Champion Iron Limited

Champion Iron Ltd (TSX: CIA) is engaged in the exploration and development of iron ore properties in Quebec, Canada. The company's operating segment include Mine Site, Exploration and Evaluation, and Corporate. It generates maximum revenue from Mine Site segment.

Why One Should Book Profit in Champion Iron Ore?

• China Steps up Efforts to Curb Soaring Iron Prices: China's cabinet vowed to strengthen its management of commodity supply and demand to curb "unreasonable" price increases and protect consumers. Commodity prices have come under pressure overnight amidst the broader risk-off sentiment and as China's State Council warned about commodity prices.
• Increasing Pressure on Iron Ore Prices: Iron ore prices falling slowly as China’s subdued trade data for May and narrowing profit margins for the country’s steelmakers – responsible for more than half the globe’s output – dampened market enthusiasm. China imported 89.8 million tonnes of iron ore last month, substantially lower than the 98.6 million tonnes it bought in April and 102.1 million tonnes in March.
• Technical Indicators are Showing Weakness: On the daily price chart, shares of CIA reported some weakness, as the stock moved below the crucial short-term support level of 50-day SMA. The stock also traded below its near-term support levels of 5-day, 10-day, 20-day and 30-day SMAs, which implies a bearish short-term trend. Further, the leading momentum indicator, Moving Average Convergence Divergence (MACD) is falling, with the difference between short-length 12-day EMA and long-term 26-day EMA is negative, which is another bearish trend.

Technical Chart (as on June 07, 2021). Source: Refinitiv

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation: Given the falling Iron Ore demand from China and increasing measures to curb higher commodity prices is likely to weigh on the company in the near term. Moreover, technical indicators are also showing weakness, with stock moved below the crucial short-term support levels of 50-day SMA, and the leading momentum indicator, the MACD is also falling. On the valuation front, the stock is available at a forward Price to Cash Flow multiple of 6.7x, which is higher compared to the industry (Metals & Mining) median of 5.2x. Hence, considering the aforesaid facts and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 6.06 on June 07, 2021. We have considered Labrador Iron Ore Royalty Corp, Cleveland-Cliffs Inc and Mineral Resources Ltd etc., as a peer group for comparison.

1-Year Price Chart (as on June 07, 2021). Analysis by Kalkine Group 

EXFO Inc.

EXFO Inc. (TSX: EXF) provides technology solutions for wireless and wireline network operators across the telecom industry. The company serves the communications service providers (CSPs) and data centre, cloud and webscale operators with a field test along with many other services.

Why Investors Should Book Profit?

• Recently, on Monday June 07, 2021, EXFO Inc. stated that its founder and majority shareholder Mr. Germain Lamonde, would buy all issued and outstanding subordinate voting shares of the corporation.
• At present, the founder controls directly or indirectly 61.46% of the issued and outstanding shares of the Corporation and 93.53% of the voting rights attached to all the issued and outstanding Shares.
• EXF closed June 7, 2021, trading session at CAD 7.15, which is more or less at par with the offered all-cash per-share value of USD 6.0, equating to CAD 7.26 at a conversion rate of 1 USD = 1.21 CAD.
  

Acquisition Highlights

• Holders of Subordinate Voting Shares would receive USD 6.00 per Subordinate Voting Share in cash.
• The price represents a 62% premium to the closing price per Subordinate Voting Share on the Nasdaq Global Select Market on June 4, 2021, and a 63% premium to the 20-day volume-weighted average trading price.
• The board of directors of EXFO unanimously approved the deal, with Mr. Lamonde and Philippe Morin having recused themselves from the meeting.
• Upon completion of the proposed transaction, Mr. Lamonde will directly or indirectly beneficially own or control all of the issued and outstanding subordinate voting shares and multiple voting shares.
• In connection with the proposed transaction, National Bank of Canada and Investissement Québec have provided commitment letters to PurchaseCo for senior and subordinated debt financing, respectively, representing an aggregate principal amount sufficient to cover the purchase of the Subordinate Voting Shares.
• The transaction is subject to customary closing conditions and is expected to close no later than September 30, 2021.
  

Stock Recommendation

The stock gained 60.3% on June 07, 2021, post the privatization news broke out. Recently, the company entered into an agreement where Founder and Executive Chairman of the Board offered USD 6.0 per share in cash to the existing shareholders of EXF. The stock traded at CAD 7.15 at the end of the June 07, 2021, trading session. The closing price is at par with the cash price offered. Hence, we suggest the investors take out the profit from EXF stock as it is an all-cash deal, and the stock would be delisted from the exchange. Therefore, we recommend a “Sell” rating on the stock at the closing price of CAD 7.15 on June 07, 2021. 

One-Year Price Chart (as on June 7, 2021). Source: 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.