Canadian Western Bank

Canadian Western Bank (TSX: CWB) is a diversified financial services organization which operates across key product lines include full-service business and personal banking offered through bank branches and Internet banking services provided by Motive Financial. The bank offers specialized financing under the banners of CWB Optimum Mortgage, CWB Equipment Financing, CWB National Leasing, CWB Maximum Financial and CWB Franchise Finance. The group also offers trust services and wealth management services. 

Recently, the group reported the appointment of Mary Filippelli to CWB's Board of Directors effective August 1, 2020.

Q2FY20 Financial Highlights: CWB declared its second quarter results, wherein the Company reported a stable topline of CAD 214 million, reflecting a 2% y-o-y growth. Total loans grew by 7% y-o-y to CAD 29.2 billion, driven by a solid 10% growth across the Ontario region. Deposits soared 20% on y-o-y basis to CAD 15.2 billion. During the quarter under consideration, CWB's net interest income stood at CAD 190.99 million, slightly lower on a YoY basis despite a decent loan growth, which was partially offset by 23 bps reduction in the net interest margin. However, non-interest income surged approximately 25% to CAD 23.376 million in Q2FY20. The quarter was marked by a 3% surge in the non-interest expenses driven by higher investments to support overall business growth and continued execution of the targeted business transformation activities. The Company witnessed a dip in net income to CAD 51 million, reflecting a decline of 17% on y-o-y basis which was primarily attributed to a higher estimated provision for credit losses on performing loans coupled with sluggish total revenue on the backdrop of an economic slowdown.

Q2FY20 Financial Snapshot (Source: Company Reports)

Risks: Given the economic uncertainties hovering over the Canadian economy and slowdown in the global economic growth, the group is exposed to increase in the Non-performing assets, primarily in the sectors like oil & gas, hospitality, tourism; however, the group's exposure towards these sectors is relatively low.

Valuation Methodology: P/BV Based relative valuation (Illustrative)

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

Stock Recommendation: The stock of CWB corrected ~26% so far this year owing to the uncertainties driven by COVID-19 pandemic. The Company is focusing on enhancing the banking presence through its digital platforms, and it is investing in digital infrastructure. The Company intends to increase its differentiated full-service client experience and will seek for the accelerated growth as the economy stabilizes. The Company reported a stable set of numbers, which indicates the resiliency of the business. Further, the bank's exposure to oil and gas production and oilfield service portfolios represent only 1% and 2%, respectively of the total loan outstanding, which is a key positive considering the current mayhem in the sector. Lower exposure to the troubled sectors would safeguard the bank's balance sheet in the near to medium term and reduce the risk of likely nonperforming assets. Further, at the last traded price, the stock was offering a dividend yield of ~4.95%, which is lucrative considering the current interest rate environment. We have valued the stock using the P/BV based relative valuation approach and arrived at a target price, which suggests a double-digit upside potential (in % terms). For the said purpose, we have considered Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Bank of Montreal etc., as a peer group. Hence, considering the aforesaid facts, we recommend a 'Buy' rating on the stock at the closing market price of CAD 23.45 as on July 30, 2020.

CWB Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

CGI Inc.

CGI Inc. (TSX: GIB.A) is an independent IT and business consulting firm which delivers an end-to-end portfolio of capabilities. The Group offers strategic IT and business consulting, business process services and intellectual property solutions. The company operates with clients through a local relationship model complemented by a global delivery network that helps clients digitally transform their organizations and accelerate results.

The Group confirmed a contract win from LocalTapiola, one of Finland's largest insurance companies, amounting to EUR 49 million. CGI will focus on to upgrade the digital platform used for providing insurance against loss or damage by LocalTapiola. As part of the new agreement, CGI will implement new delivery models to ensure optimal productivity and cost control.

