Alamos Gold

Alamos Gold (TSX: AGI) is a Canada based gold producer and operates across three mines; two in Canada and one in Mexico and it has a strong portfolio of development-stage projects in Canada, Mexico, Turkey and the United States. The group was formed in 2003 through the merger of Alamos Minerals and National Gold.

Key Highlights :

• Recently, the company reported new results from surface exploration drilling at the Island Gold Mine, which extends its high-grade gold mineralization in Island East. The company reported the following highlights from its drilling programs:
  • 28.97 g/t Au (26.89 g/t cut) over 21.76 m (MH25-04)
  • 15.38 g/t Au (14.19 g/t cut) over 15.02 m (MH25-03)
• The company informed the appointment of Scott R.G. Parsons as its Vice President, Exploration.

Q2FY20 Financial Highlights: AGI announced its second-quarter results, wherein the company posted revenue of USD 126.2 million, significantly lower than USD 168.1 million in the previous corresponding period (pcp). The period was marked by a temporary halt in operations, which resulted in a lower Gold production of 78,400 ounces, as compared to 1,25,200 ounces in pcp. Meanwhile, the average realized gold prices were higher at USD 1,692 per ounce, as compared to USD 1,309 per ounce in Q2FY19, which partially supported the top-line. All-in sustaining costs per ounce of gold sold stood significantly higher at USD 1,276, against USD 926 in pcp. Net earnings stood lower at USD 11.7 million, as compared to CAD 23.6 million in pcp.

Q2FY20 Financial Highlights (Source: Company Reports)

Key Risks: The business is exposed to several risks like metal price volatility in the international markets, production halt in the business operations, etc.

Valuation Methodology: Price to CF Based (Illustrative)

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

Stock Recommendation: The recent appreciation in the gold price resulted in a positive impact on the AGI stock price. The stock increased ~51% so far this year. The company reported its exploration activities at Island Gold and remain focused on continuing to define new near mine Mineral Resources. The group recently reported best surface exploration hole to date at Island Gold with high-grade gold mineralization intersected across significantly greater widths down plunge from existing mineral resources. The group's outlook for the second half of the FY20 is positive, which is led by the completion of lower mine expansion, higher production and lower costs, lower capital intensity and strong free cash flow growth in the H2FY20 and beyond. The Phase III expansion of Island Gold announced earlier this month had outlined a bigger, more profitable, and long-life operation. The expansion is expected to take throughput rates 67% higher to 2,000 tpd, which is likely to result in significantly higher production. With this expansion, the group is expecting an average annual gold production of 236,000 ounces per year starting in 2025 upon completion of the shaft. This represents a 72% increase from the mid-point of initial 2020 production guidance. We have valued the stock using the Price to CF 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 Eldorado Gold Corp, Kirkland Lake Gold Ltd etc. Hence, considering the aforesaid facts and current price movement, we recommend a 'Buy' rating on the stock at the closing market price of CAD 11.83 on September 29, 2020.

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

Lassonde Industries Inc.

Lassonde Industries Inc. (TSX: LAS.A) is engaged in the development, manufacturing, and marketing of ready-to-drink fruit and vegetable juices and drinks. The company also produces store brand shelf-stable fruit juices and drinks within the United States and is a major producer of cranberry sauces. The group operates through the single-segment, wherein it develops, manufactures, and markets a wide range of ready-to-drink juices and drinks; frozen juice concentrates; and specialty food products and indulges marketing of selected wines from several countries of origin.

Key Highlights:

• The company announced the appointment of Mr Vincent R Timpano for the post of President and CEO of the Lassonde Pappas and Company Inc.
• The company informed that it is introducing 100% recyclable packaging bendable paper straws across all 200-ml single-serve boxes of Kiju and Simple Drop Natural Spring Water products, which are available at major Canadian grocery retailers. This initiative marks a first-to-market in and provides consumers with 100% recyclable packaging.

Q2FY20 Financial highlights: Lassonde Industries Inc. declared its second-quarter results, wherein the company posted sales of CAD 498.207 million, reflecting an increase of 18.7% on y-o-y basis. The increase was driven by sales of private label products, favourable foreign exchange impact, and a favourable change in the sales mix of national brands. This was partially offset by a decrease in the sales volume of national brands and lower slotting fees. Cost of sales stood at CAD 352.707 million as compared to CAD 305.525 million in the previous corresponding period (pcp). The increase was driven by added costs from the newly-acquired Sun-Rype and due to an additional production cost related to the pandemic coupled with an unfavourable foreign exchange impact on the raw materials purchases, which was partially offset by a decrease in input costs, especially orange concentrate and the resin used to manufacture plastic bottles. Operating profit stood at CAD 42.658 million as compared to CAD 27.549 million in pcp, thanks to higher sales, partially offset by higher cost of sales and selling and administrative expenses. Net profit stood higher at CAD 27.518 million compared to CAD 16.193 million in pcp, supported by lower finance expenses.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company is exposed to a variety of risks, including the economic, industrial, competitive and regulatory environment, its ability to attract and retain customers, changing consumer preferences, the availability and cost of raw materials and transportation, etc.

