Colabor Group Inc.

Colabor Group Inc. (TSX: GCL) is a wholesaler and distributor of food and related products and operates in two segments: Distribution and Wholesale. The company distributes products under its brand labels (Menu, Menu Haute-Cuisine and Multi Choice) and other national brands.

Key Updates

• Decline in Cash Flows: At the end of 9MFY21, the company reported cash from operations of CAD 9.717 million, significantly lower than CAD 23.431 million in pcp. The above was primarily due to lower net earnings (CAD 2.917 million in 9MFY21, v/s CAD 3.178 million in pcp). Continuation of the above trend might dampen the company’s overall liquidity position.

• Longer Cash Cycle Days: GCL’s cash conversion time was ~56 days for Q3FY21, compared to the industry median of 12 days, indicating a lower operational efficiency. Continuation of the above trend might hinder its upcoming performance.

• Lower Profitability Margins: At the end of Q3FY21, the company’s operating and pretax margins were 3.3% and 2.6%, respectively, compared to the industry median of 3.6% and 3.2%. Moreover, its net margin was 1.7% during the quarter, lower than the industry median of 2.2%.

Q3FY21 Financial Highlights:

• GCL announced its quarterly results, wherein the company posted sales of CAD 131.622 million compared to CAD 120.931 million in the previous corresponding period. The above was primarily due to higher income from the distribution segment, supported by the reopening of dining rooms.
• It reported an adjusted EBITDA of CAD 7.821 million, a slide from CAD 10.143 million in pcp, while the EBITDA margin was recorded at 5.9%, versus 8.4% in pcp.
• Net earnings stood at CAD 2.038 million, as compared to CAD 1.789 million in Q3FY20.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks Associated with Investment

The imposition of restrictions by the national governments in order to curb the spread of COVID-19 might lead to lower sales volume.

Stock Recommendation

Adjusted EBITDA for 9MFY21 stood at CAD 18.340 million, lower than CAD 21.454 million in pcp. The above was primarily due to higher input costs. Moreover, the adjusted EBITDA margin was lower at 5.6% in 9MFY21, compared to 6.5% in pcp. The stock of GCL is available at a P/E multiple of 6.4x on an NTM basis, compared to the industry median of 13.6x. Considering the aforesaid facts and above rationale, we give a ‘watch’ stance on the stock of GCL at the last traded price of CAD 0.72 on November 29, 2021.

One-Year Technical Price Chart (as on November 29, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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