GDI Integrated Facility Services Inc. (TSX:GDI)
Company Overview
The company operates through;
- Janitorial Services (54% revenue) - cleaning services.
- Janitorial Canada (33%)
- Janitorial US (21%)
- Technical Services (42,9% revenue) - building system controls, repairs and servicing.
- Complementary Services (3,1% revenue) - cleaning and sanitation product distribution and manufacturing.
Quick Checklist
| Last Years | 10 | 5 | 1 |
| Revenue CAGR | 14% | 11% | 13% |
| Average EBIT Margin | 3,4% | 3,6% | 4,7% |
| Shares Outstanding Growth | 112,1% | 2,4% | 4,2% |
| FCF per share CAGR | 45,53% | 23,71% | 18,99% |
| Average ROE | -4,52 | 8,10 | 11,88 |
| Average ROIC | -5,64 | 6,21 | 7,64 |
- Similar operating margin in comparison with its competitors:
- In 2015 shares outstanding increased 11x (1,3M to 13,9M), the following year increased 50% but then the yearly increase maintains stable (+2% yearly).
Market Overview
The global Cleaning Services Market size was valued at $55,7 billion in 2020 and is projected to reach $111 billion by 2030, registering a CAGR of 6.5% from 2021 to 2030.
By region, North America remained the dominant region in the cleaning services market in 2020 and is expected to grow at a notable growth rate through the forecast period. The US was the dominant country in terms of revenue share in 2020 and is expected to continue the trend throughout the following decade.
- According to IBIS World, the janitorial services market size in Canada is valued at $9 billion and has grown 4.0% per year on average between 2017 and 2022.
- According to IBIS World, the janitorial services market size in the US is valued at $81,6 billion and has grown 4.2% per year on average between 2017 and 2022.
The cleaning services market is developing due to rising awareness about workplace hygiene, as well as increased concerns about workplace sustainability and employee wellness. Business organizations are charged primarily depending on two factors: the type of service requested and the frequency of services desired, which might be daily, once a week, once a month, semiannually, or annually.
Facility services is a broad category composed of various services required to operate and maintain a building or property. The outsourced facilities services industry is composed of the following service businesses: Cleaning Services, Building System Controls, Repair & Servicing and Other Facility Services.
Some of the growth factors of the market:
- The Facility Management Services market is driven by the need for increased efficiency in the workplace and the need for improved customer service.
- It is also driven by an increase in demand for outsourcing services, which are more cost-effective than hiring employees to perform these tasks.
- Increasing awareness about green buildings and sustainable practices will drive growth in this sector.
- Increasing demand for office space will also drive growth in this sector.
Since the beginning of the pandemic services provided by companies in the market has been classified as "essential services" in many regions to fight the virus. Thanks to this, GDI has experienced an increase in demand from certain clients for both of its segments (janitorial services and manufacturing and distribution of cleaning products). However, social distancing measures have forced the temporary closing of facilities or lower operation occupancy, making employees work from home. A decline in occupancy rates could result in a decline in demand for its services and a depression in prices.
The facility services industry is highly competitive, with a small number of large competitors offering multiple services across several geographic areas and numerous small-to-mid-sized competitors offering one primary service typically on a regional basis. The big players that are dominating the cleaning services industry rely on strategies such as product launch and acquisition to stay relevant in the global cleaning services market share. It is estimated that there are +30K and +900K businesses that operate in the commercial cleaning industry in Canada and the US respectively.
In line with market practices in the outsourced cleaning services industry, most of GDI’s commercial cleaning services contracts are entered into for terms of three to five years, have one to three-year extension clauses and are normally subject to termination upon 30 days of written notice.
Competitors Benchmark
| Company | Market Cap (MM) | Country | Revenue | EV/EBITDA |
| ABM Industries Incorporated (ABM) | $ 3.300 | US | 2,8% | 21x |
| Aramark (ARMK) | $ 9.500 | US | -3,7% | 12x |
| Compass Group PLC (CPG) | £ 29.900 | UK | -4,6% | 14x |
| GDI Integrated Facility Services Inc. (GDI) | $ 1.130 | CA | 10,5% | 10x |
| ISS A/S (ISS) | 20.300 DKK | DE | -0,6% | 11x |
| Sodexo (SW) | € 10.300 | FR | -3,4% | 11x |
Notes:
- Revenue is CAGR of the last 5 years.
- EV/EBITDA is AVERAGE of the last 5 years.
- AVERAGE EV/EBITDA = 13x
- 20.300 DKK = 2.720€ (DE = Denmark)
Competitive Advantage
- Resistant business during recessions.
- Economies of scale.
