H&R REIT

H&R REIT (TSX: HR.UN) is one of Canada's largest real estate investment trusts with total assets of approximately $13.1 billion on June 30, 2021 . H&R REIT has ownership interests in a North American portfolio of high-quality office, retail, industrial and residential properties comprising over 40 million square feet.

Why Investors Should Book Profit?

• Relatively High Indebtedness: The company is having relatively higher debt contribution in the balance sheet, with Debt/Equity ratio of 0.99x as of June 30, 2021, compared to industry median of 90x.
• Poor Debt Protection: Company’s debt protection metrics is poor, with Net Debt to EBITDA ratio as of June 30, 2021, stood at 36.74x whereas the industry median is 23.62x. This indicates a higher balance sheet risk.
• Declining Rental Income: During the three months ended on June 30, 2021, the company reported rental income from investment properties was at $264.3 million compared to $269.9 million reported in the same quarter of the previous financial year. It indicates that recovery pace is quite slower than expectation.
• Bearish Doji Candle on Weekly Price Chart: After having a decent rally recently over the past couple of weeks, HR.UN share formed a bearish Doji candle on the weekly price chart, which indicates a potential correction from the current trading levels.

Technical Price Chart (as on November 05, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Valuation Methodology (Illustrative): EV/Sales-based valuation

Note: Premium (discount) is based on our assessment of the company’s growth drivers, economic moat, competitive advantage, stock’s current and historical multiple against peer group average/median and investment risks

Stock Recommendation

The company’s performance in Q2FY21 was modest. Moreover, a potential resurgence in the COVID-19 cases again fanning a lot of uncertainties over the Canadian real estate market, which is already struggling. Further, higher leverage position together with poor debt protection metrics, highlighting higher balance sheet risk associated to the company. Hence, we recommend a “Sell” rating on HR.UN stock at the closing price of CAD 17.10 (November 05, 2021).

1-Year Price Chart (November 05, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Celestica Inc

Celestica Inc. (TSX: CLS) is an electronics company that designs, manufactures, hardware platforms and supply chain solutions.

Why Investor’s Should Book Profit?

• Reported underperformance on margin front: In Q2FY21, the company reported significant underperformance on the margin front against the industry peers. Reported gross margin of 8.5% in Q2FY21 vs industry median of 37.9%, EBITDA margin of 5.8% vs industry median of 14.1% and Net margin of 2.4% vs industry median of 7.1% respectively. This implies that company is not commanding any competitive advantage against the peers.

Source: REFINITIV, Analysis by Kalkine Group

• Charted into Overbought zone: On daily price chart, shares of CLS is hovering in overbought zone, as the leading momentum oscillator, 14-day RSI settled at 76.25. A 14-day RSI above 70 typically considered as an overbought zone.

Technical Price Chart (November 05, 2021). Source: REFINITIV, Analysis by Kalkine Group

• Potential Price Consolidation: On weekly price chart, CLS shares have moved above the upper Bollinger Band©, and momentum oscillator 14-period RSI hovering above 70, indicating a potential price consolidation from the current trading levels.

Technical Price Chart (November 05, 2021). Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): Price to Cash Flow-based valuation

Stock Recommendation

The company reported significant underperformance on margin front in the second quarter of FY21. Further, increasing inflationary pressure could further suppress the margin profile in coming quarters. Also, a potential price consolidation is expected from the technical standpoint. Hence, we recommend a “Sell” rating on CLS stock at the closing price of CAD 13.69 (November 05, 2021).

1-Year Price Chart (November 05, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Copper Mountain Mining Corporation

Copper Mountain Mining Corp (TSX: CMMC) is a copper producer, developer and explorer. The company’s flagship asset is the Copper Mountain mine located in southern British Columbia near the town of Princeton.

Why Investor’s Should Book Profit?

• Increasing uncertainties: The resurgence of Delta variant cases has raised a lot of questions, and it might have an influence on the company's operations and cash flows, since the government may tighten some mandatory lockdowns to combat the spread.

• Falling net income: Despite clocking healthy production and growth in sales in Q3 2021, the company was unable to beat the last corresponding period’s net income, which fell to CAD 25.8 million, against CAD 33.2 million in Q3 2020. This exhibits the pressure on company.

• Sequentially degrading operating matrix: The corporation failed to maintain its pace on a sequential basis, resulting in a weaker operational matrix. The company's gross margin, EBITDA margin, operating margin and net margin are all showing signs of weakening, indicating that it is losing its edge.

• Heavily leveraged: The company’s debt to equity ratio at the end of September 30, 2021, stood at 1.05x, which was higher than the industry median of 0.21x. Additionally, its % LT Debt to Total Capital stood at 42.1% against the industry median of 11.3%. These factors imply higher balance sheet risks.

Valuation Methodology (Illustrative): EV/Sales

Stock recommendation

The company posted mixed numbers in Q3 2021, where it grew its production and revenue, but booked lesser net income, compared to the previous corresponding period. This exhibits the pressure on company. Additionally, it failed to maintain its pace on a sequential basis, resulting in a weaker operational matrix, indicating that it is losing its edge. Furthermore, the resurgence of Delta variant cases has raised a lot of questions, and it might have an influence on the company's operations and cash flows as the government may tighten some mandatory lockdowns to combat the spread. Hence, based on the above rationales and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 3.70 on November 5, 2021.

One-Year Technical Price Chart (as on November 5, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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.