North West Company Inc.

Decent Increase in Sales and Gross Profit: North West Company Inc. (TSX: NWC) is a Canada-based company that is principally engaged in retail business in underserved rural communities and urban neighborhoods. As on 14 June 2020, the market capitalization of the company stood at CAD1.37 billion.

Quarterly Performance (For the Period Ended 30 April 2020): The company has recently released results for the first quarter ended 30 April 2020, wherein it reported an increase of 19.8% in sales to CAD592.6 million, led by same store sales gains across all regions, the impact of new store sales and the positive impact of foreign exchange on the translation of International Operations sales. This resulted in an increase of 17.9% in gross profit. In the same time span, EBITDA of the company went down by 25.5% to CAD43.4 million due to the non-comparable Expense Factors, and net income saw a decline of 53.3% to CAD12.3 million. The Board have declared a dividend of CAD0.33 per share to shareholders, which is to be paid on 15 July 2020.

Impact of COVID-19: Since the outbreak of COVID-19, NWC has been trusted as an essential service provider. It has adapted to a range of new work conditions and has sorted innovative solutions to the many product supply challenges. The company has strong business volumes; however, overall COVID-19 situation is uncertain.

Stock Recommendation: The planning of the company is covering a range of COVID-19 severity scenarios as well as opportunities for growth in new areas over the remainder of 2020. As per TSX, the stock is trading close to its 52-weeks’ high level of CAD31.78, but still holds the potential for growth. The stock of NWC gave a return of 27.15% in the past three months and a return of 6.81% in the last one month. The stock is trading at a forward EV/EBITDA multiple of 7.8x which is in line with the industry (Food and Drug Retailing) Median of 7.8x. Considering the current trading levels, attractive returns in the past three months, decent financial performance and resilience of the business despite the uncertain environment, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD27.91, up by 1.454% on 12 June 2020.

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

George Weston Limited

Ready to Weather the Crisis and for Growth Opportunities: George Weston Limited (TSX: WN) is a holding company that operates through three subsidiaries encompassing retail, real estate, and consumer goods. As on 14 June 2020, the market capitalization of the company stood at CAD15.04 billion.

Quarterly Performance (For the Period Ended 30 April 2020): During the quarter ended 21 March 2020, WN performed well and responded quickly to the dramatic onset of the COVID-19 pandemic. During the quarter, revenue of the company went up by 10.4% to CAD12,333 million and adjusted EBITDA increased by 12.6% to CAD1,304 million. This was due to the significant demand of the grocery and pharmacy products following the onset of the COVID-19 pandemic in Canada. In the same time span, net earnings available to common shareholders of the company were CAD582 million, reflecting an increase of CAD1,070 million. This was mainly due to an improvement in the underlying operating performance and the favorable year-over-year net impact of adjusting items. WN retains a strong and stable balance sheet cash and short-term investments of CAD0.8 billion with no debt maturities in 2020.

Quarterly Financial Highlights (Source: Company Reports)

Impact of COVID-19 and Outlook: The COVID-19 pandemic continues to have a dramatic impact on the company's operating segments. While the duration and effects of the pandemic are unknown, WN has reacted quickly to the changing circumstances. The company experienced strong demand for certain categories of products and has carefully managed its production planning.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings 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 is taking appropriate measures to emerge from the COVID-19 pandemic with a solid recovery plan. The sharp increase in revenue and profit places WN in a good position to benefit from the arising growth opportunities. The stock of WN gave a return of 13.88% in the past three months. The stock of WN is inclined towards its 52-weeks’ low level of CAD84.02, proffering a decent opportunity for the investors to enter the market. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and have arrived at a target price, offering an upside of lower double-digit (in percentage terms). Considering the decent returns in the past three months, attractive trading levels, and positive impact of COVID-19 on the revenues, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD97.91, up by 2.7064% on 12 June 2020.

WN Daily Technical Price 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.