Newmont Corporation

Newmont Corporation (TSX: NGT) is one of the leading gold mining company with the largest gold reserves in the industry. The company also produces copper, silver, zinc and lead.

Key Highlights:

• Offering a decent dividend yield: The company reported a consistent dividend distribution, supported by stable cash flow generation. Notably, the company paid a dividend of USD 881 million during first six months of FY21, which was significantly higher than USD 313 million in the previous corresponding period (pcp). Moreover, the stock carries a dividend yield of ~3.57%, which looks decent considering the current interest rate scenario.
  

• Reduction in total debt amidst turbulent times: The company operates in mineral exploration, and the industry is capital-intensive in nature. Meanwhile, the company reported a reduction in its total debt amidst the sluggish economic scenario and several persisting restrictions in mine exploration activities. Notably, at the end of Q2FY21, the group reported total debt of USD 5,480 million, reflecting a reduction of ~9% from FY20. A decline in debt is a healthy sign and indicates higher financial flexibility.
  

• Increase in production: In Q2FY21, the company reported higher attributable gold production of 1,449 koz, reflecting a growth of 15% on y-o-y basis. The increase was primarily due the restart of production activities across several mines, which were closed during last year due to pandemic. Moreover, a higher ore grade milled and higher mill throughput at Boddington also supported the growth.
  

• Project Update: The group has updated its outlook on its three new projects, which have low input costs and higher mine-life. These are discussed below:
  

1. The company increased its presence in Australia through its Tanami Expansion 2 project, which has a mine life of more than 2040. This is expected to add 150,000 to 200,000 ounces of minerals per year for the first five years, while the operations are expected to commence from the first half of FY24.
2. The group further enhances its presence across Africa with Ahafo North mine situated in Ghana and is expected to add between 275,000 and 325,000 ounces of minerals/annum for the first five years. As per the management, Ahafo North has an unmined gold deposit of more than 3.5 million ounces of reserves.
3. With the Yanacocha Sulfides mine in South Africa, the group is expected to add 500,000 gold equivalent ounces in each year, while all-in sustaining cost is expected between USD 700 to USD 800/ ounce during 2026 to 2030. The company is planning to develop an integrated processing circuit, along with an autoclave to process gold, copper and silver feedstock in December 2021.
   

Q2FY21 Financial Highlights:

• NGT declared its quarterly result, wherein the group reported sales of USD 3,065 million, reflecting a growth of 30% on y-o-y basis. The increase was driven by higher prices of gold, copper and silver.
• The company witnessed a higher cost applicable to sales, increase in depreciation and amortization, and higher exploration costs, while lower general and administrative cost and lower care & maintenance cost.
• Adjusted EBITDA stood at USD 1,591 million, surged 62% on y-o-y basis. The company reported lower all-in sustaining costs (AISC) of gold, which stood at 1,035/ ounce v/s 1,097/ounce in pcp.
• Net income from continuing operations stood at USD 651 million, jumped from USD 415 million in the previous corresponding period.     

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The performance of the company is directly correlated with gold and other metal prices. Thus, volatility in the commodity price would affect the company’s income and would take a toll on the overall performance.

Valuation Methodology Illustrative: Price to Cash Flow

Stock Recommendation:

The company reported encouraging quarterly result and has a strong pipeline, which is expected to add improved business prospects in the coming days. Moreover, we believe the company would be benefitted from the low-cost structure of its recently acquired mines. We have valued the stock using the Price to CF-based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). We have considered peers like Barrick Gold, Agnico Eagle Mines etc. Hence, considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 78.08 on July 29, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on July 29, 2021). Source: REFINITIV, Analysis by Kalkine Group

Suncor Energy Inc

Suncor Energy Inc (TSX: SU) is a Canada-based integrated energy company focused on developing Canada's petroleum resource basin, Athabasca oil sands. The Company operates in three business segments: Oil Sands, Exploration and Production (E&P), and Refining and Marketing. 

