Maverix Metals Inc.

Maverix Metals Inc. (TSX: MMX) is a precious metals royalty and streaming company, which offers a mining-related investment that provides exposure to metal price appreciation and exploration and expansion potential.

Key Updates:

• Increased 2021 Outlook: With a fresh prediction of about 31,000 attributable GEOs for 2021, the firm intends to exceed the top end of its previously announced expectation of 27,000 to 30,000 attributable GEOs. This will be the Company's fifth straight year of record attributable GEOs, which is a big benefit.

• Increase in cash from operations: In 9MFY21, the company reported net cash from operations of USD 31.570 million, as compared to USD 25.254 million in pcp, supported by higher net income. The above is expected to support the company’s overall liquidity.

• Strong Profitability Margins: In Q3FY21, the company posted higher margins than the industry median, which indicates strong operational efficiencies and is a key positive. Gross margin and EBITDA margin in Q3FY21 stood at 53.2% and 61%, respectively, compared to the industry median of 50.4% and 41%. Notably, operating margin and net margin were higher at 36.5% and 20.7%, respectively, during the period, as compared to the industry median of 27% and 12.9%.

• Regular dividend distribution: Despite the ongoing economic turbulence on account of higher input costs and covid pandemic the company is regularly distributing the dividend, which is encouraging. Recently the company declared a cash dividend of USD 0.0125 per common share, to be paid on December 15, 2021.
  

Q3FY21 Financial Highlights:

• MMX announces its quarterly result, wherein the company posted total revenue of USD 13.658 million, slide from USD 14.851 million in pcp. The above was primarily due to a decline in both royalty income and sales.
• The company reported a gross profit of USD 7.269 million, stood lower than USD 8.719 million in pcp. The decline was due to lower top line, coupled with higher cost of sales at USD 6.389 million, v/s USD 6.132 million in pcp.
• Income from operations dipped to USD 4.981 million, from USD 7.025 million in pcp. Notably, in Q3FY21, the company reported higher administration expenses and project evaluation expenses.
• Net income stood at USD 2.829 million, as compared to USD 14.437 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: Correction in international commodity prices would lead to margin erosion, degrowth in profitability etc. Moreover, the company believes a temporary suspension of mining activities might lead to lower production. 

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company had another active quarter, highlighted by the purchase of a gold stream from Auramet, which raised cash flow and attributable GEOs almost immediately. It also raised the projection for 2021 to over 31,000 attributable GEOs, which would be yet another record year for Maverix. Furthermore, the company has prudent working capital management and industry-leading operating margins, demonstrating its competitive advantage. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Osisko Gold Royalties Ltd, Newmont Corporation and Wheaton Precious Metals Corp. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of MMX at the last closing market price of CAD 6.07 on November 24, 2021.

One-Year Technical Price Chart (as on November 24, 2021). Analysis by Kalkine Group

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

Linamar Corporation

Linamar Corporation (TSX: LNR) is a Canada-based manufacturing company that makes powertrains and drivelines for vehicle and power generation markets and operates under two business segments: Transportation and Industrial.

Key Highlights

• Witnessed modest sales growth: The Company experienced modest sales growth in Q3 2021 compared to the prior equivalent period. The mobility segment continues to face challenging conditions due to semiconductor supply concerns, resulting in a sales drop. However, industrial segment sales rose by 45% and normalized operating earnings increased 50% compared to Q3 2020.
• Healthy New business wins: The company hold a healthy profile of its new business win, which grew strong and built its launch book to over CAD 3.7 billion, with more than 22% of year-to-date new business wins was for electrified vehicles, where the company expects higher CPV, which is a key positive.
• Consistently Debt reduction: The company is continuously reducing its debt, which is a key positive considering the current sluggish economic conditions. To retain the liquidity levels, most companies have increased their borrowings, however, LNR has reduced its borrowings, which is an indication of prudent capital management. Notably, the net debt to EBITDA remained lowest in the last six quarters, which is impressive and indicates lower finance costs.

Source: Company

• Robust liquidity: The Company’s financial condition remains solid, given its strong balance sheet and has maintained sufficient liquidity to satisfy its financial obligations. Liquidity, measured as cash and cash equivalents and available credit as on September 30, 2021, stood at CAD 1.8 billion an increase from CAD 1.3 billion on September 30, 2020.
  

