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Calian Group: Yet Another Quarterly Record; Margin Expansion on a Diversified Platform

Updated: Dec 1, 2022

DISCLAIMER: Any written content contained herein should be viewed strictly as analysis & opinion and not in any way as investment advice. No compensation was received for this report. Visitors to this site are encouraged to conduct their own due diligence.

Calian Group (CGY-T) reported numerous records as the Q4/2022 financials (quarter ended September 30, 2022) were reported late last week. Specifically, driven by an extremely strong contribution from the Information Technology & Cyber Solutions (ITCS) segment, Q4/2022 revenues increased by 26% y/y to reach a record $161.6M (consensus $150.8M) while adjusted EBITDA increased by 54% y/y to reach $19M. Just as importantly, new contract signing amounted to a record $161M. Underpinned by backlog of $1.3B (C$699M signed during the year), FY/2023 guidance was unveiled with a mid-point of $655M, $72.5M and $48M for revenues, adjusted EBITDA and adjusted net profits, respectively.

Though ITCS revenues tripled y/y to reach $68.8M, expect revenues to normalize given that the monster quarter can be attributed to a one-time release of product which was essentially backlogged due to supply chain constraints. That said, strength in ITCS and Learning (revenues +24% y/y) offset from weakness in Advanced Technologies (-31% y/y due to delivery timing) and Health (-11% y/y due to lower COVID19 related business).

Calian was always a consistently profitable company (this past quarter, represented the 83rd consecutive quarter of profitability) and was initially anchored by the Advanced Technologies Segment (focusing on communication solutions for satellite networks) along with an IT Segment. With consistent cashflows, the company was predominantly known as a high dividend yielding company with slow growth but consistent profits from a predominantly Canadian client base. The company embarked on a new trajectory post April 2015 once current CEO Kevin Ford was appointed. Since his appointment, the company has shifted to become a growth company with four distinct business segments, each catering to a global customer base. The shift to expansion has been executed extremely well as the company’s value has tripled since 2015. In just the last five years, FY/2022 revenues have more than doubled, EBITDA grew by 164% (going from $25M to $66M) while EBITDA margins have increased by 280bps (going from 8.5% to 11.3%). The gross margin expansion is most telling seeing as in that very same timeframe, over 10 acquisitions were announced with over $250M deployed.

The Calian story remains one of successful growth by acquisition while driving consolidated margins higher as well. In this current environment of rising rates, growing the adjusted EBITDA margins from 7.9% in 2019 to the current 11.3% is no simple feat. Following the successful acquisition of SimFront and Computex in 2022, with more than $110M of dry powder (less than 10% currently drawn from an $80M credit facility), expect the pace of acquisitions to pick up in in 2023. Note that international revenues now account for nearly 1/3 of total revenues.

Calian currently trades at 9.8x 2023e EV/EBITDA, a notable discount to peers which collectively trade closer to 11.0x. Calian is the epitome of stability through diversity and consistent value. Along with a current yield of 1.75%, the company has been a cornerstone holding for the North American fund since inception.

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