Calian Group Ltd.

Calian Group Ltd. (TSX: CGY) offers diverse products and solutions for the private sector through its Advanced Technologies, Health, Learning, and IT and Cyber Solutions.

Key Highlights:

• Expansion across eight new markets: Recently, the company announced its expansion of clinical trial and patient support programs (PSPs) to pharmaceutical customers across eight new markets. The group provides a convenient location for the patient as per the requirement. The above service is gaining traction from the patients.
• Successful Pilot Program: In the recent past, the company conducted a pilot program related to clinical trials and has managed to surpass the key performance indicators for the industry, which looks impressive from the operations point of view.
• Positive Cash flows: The company reported its cash flow from operations of CAD 18.876 million in 9MFY21, as compared to a cash outflow of CAD 2.989 million in pcp. The improvement was primarily driven by better working capital management over the previous corresponding period.

Q3FY21 Financial Highlights:

• CGY announced its third quarterly result, wherein the group reported total revenue of CAD 136.094 million, climbed from CAD 105.528 million in the previous corresponding period (pcp). The increase in revenue was driven by impressive growth from all its segments.
• Gross profit stood at CAD 33.897 million, as compared to CAD 22.531 million, thanks to the higher revenue, partially offset by higher cost of revenues (CAD 102.197 million v/s CAD 82.997 million in pcp).
• The quarter witnessed higher selling and marketing expenses and an increase in general and administration costs. The increase in the selling and marketing costs was primarily due to added expenses from the recent acquisition.
• The company reported its net profit of CAD 2.063 million, down from CAD 3.866 million in pcp. The decline was primarily attributable to a higher expense from changes in fair value related to contingent earn-out.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: The industry in which the company caters is very dynamic in nature and is rapidly evolving, which might lead to the entry of any player within the industry with unique technological backup. The above might lead to a demand destruction scenario for the company and its peers.

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

In order to ensure local support, the company opened offices across Canada, the US, Belgium, France, Germany, Hungary, Netherlands, Poland and Spain. The above would secure patient data in compliance with regional and international privacy regulations. We expect added business prospects from the new expansions. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a single-digit upside (in percentage terms). Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of CGY at the last traded price of CAD 65.60 on August 25, 2021.

One-Year Technical Price Chart (as on August 25, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Hamilton Thorne Ltd.

Hamilton Thorne Ltd. (TSXV: HTL) is a leading global provider of precision instruments, consumables, software and services that reduce cost, increase productivity, improve results and enable breakthroughs in Assisted Reproductive Technologies (ART), research, and cell biology markets.

Key Highlights:

• Impressive Financial metrics: The company reported solid growth in its revenue and profitability, supported by innovative product offerings like the addition of a profitable portfolio like premium workstations, incubators, and related products and services. Notably, the company’s revenue (TTM) increased at a CAGR of 35% in the last five years, while adjusted EBITDA (TTM basis) grew at a CAGR of 36% during the same time frame.
• Conversion of acquisition line of credit: The company renew and expand its acquisition line of credit to USD 8 million, with an interest rate of 3.32% on an annualized basis, in order to support its upcoming growth strategies through acquisitions. Additionally, the company also extend its USD 4.5 million bank operating line of credit for an additional year to July 2023. The above would provide additional operating flexibility to the company, which is a key positive. Notably, the company successfully completed seven accretive acquisitions since 2015 and looking for prospective acquisitions in order to support its upcoming growth prospects.
• Scope for expansion remains high: Due to the rise in infertility issues on account of increased obesity, environmental factors, increasing maternal age of first pregnancy across developed countries etc., demand for IVF has emerged in the recent few years. Moreover, the rising middle class in developing economies, increased insurance programs & reimbursements also contributed to the surge in demand. The management expects the scope of expansion to remain high, while the company is highly poised to take advantage of the rising demand.

Q2FY21 Financial Highlights:

• HTL announced its quarterly result, wherein the group posted sales of USD 12.527 million, up from USD 7.332 million in the previous corresponding period (pcp). The quarter was marked by higher income from the services and consumables segment.
• Gross profit surged to USD 6.395 million, from USD 3.789 million in pcp, driven by higher revenue, partially offset by an increased cost of sales.
• Total expenses were higher during the quarter and stood at USD 5.600 million, as compared to USD 4.075 million in pcp, due to a higher general and administrative cost, coupled with an increase in both research & development cost and general & administrative expense.
• Income from operations stood at USD 0.795 million, as compared to a loss of USD 0.286 million in pcp.
• The company reported its net income at USD 0.482 million v/s a net loss of USD 0.594 million in pcp.

Source: Company Report

Risks: The group has adopted the acquisition strategy, and hence, being unable to achieve anticipated results from the new acquisitions would lead to lower-than-expected performance and subsequently loss of resources. Rise in raw materials and finished goods prices are likely to dampen the profitability.

Stock Recommendation:

The company develops, produces and markets laboratory equipment, consumables, software and services to the Assisted Reproductive Technology (ART) field and is positioned as a premium supplier driven by quality, service and technological advancement. Adjusted EBITDA stood at USD 4.766 million in H1FY21, as compared to USD 2.400 million in pcp. On the valuation front, the stock is quoting at a lower EV to Sales multiples of 3.3x on an NTM basis, as compared to the industry (Healthcare) median of 6.3x. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 1.93 on August 25, 2021.

One-Year Technical Price Chart (as on August 25, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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