BCE Inc.

BCE Inc. (TSX: BCE) is a communications service provider, which offers wireless, broadband, television, and landline phone services in Canada. It is one of the big three national wireless carriers, with its roughly 10 million customers constituting about 30% of the market. 

Key Highlights 

• An income play: An increase of 5.1% in dividend to CAD 3.50 per share for 2021 demonstrates confidence in the financial outlook and strong operating momentum. Recently, it declared a quarterly dividend of CAD 0.875 per common share, payable on April 15, 2021. Moreover, the stock offers a healthy dividend yield of 6.07%, which is lucrative considering the current interest rate environment. 

• Guidance for 2021: For FY2021, the management expects its revenue and adjusted EBITDA margin to clock a growth between 2%-5%, while free cash flows would be in a range of CAD 2,850-3,200 million.

Source: Company 

• Leveraging Bell's leadership: The company would be rolling out its high-speed Internet services to several unserved areas of Québec in partnership with the governments of Canada and Québec as part of the "Operation High Speed" initiative. Under this project, the Bell would provide 100% fibre Internet connections to 30,908 homes and businesses in nearly 100 Québec communities. This would enable Bell to reach up to 6.9 million locations in Canada with high-speed Internet by the end of 2021 while also doubling Bell mobile 5G population coverage. 

• Collaboration with Honda Canada: Recently, Bell partnered with Honda and Acura to serve the growing number of Canadians who want mobile broadband access in their vehicles. The new Honda and Acura vehicles are now equipped with built-in Wi-Fi hotspots that enable drivers and their passengers to stay fully connected online. The company would enhance the in-car experience by leveraging the capabilities of its LTE network. We believe this would open a new source of revenues.

• Healthy liquidity: Total available liquidity at December 31, 2020, stood at CAD 3.8 billion, comprised of CAD 224 million in cash and cash equivalents, CAD 400 million available under securitized trade receivable programs and CAD 3.15 billion available under its CAD 3.5 billion committed bank credit facilities. 

Financial highlights of FY 2020

Source: Company 

• In 2020, the company posted revenue of CAD 22,883 million, against CAD 23,973 million in the previous corresponding period. The fall was primarily due to a decline of 3.6% in service revenue and 5.5% in product revenue.
• On the back of higher amortization, other expenses, and higher assets impairment, the company posted lower net income at CAD 2,699 million in 2020, against CAD 3,253 million in the previous corresponding period. Partially benefitted from lower income tax expense.
• The company posted free cash flows of CAD 3,348 million in 2020. 

Risks associated with investment

Many restrictions played a direct role to drag down the company’s financial performance. Although the government has gradually announced its reopening plan stages, if the pandemic situation arises again, it may hinder its business. 

Valuation Methodology (Illustrative): EV to Sales 

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The company reported a stable top-line, despite the current economic downturn, which indicates the resumption in consumer and commercial activity with a gradual easing of Covid restrictions. During 4Q 2020, the company added 92,928 total wireless postpaid connections, while retail Internet net additions increased 25% to 44,512 with 12% Internet revenue growth, which is encouraging. Furthermore, the collaboration with Honda and leveraging Bell’s leadership would further enhance the company's financials. Also, the management shared higher growth numbers for 2021, supported by healthy liquidity. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 57.60 on March 30, 2021. We have considered Rogers Communications Inc, Shaw Communications Inc, Cogeco Communications Inc. as the peer group for the comparison.

1-Year Price Chart (as on March 30, 2021). Source: Refinitiv (Thomson Reuters)

Telus Corp

Telus Corp (TSX: T) is one of the big three wireless service providers in Canada, with 9 million mobile phone subscribers nationwide constituting about 30% of the total market. In the western Canadian provinces of British Columbia and Alberta, it also provides Internet, television, and landline phone services. 

Key highlights 

• An Income play: The Company has an excellent track record of dividend distribution, reflecting resilience and healthy cash flow generation. Recently, it declared a quarterly dividend of CAD 0.3112 per share payable on April 1, 2021. Moreover, at the last traded price, the stock was offering a healthy dividend yield of 4.92%, which looks decent considering the current macro environment.