Key highlights

• Consistent dividend distribution: The Company has a long history of paying dividends, demonstrating its financial strength and cash flow creation. It has announced a quarterly dividend of CAD 0.21 per share, which will be paid on September 24, 2021. Furthermore, the stock carries a dividend yield of 3.37%, which is attractive given the current interest rate environment.

Source: REFINITIV, Analysis by Kalkine Group

• Increase in production: In Q2 2021, Suncor's total upstream production climbed to 699,700 barrels of oil equivalent per day (boe/d) from 655,500 boe/d in the previous corresponding period. Strong Oil Sands operations, particularly record In Situ volumes, contributed to an increase in output, which was slightly offset by the impact of planned Syncrude turnaround maintenance. An increase in production along higher average realization price are key positive points.

• Increase in funds from operations: The improving business environment in the second quarter of 2021 along with significantly increased realizations price of crude oil and refined product with increase in production helped the company to generate higher funds from operations, which stood at CAD 2,362 million compared to CAD 448 million in the previous corresponding period.

Source: Company

• Well positioned for strong second half of 2021: During the second quarter of 2021, significant turnaround efforts at Syncrude, Buzzard, and across the company's refineries were accomplished. The firm ended the quarter with roughly 94% refinery utilisation, and with Syncrude and Buzzard back in production, the company is poised for a solid second half of the year.

Financial overview of Q2 2021 (In millions of CAD)

Source: Company

• In Q2 2021, the company reported higher revenue at CAD 9,159 million compared to CAD 4,229 million in the previous corresponding period. The revenue increased primarily due to higher crude oil and refined product realization price and increased production.
• Total operating expenses stood at CAD 8,005 million in the reported period against CAD 5,314 million in the previous corresponding period.
• Primarily due to above discussed rationale the company made a turnaround and posted a net income of CAD 868 million against a loss of CAD 614 million in the previous corresponding period.
  

Risks associated with investment

The Company’s performance is related to the demand and price of the crude oil. Any volatility in the crude oil prices or setback to demand would hamper the company’s performance. 

Valuation Methodology (Illustrative): Price to Cash Flow

Stock recommendation

In the second quarter of 2021, the company completed turnaround activities for the year, across all its refineries, enabling them to exit the quarter with a refinery utilization of approximately 94%. The company reported an increase in production to 699,700 (boe/d) in the second quarter of 2021 and funds from operations at CAD 2,362 million. Furthermore, we believe with the completion of turnarounds across its refineries and the phased lifting of COVID-19-related restrictions, the company is positioned to capture improved margins in the second half of the year as domestic demand continues to recover towards pre-pandemic levels. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating at the closing price of CAD 24.89 as on July 29, 2021. We have considered Cenovus Energy Inc, Imperial Oil Ltd, Murphy Oil Corp, etc. as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on July 29, 2021). Source: REFINITIV, Analysis by Kalkine Group

Kirkland Lake Gold Ltd

Kirkland Lake Gold Ltd (TSX: KL) is a Canada-based gold mining, development and exploration company holding diversified portfolio of assets, located in the stable mining jurisdictions of Canada and Australia. The Company’s primary gold mines are, the Macassa Mine located in northeastern Ontario, Detour Lake mines in Northern Ontario and the Fosterville Gold Mine located in Victoria, Australia. 

Key Highlights

• Strong production growth in Q2 2021: In Q2 2021 the company announced production of 379,195 ounces, which was up 15% from Q2 2020 and 25% from the previous quarter. The production also exceeded guidance for the quarter of 330,000 – 360,000 ounces. The rise in production largely reflected the favorable impact of continued grade outperformance and changes to mine sequencing at Fosterville. Furthermore, the robust production brings the company on track to achieve its FY2021 guidance of 1,300-1,400 kilo ounces.
  

• Increase in free cash flows: Free cash flow stood at USD 131.2 million in Q2 2021, a 39% increase from USD 94.1 million in Q2 2020 and more than triple of USD 42.7 million of free cash flow in Q1 2021. Strong growth in net cash provided by operating activities, higher production and increase in average realization price of the metal helped the company to clock this free cash flow.
  

