Colabor Group is a buy, Desjardins says

Desjardins Securities analyst Frédéric Tremblay said in a July 28 report that despite recent concerns about a cybersecurity incident and short-term balance sheet pressures, he sees stability returning for Quebec-based Colabor Group (Colabor Group Stock Quote, Chart, News, Analysts, Financials TSX:GCL). “We see value in GCL shares and reiterate our ‘Buy’ rating,” he wrote, while trimming his price target to $1.50 from $1.75.

“Operationally, we were pleased to learn that GCL has won a major account, we look forward to a full IT recovery shortly, and we remain constructive on the strategic Alimplus acquisition,” he said. “With support from lenders and its internal cash flow generation, we believe that GCL should be able to navigate its balance sheet situation.”

On July 25, Colabor Group shares fell 13.7% after releasing second-quarter results that missed expectations. Sales rose 5.1% year-over-year to $169.5-million, but came in below the Street’s forecast of $176-million. Adjusted EBITDA was $5.4-million, missing the $7.9-million consensus, largely due to weaker market conditions. The results followed the company’s July 21 disclosure of a cybersecurity incident affecting its internal IT systems.

“Only the legacy GCL operations were affected, not Alimplus,” Tremblay said. “While the incident’s full impact is not yet known, the update provided on July 25 was somewhat encouraging as management highlighted actions that enabled GCL to serve certain customers (eg Alimplus lending a hand, orders processed manually), indicating that most of GCL’s systems/operations had been restored, and pointed to July 28–29 for a full recovery.”

Tremblay said Colabor’s balance sheet was under temporary pressure at the end of Q2, with leverage rising to 4.3 times, partly due to the Alimplus acquisition. He pointed to three contributing factors: higher inventory for the summer season, the recent cybersecurity incident, and delayed synergy realization from the Alimplus deal, which closed later than expected.

“Therefore, GCL is in discussions with its financing partners as it appears that it will require additional funds and needs to obtain amendments to its borrowing terms. That said, with support from lenders and its internal cash flow generation, we believe that GCL should be able to navigate this situation. We forecast leverage of 3.3 times at the end of 2026.”

Tremblay said Colabor’s management expressed confidence that margins in the second half of 2025 will improve compared to the first half.

“Higher seasonal demand from restaurants, which is a high-margin category, is expected to contribute. Recall that Colabor’s exposure to the restaurant channel increased with the Alimplus acquisition. In addition, revenue and cost synergies from this acquisition should emerge toward the end of 2025. In the meantime, Colabor continues its efforts to improve the profitability of its large institutional contract renewed in December 2024.”

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