WSP Global Inc.

WSP Global Inc. (TSX: WSP) is a Canada-based professional services company that operates in multiple sectors such as Transportation & Infrastructure, Property & Buildings, Environment, Power and Energy, Resources, and Industry sectors. Additionally, company also provides strategic advisory services. The company majorly operates in Canada, USA, EMEIA and APAC region.

Key highlights 

• Strong free cash flow generation: For FY 2020, the Company reported a rise in free cash flow to CAD 735.3 million, compared to CAD 441.6 million in 2019. Higher free cash flows were mainly driven by an accelerated collection of costs and anticipated profits in excess of billings and trade receivable accounts. 

• Reduced long term debts: The prudent steps taken by the management helped them to generate higher free cash flows, with this, the company reduced the long-term debts, which is impressive. As on December 31, 2020 the long term debt stood at CAD 574.2 million, against CAD 1.4 billion at the end of the previous year.

Source: Company 

• Robust backlog: On Dec 31, 2020, the company registered backlog of CAD 8.4 billion v/s CAD 8.1 billion from previous year. The reported backlog constitutes 11.5 months revenue. This increase is attributed to higher order intake from all segments. On a constant currency basis, the backlog organic growth was 2.4% as compared to the previous year.

Source: Company 

• Healthy liquidity: As of December 31, 2020, the Corporation’s financial position remained strong, as it holds cumulative short term capital of more than CAD 2 billion. The Corporation believes that its cash flows from operating activities, combined with its available short-term capital resources, would enable it to carry the operations smoothly.

Source: Company 

Financial overview of FY 2020 (in millions of Canadian dollar)

Source: Company 

• In FY 2020, the Company reported revenues of CAD 8.80 billion, marginally down by 1.3%, compared to the previous corresponding period. Organically, net revenues contracted by 3.6%.

• Adjusted EBITDA stood at CAD 1.05 billion, up by CAD 16.9 million or 1.6%, compared to CAD 1.04 million in 2019. Adjusted EBITDA margin increased to 15.4%, compared to 15.1%. The increase was largely due to a continued focus on margin improvement including lower costs mainly stemming from cost-containment measures, office lock-downs and travel restrictions during the COVID-19 pandemic.

• The company reported net earnings of CAD 277.4 million, decreased by 3%, compared to CAD 285.7 million in the previous corresponding period. 

Risks associated with investment

The temporary shutdown of certain construction sites and other restrictive measures globally has resulted in some delayed projects. It may result in further delay or cancellation projects as the Covid-19 situation evolves. This could harm the operations and financials of the company.  

Valuation Methodology (Illustrative): Price to Cash Flow 

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

Stock recommendation

The company made a healthy performance throughout 2020, delivered improved adjusted EBITDA margin and record cash flows. The group completed the year in a solid financial position with a healthy backlog of CAD 8.4 billion, which reached at highs of 11.5 months of revenues, which is quite impressive as it provides a reliable platform for continued success in 2021. On top of this, the group has reduced its long-term debts, which would further augur their margins as the interest cost would be minimized. We have valued the stock using Price to Cash Flow based relative valuation multiple and arrived at a single digit (in % term) upside. Hence, we recommend a “Watch” stance on the stock at the closing price of CAD 120.8 on March 19, 2021 and suggest to wait for the better entry point. We have considered Toromont Industries Ltd, SNC-Lavalin Group Inc, Aecon Group Inc, etc. as the peer group for the comparison.

1-Year Price Chart (as on March 19, 2021). Source: Refinitiv (Thomson Reuters)

Dollarama Inc.

Dollarama Inc. (TSX: DOL) is a recognized Canadian value retailer that offers a broad collection of consumable products, general merchandise and seasonal items both in-store and online. Within Canada, the company has more than 1,333 locations scattered across metropolitan areas, mid-sized cities and small towns.

Key Highlights:

• Increase in Cash from Operations: For the 9MFY20, the company reported a growth in cash flows from operations, which stood at CAD 668.213 million v/s CAD 480.394 million a year ago. The increase was driven by higher net earnings coupled with prudent working capital management.                 

Cash flow Details (Source: Company Report)

• Growth from Comparable stores sales: Comparable store sales grew 7.1%, supported by a 26.3% rise in average transaction size, while the group witnessed a 15.2% decrease in the number of transactions. As per the Management, the company witnessed a shift in consumer trend, wherein customers reduced the frequency of store visits, but purchased larger quantities of goods in each
• Increase in Store presence: The group reported an increase in the number of stores to 1,333 as of Q3FY21, as compared to 1,271 in Q3FY20. Moreover, the group reported an increase in the average store size at 10,313 sq. feet in Q3FY21 v/s 10,275 sq. feet a year ago.

Q3FY21 Financial Highlights:

• DOL announced its quarterly result, wherein the company posted its sales of CAD 1,064.201 million, as compared to CAD 947.649 million in the previous corresponding period (pcp). The growth was primarily driven by higher sales of summer and other seasonal items as well as household essentials, health and beauty, and cleaning products.
• Gross profit stood higher at CAD 468.746 million, as compared to CAD 413.762 million in pcp, thanks to the higher revenue, partially offset by a higher cost of sales (CAD 595.455 million v/s CAD 533.887 million in pcp).
• Operating income stood higher at CAD 243.810 million compared to CAD 211.853 million in Q3FY20, supported by a higher gross profit, partially offset by higher SG&A expenses (CAD 160.904 million v/s CAD 142.242 million in pcp) coupled with an increase in depreciation and amortization (CAD 68.291 million v/s CAD 61.374 million in pcp).
• The group reported net earnings of CAD 161.871 million v/s CAD 138.627 million in Q3FY20.
• The group reported a cash balance of CAD 444.721 million, while total assets were recorded at CAD 4,154.265 million.                        

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: Change in  consumer preference and trends might lead to a slide in the overall demand for the products, which might subsequently impact the overall performance of the group.

Valuation Methodology (Illustrative): Price to Earnings based

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

Stock Recommendation:

During the third quarter of FY21, the Board of Directors approved a 6.8% increase of the quarterly cash dividend for holders of common shares, from CAD 0.044 to CAD 0.047 per common share, supported by stable cash flows. On the flip side, the company’s operations can be impacted due to new lockdown restrictions imposed by the Government. We have valued the stock of DOL by using the P/E-based relative valuation approach and arrived at a target price offering double-digit downside potential (in % terms). We have considered peers like Canadian Tire Corporation Ltd , George Weston Ltd etc. Hence considering the aforesaid facts, we recommend a ‘Watch’ rating on the stock at the closing price of USD 51.25 on March 19, 2021.

Price Chart (as on March 19, 2021). 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.