Power Corporation of Canada

Power Corporation of Canada (TSX: POW) operates as an international management and holding company in North America, Europe, and Asia. It operates through three segments: Lifeco, IGM Financial, and GBL.

Why Should Investors Book Profit?

• Stock is hovering in overbought zone: On the monthly and weekly price chart, POW shares are hovering in a steeply overbought, with 14 Period RSI stood at 78 and 83, which indicates that a short-term price consolidation could take place from the current trading levels.

 Technical Price Chart (as on September 15, 2021). Source: REFINIOTIV, Analysis by Kalkine Group

• Exhausting Uptrend: The strength of the recent uptrend in the POW shares are exhausting gradually, as the stock has almost doubled since Mach 16, 2021 lows. We believe after a splendid rally the stock might consolidate in the short-term. Also, the leading trend strength indicator ADX hovering near 53, which indicates that uptrend is exhausting now.

Technical Chart (as on September 15, 2021). Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation: The resurgence in the COVID-19 cases in China and Western countries has heightened equity market risks as markets around the globe is at multi-year high and valuation have gone through the roof. Further, slower than the expected recovery in the global economy is also raising strong uncertainties over the equity market and money markets instruments. Power Corporation exposed significantly to the volatility in capital market instruments. If there is any unprecedentedly move took place in the capital market, it can weigh on the POW shares. Also, increasing COVID-19 hospitalization cases in North America can increase claims. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 43.67 on September 15, 2021. 

Andlauer Healthcare Group Inc

Andlauer Healthcare Group Inc. (TSX: AND) is a Canada-based company that provides healthcare supply chain services. The Company offers a platform of customized third-party logistics (3PL) and transportation solutions for the healthcare sector. 

Why Should Investors Book Profit?

• Stretched valuation: AND shares are available at an NTM P/E multiple of 37.1x compared to the industry (Healthcare Providers & Services) median of 12.8x, while on NTM Price/Cash flow multiple, the stock trades at 35.0x against industry median of 12.4x. This implies that the shares are overvalued against the industry.
• Highly leveraged: The company’s debt to equity ratio at the end of June 2021 stood at 1.48x, higher than the industry median of 0.64x. Additionally, its % LT Debt to Total Capital stood at 43.5% against the industry median of 25.7%. These factors imply higher balance sheet risks.
• Weak liquidity profile: In Q2 2021, the company's current ratio was 1.08x compared to the industry median of 1.46x. While its Quick ratio was also on the lower side at 1.06x V/s 1.22x. Both these lower ratios against the industry indicates that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication.
• Trading near the upper band of the Bollinger Bands®: Recently, the stock witnessed a healthy rally on the daily price chart and 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 ~74.00 levels, which also indicates that the stock is in overbought zone and there is a deep possibility of price consolidation or correction.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to Sales 

Stock recommendation

During the quarter, the business had outstanding results in both the healthcare logistics and specialized transportation operating divisions, with growth across all product lines. However, it has longer cash cycle days, which could exacerbate its already poor liquidity profile. Additionally, the stock is trading at a highly stretched valuation, and the company has more leverage and a higher % LT Debt to Total Capital than the industry median, indicating significant balance sheet risk. Moreover, the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationale, we recommend a “Sell” rating on the stock at the closing price of CAD 50.36 on September 15, 2021. 

Peyto Exploration & Development Corp.

Peyto Exploration & Development Corp. (TSX: PEY) is a Canadian energy company involved in the development and production of natural gas in Alberta's deep basin. The company estimates that it holds approximately 590 million boe of proved and probable hydrocarbon reserves.

Why Should Investors Book Profit?

• Increasing uncertainties: The resurgence in Delta variant cases is throwing a lot of uncertainties, and it could impact the company’s operations and financials, as the government could reinforce some mandated lockdowns to counter the spread.
• Continuously falling operating margin and net margin: The company’s operating margin and net margin are continuously declining on the sequential basis, which is not a healthy indication. Decline in margins was primarily due to higher transportation cost, higher depreciation and higher interest expenses.

• Lower liquidity profile: In Q2 2021, the company's current ratio was 0.43x compared to the industry median of 1.0x. The lower ratio against the industry indicates that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication.
• Higher average collection period: The company is having a higher average Accounts Receivable day of 42.2 days, against the industry median of 39.8 days. A higher average collection period indicates that the organization collects payments slower. This may create a difficulty for the company to have enough cash on hand to meet their financial obligations.
• Trading above the upper band of the Bollinger Bands®: Recently, the stock witnessed a healthy rally on the daily price chart and has moved above 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 ~80.49 levels, which also indicates that the stock is in overbought zone and there is a deep possibility of price consolidation or correction.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

The firm recently released its operating and financial results for the second quarter of the fiscal year 2021, reporting an operating margin of 37.1% and a net margin of 8.5%. The business's operating and net margins have been declining sequentially, which is not a good sign; it also indicates that the company is under pressure mainly due to rising operational costs. Furthermore, the recurrence of Delta variant instances casts a cloud over the company's operations and future financials. In addition, the firm has a longer average collecting duration and a poor liquidity profile. Even, the technical indicators point to a possible price correction or consolidation. As a result, we recommend a “Sell” rating on the stock at the closing price of CAD 8.89 on September 15, 2021, based on the above rationale and valuation.

*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.