Source: Refinitiv (Thomson Reuters) 

• Advancing in artificial intelligence: Recently, the company acquired Lionbridge's artificial intelligence (AI) division for approximately CAD 1.2 billion. We believe that this acquisition would complement TELUS International's expanding portfolio of next-generation digital solutions as the organization team up to support artificial intelligence's rapidly advancing field.

• Higher free cash flows: The company reported a robust free cash flow of CAD 1,435 million in 2020, against CAD 932 million in the previous corresponding period. The free cash flow was within the range initially targeted in February 2020, primarily due to an excellent track record of delivering leading results.

Source: Company

• Raising Funds: Recently, the Company announced an offering of CAD 500 million of senior unsecured Series CAE notes with a 30-year maturity. The net proceeds of this offering would be used to fund the repayment upon maturity of the Series 3, 10.65% debentures of TELUS Communications Inc. due June 2021 and for the repayment of commercial paper. Furthermore, the group would be selling 51.3 million common shares at a price of CAD 25.35 per common share for approximately CAD1.3 billion. Net proceeds through this would further strengthen the Company’s balance sheet and, principally, to capitalize on a unique strategic opportunity to accelerate its broadband capital investment program. 

Financial overview of FY2020

Source: company 

• The company reported higher revenue at CAD 15,463 million in 2020, against CAD 14,658 million in the previous corresponding period. The rise in revenue was primarily due to growth in wireline data services revenues from business acquisitions, expanded services and subscriber base growth.

• Total operating expenses increased to CAD 12,981 million, against CAD11,681 million in pcp, primarily due to higher goods and services purchased along with higher employee expenses and higher depreciation cost.

• Net income for the reported period stood at CAD 1,260 million, against CAD 1,776 million in pcp. The net income dragged primarily due to higher operating expenses. 

Risks associated with investment

The company could be affected by adverse economic conditions leading to a declining level of customers addition; this could hurt the demand for their products and services. Other risks such as technology risks, regulatory risks and competition are also present. 

Valuation Methodology (Illustrative): EV to Sales

All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

Throughout 2020, TELUS achieved strong operational and financial results in both wireline and wireless. The performance in the fourth quarter, and for the full year, was characterized by its hallmark combination of robust, high-quality and profitable customer growth, alongside strong financial results. The quarter concluded another year of industry-leading customer growth, with 777,000 total net customer additions. Furthermore, it achieved a strong free cash flow of CAD 1,435 million. The management also expects growth between 8%-10% in revenues and 6%-8% in adjusted EBITA for 2021, along with free cash flows of approximately CAD 1,500 million, which looks impressive. On top of all, the stock offers a healthy yield of 4.9%, which looks decent considering the current macros. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating at the closing price of CAD 25.28 on March 30, 2021. We have considered Shaw Communications Inc, BCE Inc, Cogeco Communications Inc etc., as a peer group for the comparison.

1-Year Price Chart (as on March 30, 2021). Source: Refinitiv (Thomson Reuters)

Innergex Renewable Energy Inc.

Innergex Renewable Energy Inc. (TSX: INE) is an independent Canadian renewable power producer that develops, acquires, owns, and operates hydroelectric, wind, and solar facilities in Canada, the United States, France, and Chile.

Key Highlights:

• Stable Dividend payment: The company reported an impressive dividend payout over the years, backed by a resilient business model, which assures stable cash flow generation. Moreover, the company has increased its dividend payment over the years and during FY16 to FY20, the group reported CAGR of 2.4%. At the last closing price, the stock of INE was offering a dividend yield of ~3.24%, which is decent considering the current interest rate dynamics.                                    

Source: Company Presentation

• Longest Average contract duration: At present, the company reported its average power purchase agreements (PPA) duration of 14.2 years, which is one of the longest within the renewable energy sector. PPA is a contract with the power producer and a customer, which denotes the contact details like tenure, negotiated prices and other conditions etc. A higher PPA augurs well for the stable revenue. Moreover, the company’s young assets have a weighted average age of ~8.1 years.                                 