Q2FY20 Financial Highlights:  CGI Inc. announced its quarterly results wherein the company’s reported revenue stood at CAD 3,052.7 million as compared to CAD 3,119.8 million in the previous corresponding period (pcp). The decrease was mainly attributable to the slowdown of activities, primarily due to COVID-19, slightly offset by recent business acquisitions. Total operating expenses stood at CAD 2,695.03 million, declined from CAD 2,702.10 million in pcp due to a lower cost of services, selling and administrative, acquisition-related and integration costs, partially offset by a substantial increase in net finance costs coupled with the inclusion of restructuring costs amounting to CAD 39.54 million. Adjusted EBIT stood lower at CAD 448 million against CAD 474.2 million in pcp, while margin fell to 14.7% versus 15.2%, a year ago. Net earnings, during the period, stood at CAD 260.9 million as compared to CAD 309.4 million in pcp. At the end of the quarter, Cash and cash equivalents and total assets stood at CAD 1,365.279 million and CAD 15,343.288 million, respectively. The company reported a stable backlog of CAD 22.30 billion, slightly lower than CAD 22.4 billion in pcp.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The Company provides technology and IT services to several business and corporates. A prolonged lockdown scenario may impact the backlog and order-book of the group.

Valuation Methodology: P/E Based relative valuation (Illustrative)

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

Stock Recommendation: The stock of GIB.A corrected ~14% so far this year amid a volatility in the equity market. However, amidst the current downturn, the company has able to report stable ROE and ROCE ratios of 17.3% and 13%. On the liquidity front, CGI Inc has ample liquidity of ~USD 1,250 million, sufficient to surpass the current pandemic. The company receive a renewal of a contract from an esteemed client, which indicates higher customer-satisfaction. The company has deep-expertise across several IT-based services and offers several value-added new-generation services, which is essential for new aged businesses in order to stay competitive in the industry. The company has an outstanding track record of on-time, within-budget delivery aided from the commitment to excellence philosophy and its robust governance model. The group has a stable backlog of 2.8 billion and represent 1.8x of annual revenue, which provides revenue visibility. The company’s book to bill ratio stood at 93.1%, which is decent. U.S federal government is one of the key customers of the group and contributed ~14% to the group’s revenue, which is a key positive from a stable revenue point of view. We have valued the stock using the P/E based relative valuation approach and arrived at a target price, which suggests a lower double-digit upside potential (in % terms). For the said purpose, we have considered Open Text Corp, TTEC Holdings, and REAL Matters etc., as a peer group. Hence, considering the aforesaid facts, we recommend a 'Buy' rating on the stock at the closing market price of CAD 95.62 on July 30, 2020.

GIB.A  Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Loblaw Companies Limited

Loblaw Companies Limited (TSX: L) is one of Canada’s biggest retailers and has more than 1,050 grocery stores. The company is also a leading food retailer and is also engaged in selling general merchandise under different banners and also operates full-service pharmacies.

Q2FY20 Financial Statement Highlights: Loblaw Companies declared its second quarter results and reported impressive top-line growth while failed to retain the momentum in its bottom-line. Revenue grew 7.4% on y-o-y basis to CAD 11,957 million while net earnings stood at CAD 172 million, as compared to CAD 289 million in the previous corresponding period (pcp). The quarter witnessed a remarkable growth within the retail segment where revenue grew at 7.9% y-o-y to CAD 11,768 million, driven by same-stores sales growth in Food retail by 10% on y-o-y, partially offset by 1.1% decline in the drug retail segment. Operating income stood at CAD 404 million, representing a decline of 31.3% on y-o-y basis. Adjusted EBITDA stood 13.5% lower at CAD 1,016 million. During the quarter, the Company invested CAD 199 million in capital expenditures and generated CAD 334 million of free cash flow. The quarter witnessed higher investments of CAD 282 million due to COVID 19 pandemic, which includes CAD 180 million related to compensation costs, inclusive of the one-time bonus for store and DC staffs of CAD 25 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risk: The company is likely to face headwinds from higher operating cost due to more in-store cleaning, increased hygiene and sanity spending and in-store security, etc., on account of COVI-19 pandemic. A second wave of the novel virus, if arises might result in temporary closures of facilities, labor shortages, disruptions in supply chains and distribution channels.

