Suncor Energy Inc 

Suncor Energy Inc (TSX: SU) is a Canada-based integrated energy company. The company is focused on developing Canada's petroleum resource basin, Athabasca oil sands.

Why Should Investors Book Profit?

• Tumbling Oil & Gas Prices: The underlying commodities in which Suncor deals in are falling in value on the commodity exchange after a strong rally reported over the past few months. WTI crude oil prices are down ~9% over the past month and down ~6% in a week. Similarly, natural gas prices tanked ~17% in the last month and ~2.5% last week.
• Increasing Uncertainties Over Energy Demand: The resurgence of COVID-19 cases in some parts of the world and new series of nationwide lockdown announced in some countries have once again fanned uncertainties in global energy demand offtake. This is happening when the US and China are planning to bring oil output from their strategic reserves to counter the OPEC+ cartel on inflated oil prices.
• Technical Weakness: The leading momentum indicators point towards a potential downtrend in the stock in the short term. The Moving Average Convergence Divergence (MACD) is falling and hovering below its 9-day SMA signal line and the spread between 12-day and 26-day EMAs, another bearish indicator. Further, the 14-day RSI is also falling and moved below 60 support, indicating that bears are getting control over bulls.

Technical Price Chart (November 19, 2021). Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): Price to Sales – based valuation

Stock Recommendation

Recent turmoil in the oil and gas market fanning a lot of uncertainties over the global energy prices. As the majority of the movement in the commodity stocks comes from the action in the underlying commodity prices, lower underlying commodity prices could dent the overall group's financial health. Also, from the technical analysis standpoint, it looks like the stock is up for a potential price consolidation from the current trading levels, based on the movement in the leading momentum indicators. Hence, we recommend a "Sell" recommendation at the closing price of CAD 31.67 (as on November 19, 2021).

1-Year Price Chart (as on November 19, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

K92 Mining Inc.

K92 Mining Inc. (TSX: KNT) is a metals mining company focused on producing gold, copper, and silver from the Kora deposit at its Kainantu Gold Mine located in the Eastern Highlands Province in Papua New Guinea (PNG). It also develops and explores other mineral deposits in areas located in close proximity to the Kainantu mine.

Why Should Investors Book Profit?

• Weak Profit Margins: In Q3FY21, the company reported a gross margin of 43.1%, lower than the industry median of 50.4% and a decline from 55.4% reported for Q3FY20. Its EBITDA margin for the quarter was 37.7% vs the industry median of 41.0%. Such lower functional efficiency could prove to be detrimental to the firm.

• Long Cash Conversion Cycle: For Q3FY21, KNT's cash conversion time was 113 days, twice as much as the industry median of 56 days. A long cash cycle indicates low operational efficiency, which could dent the company's financials.

• Declining Cash Balance: The company's cash and cash equivalents have consistently declined for the last few quarters. Its cash balance at Q3FY21 was USD 54.6 million, a reduction from USD 56.2 million at Q2FY21 end and USD 66.2 million as of March 31, 2021. Should this trend continue, KNT may not have enough liquidity to fund its working capital requirements.
  

• Strengthening Dollar Index: The dollar index has crossed above 96 against the basket of majors, given the heightened inflationary pressure increases the chances of a potential rate hike in the near term. Moreover, the dollar index is inversely proportional to the gold price, and a continued increase in the Dollar index could hinder the recent bull run in the gold prices.

Valuation Methodology (Illustrative): Price to CF-based methodology.

Stock Recommendation:

The increase in the Dollar index has started hindering the recent bull run of the gold asset. Therefore, any adverse move in the gold prices could also weigh the K92 mining performance in the upcoming quarter. Further, we have valued the stock using the Price to CF-based relative valuation method and have arrived at a target downside of double digits (in percentage terms). For the said purposes, we have considered peers like Orla Mining Ltd., First Majestic Silver Corp., among others. Hence, we recommend a 'SELL' rating on the stock of KNT at the last traded price of CAD 8.17 on November 19, 2021.

1-Year Technical Price Chart (as on November 19, 2021). Source: REFINTIV, 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.