Invesco Mortgage Capital Inc

Invesco Mortgage Capital Inc (NYSE: IVR) is a Georgia, United States-based Company, which operates as a real estate investment trust. It focuses on investing, financing and managing residential and commercial mortgage-backed securities and mortgage loans. As on 11 February 2021, the market capitalisation of the stood at ~USD 874.81 million.

On 20 February 2021, the Company will release its fourth-quarter 2020 results.

Rationale for Valuation – Expensive at USD 3.85

• In the fourth quarter of 2020, the Company is planning to increase its equity allocation to Agency RMBS.
• On the leverage front, the debt-equity ratio stood at 8.09x in September 2020, which was higher than the industry median, reflecting that the Company is highly leveraged compared to the industry.
• The operating landscape remains highly volatile with the continuing uncertainty due to Covid-19 pandemic.
• From the technical standpoint, 14-day RSI stood at ~54.59, which means the stock price could decline in the short term.

Key Risks

• In the short-term, the Company’s financial performance is exposed to COVID-19 pandemic, which is causing an unprecedented level of disruption.
• The Company's other risks include economic, investment and strategic, regulatory, management and control, operational and financial risks.

Recent News

On 29 December 2020, the Board stated that it had declared a cash dividend per share of USD 0.8 of common stock for Q4 FY20, which was paid on 26 January 2021.

Q3 FY20 Trading Update (for the quarter ended 30 September 2020, as on 9 November 2020)

• For the third quarter of 2020, the Company’s net income attributable to common stockholders increased to USD 96.9 million as compared with the previous quarter loss, driven by a one-time gain on settlement of a debt obligation of USD 16.0 million and net gains on investments of USD 65.1 million.
• Book value per common share rose by 9.5% to USD 3.47 per share in Q3 FY20 against Q2 FY20.
• Total average asset surged from USD 1.9 billion in Q2 FY20 to USD 4.2 billion in Q3 FY20, with an increase in total average borrowings.
• It entered in the interest rate swaps with USD 4.6 billion of a notional amount as of 30 September 2020 to hedge the exposure to changing interest rates.
• On 30 September 2020, the debt-to-equity ratio jumped to 4.3x as compared with 0.6x as of 30 June 2020. This increase was driven by the change in the composition of the investment portfolio.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

In Q4 FY20, the Company is planning to increase its equity allocation to Agency RMBS. It also maintained a sizeable balance of unencumbered investments and unrestricted cash of USD 772.9 million as of 30 September 2020. It has increased its quarterly dividend. However, the business is more exposed to the economic uncertainties arising from the Covid-19 pandemic. In the future, the Company may face emerging headwinds and cost pressures. The stock made a 52-week low and high of USD 1.56 and USD 15.73, respectively.

Based on the factors as highlighted above, we believe the stock of Invesco Mortgage Capital Inc is “Expensive” at the closing price of USD 3.85 (as on 11 February 2021), with support from few catalysts needs to be evaluated at a later stage such as decent prospects of US market and improved investors sentiments.

Kezar Life Sciences Inc

Kezar Life Sciences Inc (NASDAQ: KZR) is a California, United States-based clinical-stage biopharmaceutical Company. It is engaged in the development of breakthrough treatments for immune-medicated and oncologic disorders.

Rationale for Valuation – Avoid at USD 6.06

• Price/Earnings, EV/EBITDA and Price/Cash Flow metrics are in the negative zone as compared to the industry multiples.
• The outlook for the Company seems dim in the near-term due to the continued impact on the International travel and may face further enforced store closure.
• In September 2020, the net margin and ROE were in the negative zone.
• From the technical standpoint, 14-day RSI stood at ~56.30, which means the stock price could decline in the short term.

Key Risks

• The Company operates in a highly regulated landscape, and failure to comply could lead to a significant financial or reputational loss.
• Also, the overdependence on technology can lead to loss of data and significant service interruptions.
• The Company may face the loss of output due to disaster or disruptive event at logistics facility or manufacturing facility.

Recent News

On 10 February 2021, the Company stated that John Fowler (Chief Executive Officer) would present a corporate overview at the BIO CEO & Investor Digital Conference, which is scheduled on 16 February 2021.

On 14 December 2020, the Company announced that it had been added to the NASDAQ Biotech Index.

Q3 FY20 Trading Update (as on 5 November 2020)

• On 30 September 2020, the cash, cash equivalents and marketable securities increased to USD 150.0 million as compared with the previous period (31 December 2019: USD 78.2 million).
• For the third quarter of 2020, the research and development expenses increased by USD 1.2 million year-on-year, due to the advancing the KZR-616 clinical program and the protein secretion preclinical program.
• During the quarter, the Company incurred a loss of USD 11.3 million.
• On 30 September 2020, the total shares of common stock outstanding stood at 46.3 million.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company’s KZR-616 was granted Orphan Drug Designations for the treatment of dermatomyositis and polymyositis by the US FDA. KZR-261 has shown antitumor activity in pre-clinical models of both hematologic and solid malignancies. However, the near-term economic outlook stays unclear.  Moreover, the Covid-19 pandemic continued to create operational challenges while the global uncertainty remained over the supply chain distribution. In the future, the Company may face emerging headwinds and cost pressures. Further, the prolonged impact of the COVID-19 outbreak continued to affect its financial results, plans, operations, outlook, goals, reputation, liquidity and stock price. The stock made a 52-week low and high of USD 2.18 and USD 9.79, respectively.

Based on the headwinds faced by the Company, we have given an “Avoid” recommendation on Kezar Life Sciences Inc at the closing price of USD 6.06 (as on 11 February 2021), and we will watch for results of new investments. 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.