Park Lawn Corporation

Park Lawn Corporation (TSX: PLC) provides goods and services associated with the disposition and memorialization of remains in Canada and the United States. 

Key Highlights:

• Surge in Cash flows and dividend distribution: The company reported a cash flow from operations of CAD 19.559 million, jumped from CAD 11.395 million in pcp. The increase was driven by higher net profit and improved working capital management. Moreover, the company distributed higher dividend of CAD 2.815 million, as compared to CAD 2.723 million in pcp.
• Constant growth in margin: From FY16 onwards, the group has expanded its operations within the Death Care Industry, as it could cater to the changing consumer preferences from traditional cultural traditions to Cremation activities. Moreover, PLC has unlocked new sources of revenue for existing businesses and subsequently increased the useful life of Park Lawn’s existing portfolio. The above resulted in higher margin supported by better business mix and increased scale and operating efficiencies. Notably, the company introduced services like new funeral and cemetery technology solution and also provided premium offerings like pre-need services etc, which has supported the company’s overall margins.

Source: Company Presentation

Q1FY21 Financial Highlights:

• PLC announced its quarterly result, wherein the company reported its revenue of CAD 89.577 million, significantly higher than CAD 71.263 million in pcp. The growth of 25.7% on y-o-y basis was primarily due to elevated demand for at-need funeral and cemetery services and pre-need property sales. Additionally, strong sales growth from recent acquisitions made in FY20 also supported the topline.
• Earnings from operations stood higher at CAD 15.072 million, as compared to CAD 7.885 million in pcp. Total operating expenses increased to CAD 60.259 million from CAD 52.779 million in pcp, primarily due to an increase in General and administrative costs and higher Advertising and selling expenses.
• The company posted its net earnings of CAD 9.831 million, soared from CAD 0.806 million in Q1FY20.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The performance of the company might be hampered due to any change in the rules and regulation, which might lead to a decline in the demand for the company’ services.

Stock Recommendation:

The income of the company is correlated to the ongoing death rate and hence, a rising aged population provides ample scope for higher funeral activities. Moreover, with the growing nuclear family, and a decline of cultural traditions, we expect the cremations rate is likely to increase in the coming years. Notably, the company reported a whopping 48.6% CAGR growth in its revenue from FY16 to Q1FY21, which is impressive. On the valuation front, the stock trades at a lower EV to Sales multiple of 3.00x on an NTM basis, versus the industry (Personal & Household Products & Services) mean of 4.7x. Hence, considering the aforesaid factors, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 33.25 on July 13, 2021.

One-Year Technical Price Chart (as on July 13, 2021). Source: REFINITIV, Analysis by Kalkine Group

Tecsys Inc

Tecsys Inc (TSX: TCS) is engaged in the development and sale of enterprise supply chain management software for distribution, warehousing, transportation logistics, point-of-use and order management.

Key Highlights:

• Surge in the cash flows: At the end of FY21, the company posted an increase in the net cash from operating activities at CAD 19.113 million compared to CAD 10.006 million in FY20. The growth was driven by strong growth in the net profit coupled with prudent working capital management.

• New Collaboration: Recently, the company reported its collaboration with Red Wing Shoes, a footwear company which has presence across more than 110 nations. TCS would provide software support for its omnichannel distribution operations and facilitate unified operations. The platform would provide a central cog in the retailer's order fulfillment capabilities, coordinating incoming orders from front-end systems and would expect to provide improved customer experience through data-driven algorithms, better inventory management, etc. The above is expected to deliver improved business prosects as it would enhance the company’s recurring revenue, which is a key positive as it would lead to income stability as well.

FY21 Financial Highlights:

• TCS announced its full-year result, wherein the company posted revenue of CAD 123.101 million, as compared to CAD 104.855 million in the previous corresponding period (pcp). The increase was driven by higher income from professional services and Cloud, maintenance and subscription segment.
• Gross profit stood at CAD 60.630 million, grew from CAD 50.318 million in FY20, thanks to the elevated total revenue, partially offset by the higher cost of revenue (CAD 62.471 million v/s CAD 54.537 million in pcp).
• The quarter was marked by slightly lower Sales and marketing costs, partially offset by higher general and administration, and research & development expenses. Profit from operations stood at CAD 10.681 million v/s CAD 4.708 million in pcp.
• Net profit was recorded at CAD 7.188 million, soared from CAD 2.346 million in the previous corresponding period.

FY21 Income Statement Highlights (Source: Company Report)

Risks: The company’s operations might be impacted due to price competition on account of the arrival of new players in the industry coupled with a change in the preferences of clients, which might lead to a lower demand scenario.

Stock Recommendation:

The group commands higher margin than its peers, which indicates higher operational efficiency and better expense management. EBITDA margin and operating margin stood at 11.8% and 8.7%, respectively in FY21, higher than the industry median of 6.6% and 0.8%, respectively. The company’s net margin stood significantly higher at 5.8% in FY21, as compared to the industry median of (4.2%). The company provides end-to-end Supply Chain Management service to its clients. Due to the recent thrust in the eCommerce space, businesses are focusing their wing across this particular segment. Moreover, companies require end-to-end services which would lead to robust inventory management and timely delivery of product. Hence, we believe, the company is highly poised to take advantage of the growing demand from the segment. On the valuation front, the stock is available at an EV to Sales multiple of 4.5x on NTM basis, which is lower than the industry (Technology) median of 5.2x. Hence, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 44.45 on July 13, 2021.

One-Year Technical Price Chart (as on July 13, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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