Gibson Energy Inc.

Gibson Energy Inc. (TSX: GEI) is an oil infrastructure company that collects, stores, and processes crude oil and refined products. The group deals with buying, selling, and optimizing crude oil, natural gas liquid, road asphalt, and oil-based mud product. Other than that, the group also provides infrastructural support to its clients, wherein it makes up a system of oil terminals, rail loading facilities, pipelines, and an oil processing facility. 

Key Highlights:

• Bearish Technical: On a daily chart, the stock of GEI formed a bearish candle and closed below its crucial support level of 50-days and 100-days simple moving average, indicting a possible correction in the near term.

Technical Price Chart (as on November 03, 2021). Source: REFINITIV, Analysis by Kalkine Group

• Weak profitability margin: The company reported lower profitability in Q3FY21, as compared to the industry median, which indicates poor operational efficiency and remains a key concern for the company. Notably, the company reported its gross margin and operating margin 4.3% and 3.5%, respectively, lower than the industry median of 53.7% and 20.6%, respectively. Notably, the company reported its net margin of 2.0%, lower than the industry median of 4.1%.
  

• Poor debt-protection metrics: In Q3FY21, the group reported its net debt to EBITDA of 15.39x, which is considerably higher than the industry median of 6.98x. A higher net debt to EBITDA ratio indicates a weak debt protection ability of the firm.

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

Stock Recommendation:

The group reported a higher D/E ratio of 2.58x, as compared to the industry median of 0.68x in Q3FY21. Moreover, the group reported a higher long-term debt to capital of 70.7% in Q3FY21, significantly higher than the industry median of 29.3%. A higher debt component reduces the overall financial flexibility of the firm. We have valued the stock using the Price to CF based relative valuation method and have arrived at a target downside of double-digit (in percentage terms). For the said purposes, we have considered peers like Pembina Pipeline Corp, Keyera Corp etc. Hence, we recommend a ‘SELL’ rating on the stock of GEI at the last closing price of CAD 23.11 on November 03, 2021.

One-Year Technical Price Chart (as on November 03, 2021). Analysis by Kalkine Group 

Hamilton Thorne Ltd

Hamilton Thorne Ltd. (TSX: HTL.V) is engaged in developing, manufacturing, and selling precision laser devices and advanced image analysis systems for living cell applications in the fertility, stem cell, and developmental biology research markets. The Company offers Clinical lasers, Research lasers and Clinical Sperm Analysis Products.

Why Investor’s Should 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. Since the government may tighten some mandatory lockdowns to combat the spread, it would affect in downfall in visitors to the clinics to which the company provides its services.
• Lower margin profile v/s Industry: In Q2 2021, the company witnessed lower performance across operating margin matrix compared to an industry median margin, which exhibits the pressure on company.
• Sequentially degrading operating matrix: The corporation failed to maintain its pace on a sequential basis, resulting in a weaker operational matrix. The company's gross margin, EBITDA margin, operating margin and net margin are all showing signs of weakening, indicating that it is losing its edge.
• Stretched valuations:V shares are available at an NTM EV/EBITDA multiple of 15.3x compared to the industry (Healthcare Equipment & Supplies) median of 10.6x, while on NTM P/E multiple, it is trading at 35.8x compared to the industry average of 26.7x. This implies that the shares are overvalued against the industry.
• Weak liquidity profile: In Q2 2021, the company's quick ratio was 2.32x compared to the industry median of 2.94x, while the current ratio stood at 3.08x against the industry median of 4.04x. 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.
  

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

The company’s solid start to the year continued in the second quarter, where it recorded a sale of USD 12.5 million up over 70% against the second quarter of 2020, even it transformed its losses into net profit in the reported period, which was a key positive. However, the company failed to keep up with the pace in a sequential manner, resulting in a weaker operational matrix margin, showing that the organization is under stress. Furthermore, the resurgence of the delta variety is causing more havoc. Moreover, the company's liquidity ratios are in a poor shape indicating that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 1.78 on November 03, 2021.

One-Year Technical Price Chart (as on November 03, 2021). Source: REFINITIV, 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.