Westshore Terminals Investment Corporation

Attractive Opportunity to Punt on WTE: Westshore Terminals Investment Corporation (TSX: WTE) operates a coal storage and loading terminal at Roberts Bank, British Columbia. The company derives its revenue from rates charged for loading coal onto seagoing vessels. As on 23 July 2020, the market capitalization of the company stood at ~CAD 1.09 billion.

Quarterly Performance (For the Period Ended 31 March 2020): During the first quarter ended 31 March 2020, the company reported an increase in revenue to CAD 92.37 million from CAD 88.79 million in the pcp. In the same time span, the company shipped 7.7 million tonnes of tonnage compared to 6.9 million tonnes for the same period in 2019. Profit in the quarter increased to CAD 29.1 million in 2020 from CAD 27.2 million in 2019 due to the higher revenues, partially offset by higher unrealized losses on FX hedging contracts and higher income taxes.

Quarterly Performance (Source: Company Reports)

Key Risks: Westshore is currently anticipating a material reduction in throughput volumes in 2021 and 2022 as compared to recent years. The company is also exposed to various factors including global demand and competition in the supply of seaborne coal, the ability of customers to maintain or increase sales or deliver coal to the Terminal, fluctuations in exchange rates, and the ability of the company to renegotiate key customer contracts in the future on favorable terms.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: Despite the global pandemic, the company has not witnessed any change in its estimated throughput volumes for 2020 and expects throughput volumes to be ~30.5 million tonnes. As per TSX, the stock of WTE gave a negative return of 2.15% in the past one month but a positive return of 20.07% in the past three months. The stock of WTE is inclined towards its 52-week low of CAD 11.89, proffering a decent opportunity for accumulation. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and have arrived at a target price offering an upside of lower double-digit (in percentage terms). Considering the current trading levels, decent returns in the past one month, and resilient operational and financial performance despite the global pandemic, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 16.81, down by 0.3557% on 23 July 2020.

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

Disclaimer

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