LifeWorks Inc. (TSX: LWRK) is a Canadian firm that delivers personalized, digital health solutions and a variety of features to help employees when and how they need it. It provides clients with technology-enabled solutions that assist them enhance their people resources' mental, physical, social, and financial well-being.

Key highlights

• Growing Recurring Revenue: Despite the uncertainty in 2020, the company kept moving forward and saw a strong performance across its annual recurring revenue. The group's consolidated revenue in 9MFY21 was CAD 761.0 million, up 4.3% from the previous equivalent period. We believe the company is continuously working closely with its clientele; thus, it witnessed an increase in presence and volumes, which is appreciable. 

Source: Company 

• Clocking Higher EBITDA: Due to lower borrowing costs and lower depreciation and amortization expense, the firm reported increased EBITDA of CAD 39.5 million in Q3FY21, compared to CAD 33.8 million in the previous similar period. Also, the finance costs declined by CAD 1.5 million, or 22.7 percent, during the quarter due to reduced interest rates.
  

• Free Cash Flows: Despite lower cash provided by operating activities of CAD 36.8 million for the three months ended September 30, 2021, due to unfavorable changes in working capital of CAD 17.9 million the company managed to generate CAD 18.2 million in free cash flows. In such difficult times, generating free cash flows is a remarkable feat.
  

• Investing in Technology to Drive Efficiency: For its organizational programs and AbilitiCBT, its market-leading iCBT solution, LWRK is utilizing its proprietary Abiliti platform. Through AbilitiCBT and non-occupational absence management solutions, the company addresses the complicated end of the continuum of care. It is also investing in digital product innovation and deploying artificial intelligence (AI) to boost profits and efficiency. This could strengthen the company's technological infrastructure, which is a significant benefit.

Risks associated with investment

Since, the company competes in a highly competitive market, it must adapt to and compete with rapid changes in technology, industry standards, and client preferences in order to stay afloat. This could result in significant input costs, which could adversely impact its profit margins. 

Financial overview of Q3 2021 (in 000 of CAD)

Source: Company Filing 

• Revenue for the third quarter increased by CAD 5.8 million, or 2.4%, to CAD 246.1 million compared to CAD 240.3 million in Q3FY20. The increase was primarily due to organic growth from the Integrated Health Solutions business and iCBT services.
  

• The company's consolidated operating expenses in Q3FY21 stood at CAD 233.8 million compared to CAD 235.9 million in pcp.
  

• The company incurred lower finance costs of CAD 5.2 million against CAD 6.7 million in pcp.
  

• In the reported period, due to the above-stated reasons and no provision cost for sublease, LWRK recorded a net profit of CAD 8.0 million against a loss of CAD 2.1 million in pcp.
  

Valuation Methodology (Illustrative) EV to Sales Based

Analysis by Kalkine Group

Stock recommendation

The company had a good third quarter, contributing to solid year-to-date results driven by constant currency organic growth in revenue. Client interest in the multi-modal platform approach to employee wellbeing is at an all-time high in fast-changing and developing wellbeing markets, where demand is robust, and the future is highly favorable, as seen by sales and pipeline. In addition, the company strengthened its position as a global leader in total wellbeing by increasing the number of people who use its LifeWorks platform, broadening the base of tech-enabled recurring revenues, and expanding into the high-potential digital health market where it is uniquely positioned. Therefore, based on the above rationales and valuation, we recommend a "Buy" rating on the stock at the current market price of CAD 27.58 at 10:05 A.M Toronto time on February 14, 2022.

One-Year Technical Price Chart (as on February 14, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Summary Analysis

Canacol Energy Ltd (TSX: CNE) is a natural gas and oil exploration and production company. The company operates in the Lower & Middle Magdalena Basins of Colombia 

Key highlights 

• Improving Dynamics despite challenging macros: Even though the industry's proved reserves are declining, the company has claimed successful exploration and drilling activities in recent years, with a 40% CAGR increase in gas sales over the previous seven years. As a result, the company has emerged as one of Colombia's most prominent players. The sector's overall gas supply has been sluggish in recent years and is expected to remain so in the future. However, due to a high reserve base, CNE supply is likely to stay elevated in the coming days.

