TVA Group Inc. 

TVA Group Inc. (TSX: TVA.B) is a Canada based communications company, that operates in three segments including Broadcasting & Production, Magazines, and Film Production & Audiovisual services.

Key Highlights:

• Decline in the net-debt: The group reported a lower net debt in FY20 at CAD 25.978 million, from CAD 41.463 million in FY19, which is a key positive. Despite a tepid economic scenario, the company has reduced its net debt by CAD 15.485 million, which is worth mentioning and indicates prudent capital management. Lower debt would enhance the company’s financial flexibility.

Source: Company Report

• Growth in Adjusted EBITDA depicts operational efficiency: For FY20, the group reported a surge in its adjusted EBITDA, which stood at CAD 85.306 million, depicting a growth of 17.8% on y-o-y basis despite a lower revenue. The group reported an improved operational efficiency on account of Canada Emergency Wage Subsidy (CEWS) and favorable margins from The Broadcasting and Magazines segments.

Q4FY20 Financial Highlights:

• B announced its quarterly result, wherein the company posted revenue of CAD 147.618 million, as compared to CAD 164.196 million in the previous corresponding period (pcp). The decline was primarily attributable to a slide in income from Broadcasting segment, while a significantly lower income from Production & Distribution segment also contributed to the lower revenue.

Segment Highlights (Source: Company Report)

• The quarter was marked by a significantly lower purchase of goods and services costs (CAD 70.049 million v/s CAD 92.908 million in pcp), decline in employee costs (CAD 31.499 million v/s CAD 37.720 million in pcp) and a slide in depreciation and amortization expense (CAD 8.204 million v/s CAD 10.369 million in Q4FY19). As a result, income before income taxes surged CAD 35.941 million, from CAD 21.496 million in Q4FY19.
• The group reported net income of CAD 27.383 million, as compared to CAD 16.035 million in the previous corresponding period.
• The company reported a cash balance of CAD 2.838 million, while total assets were recorded at CAD 589.191 million.

Q4FY20 Income Statement Highlights (Source: Company Report)

Risks: The Production & Distribution segment reported a significant decline due to the restrictions imposed on account of COVID 19 pandemic, which further delayed the distribution of films produced during the year. Continuation of the above trend would take a toll on the revenue and cash flows of the company.

Stock Recommendation:

Despite the challenging scenario, TVA Group continued to evolve and adapt to the changing market-dynamics, which has resulted in improved profitability, and is worth mentioning. Moreover, the group witnessed a revival in the mobile and equipment rental activities during the fourth quarter of FY20. The group also started working on the Disney team to complete filming Home Alone during Q4FY20, while the major production is likely to start in early 2021, which is promising. Recently, the group introduced new virtual stage service, and reported a strong traction from the from the targeted audience. On the valuation front, the stock is available at a forward price to earnings multiples of 3.3x, which is significantly lower compared to the industry (Media & Publishing) median of 10.9x. Hence, considering the aforesaid facts, we suggest a ‘Speculative Buy’ recommendation on the stock at the closing price of CAD 2.25 on March 18, 2021.

Price Chart (as on March 18, 2021). Source: Refinitiv (Thomson Reuters)

Goodfood Market Corp.

Goodfood Market Corp. (TSX: FOOD) is an online Canadian company delivering fresh meal solutions and grocery items, and related products to its subscribers.

Key Highlights:

• Strong Growth in Subscribers-base: The group reported 30% y-o-y growth in the subscribers to 319,000 in Q2FY21. Notably, the group has added more than 13,000 customers during the quarter, driven by increasing consumer traction across the of e-commerce grocery and meal segment across Canada. In the recent past, the group focused on its e-commerce segment, while the company witnessed a whopping 1.9 million website visits during the month of January 2021.
• Constant Decline in Debt: In Q1FY21, the group reported its total debt at CAD 56.5 million, reduced by 4.56% and 18.12%, respectively, from Q4FY20 and Q3FY20, respectively. A reduction in the total debt would lead to an improvement in the company’s financial flexibility and would subsequently lower the company’s finance costs.

Q1FY21 Financial Highlights:

• Goodfood Market Corp. announced its quarterly result, wherein revenue stood at CAD 91.42 million, grew 62% on y-o-y basis, aided by an increase in average basket size per customer coupled with improved order frequency.
• Gross profit during Q1FY21 stood at CAD 29.57 million, significantly higher than CAD 16.21 million, in pcp, depicting a growth of 82%. Gross margin, on the other hand, stood at 32.3%, v/s 28.8% in the previous corresponding period (pcp). The increase in gross profit and gross margin primarily resulted from a lower incentive coupled with lower unit costs for packaging and shipping and an increased density among the delivery zones.
• The group reported an improved adjusted EBITDA of CAD 1.35 million, as compared to a loss of CAD 3.651 million in Q3FY20.
• The company reported a lower net loss of CAD 2.62 million, as compared to a net loss of CAD 5.15 million in Q1FY20, due to higher selling, general and administrative expenses (CAD 29.216 million v/s CAD 20.281 million in Q1FY20), increase in depreciation and amortization (CAD 2.094 million v/s CAD 0.993 million in pcp) and increase in net finance costs (CAD 0.675 million v/s 0.097 million in pcp).

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The group’s performance depends on the consumer taste and preference, and a change in consumer preferences would lead to a decline in sales volume.

Valuation Methodology (Illustrative): EV to Sales based

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

Stock Recommendation:

During the month of February 2021, the company launched Goodfood WOW in Toronto, which would provide same-day delivery to the customers. The products include ready meals and grocery products etc. In addition to investing in subscriber growth, the group introduced marketing initiatives as part of the cross-selling efforts which expanded the visibility of its grocery products, with one-week 50% promotion in January leading to approximately 450,000 grocery products delivered that week alone compared to 420,000 grocery products delivered all of last quarter. The management believes that there are great opportunities in the accelerating e-commerce grocery and meal solutions markets and Goodfood aims to continue capitalizing on these to further increase online adoption. We have valued the stock using the EV to Sales-based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like Park Lawn Corp, 5N Plus Inc etc. Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of USD 8.88 on March 18, 2021.

Price Chart (as on March 18, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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