The Canadian stocks we’ve chosen are all trading under the 7.0x forward EV/EBITDA multiple and have a market cap of less than $2 billion
SmallCapPower| April 9, 2019: Today we have discovered four Canadian stocks that are all trading below the median forward EV/EBITDA of 7.0x. This metric is a popular valuation tool used to compare the enterprise value of a company to its earnings before factoring in non-cash expenses. EBITDA is a proxy for free cash flow that is often used by investors as the metric more realistically portrays a company’s capital structure. The lower the EV/EBITDA value, the cheaper the valuation for a company, meaning it is undervalued on a relative basis. The stocks on our list have an average forward EV/EBITDA multiple of 5.6x, lower than our sample size of 404 TSX-listed companies with a market cap under $2B, which had a median multiple of 7.0x.
*Share prices as at close April 5, 2019, data obtained from S&P Capital IQ
Clearwater Seafoods Incorporated (TSX:CLR) – $5.05
Shellfish Products
Clearwater Seafoods Incorporated is one of North America’s largest vertically-integrated seafood companies and is the largest holder of shellfish licenses in Canada. The Company is recognized on a global scale for its quality, food safety, diversity of species, and its reliable worldwide delivery system. On March 7, the Company’s Board of Directors approved and declared a dividend of $0.05 per share, payable on April 1. On March 11, the Company announced it reached a landmark agreement in the Arctic Surf Clam fishery, protecting existing jobs while simultaneously maintaining the interests of the 14 First Nations that are adjacent to the clam resource. Clearwater Seafoods stock currently trades at a relative discount of 6.9x forward EV/EBITDA, compared to the aforementioned broader median of 7.0x.
- NTM EV/EBITDA Multiple: 6.9x
- Market Cap: $327.5 Million
- 1-Month Total Return: -4.2%
- YTD Total Return: -12.2%
Freshii Inc. (TSX:FRII) – $2.16
Healthy Fast Food
Freshii is a health fast food restaurant chain popular among Millennials. The Company added 18 stores in Q4 FY2018 for a total store count of 431 locations. Freshii had operations in 16 countries including: Canada, the U.S., Ireland, Sweden, Netherlands, the UAE, and Saudi Arabia. Freshii’s restaurants range in size from 300 to 2,500 sq. ft with an average of 1,200 sq. ft. Freshii offers a menu tailored to the cultural tastes and trends of each individual region within which it operates, with a focus on healthy, fresh food at an affordable price. On February 21, the Company released Q4/18 and FY18 results, reporting a net loss of $483,000. Freshii stock currently trades at a relative discount of 4.4x forward EV/EBITDA, compared to the aforementioned median of 7.0x.
- NTM EV/EBITDA Multiple: 4.4x
- Market Cap: $68.2 Million
- 1-Month Total Return: -5.5%
- YTD Total Return: -15.6%
Chorus Aviation Inc. (TSX:CHR) – $7.42
Airlines
Chorus Aviation operates scheduled passenger service on behalf of Air Canada under the Air Canada Express brand name with approximately 700 departures per weekday to 59 destinations in Canada, as well as 15 destinations in the United States. The Company also provides charter services through a fleet of Bombardier aircraft for corporate clients, governments, other organizations, and individuals, as well as ground handling, dispatching, flight load planning, training, and consulting services. On March 20, the Company announced a monthly dividend of $0.04 per share. Currently, CHR trades at a relative discount, fetching a 5.6x NTM EV/EBITDA multiple vs 7.0x.
- NTM EV/EBITDA Multiple: 5.6x
- Market Cap: $1.2 Billion
- 1-Month Total Return: +0.3%
- YTD Total Return: +31.6%
Celestica Inc. (TSX:CLS) – $11.72
Semiconductors
Celestica is a Canadian electronic manufacturing services company that operates through two segments: Advanced Technology Solutions, and Connectivity & Cloud Solutions. The Company partners with leading vendors in aerospace and defense communications, capital equipment, smart energy and more to deliver solutions. Celestica’s services include design and development, engineering services, raw materials sourcing, assembly & testing and supply chain management solutions. On November 12, 2018, the Company announced it has completed its acquisition of Impakt Holdings, LLC for US$329mm. Celestica stock currently trades at a discount at 5.4x forward EV/EBITDA multiple, compared to the median of 7.0x.
- NTM EV/EBITDA Multiple: 5.4x
- Market Cap: $1.6 Billion
- 1-Month Total Return: -3.7%
- YTD Total Return: -2.0%
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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