SmartCentres Real Estate Investment Trust

SmartCentres Real Estate Investment Trust is a closed-ended mutual fund trust based in Canada that primarily makes money via property leasing.

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.
• Lower margin profile v/s Industry: In Q2 2021, the Company failed on maintaining its pace and witnessed lower performance across gross margin and EBITDA margin against the industry, which exhibits the pressure on company.
• Stretched valuation: UN shares are available at an NTM EV/Sales multiple of 11.3x compared to the industry median of 9.9x, while on NTM EV/EBITDA multiple, the stock trades at 18.5x against the industry median of 17.5x. This implies that the shares are overvalued against the industry.
• Weak liquidity profile: In Q2 2021, the company's current ratio was 0.48x compared to the industry median of 0.77x. While its Quick ratio was also on the lower side at 0.43x V/s 1.30x. Both these lower ratios 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.

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

The company's second-quarter results demonstrated the portfolio's ongoing strength, with collection rates of about 95%. Although its occupancy rate increased to 97.1%, its payout ratio fell to 84.5%, and its % of Gross Monthly Billings collected before the implementation of CECRA-related arrangements fell to 94.1% on June 30, 2021. Furthermore, the resurgence of Delta variant instances casts a cloud over the company's operations and future financials. Therefore, based on the above rationale and valuation, we recommend a "Sell" rating on the stock at the closing price of CAD 30.21 on September 20, 2021.

GDI Integrated Facility Services Inc

GDI Integrated Facility Services Inc is engaged in the facility services sector. The company's operating segment includes Janitorial Canada, Janitorial USA, Technical services and Complementary Services. It generates maximum revenue from the Janitorial Canada segment.

Why Should Investors Book Profit?

• Stretched valuation: GDI shares are available at an NTM P/E multiple of 23.7x compared to the industry (industrial) median of 17.4x. This implies that the shares are overvalued against the industry.
• Lower margin profile v/s Industry: In Q2 2021, the Company failed on maintaining its pace and witnessed lower performance across gross margin and EBITDA margin and operating margin against the industry, which exhibits the pressure on company.
• Higher average collection period: The company is having a higher average Accounts Receivable day of 83.5 days, against the industry median of 53.1 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.
• Rising long term debts: The group’s long-term debt increased by CAD 8.3 million from CAD 168.7 million on December 31, 2020, to CAD 177.0 million on June 30, 2021.
• Underperforming complementary services segment: In Q2 2021, the company's complementary services segment had a drop in Adjusted EBITDA and Adjusted EBITDA margin compared to the previous year. Even though the category is now functioning in a more balanced supply/demand situation but remains affected by significantly low occupancy rates.

Valuation Methodology (Illustrative): Price to Earnings

Stock recommendation

The company's continuous success was evident in its second-quarter results, as its Janitorial Canada and Janitorial USA businesses continued to perform strongly, with many clients seeking expanded recurring services and speciality services as a consequence of the COVID-19. However, the Complementary Services category continued to experience challenges in the second quarter, with facility occupancy remaining low, which might be a cause for worry. Furthermore, the group also raised its long-term debt to CAD 177.0 million as on June 30, 2021. In addition, the firm has a longer average collecting duration and a poor margin profile along stretched valuation. Therefore, based on the above rationale and valuation, we recommend a "Sell" rating on the stock at the closing price of CAD 56.89 on September 20, 2021.

Bird Construction Inc.

Bird Construction Inc. (TSX: BDT) operates as a general contractor in the Canadian construction market. The Company focuses on projects in the industrial, commercial and institutional sectors of the general contracting industry.

Why Should Investors Book Profit?

• Growing Risk of Broader Market Correction: China’s Evergrande’s debt crisis has now sent a fear of a potential market correction, as leading Chinese property lender is defaulting on interest payment. It is expected that this crisis may have a weigh on the broader equity market.
• Forming a Cup and Handle Pattern on Daily Price Chart: On daily price chart a cup and handle pattern appeared, which is typically considered to be a strong bearish technical pattern. It indicates for a potential market correction from the current trading levels.

Technical Chart (as on September 20, 2021). Analysis by Kalkine Group

• Breached 21-day SMA on Daily Price Chart: On the daily price chart, BDT shares breached the crucial short-term support level decisively and stock ended below it. This indicates a trend reversal and stock might chart into the bearish zone.

Technical Chart (as on September 20, 2021). Analysis by Kalkine Group

Stock Recommendation: Despite being a fundamentally strong company, BDT shares are now charting into a bearish territory with strong technical indicators. In the last trading session, its shares reported a Pro-Bearish Gap and remained lower at the time of closing, this indicates that stock might correct further from the current trading levels. Further, a Handle candle stick pattern forming after it created a cup which is technically considered to be a bearish pattern. Also, the rising uncertainties over the global equity market in the wake of Evergrande debt crisis and rising COVID-19 cases in North America may result in price correction across the board. Hence, we recommend a “Sell” rating on the stock at the closing price of CAD 9.89 on September 20, 2021. 

Ceres Global Ag Corp

Ceres Global Ag Corp. (TSX: CRP) procures and provides agricultural commodities and value-added products, industrial products, fertilizers, energy products, and supply chain logistics and storage services worldwide. The company operates through Grain; Supply Chain Services; and Seed and Processing segments.

Why Should Investors Book Profit?

• Poor Fundamentals: The company has industry below margin profile with gross margin in the June quarter stood at 4.4%, well below the industry median of 38.8%. EBITDA margin came in at 2.8%, which was below the industry median of 16.0% and operating margin was 2% against the industry median of 9.7%.
• Poor Liquidity Position: The company has poor liquidity profile, with current ration at the end of June quarter stood at 1.26x, quite below the industry median of 1.43x. Moreover, quick ratio came in at 0.51x, which is quite below the industry median of 1.24x.
• Poor Financial Risk Protection Metrices: The company has poor financial risk metrices, with Net Debt to EBITDA at the end of June 30, 2021, stood at 20.45x, which indicates that the company is also exposed to Balance Sheet risks.

Stock Recommendation: Given the current market uncertainty where a lot of risks are evolving, it is good to book profit in stocks which are fundamentally not that great. In case of CRP, fundamentals are not that much strong compared to the industry peers. Further, in the last trading session a Pro-Bearish gap spotted on the daily price chart and stock ended lower, which indicates a potential decline from the current trading levels. Further, companies that are having weak debt protection metrices could witness some heat in the near term in the wake of rising Evergrande’s debt crisis in China. Hence, we recommend to “Sell” rating on the stock at the closing price CAD 4.70 on September 20, 2021.

Technical Price Chart (as on September 20, 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.