Slate Office REIT

Slate Office REIT (TSX: SOT.UN) is a North American office real estate owner and operator. The REIT owns interests in and operates a portfolio of 35 strategic and well-located real estate assets across Canada's major population centres and includes two assets in downtown Chicago, Illinois. 60% of the company's portfolio comprises government or credit-rated tenants.

Why Should Investor's Book Profit?

Resurgence of COVID-19 Cases: The new Omicron COVID-19 variant cases rise sharply across the board. The recent update from Moderna that the current vaccines available are not equipped to deal with this new variant is throwing a lot of uncertainties over the recovery in the already jolted global economic growth. Especially Office REIT companies could witness a lot of heat as the emergence of this new COVID-19 variant could impact the group's occupancy rate.

Shrinking Margins: On a sequential-quarter basis, the company's margins for the reported period were slightly lower than the previous quarter. Gross margin for Q3FY21 stood at 52.4% v/s 54.7% reported a quarter before, EBITDA margin was 47.0% v/s 48.4% in Q2FY21, and the operating margin stood at 46.4% v/s 47.8% in the previous quarter. Also, these reported margins are lower compared to the industry median.

Technical Weakness: SOT.UN shares have charted into a long-term bearish zone, and the stock moved below its crucial long-term support level of 200-day SMA and traded below it for three consecutive sessions. Also, momentum indicator 14-day RSI moved below 40, indicating that the bears control bulls. Hence, the stock is up for a potential downside from the current trading levels.

1-Year Price Chart (as on December 02, 2021). Source: REFINITIV, Analysis by Kalkine Group

Stock Recommendation

COVID-19 Omicron cases are rising across the world. This potentially more contagious variant was first reported to the WHO from South Africa on November 24, 2021 and has been designated as a "Variant of Concern". REIT companies are already struggling to recover from the previous COVID-19 wave-led business disruption, and now the new strain could further hinder the recovery. Also, from the technical standpoint, SOT.UN is looking weak, and a potential downside is expected. Hence, we recommend a "Sell" rating on the SOT.UN stock at the closing price of CAD 4.91 (as on December 02, 2021).

1-Year price chart (as on December 02, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Thunderbird Entertainment Group Inc.

Thunderbird Entertainment Group Inc. (TSXV: TBRD) is a multi-platform media production, distribution & rights management company. Its award-winning programs cover multiple genres focusing on kids & family entertainment, scripted comedy, drama & factual/non-scripted content.

Why Should Investors Book Profit?

• Increasing Uncertainties: The resurgence of a new variant of COVID-19 has raised many questions. It might influence the company's operations and cash flows as the government may tighten mandatory lockdowns to combat the spread.

• Weak Liquidity Profile: In Q1FY22, the company's current ratio was 1.31x compared to the industry median of 1.61x. This lower ratio against the industry indicates that its short-term obligations are growing faster than its resources to cover them, which is not a good indication.

• Stretched Valuations: TBRD shares are available at an NTM EV/EBITDA multiple of 8.6x compared to the industry (Media & Publishing) median of 7.2x, while on NTM P/E multiple, it is trading at 29.7x compared to the industry median of 12.6x. This implies that the shares are overvalued against the industry.

• Higher Average Collection Period: The company had high average accounts receivable days of 172.1 days in Q1FY22. A higher average collection period indicates that the organization collects payments slower. This may create difficulty for the company to have enough cash on hand to meet its financial obligations.

• Heavily Leveraged: The company's debt to equity ratio at the end of September 2021 stood at 0.97x, which is too high against the industry median of 0.23x. Additionally, it is increasing on a sequential basis. These factors imply higher balance sheet risks.

• Exhausted Technical Indicators: On the daily price chart, the stock has recently experienced a good rally and has moved close to the upper band of the Bollinger band, indicating that the company is possibly overbought and due for a price correction or consolidation.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to Sales Based

Stock Recommendation 

The company continues to grow rapidly across all its divisions, reflected in the strong Q1FY22 results. The higher revenue was primarily due to growth in production service projects and the delivery of the live-action series Strays for CBC. However, the new variant of COVID-19 has sparked many worries, and it may impact the company's operations and cash flows for the next few months. Furthermore, its liquidity profile is on the lower end of the industry, indicating that it is under pressure. Also, the group is heavily leveraged, implying higher balance sheet risks. Even the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Hence, based on the above rationales and valuation, we recommend a "Sell" rating on the stock at the closing price of CAD 4.95 on December 02, 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.