GFL Environmental Inc.

GFL Well Capitalized with Resilient Business Model: GFL Environmental Inc. (TSX: GFL) is an environmental services company which offers non-hazardous solid waste management, infrastructure, soil remediation, and liquid waste management services. As on 8 June 2020, the market capitalization of the company stood at ~CAD 8.42 billion.

Quarterly Performance (For the Period Ended 31 March 2020): During the three months ended 31 March 2020, the company reported an increase of 29.9% in revenue to CAD 931.3 million and a growth of 24.4% in adjusted EBITDA to CAD 222.9 million. The strong results of the company in such unprecedented times reflects the resiliency of the company’s business model. The company is well-capitalized with cash balance of over CAD 700 million and credit facility of more than CAD 600 million. The company has used the proceeds from IPO to de-lever its balance sheet and hence has no material debt to repay in the next five years.

Quarterly Financial Highlights (Source: Company Reports)

Sustainability Achievements: During FY19, the company has avoided emissions of 3,153,304 tonnes CO₂e and has diverted 1,169,370 tonnes of materials from landfills. In the same time span, the company has recycled 244,000,000 litres of used motor oil and processed 437,293 tonnes of organic waste.

Impact of COVID-19: The spread of COVID-19 has created a global health crisis and has led to the economic slowdown globally. The commercial and industrial collection volumes of the company have been reduced as certain customers have suspended their services in response to measures enacted by local authorities. GFL is managing its operating expenses and capital expenditures by deferring non-essential capital expenditures and reducing variable costs. The company is likely to witness a full impact of the crisis in the second quarter.

Valuation Methodology: EV/EBITDA Multiple Based Relative Approach (Illustrative)

EV/EBITDA Multiple Based Relative Approach (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company has seen a sequential increase in its commercial and industrial collection activity over the past several weeks. The stock of GFL gave a return of 16.62% in the past three months and a return of 11.16% in the last one month. We have valued the stock using EV/EBITDA multiple based illustrative relative valuation approach and have arrived at a target upside of higher single-digit (in percentage terms). For the said purposes, we have considered Waste Connections Inc, Republic Services Inc, Advanced Disposal Services Inc, etc. as peers. The stock is inclined towards its 52-weeks’ high level of CAD 28.56 and still holds the potential for growth as depicted by the EV/EBITDA valuation approach. Considering the current trading levels, attractive returns in the past three months, decent financial performance amidst the pandemic and the resilient business model, we recommend a ‘Hold’ rating on the stock at the current market price of CAD 26.80, up by 3.2357% on 8 June 2020.

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

Waste Connections Inc.

Strong Start to FY20: Waste Connections Inc. (TSX: WCN) is the third-largest integrated provider of traditional solid waste and recycling services in the North America, operating 86 active landfills, 124 transfer stations, and 66 recycling operations. As on 8 June 2020, the market capitalization of the company stood at ~CAD 33.85 billion.

Quarterly Performance (For the Period Ended 31 March 2020): During the three months ended 31 March 2020, the company reported a strong start to FY20 with a growth of 8.7% in revenue to USD 1.352 billion. During the quarter, the company exceeded its outlook for adjusted EBITDA to USD 408.5 million and delivered an adjusted free cash flow of USD 235.7 million, or 17.4% of revenue. WCN also shifted its focus to one of preparedness. In the same time span, the company reported an operating income of USD 217.0 million, up from USD 184.9 million in the first quarter of 2019. During the quarter, the company reported a growth of 5.2% in prices and volume and witnessed improved trends in the solid waste.

Quarterly Financial Highlights (Source: Company Reports)

Impact of COVID-19: The business was impacted by the COVID-19 crisis with a reduction in revenue primarily in solid waste commercial collection and solid waste transfer and disposal. The markets in Canada and the Northeast U.S. were the hardest hit and the slowdown activity has resulted in a decline of approximately USD 12 million in revenue. WCN is likely to witness the impacts of the crisis in the second quarter.

Stock Recommendation: Waste Connections Inc. is well-positioned to navigate this unprecedented period and remains disciplined in executing its growth strategy. It believes that the strengths of its culture, people and financial profile will help WCN to differentiate its execution and financial performance. The stock of WCN gave a return of 9.2% on the YTD basis. Considering the decent returns, resilient financial performance despite unprecedented times, and growth strategy of the company, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 128.80, down by 2.5497% on 8 June 2020.

WCN Daily Technical Chart (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.