On Monday, Stifel Canada reaffirmed its Buy rating on K-Bro Linen Inc. (KBL:CN) (OTC: KBRLF), maintaining a price target of Cdn$45.00. The company recently announced the acquisition of Buanderie C.M., a healthcare laundry and linen service provider in North Montreal, for C$12 million. The acquisition is valued at 1.6 times sales and is anticipated to be accretive to K-Bro Linen's earnings.
The purchase of Buanderie C.M. is part of K-Bro Linen's strategy to expand its presence in the Quebec market, where it already operates two facilities. This latest acquisition is expected to contribute an additional C$7.3 million in annual revenue. K-Bro Linen has been actively growing, with approximately C$64.2 million invested since 2023.
The transaction will be financed entirely through K-Bro Linen's C$175 million credit facility, which carries an interest rate of prime plus 0.25 to 1.75 percent, varying with the company's leverage. Following the acquisition, the company is projected to have approximately C$53 million of capacity remaining on its credit facility. The firm's net debt relative to the last twelve months' earnings before interest, taxes, depreciation, and amortization (proforma net debt/LTM EBITDA) is estimated to be around 2.4x, with the company comfortable up to a ratio of 3x.
K-Bro Linen is currently trading at 6.8 times its next twelve months' estimated EBITDA and offers a dividend yield of 3.9 percent.
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