Just Energy

Just Energy (TSX: JE) is a retail energy provider specializing in electricity and natural gas commodities and bringing energy efficient solutions and sustainable energy options to customers. Currently operating in the United States and Canada, Just Energy serves both residential and commercial customers, providing homes and businesses with a broad range of energy solutions that deliver comfort, convenience and control.

Key Highlights

• The company’s financial performance has weakened in the second quarter of 2021 as compared to the second quarter of 2020. Base EBITDA contracted 33%, base gross margin lowered by 11% and embedded gross margin reduced by 20%.

Source: Company Filing

• Just Energy has relatively higher debt contribution in the balance sheet with a relatively lower coverage ratio at the end of the second quarter of 2020, which poses balance sheet risk for the company.
• Just Energy shares are hovering in a bearish zone, with price traded well below all the support levels of 5-day, 10-day, 20-day, 30-day, 50-day and 200-day SMAs. Also, the Moving Average Convergence Divergence (MACD) is falling and oscillating below its 9-day SMA signal line, with the difference between 12-day and 26-day EMA is negative, implies a steep bearish trend in the stock.

Technical Chart. Source: Refinitiv (Thomson Reuters)

Financial Highlights: Q2FY21

Source: Company Profile

• Sales for the second quarter of 2021 reduced by 15% to CAD 649.6 million primarily due to the decrease in the overall RCE customer base from the prior comparable quarter resulting, and a reduction in the Company’s customer base due to regulatory restrictions in Alberta, Ontario and California; selling constraints posed by COVID-19; as well as competitive pressures on pricing in the U.S.
• In the quarter, the company’s Base EBITDA slumped by 33% to CAD 32.8 million against the same quarter of the previous financial year, mainly because of a one-time CAD 6.0 million legal provision in the current quarter and lower base gross margin.
• Administrative expenses were CAD 44.0 million for the three months ended September 30, 2020, an increase of 6% from the prior comparable quarter.
• Bad debt expense was CAD 11.7 million for the three months ended September 30, 2020, a decrease of 61% from CAD 29.6 million recorded for the prior comparable quarter. The significant decrease in bad debt was a result of operating enhanced controls and operational processes associated with the Texas residential enrolment and collections impairment.
• Finance costs for the three months ended September 30, 2020 amounted to CAD 29.7 million, an increase of 5% from CAD 28.5 million due to higher supplier finance costs
• Base gross margin from gas customers in the Consumer segment was CAD 14.8 million for the three months ended September 30, 2020, an increase of 45% from $10.3 million recorded in the prior comparable quarter. The change was primarily a result of improved margin from supply management activities driving lower costs and favourable impact from resettlements relative to the prior year, partially offset by a decline in the RCE customer base
• Base gross margin from electricity customers in the Consumer segment was CAD 89.6 million for the three months ended September 30, 2020, a 15% decrease from CAD 105.7 million recorded in the prior comparable quarter primarily driven by a decline in the customer base in Texas and Ontario
• Base gross margin for the Commercial segment was CAD 33.8 million for the three months ended September 30, 2020, a decrease of 14% from CAD 39.4 million recorded in the prior comparable quarter.

Stock Recommendation: Given the group’s lackluster performance in the second quarter of 2020 and higher debt contribution in the balance sheet which poses balance sheet risk and strong bearish technical indicators with price traded well below the long-term and short-term support levels, we have given an “Avoid” recommendation at the closing price of CAD 6.43 on November 20, 2020.

Daily Technical Chart. Source: Refinitiv (Thomson Reuters)

Northern Dynasty Minerals Ltd

Northern Dynasty Minerals Ltd (TSX: NDM) is a Canadian mineral exploration company. It has a single operating segment of acquisition, exploration, and development of mineral properties. Its core asset is the Pebble Project located in Alaska, USA.

Key Highlights:

The company announced that it has submitted a Compensatory Mitigation Plan ("CMP") for the Pebble Project to the US Army Corps of Engineers and the company believes that CMP fully satisfies mitigation requirements for the proposed copper-gold-molybdenum-silver-rhenium mine in southwest Alaska.

Q3FY20 Financial Highlights:

• NDM announced its quarterly results, wherein the company posted a loss from operating activities at CAD 25.435 million, as compared to CAD 19.092 million in the previous corresponding period (pcp). Increase in loss was primarily due to a significantly higher share-based compensation (CAD 6.992 million versus CAD 2.149 million in Q3FY19) and an increase in general and administrative expenses (CAD 3.272 million versus CAD 2.723 million).
• Net loss was recorded at CAD 25.761 million, higher than CAD 19.118 million in pcp.
• At the end of the quarter, the group reported a restricted cash balance of CAD 0.828 million, while total assets were recorded at CAD 207.349 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risk: The Company is a developing its Pebble Project and the future earning capacity can be measured after the successful completion of the project. Furthermore, the recent acquisition of property interest does not guarantee future revenue.

Stock Recommendation:

The Stock of NDM appreciated ~105% so far this year. The Group is in the process of exploring and developing the Pebble Project and has not yet determined whether the Pebble Project contains mineral reserves that are economically recoverable. The Group’s continuing operations and the underlying value and recoverability of the amounts shown for the Group’s mineral property interests, is entirely dependent upon the existence of economically recoverable mineral reserves; the ability of the Group to obtain financing to complete the exploration and development of the Pebble Project; the Group obtaining the necessary permits to mine; and future profitable production or proceeds from the disposition of the Pebble Project. Considering the aforesaid factors, we believe, the company lacks growth drivers, and there is an uncertainty regarding the revenue generation of the company as NDM is yet to discover any mineral deposits which could support the company’s long-term revenue generations. Shares of NDM traded below the crucial short-term and long-term support levels of 50-day and 200-day SMA, which implies a technical weakness in the stock. Also, the Moving Average Convergence Divergence (MACD) is falling, with the difference between 12-day and 26-day EMAs is negative, which is a bearish technical indicator. Further, leading momentum indicator, 14-day and 9-day RSI is hovering in a neutral zone; however, mostly tilted towards the oversold zone. Thus, looking at the current dynamics, we prefer to remain on the sidelines, and hence we give a ‘Watch’ rating on the stock of NDM at the closing price of CAD 1.15 on November 20, 2020.

NDM 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.