Mogo Inc

Mogo Inc (TSX: MOGO) is a Canadian based financial technology company. It offers a finance application to consumers with solutions which help them to control their financial health. The Company offers solutions that help users to monitor their credit score, protect themselves from identity fraud, control their spending, and borrow responsibly. 

The group recently provided an update on its Q2FY20 numbers. The company is likely to report revenue in the range of CAD 10.3 million to CAD 10.5 million.  The Company expects Adjusted EBITDA to be in the range of CAD 4.5 million to CAD 5.0 million. The Company further expects Positive operating cash flow net of investing activities of CAD 6.5 million to CAD 7.0 million. The Company would disclose its second quarter FY20 results on August 11, 2020.

Q1FY20 Financial Highlights: MOGO declared its quarterly results, wherein the company reported revenue of CAD 13.9 million, declined from CAD 14.9 million in the previous corresponding period (pcp). The Liquid Sale during Q1 2020 and the discontinuation of bitcoin mining operations in Q3 2019 contributed to CAD 1.8 million of the decline in total revenue, partially offset by a CAD 0.8 million increase in non-MogoLiquid related interest revenue and subscription and services revenue. Core revenue was CAD 12.2 million for the three months ended March 31, 2020, a 7% increase compared to CAD 11.3 million in the same period last year. This increase was driven by a combination of increases to interest revenue from our line of credit (“Mini”) loan products, and higher subscription and services revenue. Gross profit stood at CAD 8.4 million, lower than CAD 10.7 million in Q1FY19. The decline was primarily attributable to lower revenue coupled with a higher cost of revenue. Total operating expenses stood lower at CAD 10.0 million as compared to CAD 10.8 million in pcp due to lower technology and development and marketing expense while higher customer service and operations expense remained a drag. Loss from operations increased to CAD 1.7 million as compared to CAD 0.2 million in Q1FY19. The Company reported a net loss and comprehensive loss at CAD 10.065 million against CAD 5.005 million in pcp.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company might face a default risk considering the current challenging environment. Further, the company has a significant amount of debt in its balance sheet, which might pose a challenge in the adverse time.

Stock Recommendation: The Stock of MOGO gained momentum in the recent past and appreciated ~83% and ~90% in the last one month and three months, respectively, outperforming the index by ~36% and ~23%, respectively. The company has guided for a significantly lower income for Q2FY20 as it has stopped its lending activities for a while. We believe this is a prudent measure considering the current challenging environment. However, this step is likely to put pressure on revenue but is likely to safeguard from potential default. The group mentioned that it had recorded ow default rates in April and May and June, which is a key positive. The company mentioned that it was focusing on creating a leaner, more efficient cost structure which would allow it to significantly increase the operating cash flow. These initiatives helped in driving a material and better-than-expected sequential improvement in net cash generated from operating and investing activities, as well as the highest-ever Adjusted EBITDA in the current quarter. Further, the company has signed a three-year agreement with goeasy ltd., which would enable Mogo to monetize its lending platform and drive new recurring fee-based revenue with no capital investment or credit risk, which is a key positive. On the valuation front, the stock is trading at a forward price to cash flow multiple of 3.8x, which is significantly lower than the industry (Professional and commercial services) median of 4.9x. However, the group has a significant amount of debt in its balance sheet, which is alarming. The group’s long-term debt to capital ratio stood at 107.4%, which is significantly high than the industry median of 28.2%. The higher debt component out the balance sheet at risk and might pose a challenge in the adverse time. Hence considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 2.46 on July 23, 2020.

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

Electrovaya Inc

Electrovaya Inc (TSC: EFL) designs, develops and manufactures proprietary lithium-ion batteries, battery systems, and battery-related products for energy storage, clean electric transportation and other specialized applications. The Company is headquartered in Ontario, Canada, and has production facilities across Canada along with customers present across the world. The Group operates through one reported segment, namely large format batteries.

Recently, the Company informed that it had received a purchase order of CAD 4 million for lithium-ion batteries for electric lift trucks from a leading US-based Company.

Q3FY20 Financial Highlights: EFL announced its quarterly results, wherein the Company reported an exuberant top-line growth followed by a lower net loss. Revenue, during the quarter, stood significantly higher at USD 4.799 million from USD 1.162 million recorded in Q3FY19. The increase was driven by strong momentum across the large format batteries, which stood at USD 3.840 million against USD 1.155 million in the previous corresponding period (pcp). Gross profit stood higher at USD 1.702 million as compared to CAD 0.412 million in pcp, thanks to the higher revenue, while an increase in the direct manufacturing costs remained a drag. Total expenses stood at USD 1.738 million as compared to USD 1.495 million in pcp due to a significant increase in research and development cost along with higher finance costs and an increase in general & administrative expense. The Company reported a lower loss from operations at USD 0.128 million as compared to USD 1.101 million in Q3FY19. The Company reported a net profit of USD 4.8 million compared to a loss of USD 1.27 million in pcp, driven by the gain on redemption debenture amounting to USD 5.156 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The Company reported strong revenue growth but failed to retain the momentum in the bottom-line, which is a key challenge. Furthermore, the company has a significant amount of debt in its balance sheet, which might pose a challenge in adverse time.

Stock Recommendation: The stock of EFL has delivered an excellent return to its investors and appreciated ~190% and ~177% in the last three month and six months, respectively. The company manufactures lithium-ion batteries and related products which are expected to use extensively for electric vehicles as the major countries are leaning towards lower pollution measures, which is a key positive. The company revised FY20 revenue guidance to CAD 17.5 million from earlier CAD 16 million. The company expects a positive EBITDA in Q4FY20, which is impressive. The stock was trading above the 200-days simple moving average of CAD 0.24, indicating a bullish trend. However, the company has a significant debt in its balance sheet. The company’s debt to capital ratio stood at 58.5%, which is significantly higher than the industry median of ~29%. On the valuation front, the stock is trading at an EV to Sales multiple of 8.7x, which is significantly higher than the industry (industrial median) of 1.4x. The prospect of the industry, in which the group operates are promising; however, higher debt in the balance sheet might pose a challenge going forward. The stock has made a decent run in the recent past, and we believe all the positives are factored in at the current trading levels. Hence, considering the aforementioned facts, we recommend a ‘Watch’ stance on the stock at the closing market price of CAD 0.61 on July 23, 2020.

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

Disclaimer

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