Gamehost Inc.

Gamehost Inc. (TSX: GH) is operating in hospitality and gaming properties in Alberta, Canada. The company operates services like casinos offering slot, VLT, lottery and table games; the Hotel segment includes hotels catering to mid-range clients etc.

Why Should Investors Book Profit?

• Poor liquidity: The company reported a poor working capital management and posted quick ratio and current ratio of 0.58x and 0.60x, respectively in Q2FY21, significantly lower than the industry median of 1.18x and 1.28x, respectively. The above illustrates that the company is struggling to meet its short-term liabilities with its current assets.

• Underperforming Industry on margin front: The company is struggling with its profitability in the recent past and posted negative gross margin and negative operating margin of 24.1% and 6.9%, respectively in Q2FY21, as compared to the industry median of 50.4% and 12%, respectively. Moreover, the group reported a negative net margin of 13.8% versus the industry median of 7.4%.

• Poor debt-protection metrics: In Q2FY21, the group reported its net debt to EBITDA of 54.44x, which is considerably higher than the industry median of 10.01x. A higher net debt to EBITDA ratio indicates a weak debt protection ability of the firm.
  

Valuation Methodology (Illustrative): EV to Sales based 

Stock Recommendation:

Due to the increasing uncertainties on account of the emergence of Delta variant cases, the demand for the hospitality and gaming segments might witnessed a setback in the coming days, which remains a key concern for the company and for the industry. We have valued the stock using the EV to Sales-based relative valuation approach and arrived at a target price offering double-digit downside potential (in % terms). We have considered industry (Consumer Cyclicals) mean on NTM basis. Hence considering the aforesaid facts, we recommend a ‘SELL’ rating on the stock of GH at the last trading price of CAD 8.15 on November 09, 2021.

Technical Price Chart (November 09, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Supremex Inc.

Supremex Inc (TSX: SXP) is engaged in the manufacturing and marketing of a broad range of custom envelopes and packaging products. The company operates in two business segments that are manufacturing and sale of Envelopes, and the manufacturing and sale of paper-based packaging solutions and specialty products.

Why Should Investors Book Profit?

• Lower margin profile v/s Industry: In Q2 2021, the company failed on maintaining its pace and witnessed lower performance across operating margin matrix, which exhibits the pressure on the company.

• Weak liquidity profile: In Q2 2021, the company's quick ratio was 1.0x compared to the industry median of 1.57x, while the current ratio stood at 1.81x against respected median of 2.74x. 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.

• Heavily leveraged: The company’s debt to equity ratio at the end of June 30, 2021, stood at 0.84x, which was higher than the industry median of 0.25x. Additionally, its % LT Debt to Total Capital stood at 41.0% against the industry median of 15.1%. These factors imply higher balance sheet risks.

• Long cash cycle days: The company’s Cash Cycle (Days) is increasing compared to the previous sequential quarter, implying the company is taking more days to convert its inventory to cash. In Q2 2021, its Cash Cycle stood at 105.8 days against 99.9 days in Q1 2021. Also compared to industry median its very high, which is at 61.0 days only.

• Exhausted technical indicators: 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. Also, the stock has re-touched its previous resistance level, which it had attempted to breach but failed to do so. As a result, there is a strong likelihood of price consolidation or decline.

Source: REFINITIV, Analysis by Kalkine Group 

Valuation Methodology (Illustrative): EV/Sales

Stock recommendation

The company delivered a strong performance, marking the sixth consecutive quarter of increased adjusted EBITDA profitability year over year. This solid financial performance, combined with the company's continued expansion in the envelope and packaging industries in the United States, demonstrates the company's resiliency. The corporation, on the other hand, failed to keep up with the pace in a sequential manner, resulting in a lower operational matrix margin, indicating that the organization is stressed. Furthermore, the company's liquidity ratios are on lower side, and its cash cycle days are on the higher side compared to an industry median, indicating a weak liquidity profile. Even the higher debt profile indicates the balance sheet is not in a good shape. Additionally, the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 2.5 on November 9, 2021.

*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.