Valuation Methodology: P/E based valuation (Illustrative)

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

Stock Recommendation: The stock stood resilient in the recent past and appreciated ~4% so far this year and outperformed the benchmark index by 9%. The group is operating in the food distribution industry, which is immune to the economic cycle and ensures stable income and cash flows, which is a key positive. The company took prudent steps and enhanced customer convenience by expanding online capabilities. As a result, Everyday Digital sales rose by 280%, which is encouraging. However, the accelerated growth rate has resulted in increased costs and investments in the quarter. The company expects continued growth in its e-commerce business and is likely to invest investing in expanding capacity and enhancing its same-day service offering while also improving the cost structure of the business over time. The company seems to have ample liquidity thanks to a strong balance sheet and the ability to generate significant cash flow from its operations. The aggregate available liquidity was approximately CAD 4.6 billion, which include CAD 2.6 billion in cash and cash equivalent. Notably, the stock closed above the 200-days SMA of CAD 69.19, indicating a bullish trend. We have valued the stock using the P/E based relative valuation approach and arrived at a target price, which suggests a lower double-digit upside potential (in % terms). For the said purpose, we have considered Metro Inc, Alimentation Couche-Tard Inc, and Empire Company Ltd etc. as a peer group. Hence, considering the aforesaid facts, we recommend a 'Buy' rating on the stock at the closing market price of CAD 70.0 as on July 30, 2020.

L Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Nutrien Ltd.

Nutrien Ltd. (TSX: NTR) is a leading agriculture chemical company and is engaged in the production and distribution of potash, nitrogen, and phosphate products for agriculture and industrial customers worldwide.  The company is the largest agricultural retailer in the United States. Nutrien’s operational geographies include the United States, Canada, South Africa, Australia and South America. It has six potash mines in Saskatchewan and has a mine in New Brunswick in care-and-maintenance mode.

Q1FY20 Financial Highlights: NTR impresses with its top-line growth while failed to retain the momentum in its bottom-line due an impact of lower selling prices from a temporary slowdown across certain. However, strong Retail sales, combined with solid operating results within the nutrient production businesses, helped to offset this impact. Quarterly sales stood at USD 4,186 million as compared to USD 3,719 million in the previous corresponding period (pcp). Gross margin stood at USD 873 million, lower from USD 975 million in pcp primarily attributable to the higher cost of goods sold. Earnings before finance costs and income taxes slide to USD 82 million from USD 176 million in pcp, majorly due to higher selling expenses, increase in the general and administrative expenses coupled with a lower gross margin. The Company reported a net loss of USD 35 million, as compared to a net profit of USD 41 million, a year ago.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Key Risks: The company is exposed to the risk of weakness in the global economy due to widespread distortions caused by novel virus COVID-19, which can have an impact on the global industrial nitrogen demand in 2020. Also, the company is exposed to commodities price volatility risks such as volatility in the prices of potash, nitrogen, and phosphate.

Valuation Methodology: Price/CF Based (Illustrative)

