GFL Environmental Inc.

Resilient Business, Ample Liquidity: GFL Environmental Inc. (TSX: GFL) is an environmental services company. The group offers non-hazardous solid waste management, soil remediation and liquid waste management services. The company recently went public and will disclose its first-quarter results on May 12, 2020. The company declared a quarterly dividend of US$ 0.01, payable on April 30, 2020.

The company recently announced the pricing of its US$ 500 million senior secured notes. The company upsized its senior secured notes offerings by US$ 100 million from its initial plan of US$ 400 million. The funds will be utilized to support the company’s short-term liquidity on the backdrop of COVID 19 crisis. The company recently went public and will disclose its first-quarter results on May 12, 2020. The company declared a quarterly dividend of US$ 0.01, payable on April 30, 2020.

FY19 Financial Highlights: For the period ended December 31, 2020, the company reported total revenue of CAD 3,346.85 million, against CAD 1,224.80 in FY18. Total operating expense stood higher at CAD 396.50 million compared to CAD 217.70 million in the previous financial period. Net loss widened to CAD 451.65 million, as compared to CAD 318.66 million in FY18, due to higher operating expenses, higher tax provisioning and higher interest expense, partially offset by a Gain on sale of Security. 

Valuation Methodology (Illustrative): Price/Cash Flow based approach

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Recommendation: For the last one month, the stock climbed up by ~3.8% and currently trading at a market capitalization of ~CAD 6.86 billion. The business of GFL comes under waste management services and is immune to the economic cycles. Currently, the management also highlighted that the current pandemic would have a minimum effect on the company’s operation. The company will seek to manage its resources in an efficient manner in order to lower down the leverage and subsequently enhance its cash flows. GFL will look for trimming down its costs to support its free cash-flow further. On the liquidity front, the group is well placed with more than CAD 1.35 billion of liquidity, following its recent issue of ~CAD 700 million bond and will pass through the current crisis without much impact. We have valued the stock using price/cash flow-based relative valuation and arrived at a target price offering lower double-digit upside from the current level. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 21.97 as on April 23, 2020.

Price Chart of GFL (Source: Thomson Reuters)

Premium Brands Holdings Corporation

Premium Brands Holdings Corporation (TSX: PBH) is engaged in specialty food manufacturing, premium food distribution and wholesale businesses with operations in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nevada, and Washington State. The company operates through two business segments, namely, Specialty Foods and Premium Food Distribution.

The company paid a quarterly dividend of CAD 0.5775 per share. Meanwhile, the company paid a total dividend of CAD73.1 million in FY19, higher than CAD 59.7 million in FY18. The company will disclose its first-quarter results on May 11, 2020.

FY19 Financial Highlights: For the period ended December 28, 2019, PBH declared its full-year results, wherein the company reported revenue of CAD 3,649.4 million, aided by growth across both of its segments. Operating profit stood higher at CAD 307.7 million, as compared to CAD 251.3 million in the previous corresponding period. Net profit dropped to CAD 84.2 million from CAD 98.0 million in FY19, reflecting higher depreciation, amortization, lease obligations. Besides, increase in interest costs and income tax expenses further remained a drag. However, adjusted net earnings came in at CAD 118.4 million, down from CAD 121.3 million. The company exited the year with cash and cash equivalents of CAD 18.4 million and total assets of CAD 2,937.1 million. During FY19, total capital asset additions stood at CAD 87.9 million, increased from CAD 71.2 million in FY18.

FY19 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock of PBH has appreciated strongly in the last one month. The company continues to witness sustained demand for its products, which is driving its stock higher. Moreover, the company has a strong product portfolio and offers a decent dividend yield of 2.71%. The stock is quoting higher than its 50-days and 20-days simple moving average (SMA) of CAD 78.93 and CAD 84.43, respectively. Though the company’s revenues are growing at a healthy pace (thanks to the acquisitions), its bottom line remains pressured. Moreover, the company trades at a significantly higher multiple when compared to peers. For instance, PBH stock trades at a forward P/E multiple of 24.6x, as compared to the peer group average of 13.5x. Also, the PBH stock trades at a forward EV/EBITDA multiple of 14.1x as compared to the peer group average of 9.1x. Though we expect the company to command premium owing to the sustained demand for its products, the recent run in its stock implies that the positives are priced in. We rate the stock as ‘Watch’ at the closing market price of CAD 85.18 as on April 23, 2020.

PBH Daily Price Chart (Source: Thomson Reuters)

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