Sienna Senior Living Inc

Sienna Senior Living Inc. (TSX: SIA) offers a full range of seniors’ living options, including independent living, assisted living, long-term care, and specialized programs and services.

Event Updates:

The company reported that it would disclose its Q4FY20 results on February 19, 2021.

Key Highlights:

• An income Play: The company has a solid history of consistent dividend payment, backed up by stable cash flows. The group reported a dividend distribution of CAD 43.638 million in 9MFY20, as compared to CAD 35.490 million, a year ago. At the last closing price, the SIA stock was offering a dividend yield of ~7.048%, which is lucrative amid low interest rate environment.

5-years Dividend history (Source: Refinitiv, Thomson Reuters)

• Stable Occupancy & Rent Collection: The company reported a stable occupancy rate in the recent past, despite the ongoing pandemic, which is a key positive and indicates operational resiliency. Notably, the corporation maintained the rent collection level of more than ~99%, which is impressive looking at the current operating environment.

Source: Company Presentation

• Ample Liquidity: The company reported available liquidity of CAD 240 million, which includes 5-Year Unsecured Revolving Credit Facility amounting CAD 200 million, which is supported by investment grade credit rating. We believe, with the current liquidity, the company would be able to meet its short-term working capital needs.

Q3FY20 Financial Highlights:

• SIA announced its quarterly results, wherein the group reported revenue of CAD 166.850 million, as compared to CAD 167.947 million in the previous corresponding period (pcp). The slight decline was primarily due to occupancy softness, partially offset by an improvement in the annual rental rate.
• Total expenses stood at CAD 167.145 million, higher than CAD 152.452 million in the previous corresponding period (pcp), due to higher operating expense (CAD 137.895 million versus CAD 127.785 million in Q3FY19) and an increase in administrative costs (CAD 9.792 million versus CAD 5.597 million in pcp).
• SIA posted a net loss of CAD 6.484 million, against a net profit of CAD 3.763 million in Q3FY19. The decline was primarily due to higher operating and administrative expenses, partially offset by lower net finance costs and a recovery in income tax of CAD 2.720 million.
• The company ended the quarter with cash and cash equivalents of CAD 88.795 million, while total assets stood at CAD 1,733.832 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The Company is subject to general business risks, including those inherent in the seniors’ living sector. These risks include changes in government regulation and oversight, changes in consumer preferences, fluctuations in occupancy levels and business volumes, competition from other senior’s care providers, changes in neighbourhood or location conditions and general economic conditions.

Valuation Methodology: EV to EBITDA Based (Illustrative)

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

Stock Recommendation:

The company primarily caters to the government-funded long-term care and private-pay retirement residences with growth potential across key Canadian markets. As far as demographics are concerned, in Canadian market, the estimated population of the 80 plus group is expected to be more than double over the next 20 years to ~3.4 million, which would support the entire seniors’ living segment. The company reported improvement in occupancy in the retirement portfolio at the end of the reported quarter and operations are getting benefitted from the re‐opening of residences for in‐person tours, which is a big positive for the company. We believe that in the upcoming time, the net pandemic expenses, which consisted primarily of additional staffing and PPE costs to manage COVID-19, would come down gradually, which will improve its EBITDA. The stock of SIA closed above the long-term support levels of 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish pattern. We have valued the stock using EV to EBITDA based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Chartwell Retirement Residences, Boardwalk Real Estate Investment Trust etc. Considering the aforesaid facts, trading levels, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 13.26 on January 08, 2021.

1-Year Price Chart (as on January 08, 2021). Source: Refinitiv (Thomson Reuters)

Extendicare Inc

Extendicare Inc. (TSX: EXE) is a long-term care facilities company. The business has five segments, including Long-term care; Retirement living; Home health care; Other Canadian operations and Corporate segment. 

Key Updates:

• Solid Improvement in Cash Flow from Operations: The company reported a strong improvement in the cash flow from operations, due to the increase in earnings and a favourable net change in working capital between periods. Accounts payable and accrued liabilities increased, primarily due to deferred funding related to COVID-19, and timing of income tax payments and payroll cycles.

Source: Company Reports

• Stable Dividend payout: The group has paid a consistent dividend backed by stable cash flows over the past five years. During 9MFY20, EXE paid a total dividend of CAD 30.515 million, higher than CAD 27.950 million in pcp. Moreover, at the last closing price, EXE shares are yielding approximately 7.6%, which is gignatically higher given the current lower interest rate environment.

5-years Dividend history (Source: Refinitiv, Thomson Reuters)

Q3FY20 Financial Highlights:

• EXE announced its quarterly results, wherein the group’s reported revenue stood at CAD 296.786 million as compared to CAD 282.733 million in the previous corresponding period (pcp). The increase was supported by additional income from funding related to COVID-19 amounting CAD 28.7 million, LTC funding enhancements, expansion of the retirement living operations and growth in other operations, partially offset by a lower home health care volume.
• The company reported earnings before depreciation, amortization, and other expense of CAD 63.794 million, versus CAD 23.846 million in Q3FY19, supported by higher revenue and a lower operating expense.
• Adjusted EBITDA soared to CAD 63.794 million, against CAD 8.167 million in pcp.
• Net earnings were recorded at CAD 34.466 million, significantly higher from CAD 7.259 million in Q3FY19.
• Cash and cash equivalents stood at CAD 170.061 million, while total assets came at CAD 930.556 million.                            

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risk: The COVID-19 pandemic has increased the risk that litigation or other legal proceedings, regardless of merit, will be commenced against the Company. The potential outcome of legal proceedings and claims is uncertain and could have a materially adverse impact on the Company’s business, results of operations and financial condition. 

Valuation Methodology: EV to EBITDA Based (Illustrative)

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

Stock Recommendation:

The company is a provider of essential, diversified and high-quality senior care services, and have a presence across different regions in Canada, while the company derives more than ~90% of revenue from government contracts, which augurs well for stable income on the long-term perspective. Moreover, its shares are featuring a lucrative dividend yield of ~7.6%, significantly higher compared to 3.30% yield of TSX Composite. We have valued the stock using EV to EBITDA based relative valuation method and have arrived at a double-digit upside (in percentage terms). We have considered industry median multiple for the valuation purpose. Therefore, considering the decent performance of the company, higher yielding shares, valuation and risk, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 6.31 on January 08, 2021.

1-Year Price Chart (as on January 08, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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