Seabridge Gold Inc.

Seabridge Gold Inc (TSX: SEA) is a development stage company involved in the evaluation, acquisition, exploration, and development of gold properties sited in North America. 

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 may reduce the scale of certain programs may continue to hinder, the pace of advancement at the affected projects.
• The company intends not to go for production by its own: The Company’s business plan is to increase its mineral resources in the ground, through exploration, but not to go into production on its own. The Company intends to sell projects or participate in joint ventures towards production with major mining companies.
• Company’s continuation depends on successful explorations: The Company’s continuation as a going concern is dependent upon the successful results from its mineral property exploration activities and its ability to attain profitable operations and generate funds. As on date the company has not secured any revenue.
• Far away from the final stages: Even the Company had not advanced its mineral properties to the final stage, where they can sell that project or form a JV to secure the revenue and cash flows.
• Exhausted 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 momentum oscillator RSI (14-Period) is trading at ~73.19 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

Stock recommendation

During the three-month period ended September 30, 2021, the company posted a net loss of CAD 0.8 million compared to net earnings of CAD 5.0 million for the same period last year. Furthermore, it invested CAD 25.6 million in mineral interests, compared to CAD 12.0 million in pcp. Additionally, the company is in a development stage company and continuation as a going concern is dependent upon the successful results from its mineral property exploration activities and its ability to attain profitable operations and generate funds. As on date the company has not recorded any revenue, and from the management insight it’s not yet cleared that by what time they will be starting to realize revenue. Recently, the stock witnessed a healthy rally on the daily price chart and the technical indicators suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, taking all these factors into consideration, we recommend a “Sell” rating on the stock at the closing price of CAD 24.43 on November 10, 2021.

Tecsys Inc

Tecsys Inc (TSX: TCS) is engaged in the development and sale of enterprise supply chain management software for distribution, warehousing, transportation logistics, point-of-use and order management.

Why Should Investors Book Profit?

• Falling net income: Despite clocking healthy growth in revenue in Q1 2022, the company was unable to beat the last corresponding period’s net income, which fell to CAD 0.2 million, compared to CAD 1.2 million in pcp. This exhibits the pressure on company.

• Clocked higher operating expenses: With continued investment in sales and marketing, as well as research and development, the company's operational expenses grew to CAD 13.3 million, up CAD 1.8 million or 16% from CAD 11.5 million in Q1 fiscal 2021.

• Lower margin profile v/s Industry: In Q1 2022, the company failed on maintaining its pace and witnessed lower performance across gross margin and EBITDA margin, which exhibits the pressure on company.

• Weak liquidity profile: In the reported period, the company's quick ratio was 1.7x compared to the industry median of 1.92x. 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.

• Long Cash Cycle days: The company is holding higher Cash Cycle (Days) compared to the industry, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is at 74.6 days compared to an industry median of 21.0 days.

• Higher average collection period: The company is having a higher average Accounts Receivable day of 69.4 days, against the industry median of 62.4 days. This may create a difficulty for the company to have enough cash on hand to meet their financial obligations.

• Stretched valuations: TCS shares are available at an NTM EV/EBITDA multiple of 46.1x compared to the industry (Technology) median of 12.3x, while on NTM P/E multiple, it is trading at 108.2x compared to the industry median of 17.0x. This implies that the shares are overvalued against the industry.

 Source: REFINITIV, Analysis by Kalkine Group 

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

Despite considerable foreign currency headwinds, the company posted another strong revenue quarter. Despite good revenue growth, the company was unable to beat the previous similar period's net income, indicating that the company is under pressure. In addition, the company's operating expenses have increased, eroding its profit margin. Furthermore, the company's liquidity ratios are poor, indicating that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indicator. Moreover, as compared to the industry median, its cash cycle days are on the longer side. Also, the stock is trading at overvalued proportions in comparison to the industry on numerous fronts, which does not gel with the above rationales. Hence considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock at the closing price of CAD 52.39 on November 10, 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.