People Corp

People Corp (TSXV: PEO) is a Canada based provider of group benefits, group retirement and human resource services. It offers various employee services including career transition and career management, employee benefits consulting, group retirement solutions, integrated solutions, student benefits, recruitment, third party administration, wellness, and human resource (HR) consulting services. The Company has  ~1,040 professionals and support staff.

Q3FY20 Financial Highlights: People Corp announced its quarterly results, wherein the Company posted revenue of CAD 53.237 million as compared to CAD 42.427 million in the previous corresponding period (pcp). The growth was driven by the addition of new clients, increasing product and service penetration with existing clients and the positive impact from acquisitions. Operating expenses stood higher at CAD 36.458 million compared to CAD 32.449 million in Q1FY19. Income before income tax stood at CAD 4.787 million, increased significantly from CAD 0.008 million in pcp, thanks to a higher income, change in estimated fair value of non-controlling interest put options and partially offset by higher finance expenses and a considerable increase in depreciation and amortization. The Company reported a net income of CAD 2.838 million, as compared to a loss of CAD 0.644 million in pcp.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: The Human Resource sector is highly competitive, and the Company might be impacted by price competition in order to retain its market share, which might hinder the margin of the group. Due to the current challenging environment, the group might witness a lower demand for its offerings in the near term.

Valuation Methodology: EV to Sales based Relative Valuation (illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of PEO stood resilient in the recent past and has gained 8% in the last one year. The group bridges the gap between individuals and corporates, and we believe, the nature of business is more or less stable in nature. Economic cycles might hinder the operations on a temporary basis, while the long-term business prospects remain intact. The Company is enhancing its geographical presence and is focusing on gaining new clients and increased penetration of products and services, which is a key positive. We expect, the Company would be benefitted from its new acquisitions in the foreseeable future. The stock gained ~13% in the last three months and is currently trading above its 200-days simple moving average (SMA) of CAD 9.24, indicating a bullish trend. We have valued the stock using the EV to Sales based relative valuation approach and arrived at a target price, which suggests a double-digit upside potential (in % terms). For the said purpose, we have considered Morneau Shepell Inc, goeasy Ltd and Alaris Royalty Corp etc., as a peer group. Hence, considering the aforesaid facts and risk involved, we recommend a 'Speculative Buy' rating on the stock at the closing market price of CAD 9.43 on July 21, 2020.

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

PyroGenesis Canada Inc.

PyroGenesis Canada Inc (TSXV: PYR) is leading design development and manufacturer of advanced plasma processes. The company provides technical and manufacturing expertise, cutting-edge contract research as well as turnkey process equipment packages to the defence, metallurgical, mining, additive manufacturing 3D printing, oil and gas, and environmental industries.

Key Updates:

• On June 11, 2020, the Group signed a second multi-phase torch modelling contract with Client B, which includes evaluating the performance of PyroGenesis’ proprietary torches in an existing iron ore industrial furnace with the goal of replacing existing fossil fuel burners with PyroGenesis’ plasma torches. 
• On April 30, 2020, PYR confirmed the successful completion of the first phase of a torch modelling contract with Client A, which states replacement of fossil fuel burners with PyroGenesis’ proprietary plasma torch.
• The Company granted an aggregate of 1,700,000 Options to its directors and employees entitling them to purchase an aggregate of 1,700,000 Common Shares of the Corporation, at a price of CAD 4.41 per common share. 

Q1FY20 Financial Highlights: PYR announced its quarterly results, wherein the Company reported a slight decline in revenue to CAD 718.908 million as compared to CAD 736.443 million in the previous corresponding period (pcp). The quarter was marked by a considerable decline in revenue from the United States and Europe region, while Asia and South America reported exuberant performance, as compared to the previous corresponding quarter. Gross profit increased significantly to CAD 267.414 million from CAD 92.158 million in Q1FY19, thanks to a considerable decline in the cost of sales and services. The Company reported a lower research and development expense of CAD 23.088 million as compared to CAD 95.774 million in pcp, while net finance cost declined to CAD 232.736 million from CAD 251.498 million in pcp. Net loss from operations stood at CAD 1.265 million, improved from a net loss of CAD 1.585 million in pcp. Net loss widened to CAD 1.752 million from CAD 878.9 million recorded in the same quarter of the previous year.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: Many of the company’s products are at various stages of the development cycle. The company might not be able to commercialise such products. Further, the company has a significant amount of debt, which put the balance sheet at risk.

Stock Recommendation: The stock of PYR has gained strong momentum in the recent past and witnessed string buying interest, as investors were excited about the new innovative plasma technology, which can be used in the engineering sector. The stock moved ~861% and ~1,058% in the last three months and six-months, respectively and currently trading near the upper band of its 52-weeks trading range of CAD 0.19 and CAD 4.97. The group has incurred losses in the majority of years since its inception. Further, the group’s balance sheet is highly leveraged as long-term debt to capital ratio stood at 415.4%, which is alarming. Further, the company is generating losses on the operating level, and we do not expect the situation to change in the near term as the group’s sales cycle is long, and the signing of new contracts is subject to delay, over which the company has little control. Given the losses at the operating level, higher debt component might pose a challenge going forward. Further, the company’s offerings are new to the industry, and the acceptability of the products are still unknown. Hence, considering the aforesaid, we prefer to remain on the sideline and recommend a ‘Watch’ rating on the stock at the closing price of CAD 4.52 on July 21, 2020.

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

Disclaimer

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