Transcontinental Inc

Transcontinental Inc.  (TSX: TCL.A) is a Canadian printer and flexible packaging provider. The packaging segment includes the production of different plastic products geared toward consumer goods. The Company sold its paper packaging segment at a price consideration of CAD 70.8 million towards the end of first quarter FY20.

The Board of Directors paid a quarterly dividend of CAD 0.225 per share, payable on July 22, 2020.

Q2FY20 Financial Highlights: For the period ended April 26, 2020, Transcontinental Inc. reported a tepid top line growth, while the bottom-line continues to shine aided by strict operational efficiencies within the printing segment. The Group posted its second quarter revenue at CAD 625.1 million, reflecting an 18.5% y-o-y decline due to disinvestment of the paper packaging segment coupled with lower printing volumes. Operating earnings before depreciation and amortization stood at CAD 97.3 million, as compared to CAD 93.7 million in the previous corresponding quarter driven by a slump in the restructuring and other costs. Net earnings for the second quarter of FY20 improved to CAD 25.7 million, as compared to CAD 22.3 million in the previous corresponding quarter, driven by stable operating income coupled with a slide in net financial expenses on account of lower debt.

Q2FY20 Income Statement Snapshot (Source: Company Reports)

Stock Recommendation: Transcontinental is witnessing strong demand from the supply chain for food retailers on account of a higher volume for essential products due to COVID 19 pandemic. Disinvestment of paper packaging operations is likely to improve the margins for the Company in the coming days. The group is expecting a marginal organic growth for the rest of FY20 in the packaging segment. The printing segment has been materially impacted in the recent past due to the pandemic. However, temporary layoffs and other cost reduction initiatives would support the margin from the segment. The group is witnessing a gradual recovery in printing volumes which allowed the group to recall approximately 600 temporarily laid-off employees. The Company has reduced its debt component, which would further lower its finance costs and support margins. The group is confident of retaining stable cash flows and profitability in the coming quarters. The stock is currently trading above 50-days and 75-day simple moving average (SMA) of CAD 11.91 and CAD 12.63, indicating a bullish pattern. Further, the stock carries an attractive dividend yield of 7.03% on an annualized basis, which is lucrative amid the lower interest rate environment. The stock corrected ~16% so far this year and is quoting at a significant discount when compared to the industry median. Transcontinental stock is trading at a forward P/E multiple of 6.7x on NTM basis compared to the industry (industrials) median of 16.9x. On a price to cash flow basis, the stock is available at 3.2x on NTM basis compared to the industry (industrials) median of 8.6x. Based on the abovementioned facts, we recommend a ‘Buy’ on the stock at the current market price of CAD 13.51 as on June 11, 2020.

TCL.A Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Ballard Power Systems Inc

Ballard Power Systems Inc (TSX: BLDP) is an alternative energy company based out of Canada and is engaged in the business of designing, developing, manufacturing, selling, and servicing of PEM (Proton Exchange Membrane) fuel cell for multiple uses including Technology Solutions, Portable Power, Backup Power, Material Handling and Heavy-Duty Motive.

Q1 FY2020 Trading Update with Significant Revenue increase and Strengthened Balance Sheet

(Source: Company Website)

On 5^th May 2020, Ballard Power Systems released an update on the trading performance of the first quarter of the financial year 2020. Driven by higher revenue from Technology Solutions and increased shipments of Heavy Duty Motive products, the revenue increased by 50 per cent to $24.0 million on a year-over-year basis for the period. Reflecting the higher revenue mix for the period, the gross margin stood at 22 per cent. The group’s cash operating costs surged by 31 per cent to $12.2 million, due to an increase in product development expenses and increased expenditure on technology. Driven by higher equity loss from JV Weichai-Ballard, the group reported adjusted LBITDA of $9.1 million in Q1 FY2020 versus an adjusted LBITDA $8.6 million in Q1 FY2019. The net loss and adjusted net loss for the period stood at $13.5 million with a net loss per share and adjusted net loss per share of $0.06. The cash reserves as at 31^st March 2020 stood at $181.6 million, reflecting an increase of 10 per cent and 33 per cent versus Q1 FY2019 and Q4 FY2019, respectively. The company made an additional capital contribution of $6.5 million to the joint venture between Weichai and Ballard in the Q1 FY2020. Ballard received new orders of $14.8 million and made the delivery of orders worth $24.0 million.

Share Price Performance

Daily Chart as of 11 June 2020, before the market close (Source: Thomson Reuters)

Ballard Power Systems Inc shares closed at CAD 17.39 at the time of writing before the market close on 11^th June 2020. Stock's 52 weeks High is CAD 19.59 and Low is CAD 4.60.

Conclusion

The Company has shown a decline in financial performance in the first quarter of the financial year 2020. Despite an increase in the revenue, the bottom-line performance has declined, and profitability remained in the negative zone for the period. The group needs to manage its operating expenses unless it results in further deterioration in financial performance in the coming years. The market conditions in which the company operates is full of challenges and might impact the operational performance and reduce financial performance as well. Any change in regulations and government policies could affect the overall business of the company. Risks related to environment and climate change could hamper the operations of the company. Liquidity and interest rate risks could affect the operations of the company.

The Company has received new orders, which will increase the revenue further and improve its profitability in the later period. The Company has signed an agreement with SFC Energy AG and adKor GmbH for 500 FCgen®-1020ACS fuel cell and will be integrated to backup power systems of Jupiter for deployment in Germany based radio tower sites in end of 2021. Presently, the Company is trading near its 52-week high, raising doubts at its upside potential at current prices.

Based on the factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the current price of CAD 17.39 (as on 11^th June 2020), with support from few catalysts needs to be evaluated at a later stage.

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.