Northwest Healthcare Properties REIT

Northwest Healthcare Properties REIT (TSX: NWH.UN) provides investors with access to a portfolio of high-quality healthcare real estate. The company provides investors exposure to a well-diversified portfolio of healthcare real estate located in the greater areas of cities such as Australia, Brazil, Germany and Canada, of which Australia derives a majority of revenue to the company.

Why Should Investors 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 the occupancy level of the company’s properties which already declined to 96.7% compared to 97.3% in pcp.
• Heavily leveraged: The company’s debt to equity ratio at the end of June 2021 stood at 1.29x, higher than the industry median of 0.93x. Additionally, its % LT Debt to Total Capital stood at 46.9% against the industry median of 44.3%. These factors imply higher balance sheet risks.
• Exhausting technical indicators: On the daily price chart, the stock has recently seen a robust rally and has moved near to the upper band of the Bollinger band, indicating that the company is possibly overbought and due for a price correction or consolidation. Furthermore, the stock has re-touched its previous resistance level, which it had previously attempted to breach but failed to do so. As a result, there is a strong likelihood of price consolidation or decline.

Source: REFINITIV, Analysis by Kalkine Group 

Valuation Methodology (Illustrative): EV to Sales 

Stock recommendation 

In the Q2 2021, the REIT delivered strong financial and operational performance with an increased rent collection of 98.8%, which improved by 24 basis points from the 98.6% collected in Q1 2021. On the other hand, the resurgence of Delta variant instances casts a cloud over the company's operations and cash flows. It would affect the occupancy level of the company’s properties which already declined to 96.7% compared to 97.3% in pcp. Furthermore, the firm is heavily leveraged implying higher balance sheet risks. Even 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 13.45 on September 22, 2021. 

Yangarra Resources Ltd.

Yangarra Resources Ltd (TSX: YGR) is a junior oil and gas company which is engaged in the exploration, development, and production of natural gas and oil with operations in Western Canada. The company has its operations in Central Alberta. It generates its revenue from the sale of crude oil and natural gas products.

Why Should Investors 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 finances, since the government may tighten some mandatory lockdowns to combat the spread.
• Falling Average production: In the Q2 2021, the company’s average production stood at 8,205 boe/d (46% liquids), which fell by 17% compared to the same period in 2020.
• Sequentially weak margin profile: The company is witnessing a lower margin profile on sequential basis. Its EBITDA margin fell to 77.8% v/s 80.0% while the operating margin stood at 55.6% v/s 56.4%. Lower margins or falling margins exhibits the pressure on company.
• Weak liquidity profile: In Q2 2021, the company's current ratio was 0.79x compared to the industry median of 0.99x. This lower ratio 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.
• Exhausting technical indicators: 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 stock has touched its previous resistance level and the momentum oscillator RSI (14-Period) is trading at ~71.23 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 Sales 

Stock recommendation 

During the quarter, the Company drilled and finished seven wells, including a five-well pad that began production at the end of June and two wells that began production in early July. Completion activities had a negative impact on output throughout the quarter, resulting in reduced average production of 8,205 boe/d (46% liquids) for the quarter, down 17% from the same time in 2020. Additionally, the resurgence in Delta variant cases is throwing a lot of uncertainties, and it could impact the company’s operations and cash flows as government could reinforce some mandated lockdowns to counter the spread. Furthermore, the firm has a longer average collecting duration and a poor margin profile. Even 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 1.68 on September 22, 2021.

*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.