Restaurant Brands International Inc. (TSX: QSR) is one of the world’s largest quick service restaurant companies with approximately USD 34 billion in annual system-wide sales and 27,000 restaurants in more than 100 countries and U.S. territories. RBI owns three of the world’s most prominent and iconic quick service restaurant brands – TIM HORTONS, BURGER KING, and POPEYES. 

Key highlights

• Acquiring Firehouse Subs: The company recently announced that it had struck an agreement to buy Firehouse Subs for USD 1.0 billion in an all-cash deal. The brand is a strong and growing competitor in the USD 30 billion US QSR sandwich sector, having tripled its number of outlets to 1,200 since 2010 and quadrupled its system-wide revenues to a projected USD 1.1 billion in 2021. This momentum is expected to continue into 2021. Firehouse Subs is estimated to generate approximately USD 50 million in adjusted EBITDA in 2021, which would instantly boost RBI's diluted net earnings per share.
• Revival in demand: The company reported a robust resurgence in demand in Q3FY21, backed by 10.8% year-over-year rise in System-wide Sales Growth. Tim Hortons and Burger King, the company's main brands, saw y-o-y growth of 11.1% and 12.3%, respectively. During the third quarter, the firm claimed that 97% of its restaurants were open around the world, up from 94% in Q3FY20. Furthermore, due to shifting consumer tastes, the company achieved growth in its digital sales division.
  

• Improved financial metrics on a year-to-date basis: The company's top-line and profitability have grown steadily year-to-date, indicating a demand rebound, which is a critical positive. Revenue and adjusted EBITDA were USD 4,193 million and USD 1,664 million, respectively, in 9MFY21, representing y-o-y increase of 16.15% and 22.08%. In addition, the company generated USD 1,185 million in free cash flow in 9MFY21, compared to USD 537 million in 9MFY20.

Financial overview of Q3 2021 (In millions of USD)

Source: Company filing

• In Q3 2021, the company reported total revenues of USD 1,495 million, jumped from USD 1,337 million in the previous corresponding period (pcp). The surge was driven by higher income from system-wide sales in all the brands, supported by the addition of innovative items to its portfolio, coupled with the rapid adoption of the digital channels.
• Total operating costs and expenses came at USD 962 million, stood higher from USD 920 million in the previous corresponding period (pcp). The quarter witnessed a higher cost of sales, coupled with a surge in general & administrative expense & advertising expense.
• Income from operations stood at USD 533 million, compared to USD 417 million in pcp, supported by higher revenue, partially offset by an increase in total operating costs and expenses.
• The company reported its net income at USD 329 million, significantly higher than USD 223 million in pcp.

Risks associated with investment

Further imposition of restrictions would likely impact the company’s sales volume and would dampen the overall performance. Moreover, the company added new stores in the recent past, and a slowdown in operations would hinder the company’s return ratios. 

Valuation Methodology (Illustrative): EV to EBITDA 

Stock recommendation 

The value of having a varied business model across three brands and in over 100 countries is reflected in the financial performance of Q3 2021. Overall, the company's system-wide sales growth accelerated compared to the previous year, owing to gains in the Tim Hortons Canada business as well as strength in each of the brand's overseas operations. Recently the group announced about acquiring Firehouse Subs, which is expected to generate roughly USD 50 million in Adjusted EBITDA in 2021, this would immediately enhance RBI's diluted net earnings per share, which is a critical positive. In addition, the company has industry-leading operating margins and a substantial dividend yield, which is a big plus. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating on the stock at the current market price of CAD 74.84 at 9:56 am Toronto time as on December 14, 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

1Year Price Chart (as on December 14, 2021). Source: REFINITIV, Analysis by Kalkine Group

Dundee Precious Metals Inc.

Dundee Precious Metals Inc. (TSX: DPM) is an international gold mining company and is engaged in the acquisition, exploration, development, mining, and processing of precious metals. The group operates through three reportable operating segments Chelopech and Ada Tepe in Bulgaria and Tsumeb in Namibia.