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

Stock Recommendation: The stock corrected ~28% so far this year due to volatility in the global equity markets on account of COVID 19 pandemic. The Company expect that the offshore shipments within the potash segment to improve in the coming quarters, aided by the gradual recovery of the economy. The company is expecting a strong spring demand for all crop inputs and services in the Q2FY20. The group expects solid crop input demand in its core operating geographies, all of which have declared agriculture an essential service amid COVID-19 pandemic. Brazilian soybean and corn prices are at near historical highs, which would support higher soybean acreage in 2020 planting season. Further, At the last traded price, shares of NTR offering a lucrative dividend yield of 5.5%, which is significantly higher given the lower interest rate environment. The company remains in an excellent financial position with a strong balance sheet and free cash flow, a stable dividend and ample liquidity. At the end of Q1FY20, the long-term debt to total capital ratio stood at 25.3%, lower than the industry average of 31.9%. The interest coverage ratio stood at 4.20x, reflects the financial strength of the company to easily services its debt liabilities. We have valued the stock using the P/CF based relative valuation approach and arrived at a target price, which suggests a lower double-digit upside potential (in % terms). For the said purpose, we have considered the peers like CF Industries Holdings Inc, Mosaic Co etc. Hence, considering the aforesaid facts, we recommend a 'Buy' rating on the stock at the closing market price of CAD 44.83 as on July 30, 2020.

NTR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Rogers Communications Inc.

Rogers Communications Inc. (TSX: RCI.B) is a leading telecom and media company based out of Canada and has a subscriber base of more than 10.8 million. Rogers Communication is the first company to roll out a 5G network in Canada and has one of the most extensive networks covering almost 4.5 million homes. The Group operates through three business segments, namely wireless, media and cable services.

The company declared a quarterly dividend of CAD 0.50 per common share, payable on October 01, 2020.

Q2FY20 Financial Highlights: Rogers Communications declared its quarterly results, wherein the company posted a 17% slide in its topline at CAD 3,155 million primarily attributable due to 13% and 17% decline in Wireless service and equipment revenue, respectively, coupled with a 50% decrease in Media revenue. Media segment income was affected due to a continued suspension of live professional sports broadcasting, which resulted in lower sports revenue combined with lower advertising revenue due to ongoing market softness. Adjusted EBITDA stood at CAD 1,294 million, depicting a decline of 21% on y-o-y basis, majorly due to lower contribution from Wireless and Cable segment. Net income, during the quarter, stood at CAD 279 million as compared to CAD 591 million in the previous corresponding period (pcp). Free cash flow was reported at CAD 468 million, reflecting a 23% dip from the previous corresponding quarter.

Q2FY20 Financial Highlight (Source: Company Reports)

Risks: Media business is likely to remain under pressure as there might be a suspension of live professional sports broadcasting in the coming quarter amid the fear of COVID-19. Further, upgradation to 5G services is time-consuming and requires huge capital investments. Thus, any setback in operation or any other unprecedented events, which results in a delay of 5G implementation could hamper the financial performance.

Valuation Methodology: Price/CF Based (Illustrative)

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

Stock Recommendation: The RCI.B stock corrected 14% so far this year. The company's media and the broadcasting segment was badly affected by the cancellation of professional sports while the company witnessed higher traction within the digital segment. The company holds one of the highest market shares within the industry and is focused on enhancing its operational efficiencies. In the recent past, the company has invested wisely and has started 5G services in few areas and intends to increase across Canada, which is a key positive. The company maintains a strong liquidity position and generates ample cash flows to support its growth initiatives and dividend payouts. Moreover, we believe, the company is likely to benefit from rising data demand and the company's continued investments in infrastructure positions it well to benefit from a superior network. Meanwhile, the company reported strong liquidity of CAD 5.4 billion, which includes CAD 1.8 billion of cash balance, which is likely to meet the near-term requirement. Further, the company declared a dividend at a time when most of the businesses are cutting or suspending their dividend payment. This shows the financial strength of the company and in encouraging from an income investor point of view. At the last traded price, the stock was offering a dividend yield of 3.6%, which is decent, considering the current interest rate environment. We have valued the stock using the P/E based relative valuation approach and arrived at a target price, which suggests a double-digit upside potential (in % terms). For the said purpose, we have considered peers like T-Mobile US Inc, Shaw Communication and Telus Corporation etc., as a peer group. Hence, considering the aforesaid facts, we recommend a 'Buy' rating on the stock at the closing market price of CAD 55.38 as on July 30, 2020.

RCI.B Daily Technical Chart (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.