MEG Energy Corp

MEG Energy Corp (TSX: MEG) is a Canada-based oil sands company focused on recovering bitumen from the oil sands by means other than surface mining in the southern Athabasca region of Alberta. 

Why Should Investors Book Profit?

• Heavily leveraged: The company’s debt to equity ratio at the end of June 2021 stood at 0.87x, higher than the industry median of 0.71x. Additionally, its % LT Debt to Total Capital stood at 46.1% against the industry median of 29.7%. These factors imply higher balance sheet risks.
• Sequentially rising average collection period: The company is having a higher average Accounts Receivable day of 38.3 days, against the previous sequential period of 33.8 days. A higher average collection period indicates that the organization collects payments slower. This may create a difficulty for the company to have enough cash on hand to meet their financial obligations.
• Long cash cycle days: The company is consistently increasing its Cash Cycle (Days) compared to the previous sequential quarters, implying the company is taking more days to convert its inventory to cash. Currently, its Cash Cycle is at 58.5 days against 51.7 days in Q1 2021 and 46.4 days in Q4 2020.
• Trading above the upper band of the Bollinger Bands®: Recently, the stock witnessed a healthy rally on the daily price chart and has moved above the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation. Furthermore, the momentum oscillator RSI (14-Period) is trading at ~70.54 levels, which also indicates that the stock is in overbought zone and there is a deep possibility of price consolidation or correction.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

The second quarter was another strong operational quarter for MEG. On the quarterly production volumes of 91,803 barrels per day (bbls/d) at a steam–oil ratio of 2.39, the company clocked an adjusted funds flow of CAD 166 million and it also begin the work to bring the Christina Lake facility back up to full operational utilization. However, its average collection period along with cash cycle days are also increasing on the sequential basis, implying the company may have difficulty to have enough cash on hand to meet their financial obligations. Moreover, the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 9.59 on September 27, 2021.

Guardian Capital Group Limited

Guardian Capital Group Ltd (TSX: GCG.A) is a diversified financial services company operating in two main business areas, Asset Management and Financial Advisory. It offers institutional and private wealth investment management services; financial services to international investors along many other financial services and maintains and manages a proprietary investment portfolio.

Why Should Investors Book Profit?

• Increasing uncertainties: The resurgence in Delta variant cases and a recent episode of Chinese real estate giant Evergrande is throwing a lot of uncertainties, it might cause the volatility in the equity market. As a result, the company might witness lower AUM which could further impact its operations and cash flows.
• Stretched valuation:A shares are available at an NTM EV/EBITDA multiple of 11.1x compared to the industry median of 7.7x, while on NTM P/E multiple, the stock trades at 11.8x against industry median of 11.4x. This implies that the shares are overvalued against the industry.
• Trading near the upper band of the Bollinger Bands®: Recently, the stock witnessed a healthy rally on the daily price chart and has moved close to the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

For the quarter ended June 30, 2021, the Company recorded new highs in numerous key financial measures, including net revenue, operating earnings, adjusted cash flow from operations, assets under management (“AUM”), and assets under administration (“AUA”). Total client assets, which comprise AUM and AUA, grew 59% to CAD 81.5 billion on June 30, 2021, up from CAD 51.2 billion on June 30, 2020. However, going further the resurgence in Delta variant cases and a recent episode of Chinese real estate giant Evergrande is throwing a lot of uncertainties, it might cause the volatility in the equity market, as a result the company might witness lower AUM which could further impact its operations and cash flows. Furthermore, the technical indicators point to a possible price correction or consolidation. As a result, we recommend a “Sell” rating on the stock at the closing price of CAD 34.20 on September 27, 2021, based on the above rationale and valuation.

*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.