Polaris Infrastructure Inc.

Polaris Infrastructure Inc. (TSX: PIF) is a Toronto-based company engaged in the acquisition, development and operation of renewable energy projects in Latin America.

Q1FY20 Financial Highlights: Polaris impresses with its first- quarter numbers and reported decent growth in its top-line and bottom-line. The Company reported revenue of USD 20.27 million, higher than USD 18.60 million in the previous corresponding quarter. During the first quarter, the Group reported its power production to 182,408 MWh (net) from 147,602 MWh (net) in Q1FY19, driven by additional production from the Generación Andina facilities coupled with a higher production form Canchayllo’s, partly offset by a lower production at the San Jacinto facility. Operating income improved to USD 10.69 million, against USD 9.76 million in pcp, thanks to higher revenue and lower general and administrative expenses, while higher direct costs and depreciation & amortization remained as a drag. Total earnings and comprehensive earnings stood at USD 4.39 million, as compared to USD 3.38 million in pc. The Company exited the quarter with a cash balance of USD 32.81 million and total assets of USD 457.83 million. The Company did not witness any material impact on the business due to the on-going logistic disruption as a result of COVID 19 restrictions.

Q1FY20 Income Statement Highlights (Source: Company Reports) 

Stock Recommendation: The groups offering are categorized as ‘essential products.’ The stock appreciated ~13% in the last six months, amidst a major correction in the broader market. Notably, the stock is trading above its 200 Days simple moving average (SMA) of CAD 12.99, indicating a long-term bullish pattern. The Company provides renewable power services across Latin American nations like Peru and Nicaragua, and geography is characterized by higher power requirements. Thus, to support the existing power requirements, the Government provides several supports to the domestic renewable energy producers. Further, the stock has an annualized dividend yield of ~6.3%, which is attractive, looking at the current interest rate scenario. The stock rose ~14% in the last one month and outperformed the benchmark index by 10%. The stock is currently trading at a forward Price to Cashflow multiple of 3.3x against the Industry (Electric Utilities & IIPs) average of 8.1x. Hence, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of CAD 13.36 on May 28, 2020.

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

Enerflex Ltd.

Enerflex Ltd. (TSX: EFX) engineers, designs, manufactures and provides aftermarket support for equipment, systems and turnkey facilities used to process and move natural gas from the wellhead to the pipeline. 

Enerflex declared a quarterly dividend of CAD 0.02 per common share, payable on July 2, 2020.

Q1FY20 Financial Highlights: For the period ended March 31, 2020 EFX reported a slump in its top line at CAD 365.74 million, as compared to CAD 484.90 million in pcp. Gross margin improved and stood at CAD 93.73 million against CAD 88.77 million, amidst a lower revenue due to a drastic decline in cost of goods sold. The quarter was marked by a significantly lower selling and administrative expenses which resulted in an improved operating income of CAD 50.22 million as compared to CAD 32.94 million in Q1FY19. Net earnings stood at CAD 37.44 million, considerably higher than CAD 16.96 million in the previous corresponding period, thanks to a higher operating income, while equity loss and increased net finance costs remained as a drag. Cash and cash equivalent and total assets were recorded at CAD 71.67 million and CAD 2,484.80 million, respectively.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock of EFX was hammered in the recent past and made a stiff correction of ~69% in the last one year due to falling crude oil prices and lower demand for engineered products by the oil companies. During the quarter, the group reported higher bookings of CAD 155.39 million, against CAD 118.39 million in pcp, which is impressive. However, due to the ongoing COVID 19 pandemic, the company expects a near-term jolt in its total bookings. The company witnessed a steady demand from global after-market services and contract compression in key basins in the USA. The company eyeing opportunities in Latin America as many countries have indicated a renewed desire to develop oil and natural gas in recent periods. Capital equipment demand in the Australian market is expected to slow down over the next quarter. The company expects that recent global developments will further constrain spending in the Canadian energy sector, exacerbating conditions faced by an industry that was already experiencing negative sentiment and the lack of consistent access to market. The stock is trading near the lower band of its 52-weeks trading range of CAD 17.24 and CAD 4.18 and above its 20-days and 50-days simple moving average (SMA) of CAD 5.32 and CAD 5.37, respectively. The stock is currently trading at a forward price to cash flow multiple of 3.8x against the industry median (Oil & Gas Related Equipment and Services) of 3.9x. Based on the aforementioned facts, we recommend a ‘Watch’ stance on the stock at the current market price of CAD 5.49 on May 28, 2020.  

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

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