Valued at a market cap of $800 million, GDI Integrated Facilities (TSX: GDI) specializes in outsourced facility management services across Canada and the United States. It provides comprehensive cleaning, mechanical maintenance, and building systems services. GDI operates approximately 700 franchises and serves diverse clients, including office buildings, shopping centers, hospitals, airports, and educational facilities.
Its services portfolio ranges from basic janitorial work to specialized technical services like HVAC maintenance, building automation, and security systems, along with cleaning product manufacturing and distribution.
In the last 10 years, GDI has returned close to 450% to shareholders, comfortably outpacing the broader market returns. However, it currently trades 42% below its 2022 highs, allowing you to buy the dip and gain exposure to an undervalued TSX stock.
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A strong performance in Q3
GDI Integrated Facility reported revenue of $640 million in the third quarter (Q3) of 2024, an increase of 4% year over year. Its growth was attributed to acquisitions and a strong U.S. dollar, partially offset by an organic decline of 2%.
The Technical Services business achieved its highest adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin of 8% since 2015. Its strong performance marks a turnaround from challenges faced over the past 12 months, with the segment generating $20 million in adjusted EBITDA during the quarter, up $4 million year over year.
Both Canadian and U.S. operations maintained a stable performance in the Business Services division despite additional costs. The Canadian segment recorded revenue of $145 million with an 8% adjusted EBITDA margin, while the U.S. segment generated revenue of $222 million, boosted by the Atalian and Paramount acquisitions. However, the U.S. segment faced some headwinds due to the loss of a major customer in Q1 of 2024.
In Q3, GDI’s chief executive officer, Claude Bigras, highlighted the company’s successful debt reduction initiatives, as its operating working capital decreased by $25 million over the last three months. Combined with strong free cash flow generation, GDI reduced its net debt by $41 million in the September quarter. GDI expects to strengthen its balance sheet further through the planned sale of two former Superior Solution facilities, which is projected to generate $25-30 million in proceeds.
Is GDI stock undervalued?
GDI remains optimistic about its future performance, particularly in its Technical Services segment, where the backlog remains near record levels with widening margins. Additionally, new contract wins are expected to start over the next two quarters and should support organic growth targets in the near term.
GDI has increased its sales from $602.4 million in 2014 to $2.43 billion in 2023. In the last 12 months, its sales have risen by 5.9% to $2.54 billion. Comparatively, its operating profits have risen to $43 million in the past year, up from $19.9 million in 2014. GDI’s gross margins have remained steady over the past decade, but its operating expenses have grown at a higher pace, resulting in recent years.
Bay Street expects GDI to increase sales from $2.43 billion in 2023 to $2.66 billion in 2025. Comparatively, adjusted earnings are forecast to expand from $0.58 per share in 2024 to $1.75 per share in 2026. So, priced at 19.6 times forward earnings, GDI stock is reasonably valued, given its stellar growth estimates.
Analysts tracking the TSX stock remain bullish and expect it to gain around 30% over the next two months, given consensus price targets.