Key Updates:

• Industry beating margin profile: At the end of Q3FY21, the company reported EBITDA margin and operating margin of 53.5% and 38.5%, respectively, as compared to the industry median of 38.8% and 27%, respectively. Additionally, net margin stood significantly higher at 31.1% during the period, as compared to the industry median of 12.9%.

• Technical showing a revival: On a daily price chart, the DPM stock closed near the lower range of its 20-days Bollinger band, indicating a possible price recovery in the coming trading sessions. Moreover, the RSI of the stock is at 14.25, respecting an oversold zone and a price up move from the current levels.

Technical Price Chart (as on December 14, 2021). Source: REFINITIV, Analysis by Kalkine Group

• Constant growth in cash and short-term investment: The company has consistently increased its liquid assets, which is expected improved the overall liquidity. At the end of Q3FY21, the company posted its cash and short-term investments of USD 269 million, which is the highest in the last five quarters.

Source: Company Report

Q3FY21 Financial Highlights:

• DPM announced its quarterly results, wherein the company posted revenue of USD 162.244 million, climbed from USD 155.993 million in the previous corresponding period (pcp). The growth was primarily due to a higher average realized copper price of 3.72 /pound v/s 2.88/pound in pcp, which resulted to a higher copper revenue of USD 28.859 million v/s USD 21.739 million in pcp.
• Earnings before income taxes stood at USD 58.935 million, surged from USD 60.991 million in Q3FY20. The quarter witnessed higher cost of sales, increase in general & administrative expenses, partially offset by lower exploration & evaluation expenses and lower finance cost.
• Net earnings from continuing operations stood at USD 50.421 million, declined from USD 55.142 million in the previous corresponding period (pcp).

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: Volatility in international commodity prices would likely hinder the realization and would subsequently dampen the overall performance of the group. 

Valuation Methodology (Illustrative): Price to Cash Flow based

Stock Recommendation:

For FY21, the company expects its gold production of n 271,000 and 317,000 ounces, while copper production is expected at ~35 million pounds per year. We have valued the stock using P/CF based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like MAG Silver Corp, B2Gold Corp etc. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 7.06 at 9:45 am Toronto time on December 14, 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 December 14, 2021). Analysis by Kalkine Group

Altius Minerals Corp

Altius Minerals Corp (TSX: ALS) is engaged in the business of obtaining diversified mining royalty. It holds interests in mining operations that produce metals and minerals such as copper, zinc, nickel, cobalt, gold, silver, and potash. The corporation also holds other pre-development stage royalty interests and various earlier stage royalties.

Key highlights 

• Robust Q3 2021 performance: The company reported decent performance in the Q3 2021, with revenue surged by 28.4% to CAD 20.8 million, against CAD 16.2 million in Q3 2020, same sort of elevation was also seen EBITDA which grew by 36.3% to USD 16.9 million respectively, while the net income rose hugely to CAD 9.7 million compared to loss of CAD 39.7 million in the previous corresponding period. The healthy performance was driven by improved commodity prices and higher LIORC dividends.

                 Source: Company Filing

• Increase in Adjusted operating cash flow: In Q3 2021, the company clocked higher adjusted operating cash flow of CAD 18.9 million against CAD 7.3 million in Q3 2020. Robust performance of the company along healthy appraisal in average realization of commodities prices along higher royalty revenues.

• 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 Q3 2021, which exhibits the competitive advantage of the company within the industry. The chart below gives a glimpse of this. 

Source: REFINITIV, Analysis by Kalkine Group 

 Financial overview of Q3 2021

Source: Company 

• In Q3 2021, the company posted higher revenue at CAD 20.3 million against CAD 15.2 million in pcp, primarily due to improved commodity prices and higher LIORC dividends.
• Earnings before income tax in the period stood at CAD 10.7 million against a loss of CAD 38.3 million in Q3 2020.
• The company made a turnaround in its net income and posted higher net income at CAD 9.7 million compared to a loss of CAD 39.7 million in pcp.
  

