ATS Automation Tooling Systems Inc 

ATS Automation Tooling Systems Inc. (TSX: ATS) is an automation solutions provider. The Company is engaged in planning, designing, building, commissioning and servicing automated manufacturing and assembly systems, including automation products.

Why Should Investor Book the Profit?

• Lower operating margins V/s Industry: The Company failed on maintaining its pace and witnessed lower performance across its operating margin matrix against the industry, which exhibits the pressure on company.

• Poor Liquidity Profile: The company’s current ratio in Q4 2021, stood at 1.40x compared to industry median at 2.12x. The ratio declined compared to the last sequential quarter, and it shows that company’s short-term liabilities are increasing than the resources it is having to meet them, which is not a healthy sign.

• Trading at higher valuations: Despite solid financial performance and consistent improvement in the financial profile of the company, the shares are overvalued as compared to the industry. Below table reflects that the stock is trading at higher multiples compared to Industry median on many fronts.

• Trading close to upper band of the Bollinger Bands®: The stock witnessed a healthy rally on the weekly price chart, and it has moved close to the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation. Furthermore, the momentum oscillator RSI (14-Period) is trading at ~74.36 levels, also indicating the stock is in overbought zone and there is possibility of price consolidation.

Source: REFINITIV, Analysis by Kalkine Group

Stock recommendation

Despite a challenging environment the company presented strong operating margins and record Order Bookings and Order Backlog, Although the revenues in transportation decreased 42.1% due to a slowdown in the transportation market and the implementation of a reorganization plan that reduced exposure to certain aspects of the market. On the technical aspect, the stock on weekly charts has moved close to the upper band of the Bollinger band and the 14-day RSI is also hovering in overbought zone, which suggests that the stock price may consolidate or correct from the current levels. Moreover, the stock is trading on a stretched valuations compared to the industry. Therefore, based on the above rationale, we recommend a “Sell” rating on the stock at the closing price of CAD 36.86 on July 27, 2021.

One-Year Technical Price Chart (as on July 27, 2021). Source: REFINITIV, Analysis by Kalkine Group 

MTY Food Group Inc

MTY Food Group Inc (TSX: MTY) is a franchisor in the quick service and casual dining food industry. Its activities consist of franchising and operating corporate-owned locations as well as the sale of retail products under a multitude of banners.

Why Should Investor Book the Profit?

• Significant uncertainty in the market: In Q2-21, the company's network lost a total of 38,300 days of combined operations due to the temporary closure of 977 sites. By the start of the quarter, about 321 restaurants were temporarily shuttered, and at the conclusion of the quarter around 359 were closed. We anticipate that the bulk of MTY's brands would continue to be severely impacted in the coming months. In reaction to the continuously changing environment, the firm anticipates the number of impacted sites to fluctuate, with a commensurate effect on consumer traffic levels and income at these locations.
• Highly Leveraged Balance Sheet: At the end of Q2 2021, MTY’s Debt/Equity position stood at 1.65x whereas industry median is 1.03x. Moreover, debt protection metrices is also weak, with Net Debt to EBITDA stood at 22.3x whereas industry median stood at 12.67x. This implies poor debt protection metrics. Although the company is trying to minimize its debt, which is positive.

• Poor Liquidity Profile: The company’s current ratio in Q2 2021, stood at 0.62 compared to industry median at 1.43. Although it was better than the last sequential quarter, but still, it shows that company’s short-term liabilities are higher than the resources it is having to meet them.

• Trading at Stretched Valuation: The stock is trading at a stretched valuations and is available at a forward EV/Sales multiple of 3.4x, which is quite high against the industry (Consumer Cyclicals) median of 1.4x. Also, the stock is available at a forward EV/ EBITDA multiple of 11.7x, which is again higher than the industry median of 8.3x.

Stock recommendation

The company's financial results for Q2 2021 exceeded management's expectations, especially considering that some of its core markets were still subject to significant restrictions during the period. MTY's network was hit by more than 38,300 missed business days (combined) during the reporting period, and about 321 restaurants were temporarily shuttered at the beginning of the quarter and 359 at the conclusion of the quarter, primarily due to covid restrictions. The number of affected locations would continue to fluctuate in response to the rapidly changing environment, with a corresponding effect on customer traffic volumes and revenue at these locations. Furthermore, the industry continues to face challenges resulting from severe labour shortages and food price inflation. All these are not a healthy sign. Moreover, the stock is trading on a stretched valuations compared to the industry. Therefore, based on the above rationale, we recommend a “Sell” rating on the stock at the closing price of CAD 67.41 on July 27, 2021.

One-Year Technical Price Chart (as on July 27, 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.