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Buy Calian Group for slow and steady returns, this analyst says

CGY Stock

Calian GroupCalian Group (Calian Group Stock Quote, Chart, News TSX:CGY) may not be for the growth-oriented investor, but the Ottawa- based tech and services company has the stable, dividend-paying profile that might suit the more cautious investor —especially during unpredictable economic times.

So says research analyst Peter Hodson of 5i Research, who likes Calian’s solid balance sheet.

“In terms of Calian, the key attractiveness of the company is that it really doesn’t require a lot of capital,” says Hodson, founder and head of research at 5i Research, speaking to BNN Bloomberg on Thursday.

“They have a lot of government contracts —it’s essentially a staffing service— and government business is good but it tends to be low margin but there’s very little capital required.”

“So, they can use their cash and their cash flow to keep increasing their dividend. And if you look back at a longer period of time, the stock has done okay. It’s kind of slow and steady, it’s always cheap and there’s always a good balance sheet,” he says.

Formed in 1982 and publicly listed in 1993, Calian’s chart has some nice-looking growth spurts during the past couple of decades, including a two-year stretch over 2016 and 2017 where the stock essentially doubled in value. That pace looks to have slowed more recently, however, with CGY sticking in the low $30’s for the past two years.

At the same time, the stock boasts a steady dividend yield of 3.2 per cent, while the company’s quarterly reports have been consistently strong. Calian’s latest quarter came in early August where the company delivered its fourth consecutive quarter of record revenue, coming in with a top line of $88.8 million, a 21.6 per cent increase year-over-year, and EBITDA of $6.7 million, up from $6.1 million a year earlier. Calian’s fiscal Q3 2019 represented the company’s 71st consecutive quarter of profitability.

“Calian’s diversified engine was evident this quarter,” said Kevin Ford, President and CEO, in the quarterly press release. “We continue to see growth across the majority of our services while continuing to invest in our long-term growth posture. At Calian SED, we were able to successfully close some projects but experienced some delays in projects and some overrun in our complex engineering programs which affected SED results.

IntraGrain, Calian’s AgTech solutions provider which the Company acquired last year, had an excellent quarter with robust revenue and bottom-line contribution as its seasonality came to fruition.”

Hodson says that, ultimately, owning Calian in your portfolio has its pros and cons.

“We don’t have a particular problem with it but I personally like more exciting stories and companies that are growing or doubling their sales and Calian is certainly not that,” says Hodson.

“But in terms of something to worry about, if there’s going to be a slowdown or a recession, I would rather have Calian than some other companies because of their balance sheet and their consistency and the long-term contract nature of their business. So, it’s not great but it’s not too bad, either,” he says.

Year-to-date, Calian is up 17 per cent and is at $34.50 per share as of midday trading on Friday. Analysts covering the stock currently have a consensus 12-month target price of $39.00.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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