Risks associated with investment 

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

Valuation Methodology (Illustrative): EV to EBITDA based

Stock recommendation

Most of the commodity prices that are relevant to Altius have been strengthening over the past year and in certain cases are at or near multiyear highs. These price increases have resulted in higher year over year royalty revenues. In Q3 2021, the company manage to post decent growth in its financial numbers, where its royalty revenue increased by 28% to CAD 20.8 million compared to pcp. It also made a turnaround in its bottom line from net loss to net profit of CAD 9.7 million in a key positive.

In addition, the management’s solid determination helped them leap the industry median margins on many fronts in Q3 2021, which exhibits the competitive advantage of the company within the industry. Moreover, as on September 30, 2021, the group increased its Cash and cash equivalents at CAD 100.1 million, compared to CAD21.8 million at the end of 2020. We believe this cash balance along a credit facility of CAD 225 million will help the company to carry its operations without any interruption.

Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the current market price of CAD 16.35 at 9:53 am Toronto time as on December 14, 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 Price Chart (as on December 14, 2021). Source: REFINITIV, Analysis by Kalkine Group

Nomad Royalty Company Ltd.            

Nomad Royalty Company Ltd. (TSX: NSR) is a royalty mining company, that mines silver, gold, and other base metals. The portfolio includes Woodlawn property, Blyvoor property, Gualcamayo property, Suruca property, and other properties.

Key Updates:

• Recent acquisition to create long-term value: On December 08, 2021, NSR acquired 75 million Gold Stream on Ivanhoe Mines' Platreef PGM Project from Ivanplats (Pty) Ltd. The above would be co-invested by Orion Mine Finance. The above mine has an estimated reserve life of ~30 years and is expected to add value to NSR. Notably, the management has targeted its first production in 2024 from the Phase 1 of development at Platreef.

• Improved profit margins on a sequential basis: The company reported prudent capital management and posted higher gross margin and EBITDA margin of 34.1% and 56%, respectively, in Q3FY21, as compared to 27.2% and 48.4%, respectively, in Q2FY21. Moreover, the group reported a net margin of 15.2% in Q3FY21, as compared to 5.7% in Q2FY21. The above is an indication of strong operational efficiencies.
  

• Ample liquidity: The company reported a revolving credit facility of USD 125 million, which has been increased from USD 50 million, and has access to undrawn borrowings of USD 75 million under its Facility. Apart from this, the company has a cash balance of USD 24.6 million. The above is sufficient to finance its working capital and CAPEX requirements.

Q3FY21 Financial Highlights:

• NSR announced its quarterly result, wherein the company posted total revenue of USD 6.125 million, as compared to USD 7.568 million in the previous corresponding period (pcp). The decline is primarily due to lower realized gold and silver prices and the a decline in the deliveries of gold ounces from the Bonikro Gold Stream.

• The quarter was marked by a lower cost of sales (USD 4.036 million v/s USD 5.715 million in pcp), while general and administrative expenses stood higher during the period (USD 1.384 million v/s USD 0.343 million in pcp), due to costs related to the listing and trading of common shares on the NYSE and increase in the Company's activities. Operating income slide to USD 0. 411 million, from USD 2.082 million in pcp.

• Net income jumped to USD 0.929 million, from USD 0.526 million in pcp, supported by an income tax recovery, as compared to an income tax expense, coupled with a gain from change in fair value of conversion option amounting USD 1.459 million v/s a loss of USD 3.075 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: The company’s operations are directly correlated with the international gold prices, and price volatility is likely to lower the company’s realization price, impacting the overall performance. 

Valuation Methodology (Illustrative): Price to Cash flow based

Stock Recommendation:

During 9MFY21, the company reported total Gold equivalent sales of 13,141 ounces, higher than 11,283 ounces in pcp. Continuation of the above trend is likely to support the upcoming performance of the group. We have valued the stock by using the price to CF based relative valuation approach and arrived at a target price offering lower double-digit upside potential (in % terms). We have considered peers like Maverix Metals Inc, Sandstorm Gold Ltd etc. Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of NSR at the current market price of CAD 9.13 at 10:05am Toronto time on December 14, 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 December 14, 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.