Valuation Methodology: Price to Earnings Based (Illustrative)

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

Stock Recommendation: The stock appreciated ~23% in the last six months. For the twelve-month period ended June 27, 2020, the Company saw slight growth in industry sales volumes in the U.S. and Canadian fruit juice and drinks markets. Moreover, industry sales volumes have increased significantly over the twelve-week period ended June 27, 2020, in both Canada and the United States. Furthermore, the group observed improved profitability within the U.S. operations due to strong demand, coupled with a decrease in the cost of certain raw materials. Barring any significant external shocks, including the impacts of COVID-19’s evolution (and excluding foreign exchange impacts and the impact of the Sun-Rype acquisition to maintain a comparable basis), the Company expects that, for 2020, it will be able to achieve a consolidated annual sales growth rate above that of 2019 without a marked decrease in its current growth rate for the remainder of the fiscal year. We have valued the stock using Price to Earnings based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have considered Calavo Growers Inc, Rogers Sugar Inc and Simply Good Foods etc., as a peer group. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 149.75 on September 29, 2020.

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

Mainstreet Equity Corp

Mainstreet Equity Corp (TSX: MEQ) is a residential real estate company in Canada. It is focused on the acquisition, redevelopment, repositioning, and management of mid-market rental apartment buildings in Canadian markets.

Q3FY20 Financial Highlights: Mainstreet declared its third-quarter results, wherein Rental and ancillary revenue stood at CAD 37.470 million, as compared to CAD 34.693 million in the previous corresponding period (pcp). The increase was driven by improved rental income from British Columbia, Alberta and Saskatchewan segments. Net operating income stood at CAD 23.511 million, as compared to CAD 21.327 million in pcp. The quarter was marked by an improved operating margin of 63% against 61% in Q3FY19. The business witnessed an increased financing cost, higher general and administrative expenses and a higher depreciation expense. The group reported profit before income tax at CAD 8.240 million, significantly lower than CAD 14.600 million pcp, primarily attributable to a loss from change in fair value amounting to CAD 2.527 million against a gain of CAD 5.344 million in pcp. Net profit and total comprehensive income stood at CAD 10.873 million, depicting a fall of 4% on y-o-y basis. Average vacancy rate during the quarter stood at 8% versus 6.4% in Q3FY19.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: Due to the challenging economic environment, the group might face a delay in rent collection and higher vacancy rates may hinder the company’s overall performance.

Valuation Methodology: Price to Earnings Based (Illustrative)

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

Stock Recommendation: The stock of MEQ corrected ~9% so far this year. The company recorded an increase in the rental income from its prime locations such as British Columbia and Alberta, which is key positive for the company. The management believes that the lower costs for acquisitions and debt will drive several opportunities for organic growth, which would expand its portfolio. The group is planning to accelerate its counter-cyclical growth strategy and expect the real estate market to provide favourable buying conditions. Furthermore, record-low interest rates, which resulted in a lower cost of capital, are likely to support the company’s overall liquidity and flexibility of capital. The company is likely to renew its debt at a lower interest rate, which would improve the overall margin. The management believes that the mid-market rental industry is likely to remain an essential and safe asset class, underpinned by long-term market fundamentals, such as rising populations and relatively low supply of new rental units while the company do not expect any structural changes within the industry. The stock recovered from its recent low and was up by ~60% in the last six months. We have valued the stock using Price to Earnings-based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have peers like Killam Apartment REIT, Boardwalk Real Estate Investment etc. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 71.89 on September 29, 2020.

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

Manulife Financial Corporation

Manulife Financial Corporation (TSX: MFC) is a leading international financial services group that offers financial advice, insurance, and wealth and asset management solutions to individuals, groups and institutions. With its global headquarter in Toronto, Canada, the group operate as Manulife across Canada, Asia, and Europe, and as John Hancock in the United States.

Recently, the company announced the appointment of Frances G. Rathke as an Independent Trustee of the John Hancock Group of Funds Board of Trustees.

