Desjardins GCL Research Report Colabor Group Inc. Frederic Tremblay, CFA • (514) 841-0283 • frederic.a.tremblay@desjardins.com Liam Bergevin, Associate • (514) 809-7586 • liam.a.bergevin@desjardins.com Delivers a solid quarter while putting the pieces in place for the next growth phase The Desjardins Takeaway Solid 2Q results featured an adjusted EBITDA beat and the resiliency of Colabor’s distribution business amid a tough macro environment. We continue to believe that the pieces are in place for Colabor to seize organic and acquisitive growth opportunities, especially through its nascent territory expansion in western Qubec. We reiterate our Buy recommendation and C$2.00 target. Highlights Sales trends were in line with expectations, with distribution showing resiliency despite a difficult macro environment. Distribution activities posted a 0.7% yoy sales increase as higher volume, inflation and M&A more than offset macro headwinds impacting the restaurant and retail industries. In our view, this underscores the benefits of growth initiatives and customer diversification (eg institutional sector). Meanwhile, the wholesale business (which sells products to small distributors) declined 8.4% yoy, reflecting heavier exposure to the restaurant sector. Profitability exceeded our expectations. An improved business mix contributed to a 4.6% yoy increase in adjusted EBITDA to C$9.7m (6.0% margin), which was ahead of our forecast of C$8.8m (5.5% margin). Capex and leverage were both down. Cash flow from operations was C$5.0m and, as expected, capex was very low (C$0.5m) as Colabor is coming off a major investment cycle. This contributed to leverage reduction to 2.1x from 2.3x last quarter. Encouraging update on pillars that support the expansion into western Qubec. As highlighted in our initiation report, the next step of the strategic plan is to take a bite out of the Greater Montral Area and the rest of western Qubec—a new territory that triples the size of Colabor’s addressable market. Colabor started serving distribution customers from its new Saint-Bruno facility in 2Q24 and is gaining market share. We view the company as well-positioned to seize opportunities related to its territory development initiative. Valuation Our C$2.00 target is based on an EV/adjusted EBITDA (after rent) multiple of 7.5x. We believe that solid execution of the territory development growth opportunity should help narrow GCL’s valuation gap vs the 9.5x peer average. Recommendation We maintain our Buy rating.