Source: Company Presentation

• Solid Guidance: The group reported a 24% y-o-y jump in its production in FY20 to 8,073.9 GWh, while the management anticipates that the above momentum is likely to continue in FY21 also. For FY21, the company expects a 15% higher production over FY20, while revenue and adjusted EBITDA are anticipated to grow by 12% each on y-o-y basis.

FY21 Guidance (Source: Company Presentation)

FY20 Financial Highlights:

• INE announced its full-year result, wherein the company posted revenue of CAD 613.207 million, reflecting a growth of 10% on y-o-y basis. The increase was driven by strong production growth of ~24% on y-o-y basis to 8,037,914 MWh.
• The group reported adjusted EBITDA at CAD 422.109 million, v/s CAD 409.175 million in FY19. The improvement was driven by the acquisition of Mountain Air in Idaho, Commissioning of Foard City (Wing Project) and Phoebe (Solar Project) in Texas, partially offset by temporary shutdown and production restrictions across certain facilities in France.
• Net loss from the continuing operations lowered to CAD 29.111 million v/s CAD 53.026 million in FY19.

FY20 Income Statement Highlights (Source: Company report)

Risks: The majority of the revenue is being derived from wind farms, and an adverse weather condition might hinder the company’s production status due to unpredictable wind movement. Moreover, Improper assessment of water, wind and solar resources and associated electricity may impact the operations as well.

Valuation Methodology (Illustrative): EV to Sales

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

 Stock Recommendation:

The company has an impressive portfolio and derives the majority of its income from the hydro segment (~67%). Notably, in the recent past, the group witnessed encouraging growth from the renewable power segment within Canada as the federal government is focusing on reducing greenhouse gas emissions. Moreover, the above is also supported by federal and provincial procurements, which result in long-term fixed-price contracts with crown corporations. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Brookfield Renewable Partners LP, Northland Power Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of INE at the closing market price of CAD 22.26 on March 30, 2021.

One-Year Price Chart (as on March 30, 2021). Source: Refinitiv (Thomson Reuters)

Equinox Gold Corp.

Equinox Gold Corp. (TSX: EQX) is a Canada-based mining company, engaged in the development and operation of mineral properties. It has a gold reserve base and operates approximately six wholly owned gold mines.

Key highlights 

• The management's bullish stance: Recently, the management stated that their 2021 production would be in a range of 600,000 - 665,000 ounces of gold, a 33% increase over 2020 production of 477,200 ounces of gold. The cash costs would be USD 940 - 1,000 per ounce of gold sold and all-in-sustaining costs "AISC" would be USD 1,190 - 1,275 per ounce of gold sold.  

• Higher free cash flows: Through agile management and higher average realized gold prices, the company increased its operating cash flow and free cash flow. In FY 2020, they generated record operating cash flows of USD 391 million and reported a free cash flow of USD 278.5 million. 

Source: Company 

• Acquired Premier Gold Mines: Recently, the company acquired Premier Gold Mines, which would further increase its diversification and scale with the addition of a producing mine in Mexico and a construction-ready project in Ontario, Canada. 

• Enhanced liquidity: On December 31, 2020, the company increased its cash & equivalents, which stood at USD 344.9 million, against USD 67.7 million in 2019. Furthermore, working capital stood at USD 423.4 million, compared to USD 16.7 million in 2019. The increase in working capital was mainly due to the Leagold Merger and USD 171.5 million in proceeds received from warrant and option exercises.

Financial overview of FY2020

Source: Company 

• In FY 2020, the company sold 471,786 ounces of gold at an average realized price of USD 1,783 per ounce and generated revenue of USD 842.5 million, an increase of 199% against USD 281.7 million in FY 2019. The rise in revenue was primarily based on higher gold sold, and higher realized gold prices.
• Earnings from mine operations were reported at USD 288.6 million, against USD 83.9 million in the previous corresponding period.
• Income from operations increased to USD 171.3 million from USD 55.1 million, although it registered higher operating expenses. 
• The Company reported a net income of USD 20.7 million in FY2020, against a loss of USD 20.3 million in 2019.

Risks associated with investment

The Company’s financial performance is mostly dependent on the price of gold, which directly affects their profitability and cash flow. Any drawdown in the gold prices would impact the group’s performance.

