Osisko Gold Royalties Ltd

Osisko Gold Royalties Ltd (TSX: OR) is an intermediate precious metal royalty company which holds a North American based portfolio of more than 135 royalties, streams and precious metal offtakes.

The Board of Directors declared a quarterly dividend of CAD 0.05 per share, payable on July 15, 2020. Due to the ongoing disruption, the Group has cancelled its FY20 production guidance until further notice.

Q1FY20 Financial Highlights: OR declared its quarterly results, wherein the Company reported revenues of CAD 52.60 million, as compared to CAD 100.72 million in the previous corresponding period. The significant decline in the revenue was majorly attributable to the sale of the Brucejack gold offtake in November 2019. Revenues from royalties and streams increased by $4.3 million in the first quarter of 2020 compared to the first quarter of 2019 as a result of higher gold and silver prices. Gross profit improved to CAD 21.62 million, as compared to CAD 18.24 million in pcp, due to significantly lower cost of sales and depletion expense. Operating loss shrink to CAD 12.142 million, from CAD 28.32 million in Q1FY19, thanks to a higher gross profit, lower business development expenses and lower costs related to the impairment of assets, partially offset by higher general and administrative expense. The Group reported a significantly lower net loss of CAD 13.32 million, against CAD 26.55 million in the previous corresponding period. The Company exited the quarter with cash balance of CAD 158.32 million and total assets of CAD 2,016.19 million.

Q1FY20 Financial Highlights (Source: Company Reports)

Valuation Methodology (Illustrative): EV/Sales based Approach

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: Due to the elevated gold prices, the stock performance remained resilient in the recent past, and the stock has generated ~24% return in the last three months. Despite a tepid macro environment, the company has reported a higher royalty income of CAD 25.80 million, against CAD 23.44 million in pcp. The company has ample liquidity with CAD 158.32 million as cash balance and CAD 400 million available under the credit facility, which seems sufficient enough to surpass the current economic cycle. The revenue of the company depends upon the demand of precious metals like gold, silver etc. The uncertainty surrounding the economy and disruption in the equity market is likely to push gold prices higher, which would further benefit the company’s cash flow in the coming quarters. We have valued the stock using EV/Sales based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have considered peers like Alamos Gold Inc, Wesdome Gold Mines Ltd and Royal Gold Inc etc. Hence, we recommend a “Buy” rating at the closing price of CAD 13.66 on May 29, 2020.

OR One-Year Daily Price Chart (Source: Thomson Reuters)

West Fraser Timber Co. Ltd.

West Fraser Timber Co. Ltd. is a diversified wood products company producing lumber, LVL, MDF, plywood, pulp, newsprint, wood chips, other residuals, and energy with facilities in western Canada and the southern United States.

The ongoing COVID-19 related restrictions have affected the supply chain and market demand. The Company is running its production facility at a lower capacity and has withdrawn its FY20 guidance.

Q1FY20 Financial Highlights: For the quarter ended March 31, 2020, WFT reported revenue of CAD 1,195 million lower than CAD 1,241 million in pcp.  The decline was primarily attributable to lower plywood, and LVL shipment volumes, partly offset by higher plywood pricing. The lower shipment was primarily due to rail line blockades in Canada, followed by lower demand. Operating earnings were higher at CAD 13 million, as compared to CAD 10 million in Q1FY19, thanks to a lower cost of products sold, marginally lower freight and other distribution costs and lower selling, general and administrative expense.Net earnings of the Company stood higher at CAD 12 million, as compared to a loss of CAD 5 million in Q1FY19. The Company exited the quarter with cash and short-term investments of CAD 94 million, while total assets were reported at CAD 5,165 million.

Q1FY20 income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock of WFT corrected ~35% and ~30% in the last six months and one year, respectively. The company is struggling with higher inventory levels and a slump in demand from major segments. The company derives its major income from lumber sales in the U.S., and the products are used in new residential construction, repair and remodelling, and industrial uses. The homebuilding sector witnessed a sluggish demand due to higher unemployment and lower consumer spending. The company expects a stable pulp demand aided by a surge in tissue paper demand across the Globe while expects a lower demand from printing and writing segment.  The group expects a lower production in the coming months owing to the lower demand. The group is operating below its capacity in SPF, SYP and plywood. The group also announced four weeks of downtime Cariboo Pulp joint operation. The stock is currently trading at a forward EV/EBITDA multiple of 0.8x against the industry (Paper and Forest Product) median of 0.7x. Hence, we recommend a ‘Watch’ stance on the stock at the closing market price of CAD 37.26 on May 29, 2020.

WFT One-Year Daily Price Chart (Source: 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.