Russel Metals Inc

Russel Metals Inc (TSX: RUS) is a Canada-based metal distribution company which conducts business primarily through three metals distribution segments and has operations across North America. The metal service centers cater to a wide customer base and provide processing and distribution services.

The management has announced a quarterly dividend of CAD 0.38 per common share, payable on August 27, 2020.

Q2FY20 Financial Highlights: RUS announced is second quarter results, wherein the Company posted revenue of CAD 588 million as compared to CAD 937 million in the previous corresponding period (pcp). The decline was majorly attributable to a ~30% decline in metals service centers income at CAD 373 million, while energy products segment reported a decline of ~50% in revenue from the previous corresponding period. Furthermore, a 36% y-o-y decline from steel distributors segment also contributed to the group’s overall income decline. EBITDA stood at CAD 32 million, significantly lower than CAD 65 million in pcp due to ~14% lower average selling price compared to Q2FY19. Net income plunged to CAD 5 million, as compared to CAD 31 million in pcp.

Q2FY20 Financial Highlights (Source: Company Reports)

Risks: The Company’s performance is linked to the prices of commodities such as steel, oil and gas etc. Any volatility in commodity prices or jolt in commodity demand would impact the group’s 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 corrected ~13 % so far this year. The Company’s operations were severely disrupted by lower shipment within the metal services centers and lower rig count within the energy segment across the US. The Company recorded a significant reduction in the cash flow, net profit and EBITDA, which is a drag. The Company announced a stable dividend in the recent past, which shows the company’s financial flexibility. We believe that the operating environment is likely to remain challenging in the near term and demand to remain subdued for the group’s offerings. Thus, looking at the current scenario, we do not expect a drastic change in the operation, and thus we prefer to remain on the sidelines. We have valued the stock using Price to Earnings -based relative valuation method and have arrived at a target downside of double-digit (in percentage terms). For the said purposes, we have considered peers like WSP Global Inc, SNC-Lavalin Group Incetc. Hence, we recommend a ‘Watch’ stance on the stock at the closing market price of CAD 19.36 on August 24, 2020.

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

Blackrock Gold Corp

Blackrock Gold Corp (TSXV: BRC) is a mining company engaged in acquisition, exploration, and development of mineral properties located in Canada and the United States. The Company owns 100% of the Moore Property located in the Kamloops Mining Division of British Columbia.

Recent Highlights:

• The Company announced that the Company's stock is approved by OTC Markets Group Inc. for trading on the OTCQB Venture Markets as of August 6, 2020 under the code OTCQB: BKRRF. The Company's common shares will continue to trade on the TSX Venture Exchange under the symbol "BRC"

• The Company confirmed the completion of its non-brokered private placement of CAD 5.0 million to Eric Sprott. The group issued a total of 10,416,667 units at a price consideration of CAD 0.72 per share for gross proceeds of ~CAD 7.5 million.

• During the month of July, the Company reported Drillhole TW20-001 intersected a new vein yielding 3 metres grading 2,198 g/t silver equivalent (silver:gold ratio 100:1) using a 400 g/t silver equivalent cut-off grade. Further, the Company reported that Drillhole of TW20-001 also extended the Victor Vein 30 meters down plunge with the intersection of 965 g/t silver equivalent over 29 meters.

Q2FY20 Financial Highlights: Blackrock Gold Corp announced its second quarter results, wherein the Company posted a net loss widened to CAD 531.811 thousand as compared to CAD 147.164 thousand in the previous corresponding quarter. The Company is yet to report its income as it is engaged in mineral exploration and development. The Company reported inclusion of share-based compensation amounting CAD 186.615 thousand during the quarter. The Company witnessed an increase in several operating expenses like travel, wages, legal fees, management fees, insurance, consulting fees etc. At the end of the quarter, cash and cash equivalent shrank to CAD 108.328 thousand, as compared to CAD 878.066 thousand in FY19 while total assets were reported at CAD 3.22 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The mineral exploration and development business is exposed to a number of risks and uncertainties, and the industry is inclined towards capital investments and is subject to fluctuations in metal prices, market sentiment, foreign exchange and interest rates.

Stock Recommendation: The stock of BRC soared ~534% and ~689% in the last three months and six months, respectively as the Company’s shares were listed to the OTC stock exchange and positive developments in the drilling activities during the month of July 2020 . The group anticipates of increased expenditures in future years as its exploration projects are likely to continue in the coming years. However, funding of these projects poses a challenge as the group is relying on external borrowings and equity issuance and cash balance declined from the last financial years, which is not a good sign. Further, there is no surety that the Company can raise capital to meet its obligations, fund operations, or advance its mineral projects.  The group is yet to generate the revenue, and there is no certainty by when the group would report the revenue from the operations. Further, the Company reported a higher shareholder deficit of CAD 6.69 million, compared to CAD 5.72 million in FY19. Despite a recent development in the drilling activities, we remain skeptical due to the lack of proper revenue driver and shrinking cash balance. Considering the aforesaid facts, current price movements, we prefer to remain on the sideline and recommend a ‘Watch’ stance to the stock at the closing market price of CAD 1.46 on August 24, 2020.

BRC 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.