Jamieson Wellness Inc.

Jamieson Wellness Inc. (TSX: JWEL) is engaged in the manufacturing, distributing, and marketing of branded natural health products like vitamins, minerals, and supplements.

Key Updates:

• Higher debt to equity ratio: At the end of Q3FY21, the company posted its D/E of 0.61x, which is higher than the industry median of 0.22x. A higher debt to equity ratio might dampen the overall financial flexibility of the firm, which remains a major concern for the company.

• Longer cash cycle days: The company reported longer cash cycle days of 244.8 days in Q3FY21, as compared to the industry median of 144.5 days. The above indicates that the group lags to convert its investments in inventory and other resources into cash flows.

• Decline in Cash flows: The company is struggling to generate higher cash flows despite higher earnings due to poor working capital management. Notably, in 9MFY21, the company reported its cash from operations of CAD 10.096 million, significantly lower than CAD 21.852 million in pcp. Continuation of the above might impact the overall liquidity of the company in the coming days.
  

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

The product of the company caters to the healthcare segment and are subjected to several regulatory approvals, and a delay in the above would hinder the company’s upcoming product launches. We have valued the stock using the Price to Earnings-based relative valuation approach and arrived at a target price offering double-digit downside potential (in % terms). We have considered peers like Recipe Unlimited Corp, Hamilton Thorne Ltd etc. Hence considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock at the last traded price of CAD 38.47 on November 15, 2021.

One-Year Technical Price Chart (as on November 15, 2021). Analysis by Kalkine Group

Pason Systems Inc

Pason Systems Inc. (TSX: PSI) is a leading global service provider of specialized data management systems for drilling rigs. Its solutions include data acquisition, wellsite reporting, remote communications, web-based information management, and analytics, enable collaboration between the rig and the office. 

Why Should Investors 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 as the government may tighten some mandatory lockdowns to combat the spread.
• Higher average collection period: The company is having a higher average Accounts Receivable day of 96.9 days, against the industry median of 73.2 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.
• Higher Cash Cycle days: The company is holding higher Cash Cycle (Days) compared to the industry, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is at 96.9 days compared to an industry median of 82.2 days.
• Stretched valuations: PSI shares are available at an NTM Price/Cash Flow multiple of 11.6x compared to the industry (Energy) median of 4.3x, while on NTM P/E multiple, it is trading at 19.0x compared to the industry median of 8.2x. This implies that the shares are overvalued against the industry.

• 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. Furthermore, the momentum oscillator RSI (14-Period) is trading at ~73.81 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 EBITDA

Stock recommendation

The company’s Q3 2021 results reflect the positive impacts of both the improved industry environment in which it operates and its strengthened competitive position. However, the resurgence of the delta variety is causing more havoc, as the government may tighten some mandatory lockdowns to combat the spread. Moreover, it also has a prolonged Cash Cycle (Days), along a higher average Accounts Receivable day which may create a difficulty for the company to have enough cash on hand to meet their financial obligations. Additionally, the stock is trading at premium valuations even 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 11.26 on November 15, 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.