Valuation Methodology (Illustrative): EV to Sales

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The company’s 2020 results reflected delivery on its growth and diversification strategy. Its seven operating mines generated 477,200 ounces of gold and operating cash flow of USD 217 million in the year, compared to 2019 production of 201,000 ounces of gold and USD 60 million in operating cash flow. Furthermore, with solid cash flow from operating mines and a healthy balance sheet, the company is in an excellent position to achieve ambitious goals in 2021 and beyond in terms of gold production and cash flow as it continues to develop its extraordinary pipeline of development and expansion projects. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 9.85 as on March 30, 2021. We have considered B2Gold Corp, Kinross Gold Corp, Alamos Gold Inc. as the peer group for the comparison.

1-Year Price Chart (as on March 30, 2021). Source: Refinitiv (Thomson Reuters)

Killam Apartment Real Estate Investment Trust

Killam Apartment Real Estate Investment Trust (TSX: KMP.UN) is a Canada based “REIT”, which specializes in the acquisition, management and development of multi-residential apartment buildings, manufactured home communities (MHCs) and commercial properties.

Key highlights

• Consistent dividend distribution: The group continues with a track record of dividend distribution and recently declared a monthly distribution of CAD 0.05667 per unit to be paid on April 15, 2021. Moreover, at the last traded price, the stock was offering a dividend yield of 3.65%, which is decent considering the current macros.

Source: Refinitiv (Thomson Reuters)

• Rental rate growth continues on turns: In Q4 2020, the same property rental rates increased to 3.4% against 2.4% in Q3 2020. Despite the current economic environment, demand remains strong for turnover units, with trust achieving 5.7% rental rate growth on the regular unit turns during Q42020. 

Source: Company

• Steady rent collection: Despite a slowdown in the overall economy, the trust posted an impressive rent collection rate of 99.7% in FY 2020. Historically, the company had less than 0.3% of revenue uncollected, and currently, the management does not expect a material increase in rental defaults in 2021.

Source: Company

• Healthy Financial metrics: The trust generated strong financial growth in the recent past, where it reported a 17.4% CAGR during FY16 to FY20 in the total assets, while the net operating income grew at a CAGR of 11.8% during the same time frame. Debts, in term of assets, reduced to 44.6% in FY20, from 53.5% in FY16. We believe the momentum to continue in the foreseeable future, as the company had CAD 1 billion of development pipeline to support future growth.

Source: Company

Financial Overview of Q4 2020 (In thousands of CAD)

Source: Company

• In Q4 2020, the company posted a growth in its property revenue to CAD 66.8 million, compared to CAD 62.8 million in the previous corresponding period.
• NOI stood at CAD 41.7 million in Q4 2020, compared to CAD 39.9 million in Q4 2019.
• The Company's net income fell to CAD 48.6 million in the reported quarter, compared to 126.8 million in Q4 2019. The prime reason behind the fall in net income was higher fair value gains on investment properties recognized in Q4 2019.
• Despite the impacts of COVID-19, the Company achieved a 2.2% increase in the same property revenue and a 0.9% increase in the same property net operating income ("NOI") in Q4 2020.

Risks associated with investment

The Company's revenue and operating results depend significantly on the occupancy levels and rent collection; hence, a fluctuation in these would affect the financial results. 

Valuation Methodology (Illustrative): EV/Sales 

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

FY2020 came with many unforeseen challenges for the Company, but still, they witnessed healthy operating and financial performance. The Company posted an impressive rent collection rate of 99.7% in FY 2020. Furthermore, they generated the same property NOI growth of 2.3% versus 2019 and Achieved a 2.0% increase in the same property revenue, including 2.4% from the apartment portfolio, which looks attractive. We expect an improvement in the rent collection and a decline in provisions in the coming time, further supporting the Company's overall performance. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating at the closing price of CAD 18.62 on March 30, 2021. We have considered InterRent REIT, Canadian Apartment Properties REIT, Allied Properties REIT, etc., as a peer group for the comparison.

1-Year Price Chart (as on March 30, 2021) Source: Refinitiv (Thomson Reuters)

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.