Q2FY20 Financial Highlights: Manulife announced its second-quarter results, wherein the company posted revenue of CAD 27,486 million, significantly higher from CAD 22,220 million in the previous corresponding period (pcp). The growth was aided by a significant increase in net investment income. Income before income taxes stood lower at CAD 832 million as compared to CAD 1,756 million in pcp. The group reported higher total contract benefits and expenses, due to an increase in net benefits and claims. The increment in the net benefits and claims was due to an increase in insurance contract liabilities. Net income stood at CAD 839 million as compared to CAD 1,516 million in pcp due to the narrowing corporate spreads and the steepening of the yield curve in the US, partially offset by gains from the sale of available-for-sale bonds coupled with gains from the direct impact of equity markets and variable annuity.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risk: The company is exposed to the Equity Market and Interest Rate risks, and hence a slide in the capital market might take a toll on performance. However, the company’s interest rate and equity market sensitivities have decreased significantly since 2009 with the implementation of robust hedging program. Further, COVID-19 pandemic continues to disrupt economies and capital markets worldwide, the second wave of the outbreak could have significant weigh on the group's performance.

Valuation Methodology: Price to Book Based (Illustrative)

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

Stock Recommendation: The stock of MFC corrected ~29% so far this year amid volatility in the equity markets. The company recorded an increase in core earnings during the current quarter which was driven by favorable policyholder experience coupled with the impact of markets on seed money investments in segregated funds and mutual funds, and the impact of in-force business growth in Asia. Furthermore, the company has expanded its partnership with Akira Health in order to provide a broader range of online medical services to its insurance clients to better support their health and wellness. With the launch of JH eApp, a digital new business platform, the company have simplified its life insurance purchase which would accelerate the business in the coming quarters. The group’s balance sheet remained strong as the group reported a LICAT ratio of 155%. At the end of the quarter, the company reported a higher Asset Under Management (AUM) of CAD 696.9 billion compared to CAD 653.1 billion in the previous corresponding period. Further, at the last traded price, the stock was offering a dividend yield of ~6%, which is lucrative considering the current interest rate environment. We have valued the stock using P/BV based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered industry (Insurance) median on NTM basis. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 18.64 on September 29, 2020.

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

Spin Master Corp.

Spin Master Corp. (TSX: TOY) is Canada's leading children's entertainment company. The company has a strong portfolio of traditional and digital toys, games, products and entertainment properties. The company has well-recognized brands like PAW Patrol, Bakugan, Kinetic Sand, Air Hogs, Hatchimals and GUND, and is the toy licensee for other popular properties.

News Updates:

• The company informed the launch of Mighty Express toys, a CG animated preschool series that rolls onto Netflix globally. The release of the series builds on Spin Master's legacy of creating powerhouse franchises marking the company's 11^th series overall.
• Earlier, the company reported its agreement with Riot Games' League of Legends, the most-played PC game in the world. The company would develop products including action figures, playsets and role-play items, with an anticipated on-shelf date in the Fall of 2021.

Q2FY20 Financial Highlights: Spin Master declared its quarterly results, wherein total revenue stood at USD 281.1 million, lower than USD 321 million in the previous corresponding period (pcp). The decrease resulted on account of the closure of several retail stores during the period, which resulted in a sluggish demand across the market it operates. However, the company witnessed stable order inflow from online and e-commerce channels, which supported the top-line. Gross profit stood at USD 118.2 million, significantly lower than USD 164.3 million in Q2FY19, primarily attributable to a lower income coupled with a higher cost of sales. The quarter was marked by higher finance expense and higher depreciation expense, while there was a decline in selling, marketing, distribution and product development expense. The company reported a net loss of USD 14.9 million, against a net income of USD 10.2 million in the previous corresponding quarter. The group ended the quarter with a cash balance of USD 410.8 million, while total assets stood at USD 1,375.6 million.

Q2FY20 Income Statement highlights (Source: Company Reports)

Risks: A further outbreak of COVID-19 may pose various risks to the group, such as lower demand, supply chain disruption, and labor shortage etc. All of these might impact the financial performance of the company.

Valuation Methodology: EV to Sales Based (Illustrative)

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

Stock Recommendation: As the Global equities made a ‘V’ shaped recovery; the stock of TOY made a handsome gain in the last six-months and appreciated ~115%. Recently, the company launched Mighty Express toys series, which marks Spin Master Entertainment's first series launching straight to a streaming platform and is part of the company's commitment to a multiplatform content strategy. The company is a leading global children's entertainment company and has product presence across the globe. The company has a 36-month brand innovation pipeline, which is focused on internal innovation and multiple touchpoints with inventors, licensors, consumers and potential acquisitions and is likely to improve the company's business prospects in the coming days. Furthermore, the company continues to enhance its footprints across the traditional television, video-on-demand, subscription video-on-demand, as well as other short-form and long-form content, including movies, across a variety of distribution channels. We expect the growth within the e-commerce segment is likely to support company’s overall performance. We believe, the company caters to a niche segment and an overall demand recovery is on the cards, aided by the economic revival. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered industry (leisure products) on NTM basis. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 28.14 on September 29, 2020.

TOY 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.