Imaflex Inc.

Imaflex Inc (TSXV: IFX) is focused on the development and manufacturing of innovative solutions for the flexible packaging space. The company develops and manufactures films for the agriculture industry.

Why Should Investor Book the Profit?

• Exhausting Long-term Trend: On weekly price chart, Average Directional Index (ADX) indicates that the uptrend is in the IFX shares are weakening now. After a spectacular rally from CAD 0.50 to CAD 1.50, ADX hovering above 55, which indicates that the long-term trend in tapering now, and up for a potential downside. The 14-day RSI is also hovering in overbought zone at 73.1, which suggests that the stock price may consolidate or correct from the current levels.

Source: REFINITIV, Analysis by Kalkine Group

• Shrinking Key Margin Profile: IFX margin profile is shrinking on a sequential quarter basis. During the quarter ended March 31, IFX’s gross margin declined to 18.4% from 20.6% a quarter before, EBITDA margin declined to 15.1% from 17.5%, and Operating margin fell to 11.5% from 13.9%.
  

• Weakening Liquidity Position: At the end of March 31, IFX’s current ratio stood at 2.19, down from 2.71 at the end of the December 2020.
  

• Trading at Stretched Valuation: The stock is trading at a stretched valuation. The stock is trading at a forward Price to Earnings Multiple of 10.3x, which is quite high against the industry average of 7.3x. Also, the stock is available at a forward EV to EBITDA multiple of 6.1, which is higher than the industry average of 5.3x.

Stock Recommendation

Despite solid topline performance in Q1FY21, IFX EBIDTA declined by 27% on a YoY basis due to impact of Forex and Net Income also lowered to CAD 2 million versus CAD 3.1 million reported a year before. Further, the long-term uptrend is tapering now, and the stock is up for a potential downside. Moreover, the stock is trading a stretched valuation compared to the industry. Therefore, based on the above rationale, we recommend a “Sell” rating on the stock at the closing price of CAD 1.50 on July 21, 2021.

Source: REFINITIV, Analysis by Kalkine Group 

Frontera Energy Corp

Frontera Energy Corp (TSX: FEC) is a Canada-based oil and gas company. It is engaged in the exploration, development, and production of crude oil and natural gas with operations focused in South America.

Why should Investor Book Profit?

• Reported negative ROE: FEC shares reported negative return on equity (ROE) of 2% in the march quarter of 2021 as compared to ROE of 7.2% a quarter before.
  

• Lower Asset Turnover Ratio in Q1FY21: FES asset turnover ratio is lowering consistently from September quarter of 2020. In March quarter, reported Asset Turnover ratio stood at 1 versus 1.4x in December 2020 quarter and 2x in September 2020 quarter.
  

• Poor Liquidity Profile: The company’s current ratio at the end of March 2021 stood at 0.95 better than the previous quarter, but still, it shows that company’s short-term liabilities are higher than the resources it is having to meet them.
  

• Upside Trend is Weak: Despite three straight day of positive close, trend in not strong as ADX is still below 25, which is usually considered as choppy trend.

Source: REFINITIV, Analysis by Kalkine

Valuation Methodology (Illustrative): EV to EBITDA

Stock Recommendation:

The recent volatility in the oil prices on the back of resurgence in the delta variant cases across the world raising a red flag on a potential oil demand recovery. Further, new output have been brought to the market from OPEC+ cartel amid times when many countries are going for fresh series of travel restrictions. Moreover, the company is fundamentally not so strong which can sustain a fresh blow in the oil industry. Therefore, based on the above rationale and valuation, we recommend a “Sell” recommendation at the closing price of CAD 7.46 on July 21, 2021.

Source: REFINITIV, Analysis by Kalkine Group

Colabor Group Inc

Colabor Group Inc (TSX: GCL) is a wholesaler and distributor of food and related products in Canada. The company operates in two segments Distribution and Wholesale segment.

Why should Investor Book Profit?

• Highly Leveraged Balance Sheet: At the end of June quarter of 2021, GCL Debt/Equity position stood at 1.06x whereas industry median is 0.82x. Moreover, debt protection metrices is also weak, with Net Debt/EBITDA stood at 17.8x whereas industry median stood at 8.2x. This implies poor debt protection metrics.
  

• Margin Profile is Below Industry: The company is having industry below margin profile. The company’s margin profile for the June quarter was well below the industry median, with gross margin of 17% whereas industry median stood at 22.4%, EBITDA margin of 5% versus industry median of 5.2%, ROE of 1.8% whereas industry median of 2.6%, respectively.

Valuation Methodology (Illustrative): EV to EBITDA

Stock Recommendation

The leading momentum indicator 14-day RSI is hovering in a neutral zone at 59, however, despite recent uptick in the stock over past two trading session, the trend is not that much strong given ADX is hovering below 25%, implies a choppy kind of trend. Further, market is getting volatile on the back of resurgence in the COVID-19 cases, and fundamentally the company’s financials are not so strong, mainly debt risk protection metrics is quite below the industry median and margin is also lower compared to industry median. Therefore, based on the rational discussed above and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 1.20 on July 21, 2021.

Source: REFINITIV, Analysis by Kalkine Group

High Liner Foods

High Liner Foods Inc (TSX: HLF) is a Canadian company which is mainly engaged in the processing and marketing of prepared and packaged frozen seafood products. The company sells its products to institutions, health care facilities, and quick-service family and casual dining establishments.

Why Should Investor Book Profit?

• Poor Topline Performance in Q1FY21: Sales volume decreased by 7.5 million pounds, or 9.7%, to 69.8 million pounds compared to 77.3 million pounds, and sales decreased by USD 25.2 million, or 9.4%, to USD 243.4 million compared to USD 268.6 million, reflecting the impact of COVID-19 on the entire first quarter of 2021 compared to the last two weeks of the first quarter of 2020.

• Weak Strength in Uptrend: Despite recent recovery in the stock over the past three trading sessions, the upside trend is not so strong, as on the daily price chart ADX is hovering below 20, which implies that the stock has entered a choppy trend, and up for a potential downside.

• Resurgence of COVID-19 is a Near-term Challenge: Recently, the cases of COVID-19 delta variant are increasing, which has forced the governments to increase the restrictive measures. If the virus spread continues, there are chances of stricter measures by the governments. In such a scenario, the company’s food service segment might take a hit.

Valuation Methodology (Illustrative): EV to Sales

Stock Recommendation

The company’s food retail and foodservice business did well in Q1FY21 as government was taking back restriction it imposed on the back of COVID-19 spread. However, recent resurgence in the cases is fanning a lot of uncertainties regarding performance of the company in the second quarter of the fiscal 2021. Also, Average Directional Index is indicating that the recent uptrend has no strength, and a potential consolidation or choppy kind of trend could take place. Therefore, based on the above rationale, and valuation we recommend a “Sell” rating on the stock at the closing price of CAD 13.64 on July 21, 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.