setback due to the closures of production facilities, a decline in the rent payment ability of the tenants, lower consumer demand for tenants’ product or services, temporary or long-term stoppage of development projects etc. Further, an increase in the operating costs due to higher hygiene and sanity expenditures and in-store security, etc., on account of COVID-19 pandemic might weigh on the margins.

Valuation Methodology: P/E Based (Illustrative)

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

Stock Recommendation: The stock of WN corrected ~8% and 7% in the last six-months and one year, respectively. The company reported strong growth in the same-store sales, driven by improved traction from the food retail segment coupled with an increase in the Food retail basket size, which is a key positive. The company has a strong balance sheet along with ample liquidity of ~CAD 4.6 billion, which seems to be sufficient to weather the current challenging environment. In the retail segment, the company took prudent steps and enhanced customer convenience by expanding online capabilities, which resulted in solid growth for Everyday Digital. However, the accelerated growth rate has resulted in increased costs and investments in the quarter. The company expects continued growth in its e-commerce business and is likely to invest investing in expanding capacity and enhancing its same-day service offering while also improving the cost structure of the business over time, which augurs well for margin improvement. We have valued the stock using P/E based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered industry (Consumer Non-cyclical) median on NTM basis. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 98.42 on August 26, 2020.

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

North West Company Inc

North West Company Inc (TSX: NWC) is a General Retailers Company based out of Canada. The Company is a retailer of everyday and food products to underserved rural communities and urban neighbourhood markets located in Western Canada, Northern Canada, the Caribbean, the South Pacific islands and rural Alaska.

Financial Highlights – Q1 Financial Year 2021 (30 April 2020, $ in thousand)

(Source: Quarterly Report, Company Website) 

In the first quarter of the financial year 2021, driven by the role of essential services due to covid-19 crisis, the revenue surged to $592,569 thousand (Q1 FY2020: $494,529 thousand). Due to higher selling, administrative and operating expenses, the operating earnings declined to $19,471 thousand in the first quarter of the financial year 2021. The pre-tax earnings and net earnings declined to $14,461 thousand and $12,254 thousand, respectively, for the current period, reflecting lower operating profit. The cash balance as on 30 April 2020 stood at $ 53,607 thousand (31 January 2020: $28,187 thousand). The total assets as on 30 April 2020 stood at $1,246,517 thousand (31 January 2020: $1,215,536 thousand).

Share Price Performance

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

North West Company Inc shares closed at CAD 29.78 at the time of writing after the market close on 26 August 2020. Stock's 52 weeks High is CAD 32.01 and Low is CAD 16.06.

Key Risks

The outbreak of Covid-19 pandemic resulted in disruption in financial markets, world economy, regional economies and supply chain, which impacted negatively on the financial and operational performance. Any change in regulations and government policies could affect the overall business of the Company. Liquidity and interest rate risks could affect the operations of the Company.

Conclusion

The Company has shown a decline in financial performance in the first quarter of the financial year 2021. The top-line performance has improved, while bottom-line performance declined, with lower profitability margins for the period. The Group needs to manage its operating expenses unless it results in further deterioration in financial performance in the coming years. The liquidity position of the company remained strong with the well-positioned balance sheet. NWC activities are negatively impacted by the elimination of air travel and disruptions in the supply chain. The Company operations are impacted by the outbreak of covid-19 pandemic and has been focusing on strengthening its balance sheet and reducing its costs to preserve cash. In long-run, the Group is well-positioned to manage the uncertain challenges.

Based on the above rationale, we have given a “Hold” recommendation for North West Company Inc at the closing price of CAD 29.78 (as on 26 August 2020).

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.