Toronto-Dominion Bank

Toronto-Dominion Bank (TSX: TD) is one of the largest bank in North America by assets and serves more than 26 million customers in three key businesses operating segments in a number of locations in financial centers around the globe.

Why Should Investors Book Profit?

• Growing risk of broader market correction: The resurgence in Delta variant cases and the latest episode of Chinese real estate giant “Evergrande” is throwing a lot of uncertainties. It might cause a volatility in the equity market, as a result the company might witness lower AUM which could further impact its operations and cash flows.
• Weak performance from wholesale banking: In comparison to a year earlier, wholesale banking revenue declined by 22% to CAD 1,083 million, largely due to reduced trading-related revenue, slightly offset by higher advisory fees. As a result, this segment's net income decreased 25% to CAD 330 million, compared to the same period prior year.
• Weak NIM and efficiency ratio: Despite strong operating performance across many sectors, the bank's NIM was at 1.56% compared to the industry median of 3.06%. Furthermore, its net efficiency ratio is falling continuously on sequential basis. For financial businesses, the health of these ratios is essential, and any decline in these ratios is not considered a good sign.
• 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 that the stock is perhaps overbought and due for a price correction or a consolidation.

Source: REFINITIV, Analysis by Kalkine Group 

Valuation Methodology (Illustrative): Price to Earnings

Stock recommendation

TD's strong performance in the third quarter was supported by solid revenue growth in its Canadian and U.S. Retail businesses as economic activity and employment levels continued to improve on both sides of the border. However, its wholesale banking showcased lower performance. The bank’s NIM is also at the lower side compared to industry median and even its efficiency ratio is falling on a sequential basis, which may be an area of concern. Additionally, the debt problem at China's Evergrande has sparked fears of a market correction. This issue is anticipated to have an impact on the broader equities market. Therefore, based on the rationales discussed above and valuation, we recommend a "Sell" rating on the stock at the closing price of CAD 86.29 on October 8, 2021.

Hut 8 Mining Corp

Hut 8 Mining Corp (TSX: HUT) is North America's innovation-focused digital asset miner. Located in energy-rich Alberta, Canada. Hut 8 has one of the highest installed capacity rates in the industry and holds more self-mined bitcoin than any crypto miner or publicly traded company globally.

Why Should Investors Book Profit?

• Fluctuations in the Bitcoin spot rate: Bitcoin's value has been quite volatile in the past. In May 2021, the price of Bitcoin dropped by nearly 30% in a single day before rebounding. Geopolitical events and assertions by governments that Bitcoin is likely to be regulated, as well as actions by famous individuals and corporations, are all scaring Bitcoin users.
• Lower margin profile v/s Industry: In Q2 2021, the company failed on maintaining its pace and witnessed lower performance across operating margin matrix, which exhibits the pressure on company.
• Long cash cycle days: The company’s Cash Cycle (Days) is increasing compared to the previous sequential quarter, implying the company is taking more days to convert its inventory to cash. In Q2 2021, its Cash Cycle stood at 186.0 days against 85.0 days in Q1 2021. Also compared to industry median its very high.
• Trading near the upper band of Bollinger Band: Recently, the stock witnessed a healthy rally on the daily price chart and has moved near 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 Sales 

Stock recommendation

In the month of September 2021, the company mined 264 Bitcoin compared to 326 bitcoins in last sequential month, as a result its average production rate also fell to 9.11 Bitcoin per day from 10.5 Bitcoins per day. Furthermore, it witnessed lower performance across operating margin matrix, which exhibits the pressure on company. Also, 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 13.0 on October 08, 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.