Financial overview of Q3 2021 (in thousands of Canadian dollars)

Source: Company

• During Q3 2021, the Company experienced modest sales growth at CAD 1,645.0 million, compared to CAD 1,637.4 million in the previous corresponding period.
• On the back of higher cost of sales, the company reported lower gross profit at CAD 235.5 million against CAD 273.5 million in pcp.
• The operating earnings for the period stood at CAD 156.2 million against CAD 176.1 million in the previous corresponding period.
• Primarily on the back of above discussed rationales the company’s net income fell to CAD 108.8 million compared to CAD 125.5 million in pcp.
  

Risks associated with investment

The significant risks which could directly impact the company’s cash flows and financial health are like major increases in shipping costs, Semi-Conductor chip shortages and spiking commodity prices. Other risks are also there such as fall in demand from automobile manufacturers, disruptions from the supply chain, technological change, etc. 

Stock recommendation

There are certainly challenges which the company is facing in markets today, but it is managing them and still expect to see double digit top and bottom-line growth this year, which is a key positive. Moreover, the group also sees significant opportunities out there for growth, and with continued strong market demand, it envisions a solid future as supply chain challenges ease in coming quarters. Furthermore, the company hold a strong balance sheet and is looking on electrified vehicles as a key growth opportunity, we believe this would enhance the company’s free cash flows. Therefore, based on the above rationales and valuation, we recommend a "Hold" rating at the closing price of CAD 77.68 as on November 24, 2021. We have considered Magna International Inc, Martinrea International Inc, Dana Inc, etc. as the comparison's peer group.

1-Year Technical Price Chart (as on November 24, 2021) Source: REFINITIV, Analysis by Kalkine Group

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

CCL Industries Inc

CCL Industries Inc (TSX: CCL.B) is involved in manufacture of labels, containers, consumer printable media products and inventory management and loss prevention solutions.

Key Highlights

• Industry leading margin profile: In the quarter just gone by, the company’s performance from the margin standpoint was better than the industry median. The company’s gross margin in Q3FY21 stood at 27.2% vs. industry median of 26.1%, EBITDA margin of 20.1% vs industry median of 15.6% and Net margin of 10.3% vs. industry median of 6.4% respectively.
  

Source: REFINITIV, Analysis by Kalkine Group

• Robust Balance Sheet: The company maintains a robust balance sheet, with Debt/Equity ratio of 0.51x as of September 30, 2021, vs industry median of 1.03x. Further, the company’s debt protection metrices are quite strong with Net Debt to EBIDTA ratio of 4.19x vs industry median 9.62x. This implies that the company relatively stronger balance sheet compared to its peers.

• Industry Leading Cash Cycle (days): The company able to convert its inventory into cash at bank significantly faster compared to its peers. With CCL.B cash cycle at the end of the September 2021 quarter stood at 16.9 days whereas industry median cash cycle stood at 47.6 days. This reflects strong competitive advantage the company is having over the competition.
  

Financial Highlights: Q3FY21

Source: Company report

• During the Q3FY21, the company’s reported sales increased by 8.4% to CAD 1,488.2 million compared to CAD 1,373.4 million for the third quarter of 2020, with organic growth of 10.3% and acquisition-related growth of 2.2%, partially offset by 4.1% negative impact from foreign currency translation.
• The company’s finance costs during the Q3FY21 reduced to CAD 13.5 million compared to CAD 15.4 million reported in the same period of the corresponding previous financial year.
• In the quarter under review, the company’s reported net earnings were CAD 153.3 million, flat on YoY basis.
• Basic and adjusted basic earnings per Class B share were CAD 0.85 for the 2021 third quarter, compared to basic and adjusted basic earnings per Class B share of CAD 0.86 and CAD 0.93, respectively, in the comparable period of previous financial year.
  

Risk Associated to Investment

The company is exposed to a variety of risks ranging from increased inflationary pressure, resurgence in the COVID-19 cases, lockdown announcement.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation

The company reported solid results in Q3FY21, significantly ahead of the same period in 2019, but as expected below the record 2020 third quarter. Margins declined on the YoY basis mainly because of heightened inflationary pressure. However, despite a margin contraction on a YoY basis, still the company’s performance was better than industry peer median performance, which reflects company’s competitive strength against the peers. Also, the company maintains a robust balance sheet, with Debt/Equity ratio significantly below the industry median and strong debt protection metrices. Hence, we recommend a “Hold” recommendation on CCL.B stock at the closing price of CAD 64.58 (as on November 24, 2021). We have considered Winpak Ltd, Sealed Air Corp etc. as the comparison's peer group.

1-Year Price Chart (as on November 24, 2021). Source: REFINITIV, 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.