- Brand recognition
Risks
- Business integration
- Retention of key customers/clients
- Unexpected or unknown liabilities
- A slowdown in acquisitions could lead to a slower growth rate.
Executive Team Compensation
The Company's philosophy is to pay fair, reasonable and competitive compensation with a significant equity-based component in order to align the interest of the Company's executive officers with those of its shareholders.
The Company's authorized share capital consists of an unlimited number of:
- Multiple Voting Shares (8,84M) - right to 1 vote
- Subordinate Voting Shares (14,37M) - right to 4 votes
Claude Bigras, President and CEO of GDI, has been with the Company since 1994 (CEO since 2004)
| Name | Position | Total Compensation | Market Value of Stocks Owned |
| CLAUDE BIGRAS | Director, President and CEO | $ 4.819.118 | $ 154.657.541 |
| SUZANNE BLANCHET | Director | $ 120.000 | $ 552.091 |
| MICHAEL BOYCHUK | Director | $ 147.000 | $ 1.257.970 |
| RICHARD G. ROY | Director | $ 120.000 | $ 1.272.553 |
| CARL YOUNGMAN | Director | $ 120.000 | $ 2.156.812 |
| Name | Position | Base Salary | Share/Option-Awards |
| CLAUDE BIGRAS | Director, President and CEO | $ 911.260 | $ 2.229.122 |
| STÉPHANE LAVIGNE | Senior VP and CFO | $ 506.253 | $ 507.595 |
| JOCELYN TROTTIER | Executive VP | $ 359.016 | $ 216.060 |
| AHMED BOOMROD | Executive Chairman | $ 362.085 | $ 207.757 |
| MICHAEL MASSE | COO | $ 449.645 | $ 269.915 |
NEOs (Named Executive Officers) have five years from their respective hiring date to meet these minimum shareholding expectations.
Main Shareholders
Last Press Release (Q4 2021 Results)
"On a full-year basis, revenue increased by $185.6 million or 13.1% to reach $1.6 billion compared to $1.4 billion last year. Organic growth was 3.7% year-over-year and revenue growth from the acquisition was 11.2%."
"While many of our clients in Canada and the US continue to require enhanced COVID-19 services, we saw a lower amount of one-time services in our US segment than we experienced in the previous year. We expect that as the place of reoccupation intensifies and the population of buildings densifies, our clients will continue to require enhanced services to keep occupants safe."
"Our Complementary Service segment continues to be affected by low demand for daily consumables. However, this slowdown is transitory and we expect the business to recover as occupancy rate rises."
"Since January 1, 2021, we have concluded six acquisitions: The BP Group in New York City; Enginuity Mechanical in Pennsylvania; Fuller Industries in Kansas; IH Services in South Carolina; and Énergère both in Quebec; adding over $550 million in annual revenues."
Valuation
Optimistic Scenario:
Assumptions for the next 5 years Yearly Revenue Growth 15% EBIT Margin 4% Current Price $48,58 FCF per Share 8% CAGR 3 YEARS 5 YEARS Estimated Multiple P/FCF 33% 25% 28 EV/EBITDA 31% 24% 17
(It has grown in the past at this rate)
Standard Scenario:
| Assumptions for the next 5 years | |||
| Yearly Revenue Growth | 10% | ||
| EBIT Margin | 4% | ||
| Current Price | $48,58 | ||
| FCF per Share | 4% | ||
| CAGR | 3 YEARS | 5 YEARS | Estimated Multiple |
| P/FCF | 18% | 14% | 22 |
| EV/EBITDA | 19% | 15% | 15 |
(Under its average growth rate)
Pessimistic Scenario:
| Assumptions for the next 5 years | |||
| Yearly Revenue Growth | 8% | ||
| EBIT Margin | 4% | ||
| Current Price | $48,58 | ||
| FCF per Share | 2% | ||
| CAGR | 3 YEARS | 5 YEARS | Estimated Multiple |
| P/FCF | 8% | 8% | 18 |
| EV/EBITDA | 3% | 4% | 11 |
(grow organically at 4% at least, pushed by the market growth + 4% growth by acquisition)
Conclusion
- The company operates in a slow-changing and "boring" industry.
- Grows at a higher rate than the industry itself.
- Among its competitors, has been the only one able to account for a +10% in yearly revenue growth.
- Very low-risk business. The company has proved over the years its capabilities to conduct a successful acquisition-based growth strategy.
- Small/Mid Cap from Canada with low analyst coverage.
- On AVERAGE, Directors own 15x the value of their salary in shares of the company.
- Significant equity-based compensation in order to align the Executive's objectives with shareholders.
Comments
Post a Comment