Labrador Iron Ore Royalty Corporation

Labrador Iron Ore Royalty Corporation (TSX: LIF) is a Canada-based company, which owns interests in Iron Ore Company of Canada (IOC) that operates an iron mine near Labrador City, Newfoundland and Labrador on lands leased from LIORC.

Why Investor’s Should Book Profit?

• With iron ore prices rising to records, Chinese government officials are trying to temper prices and reduce some of the speculative bets, and we believe prices to cool off in near-term.
• Relatively overvalued from the TTM EV/Sales standpoint, as LIF trading at a TTM EV/Sales multiple of 12.63x, whereas the industry peer’s median TTM EV/Sales multiple stood at 4.40x. This implies a valuation premium of 187%, despite higher ore prices has benefited every player operating in this arena.
• A bearish reversal pattern on the daily price chart, where three large bearish candles appeared after a steady rally over the last six months, implies that there could be some near-term consolidation.

• From the liquidity standpoint, LIF current ratio is quite lower than the industry median, with LIF current ratio stood at 1.27 at the end of March 2021 quarter, whereas industry median stood significantly higher at 2.6x.

Valuation Multiple Comparison

Stock Recommendation: Recently, China has stepped up its campaign to rein in commodity prices and reduce speculation in a bid to ease the threat to its pandemic rebound from soaring raw material costs. State-owned enterprises were ordered to control risks and limit their exposure to overseas commodities markets by the State-owned Assets Supervision and Administration Commission. This could result in price correction of Iron ore. Lower prices of iron ore would weigh on the group’s top line and cash flow. Moreover, the stock is trading at significant higher valuation multiples compared to the industry median and technical chart is also suggesting a possible price correction in the stock. Therefore, based on the aforementioned facts and stretched valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 46.5 on June 16, 2021.

1-Year Price Chart (as on June 16, 2021), Analysis by Kalkine Group

ECN Capital Corp

ECN Capital Corp (TSX: ECN) is a Canada-based finance company. The Company is focused on providing asset solutions for the financial industry. It originates, services, structures, and manages financial products and provides advisory services for financial institutions.

Why Investor’s Should Book Profit?

• The stock entered in an overbought zone, as 14-day RSI is hovering above 72, which implies a near term price correction.

• ROE of 1.9% is quite lower than the industry median of 2.6%.
• ECN shares are trading at a significantly higher valuation, despite a strong competitive moat it is having over competition. Especially, from Price to Cash Flow multiple standpoints, its shares are trading at a LTM multiple of 74x whereas industry median stood at 9.7x, a significantly stretched valuation.
• TTM ROA of 0.9% is quite lower than the Peer’s average 2.1%.
  

Valuation Methodology (Illustrative): Price to Book Value

Stock Recommendation: Despite the average financial metrics, with lower ROE and ROA the stock is trading at steeply stretched valuation multiples, which indicates a price correction from the current trading levels. Also from the technical standpoint, its shares are hovering in a steep overbought zone, suggesting a near term price consolidation. We have valued the stock using price to book value based valuation method and arrived at a target price offering a double digit downside (in % terms) potential. We have considered Canadian Western Bank, Fiera Capital Corp etc., as a peer group. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 9.2 on June 16, 2021.

1-Year Price Chart (as on June 16, 2021), 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.