Andlauer Healthcare Group Inc.

Andlauer Healthcare Group Inc. (TSX: AND) is a prominent and growing supply chain management company, which offers a specialized platform to the third-party logistics and specialized transportation solutions for the healthcare sector. 

Key Highlights:

• Elevated Financial Performance: The group has a strong footprint within the Essential Healthcare Supply Chain Services and offers services like client & customer integration, managed transportation, inventory management, secured warehousing, distribution & fulfilment and Blend of owner-operated and employee drivers, pick-up and delivery, courier, LTL etc., which combinedly represents ~80% of the company’s revenue. Since 2016, the company reported a 9% and 10.5% CAGR in revenue and EBITDA, respectively, which is worth mentioning.

Source: Company Presentation

• Acquisition of Skelton Canada Inc. offers added business prospects: Recently, the company acquired Skelton Canada Inc., which has leadership within the cold chain expertise and has a fleet of ~100 vehicles and ~120 trailers, which offers validated temperature control, state-of-the-art security systems and real-time shipment monitoring etc. The company offers Cross-border services in all 48 contiguous across the U.S. states from terminals in Toronto and Montreal. Thus, this acquisition would allow the company to mark its presence across the U.S., which is a key positive.

• Dividend Updates: The Company announced a quarterly dividend of CAD 0.05 per subordinate voting share and multiple voting shares, payable on April 15, 2021.

FY20 Financial Highlights:

• AND announces its FY20 result, wherein revenue stood at CAD 314.340 million, higher than CAD 289.988 million in FY19. The increase was aided by improved revenue from Healthcare Logistics Segment (CAD 116.356 million versus CAD 109.618 million in FY19), coupled with growth from specialized transportation segment (CAD 197.984 million versus CAD 180.370 million in FY19).

Revenue Bifurcation (Source: Company Reports)

• Operating expenses were recorded at CAD 263.401 million, increased from CAD 244.995 million in FY19. The increase was attributable to a higher cost of transportation and services (CAD 131.392 million v/s CAD 121.405 million in FY19) coupled with an increase in selling, general and administrative expenses (CAD 28.613 million v/s CAD 23.092 million in FY19).
• Operating income came at CAD 50.939 million, increased from CAD 44.993 million a year ago.
• Income before income taxes stood at CAD 46.580 million, grew from CAD 42.349 million in FY19, driven by higher operating income, partially offset by the increase in interest expense (CAD 4.595 million versus CAD 3.503 million in FY19).
• Net income and comprehensive income stood at CAD 37.714 million, versus CAD 30.345 million in FY19.

FY20 Income Statement Highlights (Source: Company Presentation)

Risks: The company’s operations might witness a setback due to further implementation of travel restrictions, self-imposed quarantine periods, temporary closures, or restrictions of non-essential businesses, etc.

Stock Recommendation: The group exited FY20 on a strong note, with revenue increased 8.4% to CAD 314.3 million in FY20, compared to CAD 290.0 million in Fiscal 2019. The group reported a higher EBITDA of CAD 78.912 million in FY20, reflecting an 11.8% y-o-y growth, while the EBITDA margin improved by 80 bps to 25.1% in FY20 vs 24.3% in FY19, which indicates operational efficiency. Net debt to EBITDA improved to 1.63x in FY20 v/s 1.88x in FY20, indicates higher financial flexibility. Due to the recent increase in spending on the healthcare logistics and transportation segment, the industry is forecasted to grow at a CAGR of more than 6% between 2020 and 2024, and we believe the company is well poised to utilize the opportunities arising from the sector. On the valuation front, the stock is available at a forward EV to Sales multiple of 1.5x, which is significantly lower compared to the industry (Healthcare) median of 6.4x. Hence, considering the above rationale, we suggest a ‘Speculative Buy’ recommendation on the stock at the closing price of CAD 35.25 on March 31, 2021.

1-Year Price Chart (as on March 31, 2021). Source: Refinitiv (Thomson Reuters)

GURU Organic Energy Corp.

GURU Organic Energy Corp. (TSX: GURU) is a wellness company that is engaged in the business of manufacturing and marketing of organic energy drinks. Geographically, it derives most of the revenue from Canada and has a presence in the United States.

Key Highlights:

• Strong Organic Growth Driven by an Increase in Point-of-Sale: During Q1FY21, the group reported impressive revenue growth of 24% on y-o-y basis at CAD 6.6 million. The increase aided by increased in points of sale outside of Quebec by. Pont of sales increased by 34% y-o-y to 21,000. The performance has been supported by increasing brand presence as several banners ramping up marketing activities and increasing the company’s shelf space. Moreover, the company is planning to enhance its presence in the online segment, and GURU is focusing on the consumer acquisition, which is likely to drive the company’s customer base. 

• Improved Financial Flexibility Despite Stricter Confinement Measures: The group reported solid growth in cash from operations to CAD 4.5 million, which was significantly higher than CAD 1.5 million in Q1FY20, mainly on account of record sales of CAD 6.6 billion in the Q1FY21. Moreover, adjusted EBITA loss improved to CAD 0.4 million in Q1FY21, from a loss of CAD 0.8 million in Q1FY20. The group reported a significant fall in its net financial expenses at CAD 0.028 million, from CAD 0.11 million in pcp.

• A Shift in Consumer Preference: As per the recent trend, the youth consumers are leaning towards energy drink product, as compared to other non-alcoholic beverages. Moreover, changing lifestyle and consumer’s interest in healthy food option is another key driver for the growing energy drink market. We believe the group is well poised to take advantage of the growing demand. Notably, the company reported a 13.6% market share within the Quebec region and is focusing on replicating the same strategy across the other North American geographies.

Q1FY21 Financial Highlights:

• GURU announced its quarterly result, wherein the company posted revenue of CAD 6.602 million, stood higher than CAD 5.328 million in the previous corresponding period (pcp). The increase was driven by improved traction from both Canada and United States.

Q1FY21 Income Statement Highlights (Source: Company Report)

• Gross profit surged to CAD 4.097 million, from CAD 3.542 million in Q1FY20. The increase was driven by higher revenue, partially offset by higher cost of goods sold (CAD 2.505 million v/s CAD 1.785 million in pcp).
• The quarter was marked by a higher selling, general and administrative expense (CAD 4.679 million v/s CAD 2.88 million in pcp) due to a significant surge in employee benefit expense.
• The group reported a net loss of CAD 0.63 million v/s a net income of CAD 0.44 million in pcp.

Income Statement Highlights (Source: Company Reports)

Risks: The company is exposed to a variety of risks ranging from change in consumer taste and preferences, arrival of substitutes, intense competition, price risk, increase in raw material prices, supply chain risk. Other risk include forex risk as company has presence in the USA.

Stock Recommendation: The company performance in the first quarter of 2021 was exceptionally well, with revenue nudged by 24% to record CAD 6.6 billion. Further, sales growth in the U.S. also resumed with a 25% year-over-year increase in constant dollars in large part driven by online sales. This reflects the strength of the group’s brand as well as sustained demand for better-for-you energy drinks and plant-based products, despite the impact of pandemic-related restrictions in place during the quarter, including a curfew in Québec. The company has a strong financial position with access to more than CAD 30 million in cash and credit facilities, which seems to be sufficient to meet the working capital requirements. Therefore, considering the stellar performance of the company and risk associated, we believe the growth is likely to continue in the coming quarters. Hence, we recommend a ‘Speculative Buy’ rating on the stock of GURU at the closing price of CAD 16.95 on March 31, 2021.

Daily Price Chart (as on March 31, 2021) Source: Refinitiv (Thomson Reuters)

Disclaimer

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