• Zero debt balance sheet: The Company's business model is so strong that they generate enough cash from its operating activities and hardly require any debt; this is commendable. This reflects significant financial strength which provides financial flexibility to support the Company's growth plans, including continued aggressive exploration of both near-term and longer-term opportunities.

• Industry Beating Margins: The Company maintained its pace and witnessed spirited performance across its margin matrix. In addition, the management’s solid determination helped them leap the industry median margins on many fronts in Q2 2021, which exhibits the competitive advantage of the company within the industry. The chart below gives a glimpse of this. 

Financial overview of Q2 2021 (In thousands on USD)

Source: Company

• In Q2 2021 the company reported a jump in revenue to USD 662.7 million, an increase of USD 81.8 million or 14%, compared to USD 580.9 million in the previous corresponding period, primarily due to higher realized metal prices and increased sales volumes.
• Earnings from operations increased to USD 337.6 million in Q2 2021 compared to USD 306.1 million in pcp. The increase was primarily due to higher realized metal prices partially offset by higher exploration expenses incurred in the reported period.
• The company reported net earnings of USD 244.1 million compared to USD 150.2 million in the previous corresponding period.

Risks associated with investment

The company’s financial performance is mostly dependent on the price of gold, which directly affects the company’s profitability, margins and cash flows. The price of gold is subject to volatility. It is affected by various factors, such as the strength of the US dollar, Interest rates, Inflation rates, demand and supply, all of which are beyond the company’s control. 

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

We expect that gold, as an asset class would continue to remain in the limelight as uncertainty over the global economic growth is still prevailing. We believe that average realized gold prices per ounce would continue to expand, which would lead to margin expansions. With a robust financial position, the company expects to generate further free flows as it has re-affirmed production guidance of 1,300-1,400 kilo ounces for FY2021, which looks impressive. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating on the stock at the closing price of CAD 53.14 on July 29, 2021. We have considered Wesdome Gold Mines Ltd Barrick Gold Corp, Agnico Eagle Mines Ltd etc. as the peer group for the comparison. 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

Technical Analysis Summary

One-Year Technical Price Chart (as on July 29, 2021). Source: REFINITIV, Analysis by Kalkine Group

Enghouse Systems Limited

Enghouse Systems Limited (TSX: ENGH) is a Canada-based provider of software and services to a variety of end markets. The company operates through two segments, namely the Interactive Management Group and the Asset Management Group. 

Key Updates:

• Acquisition of Momindum SAS: On July 07, 2021, the company acquired Momindum SAS, which operates in SaaS enterprise video software and manages virtual live events and on-demand videos for knowledge management and demand generation purposes. This acquisition would complement ENGH’s line of products and would cater to the customers who seek a platform to transform videos into rich, interactive media with embedded outlines, quizzes and calls to action.

• Improved performance from Hosted and maintenance services: During the first half of FY21, the company posted Hosted and maintenance services revenue of CAD 142.645 million, higher than CAD 136.377 million in pcp. This segment represents an important strategic source of income, which is predictable and recurring in nature. Notably, in H1FY21, the above segment contributed ~60% of the overall revenue, improved from ~51% in FY20.
  

Q2FY21 Financial Highlights:

• ENGH declared its quarterly result, wherein the company reported revenue of CAD 117.334 million, as compared to CAD 140.900 million in the previous corresponding period (pcp). The decline was primarily due to a significant fall in the Software license as compared to record sales of Vidyo in the previous corresponding quarter.
• Result from operating activities was recorded at CAD 36.892 million, down from CAD 46.276 million in pcp. The decline was primarily due to lower revenue, while subsequently lower direct costs and operating expenses supported the profitability.
• Income before income taxes stood at CAD 26.279 million as compared to CAD 34.909 million in pcp. The decrease was primarily attributable to a lower income from operating activities combined with a surge in the other expense.
• Net Income for the period stood at CAD 20.739 million, as compared to CAD 27.089 million in Q2FY20, reflecting a decline of 23.4% on y-o-y basis.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks:  In order to remain afloat within the industry, the products require constant innovations and upgradation. Hence, a higher R&D expense would likely dampen the company’s profitability.

