Quebec Foodservice Expansion Will Unlock Broader Local Potential

Key Takeaways

• Strategic acquisitions and new client wins expand Colabor's market presence, drive cross-selling, and support higher margins through operational synergies and improved customer mix.
  
• Enhanced supply chain resilience and local focus strengthen its appeal amid global uncertainties, underpinning stable revenue and continued market share gains.
  
• Increased leverage, slow margin recovery, operational concentration, and cyber risks all combine to threaten Colabor's future profitability, earnings stability, and revenue diversification.

Catalysts

Colabor Group Inc., together with its subsidiaries, markets, distributes, and wholesales food and food-related products in Canada.

• The recent Alimplus acquisition, along with the Tout-Prêt assets and an exclusive six-year supply agreement, significantly expands Colabor's presence in the Quebec market, broadens its customer base (especially among independent restaurants and retail), and creates meaningful opportunities for cross-selling and geographic expansion. This is expected to drive sustained revenue growth and higher gross margins as synergies and scale are achieved.
  
• Enhanced supply chain resilience and the company's commitment to supporting the local Quebec food ecosystem position Colabor as an increasingly attractive partner for clients seeking reliable, local foodservice solutions, particularly as global supply chain volatility and tariffs persist. This dynamic is likely to support ongoing gains in market share and top-line revenue stability.
  
• The integration of Alimplus introduces operational synergies such as route optimization and cost savings which, though conservatively included in current EBITDA projections, are expected to be fully realized over the next 12-18 months. These measures should contribute to improved operating margins and stronger cash flow generation.
  
• The exclusive onboarding of a major new restaurant chain client, at roughly $800,000 per month in new business, provides immediate incremental recurring revenue and should boost distribution volumes in the higher-margin restaurant segment, thereby supporting net margin expansion as headwinds in the restaurant channel subside.
  
• Management's clear strategy to improve customer and product mix, focus on higher-margin segments (like fresh protein and custom foodservice), and realize further operating synergies positions Colabor to outperform as demand for outsourced foodservice and digital procurement grows-ultimately supporting long-term improvements in net margin and earnings.

Colabor Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Colabor Group's revenue will grow by 17.9% annually over the next 3 years.
• Analysts are not forecasting that Colabor Group will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Colabor Group's profit margin will increase from -0.1% to the average CA Consumer Retailing industry of 3.4% in 3 years.
• If Colabor Group's profit margin were to converge on the industry average, you could expect earnings to reach CA$36.6 million (and earnings per share of CA$0.36) by about July 2028, up from CA$-631.0 thousand today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.8x on those 2028 earnings, up from -134.2x today. This future PE is lower than the current PE for the CA Consumer Retailing industry at 21.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.79%, as per the Simply Wall St company report.

Colabor Group Future Earnings Per Share Growth

Risks

• The significant increase in leverage following the Alimplus acquisition (from 2.4x to 4.3x adjusted EBITDA, with potential for further increases in Q3) exposes Colabor to heightened financial risk, potentially restricting future borrowing capacity and increasing interest expenses, which could compress net margins and limit earnings growth.
  
• Despite revenue growth from acquisitions, ongoing macroeconomic headwinds and persistent softness in the restaurant channel-Colabor's key higher-margin segment-continue to pressure organic growth and profitability, risking weaker top-line growth and margin recovery in the long term.
  
• The recent cybersecurity incident highlights vulnerabilities in Colabor's IT infrastructure. Although operations recovered quickly, recurring or more severe cyber incidents could disrupt operations, harm customer trust, and increase compliance or remediation costs, negatively affecting future revenues and earnings.
  
• Large contract wins, including public institutional contracts and new major accounts, are initially secured at very low margins, with gradual margin improvement dependent on upselling and changes in product mix; slow progress or inability to improve these margins could prolong overall margin weakness and dilute net earnings.
  
• Colabor's operational focus remains heavily concentrated in Quebec, making it particularly vulnerable to region-specific economic downturns, competitive pressures, or regulatory shifts, which could limit revenue diversification and expose earnings to greater volatility compared to more geographically diversified competitors.

Valuation

• The analysts have a consensus price target of CA$1.625 for Colabor Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$1.9, and the most bearish reporting a price target of just CA$1.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$1.1 billion, earnings will come to CA$36.6 million, and it would be trading on a PE ratio of 5.8x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of CA$0.83, the analyst price target of CA$1.62 is 48.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.