GDI Integrated Facility Services Inc

GDI Integrated Facility Services Inc (TSX: GDI) is engaged in providing commercial facility services. The Company's operating segments include janitorial services, technical services, and complimentary services. The janitorial services segment provides a range of daily or weekly commercial cleaning services that include cleaning and dusting desks and tables, vacuuming carpets, cleaning floors, sanitizing kitchens and washrooms etc. Technical services segment provides building system controls, repairs and services across Canada and the United States.

Investment Rationales 

• Reopening of businesses would increase the demand:As buildings continue to reopen and occupancy rates rise, the group expects that the base level of services required by the clients will be higher than it was prior to the COVID-19 pandemic. Further, the group mentioned that many facilities that remained open during the pandemic required additional services and specialty services, such as higher frequency cleaning, disinfection and decontamination services. We expect the trend to continue in the near term.

• Cleaning and disinfection would become a regular practice:We feel that disinfection and cleaning service is likely to remain the basic needs of the businesses for some time. The clients are likely to start taking these services regularly. This would boost the business of the company as they are the most prominent player having all the technical know-how and expertise of this segment.

• The company is growing both organically and through acquisitions which have resulted in becoming one of the largest outsourced janitorial service providers in North America and the largest in Canada.

Financial Overview

Source: Company 

• Revenue reached CAD 326.7 million, an increase of CAD 14.0 million, or 4.4%, over Y-o-Y basis. The company’s organic revenue declined by 9.8% for the same period, offset by revenue growth coming primarily from an acquisition. 

• Adjusted EBITDA amounted to CAD 22.5 million, an increase of CAD 4.0 million, or 21.3%, over the Y-o-Y basis.
• Net income was CAD 13.5 million or CAD 0.63 per share compared to net income of CAD 2.1 million or CAD 0.10 per share in Q2 2019.

Segmented information

For the second quarter of 2020 and 2019, the business segments performance was as follows:

Source: Company 

Risks associated to investment

Due to the COVID‐19 pandemic, the second quarter of 2020 was extremely challenging for commercial real estate. The company’s business segments were affected differently based on both region and market sector. Many facilities were temporarily closed due to this pandemic situation. The risk persists as there can be a shortage of workforce performing these services, and supply chain for the raw materials plays an important role. 

Valuation Methodology (Illustrative) – Price to Earnings

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

Stock Recommendation

The group reported decent numbers driven by recent acquisitions. The quarter showed tremendous organic growth of 34.2% on y-o-y basis in complementary services, aided by higher demand for janitorial supplies which are produced and distributed by this segment, which is a key positive amidst the current downturn. The management believe that the worst of the COVID‐19 pandemic is behind us. And the Company will gradually return to more normal revenue levels during Q3 and Q4 of the 2020. Hence, based on the above rationale and valuation, we have given a “Hold” rating at the closing price of CAD 38.37 on 20 October 2020. We have considered Boyd Group Services Inc, Park Lawn Corp, Boyd Group Services Inc etc. as the peer group for the comparison.

GDI daily technical chart. Source: Refinitiv (Thomson Reuters)

goeasy Ltd.

goeasy Ltd (TSX: GSY) is a Canada-based full-service provider of goods and alternative financial services operating in two segments: easyfinancial and easyhome. It offers merchandise leasing of household furnishings, appliances, and home electronic products to consumers under weekly or monthly leasing agreements. The Company operates approximately 200 easyfinancial locations and over 180 easyhome stores. 

Investment rationales

• Healthy cash position: As on June 30, 2020, the Company had an unrestricted cash position of CAD 54.8 million and borrowing capacity under its revolving credit facility of CAD 205 million, which represents CAD 260 million in total liquidity, reflecting a CAD 46 million increase from the previous quarter.

• Increasing loan portfolio:The gross consumer loans receivable portfolio increased from CAD 959.7 million (on June 30, 2019) to CAD 1.13 billion (on June 30, 2020), reflecting an increase of CAD 174.8 million or 18.2%. The growth was fuelled by the acquisition of a consumer loan portfolio from Mogo Inc. and continued net customer growth.

• Consecutive years of revenue growth and profitability: The Company has shown a consistent performance on all the factors of the business operations, resulting in healthy profits and EPS, over the past two decades.

Source Company filing

Q2FY20: Financial Highlights

Source: Company filing

• Revenue for the quarter increased to CAD 150.7 million from CAD 147.9 million reported in the same quarter of 2019, an increase of CAD 2.8 million or 1.9%. The increase was primarily driven by the growth of the consumer loan portfolio.
• Operating income for the second quarter of 2020 reached a record level of CAD 54.0 million, up CAD 13.1 million or 31.9% on Y-O-Y basis. The Company’s operating margin for the quarter was 35.8%, up from 27.7% on Y-O-Y basis. This rise in operating margin was mainly driven by the higher revenue and lower bad debt expense during the period.
• Comparing on Y-O-Y basis, net income for this quarter was CAD32.5 million or CAD 2.11 per share on a diluted basis, up 66.3% and 67.5%, respectively.
• The company paid a quarterly dividend of CAD 0.45 per share on October 9, 2020, to the holders of common shares of record as at the close of business on September 25, 2020.

Risk associated to investment

The Company’s activities are exposed to a variety of risk including commercial, operational, financial, and regulatory risks. While the precise impact of the COVID19 virus on the Company remain unknown, the rapid spread of the COVID-19 virus may hurt global economic activity. It can result in volatility and disruption to business, which could, in turn, affect interest rates, credit ratings, credit risk, inflation, financial conditions and results of operations of the Company.

Valuation Methodology (Illustrative): Price to Book Value

 All forecasted figures and peers have been taken from Thomson Reuters 

Stock Recommendation

Notwithstanding the impact of COVID-19, the Company ended the second quarter of 2020 in a strong financial position, complemented by year over year revenue growth, a marked improvement in the net charge-off rate, and prudent cost containment, increasing profitability and return levels. Additionally, positive customer payment trends, and temporarily lower loan book growth have provided the Company with an increase in its cash and liquidity position, improving the strength and stability of its balance sheet.

Therefore, based on the above rationales and valuation, we have given a “Hold” rating on the stock at the closing price of CAD 70.57 on October 20, 2020. We have considered People Corp, Trisura Group Ltd, Fiera Capital Corp etc. as the peer group for the comparison.

1-Year Price Chart (as on October 20, 2020, after the market close). Source: Refinitiv (Thomson Reuters)

Disclaimer

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