Calian Group Ltd. (TSX:CGY) has gifted shareholders with 53% plus average annual returns over the past five years
Capital Ideas Media | August 7, 2020 | SmallCapPower: We always love stocks that quietly outperform year after year, receiving little or no media attention. That’s why we decided to do a little due diligence on Calian Group Ltd. (TSX:CGY) after seeing its stock price continue to hit new 52-week highs over the past couple weeks.
(Originally published on Capital Ideas Media on June 23, 2020)
[Editor’s Note: Shares of Calian Group have appreciated 9% since Capital Ideas wrote about the stock six weeks ago.]
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Calian has generated 74 consecutive quarters of profitability and operates what many would consider boring but beautiful businesses, serving both the public and private sectors. The Company has four business segments.
First is Advanced Technologies, which provides products, technologies and manufacturing services for the space, communications, defence, nuclear, government and agriculture sectors. For example, Calian Group has contracts with the Canadian Space Agency (CSA) satellite operations to develop next-generation, high bandwidth/multi-channel satellite modem platforms to maximize data transfer by aggregating and utilizing unused fragments of spectrum in response to higher demand for bandwidth.
This division is also involved in agricultural technology through its acquisition of IntraGrain Technologies, which helps farmers save millions of dollars annually by avoiding grain bin fires and spoilage.
Second is its Health segment, which manages a network of more than 1,800 health care professionals delivering primary care and occupational health services to public and private sector clients across Canada. This division has a Health Care Provider’s Requirement (HCPR) contract for the Department of National Defence, Veterans Affairs Canada and the RCMP, providing psychological assessment and other medical services to first responders, Border Service officers, and Canadian military family members.
As well, Calian’s Learning segment provides emergency management, consulting and specialized training services for the Canadian Armed Forces and clients in the defence, health, energy and other sectors.
Finally, the Company’s Information Technology segment provides IT consulting, IT and cloud solutions, software development, SAP consulting, in addition to cybersecurity solutions, serving clients such as Canada’s Department of National Defence, the Toronto Transit Commission, and Ericsson. Information Technology saw the largest growth rate among all its segments in 2019, with a 22% year-over-year increase.
During the past five years, Calian Group investors have enjoyed an average annual return of 53% (excluding dividends).
Much of this can be attributed to CGY’s pivot in 2016 to more of a growth through acquisitions strategy.
In a recent research update, Laurentian Bank Securities analysts Furaz Ahmad and Salman Zia Rana wrote that M&A continues to be a priority with Calian, with the Company targeting businesses that generate ~$40-60 million in revenues, and are available at a valuation multiple below where CGY stock is trading.
And, on June 11, 2020, Calian announced that it has been selected by SNC-Lavalin PAE Joint Venture to support the delivery of up to ten 100- bed Mobile Respiratory Care Units (MRCUs) for the Government of Canada’s pandemic response efforts, which is expected to generate $22-26 million of revenue in Q3 and Q4.
As a result of this contract, the Laurentian Bank analysts have upped their 2020 EBITDA estimate to $38.5 million from $35.7 million, and their 2021 EBITDA estimate to $40.5 million from $39.9 million.
A final thought: Calian Group’s stock-price performance has been aided by the Company unusually tight capital structure – less than 10 million fully-diluted shares outstanding.
This has allowed Calian to raise $69 million in a recent equity financing at minimal dilution to existing shareholders. Along with the $20 million in free cash flow it generated in 2019, these funds will be earmarked largely for future acquisitions.
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