Colabor Group is a buy, Beacon says

Beacon Securities is initiating coverage of Colabor Group (Colabor Group Stock Quote, Chart, News, Analysts, Financials TSXV:GCL) with a “Buy” rating and a $2.00 per share price target.

Beacon analyst Donangelo Volpe believes Colabor has reached a key turning point following several years of strategic transformation. His rating and target are based on a valuation of 7.0 times the company’s projected 2026 adjusted EBITDA.

Founded in 1962, Colabor is the largest food distributor and wholesaler based in Quebec, serving the province’s hotel, restaurant and institutional (HRI) markets. The company has over 11,000 customers, up from 8,000 before the pending Alimplus acquisition, expected to close in the second quarter of 2025.

In 2019, Colabor appointed a new management team and launched a five-year strategic plan focused on streamlining operations and boosting margins. Since then, the gross margin has improved from 13% to 19%, and the adjusted EBITDA margin has risen from 2% to 5%.

“The new leadership team focused on exiting unprofitable contracts and business lines, optimizing operations, initiating cross-selling activities, raising service levels, refinancing the balance sheet and improving its product mix,” Volpe said.

As part of its strategic turnaround, Colabor relocated its head office and warehouse in late 2023 from Boucherville to a new, state-of-the-art facility in Saint-Bruno-de-Montarville.

“This $18-million investment has been an essential part of accelerating growth of distribution activities in Western Quebec,” Volpe said. “Tripling the company’s addressable market from $1.4-billion to $4.5-billion, covering 90% of the province’s HRI sector.”

He said, “The recent acquisition of Alimplus was immediately accretive and has accelerated growth initiatives in Western Quebec, and we believe that GCL will continue to grow its market share over the coming years both organically and through M&A.”

Volpe thinks that Colabor Group will do $43.6-million in adjusted EBITDA on $865.5-million in revenue in fiscal 2025. He expects those numbers to improve to $54.0-million in adjusted EBITDA on $969.3-million in revenue in fiscal 2026.

According to Volpe, Colabor Group’s expanding private label strategy and recent infrastructure investments position the company to deliver strong free cash flow over the next two years.

“GCL currently offers more than 500 products ranging from proteins to side dishes, including a wide range of cooking ingredients and non-food items,” he said. “The company continues to invest in its private label offerings and we believe upside to margins exist as private label products account for more revenue.

“We estimate that private label penetration is under 10% with room to grow to the 15-20% range over the medium term as the company continues to expand into Western Quebec. We believe that the company is well positioned to generate free cash flow throughout 2025 and 2026.”

He said following the $18-million buildout of the Saint-Bruno facility, the majority of the capital expenditures are in the rear-view mirror.

“The company is guiding to $2-million of annual capex moving forward, primarily for maintenance and smaller optimization projects,” Volpe said. “We are forecasting approximately $15-million of free cash flow in 2025 and $22-million in 2026, indicating FCF yields of 16% and 23%, respectively (we calculate free cash flow as cash from operations less cash used for investing, adjusted for asset sales).”

With only 3% of its products sourced from the United States, Volpe believes Colabor faces minimal tariff risk.

“We believe that competitors have more exposure to US goods, which could present an opportunity over the near term for GCL to continue its market share gains.”