Calian Group Ltd.

Calian Group Ltd. (TSX: CGY) operates through four segments, namely Advanced Technologies, Health, Learning, and Information Technology. It generates maximum revenue from the Health segment. The company serves health, defence, security, aerospace, engineering, AgTech, and IT industries. 

Key Highlights:

• Positive Outlook: As per the management guidance, the company’s long-term outlook remains positive. CGY has a solid track record of customer retention through continued delivery excellence and has maintained a valued relationship with the current customer base, which augurs well for stable income generation. Moreover, the company is also focusing on enhancing its presence across new avenues like non-government markets, several other global and domestic sectors.
• Product Innovation: One of the key aspects of the company’s line of business is emphasizing on product innovation. The company continued investment across several service offerings, and we believe it would result in an increase in the customer acceptability and would support the company’s margins as well. Moreover, the company is leveraging its innovation in order to improve the company’s operational efficiency and would support the group’s goal to streamline processes and provide for a scalable back office support capability.

Q4FY20 Financial Highlights:

• CGY announced its quarterly results, wherein the company posted revenue of CAD 123.057 million, as compared to CAD 90.914 million in the previous corresponding period (pcp).
• Gross profit stood at CAD 22.867 million, higher than CAD 20.343 million in Q4FY19, supported by higher revenue, partially offset by the increased cost of revenues.
• The company reported higher selling and marketing expense (CAD 3.028 million versus CAD 2.769 million in pcp), higher general and administration costs (CAD 9.978 million versus CAD 8.990 million in pcp).
• Profit before interest and income tax expense slide to CAD 8.588 million, from CAD 10.291 million in pcp.
• The company reported a net profit of CAD 6.886 million, against CAD 8.476 million in pcp.
• The company reported cash and cash equivalents of CAD 24.235 million, while total assets stood at CAD 331.053 million.                 

Q4FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company is vulnerable to many risks, including the impact of price competition, the low number of qualified professionals, the result of rapid technological and market change, loss of business or credit risk with significant customers, technical risks on fixed price projects, general industry and market conditions.

Valuation Methodology (Illustrative): Price to Earnings

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation:

The management pours their full confidence in maintaining a growth profile. The group believe that its diversified segments with a mix of domestic and global customers position the group well to navigate through the challenges created by COVID-19. The stock of CGY closed above the long-term support levels of 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish pattern. We have valued the stock using Price to Earnings based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have peers like Stella-Jones Inc, CAE Inc etc. Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 65.54 on December 29, 2020.

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

Mullen Group Ltd.

Mullen Group Ltd. (TSX: MTL) is a logistics company which has a network of independently operated businesses.  The group is one of the leading suppliers of trucking and logistics services in Canada which provides a wide range of services like less-than-truckload, truckload, warehousing, logistics, oversized and specialized hauling transportation.

Key Highlights:

• Higher cash from operations: Despite a challenging operating environment, the company posted a higher cash from operations for 9MFY20 (CAD 172.34 million versus CAD 116.436, a year ago). The increase was supported by improved working capital management.

Source: Company Reports

• Stable Dividend Payment: The company continued to distribute dividend at a time when most of the companies are cutting-down the dividend payments. The company announced a monthly dividend of CAD 0.03 per share, payable on January 15, 2021. Further, at the last closing price, the stock was offering a dividend yield of ~3.29%, which is decent considering the current interest rate environment.

Q3FY20 Financial Highlights:

• MTL announces its quarterly results, wherein the company posted revenue of CAD 290.9 million, reflecting a decrease of 10.6% on y-o-y basis. The decline was majorly attributable to lower demand for specialized and industrial services.
• Operating income before depreciation and amortization stood at CAD 65.274 million, as compared to CAD 55.652 million in pcp. The increase was primarily driven by lower direct operating expenses (CAD 190.580 million versus CAD 228.337 million in pcp) and a decline in selling and administrative expenses (CAD 35.047 million versus CAD 41.309 million in pcp).
• Income before income taxes stood at CAD 35.093 million, as compared to CAD 26.301 million in Q3FY19, thanks to lower depreciation and amortization.
• The company reported net income of CAD 26.23 million, against CAD 20.493 million in pcp.
• The company reported cash and cash equivalent of CAD 105.433 million, while total assets stood at CAD 1,747.38 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The business of the company is exposed to many risks which can change the picture of their operations and financial health. Some of these risks can be classified as general economy risk, hike in fuel costs, fluctuation in foreign exchange rates, e-commerce and supply chain evolution, etc.

Stock Recommendation:

The company’s future operation depends upon economic recovery, strong job growth and improvement in the overall market conditions. The company mentioned that consolidated revenue would continue to be softer than last year's levels due to the challenges facing the Alberta economy, which remains highly dependent upon the oil and natural gas industries. And from the profitability point of view, the group expect to perform at a high level providing the possibility that it will meet or exceed last year's fourth quarter results.  On the valuation front, the stock of MTL is available at forward EV to Sales multiple of 1.3x, which is lower than the industry median of 1.9x. Hence, considering the above factors, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 10.93 on December 29, 2020.

MTL 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.