Valuation Methodology Illustrative: Price to Cash Flow 

Stock Recommendation:

Despite the ongoing sluggish economic scenario, the company distributed a dividend of CAD 97.974 million in H1FY21, significantly higher than CAD 12.069 million in pcp. The company is focusing on strategic acquisitions that would complement its product line and add value to its existing portfolio. Hence, the recent acquisitions of Nebu BV (market research and data analytics segment), and Momindum SAS are likely to support the company’s upcoming performances with better offerings and higher customer services. We have valued the stock using the Price to CF based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered Descartes Systems Group Inc, Kinaxis Inc etc, as a peer group. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 56.07 on July 29, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on July 29, 2021). Source: Kalkine, Analysis by Kalkine Group 

Morguard Corporation

Morguard Corporation (TSX: MRC) is a real estate company that acquires, owns, and develops properties in Canada and the United States. The group operates through three business segments, namely investments in real property, ownership in real estate investment trusts (including Morguard REIT and Morguard North American Residential REIT), and real estate advisory services and portfolio management.

Key Highlights

• Ample liquidity: In the first quarter of FY21, MRC reported decent liquidity level of CAD 562 million, which includes a cash balance of CAD 121 million and CAD 441 million of funds available under revolving credit facilities. The current level seems to be sufficient to fund its near-term working capital requirements. Meanwhile, the management took prudent steps to retain its liquidity levels and has contracted its upcoming capital investments. In order to improve its cost structures, MRC also lowered or deferred its operating expenses, property taxes and other instalments.

• Diversified Asset-base: The company has a diversified asset base, which leads to lower dependence on a particular segment. This is impressive, as the company allocates its investments across several real estate’s segments and global equities, which indicates a balanced risk profile.

Source: Company Report 

• Robust Margin profile: The company reported a strong profitability margin in the first quarter of FY21 that is higher than the peers, which indicates higher operational efficiency. Notably, gross margin and EBITDA margin stood at 53.9% and 34% respectively, in Q1FY21, higher than the industry median of 39.8% and 13.10%, respectively. Operating margin and net margin stood at 23.4% and 7.30% in Q1FY21, higher than the industry median of 6.20% and 2.6%, respectively.
  

Q1FY21 Financial Highlights:

• MRC announced its quarterly result, wherein revenue from real estate properties stood at CAD 211.364 million, down from CAD 228.266 million in the previous corresponding period (pcp). Revenue from hotel properties was recorded at CAD 22.148 million, significantly lower from CAD 47.805 million in pcp.
• The company reported a lower net operating income of CAD 86.474 million, compared to CAD 102.601 million in Q1FY20. The decline was due to a lower topline partially offset by a lower hotel operating expense (CAD 18.090 million v/s CAD 42.536 million in pcp).
• The corporation reported a decline in other revenue at CAD 13.450 million, from CAD 16.239 million in pcp, primarily attributable to a lower income from management and advisory fees combined with lower interest income.
• The group recorded a net profit of CAD 17.948 million, as compared to a net loss of CAD 8.870 million in the previous corresponding period. The difference was supported by a fair value gain of CAD 38.926 million v/s a fair value loss of CAD 36.822 million in pcp.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: Decline in the fair value of properties are likely to impact the company’s bottom line. New working preferences like work from home option may affect the occupancy rate of the office premises and would subsequently take a toll on the overall performance.

Valuation Methodology (Illustrative): Price to Earnings based

Stock Recommendation:

With the gradual reopening of the economy, we expect improved occupancy rate from the retail and office segment in the coming quarters, which would eventually support the company’s overall performance. We have valued the stock using the Price to Earnings-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered Mainstreet Equity Corp, Canadian Apartment Properties Real Estate Investment Trust etc., as a peer group. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 139.0 on July 29, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on July 29, 2021). Analysis by Kalkine Group 

*The reference data in this report has been partly sourced from REFINITIV.

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.