Stantec Inc.

Stantec Inc. (TSX: STN) is a provider of professional services in infrastructure and facilities for clients in the public and private sectors.

Why Investors Should Book Profit ?

• Increasing Debt and Deteriorating Debt Protection Metrices: The company’s Debt/Equity ratio as of June 30, 2021, stood at 0.70x, increased from 0.68x as of March 31, 2021, and also significantly higher compared to the industry median Debt/Equity ratio of 0.50x. Further, debt protection metrics is also weak compared to the industry median, with Net Debt/EBITDA ratio as of June 30, 2021, stood at 8.01x compared to industry medina of 4.93x, implies higher balance sheet risk.
• Potential Margin Pressure: Given the heightening inflationary pressure on the back of multiyear high crude oil prices and significant jump in building material raw material costs such as Steel, Iron, Cement, and others, we believe inflationary pressure will dent margin which will have  a weigh on the company’s earnings in near future.
• RSI Hovering in Overbought Zone: On daily price chart, the leading momentum indicator 14-day RSI is hovering in an overbought zone, indicating a potential pullback in the stock from the current trading levels.

Technical Chart (October 22, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Valuation Methodology (Illustrative): P/E-Based Valuation

Stock Recommendation

Given the heightened inflationary pressure which can impact the company’s margin in coming quarters and valuation done using the above methodology, we recommend a “Sell” rating at the closing price of CAD 68.28 (October 22, 2021).

Technical Price Chart (October 22, 2021). Source: REFINITIV, Analysis by Kalkine Group 

RioCan Real Estate Investment Trust

RioCan Real Estate Investment Trust (TSX: REI.UN) is a Canada-based closed-end real estate investment trust. The Trusts property portfolio includes grocery-anchored, new format retail, urban retail, mixed-use, and non-grocery anchored centres.

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 96.1% compared to 96.4% in pcp.
• Lower gross margin and EBITDA margin: The company has witnessed a lower gross margin and EBITDA margin, compared to an industry median. Its gross margin stood at 57.7% against 68.9%, while the EBITDA margin stood at 53.2% compared to 59.4% respectively. Lower margins exhibit the pressure on the company.
• Stretched valuations:UN shares are available at an NTM EV/EBITDA multiple of 19.9x compared to the industry (Residential & Commercial REITs) median of 17.8x, while on NTM EV/Sales multiple, it is trading at 12.2x compared to the industry median of 10.4x. This implies that the shares are overvalued against the industry.
• 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/ Sales 

 Stock recommendation 

In the Q2 2021, the REIT delivered strong financial and operational performance with growth in FFO/unit for the quarter despite the impact of the pandemic's third wave. However, it witnessed a lower gross margin and EBITDA margin, compared to an industry median which exhibit the pressure on the company. 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 96.1% compared to 96.4% in pcp. 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 22.57 on October 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.