• Increase in demand for spot market volumes: In Q3 2021 the realized contractual natural gas and LNG sales volumes increased 17% to 190.6 MMscfpd, compared to 163 MMscfpd for the same period in 2020. The increase witnessed by the company was mainly due to increased firm contract and spot market sales as a result of the COVID-19 pandemic restrictions being gradually lifted during the three months ended September 30, 2021.

• Robust guidance on Capex and Gas Sales for FY2022: This is a favorable remark because the company just revealed that its capital budget for 2022 will be between USD 172 million and USD 209 million, which will be entirely funded from existing cash and 2022 cash flows. Furthermore, realized contractual gas sales are expected to range between 160 and 200 million standard cubic feet per day ("MMscfpd") in 2022.
  

• Industry Beating Margins: The Company's resilient business helped them leaping the industry median margins on many fronts in Q3 2021, which is a key positive. The chart below gives a glimpse of this.

Source: REFINITIV, Analysis by Kalkine Group

• Lucrative Dividend yield: The Company has an excellent track record of dividend distribution and has increased its distribution over the years, reflecting resilience and healthy cash flow generation. Recently, the Company paid a dividend of CAD 0.052 per share and at the last closing price of CAD 3.28, the stock is offering a dividend yield of 6.341%, which translates into an essential factor for regular income-seeking investors with a long-term horizon.

Risks associated with investment

The company’s operations are correlated with the prices of oil & gas. Hence, a voltility in the commodity prices would affect the company’s overall realization and cash flow.

Financial overview of Q3 2021 (in thousands of United States dollar)

Source: Company Filing 

• In Q3 2021, the company reported total revenue at USD 81.9 million against USD 64.4 million in the previous corresponding period. The revenue increased primarily due to higher sales volume of natural gas and liquefied natural gas.
• Total operating expenses in the reported period increased to USD 48.7 million against USD 38.8 million in pcp. Higher transportation expenses and higher depreciation cost along exploration expense and natural gas trading purchase cost elevated total operating expenses.
• Income before tax in Q3 2021, stood at USD 24.8 million against USD 17.4 million in pcp, primarily due to elevated revenue.
• Due to above stated reasons the net income in Q3 2021, increased to USD 8.7 million compared to USD 2.6 million in pcp, which was partially offset by higher income tax. 
  

Valuation Methodology (Illustrative): EV to Sales

*1USD=1.28CAD

Analysis by Kalkine group

Stock recommendation 

The company is well positioned to produce consistent cash flows. Furthermore, the firm does not have any large debt obligations until FY24, reducing the company's immediate repayment load. Furthermore, the company is the leading supplier to the Caribbean Coast and has a competitive cost structure, which helps its profitability and margins. Furthermore, the company is in process of drilling more wells which would open fresh avenue for cash flows. Also, the company is delivering a healthy dividend yield, which is another positive aspect for long term value investors. Therefore, based on the above rationales and valuation done using the above methodology, we have given a “Speculative Buy” rating on the stock at the current market price of CAD 3.25 at 9:50 A.M Toronto time on February 14, 2022.

One-Year Technical Price Chart (as on February 14, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Summary Analysis

Corby Spirit and Wine Limited. (TSX: CSW.A) is a Canadian manufacturer, marketer and importer of spirits and wines. The company owns or represent many of the 25 top-selling brands in the country and support its brands with innovative and award-winning marketing campaigns and events. Besides majorly sales in Canada, the company also exports its products in the United States, Europe, and other international markets.

Key highlights

• Ongoing & Upcoming Demands: The company believes that its famous Canadian brand portfolio, along with its exclusive representation of a diverse portfolio of foreign brands, provides a path to long-term value generation. Its iconic brands have captivated the attention of customers, resulting in a surge in demand. Furthermore, the easing of COVID-19 restrictions in the current fiscal year resulted in a robust Q2 recovery and increased client demand; we believe this will boost the company's overall financials and demand for its products in the short future.
  

• Positive consumer environment: The spirits market expanded in volume and value in Q2 2022, thanks to a comeback in the on-premises channel, resilience in the off-premises channel, and vitality in international markets, according to the business. Furthermore, the company has seen share gains in some of its owned and represented key brands and categories, which is a significant plus.

• Registering sequential growth: Corby’s business has demonstrated resilience to date, despite global supply chain volatility, the spirits market is on high, as a result the company gained traction and witnessed a sequential growth in its operating margins and net margins. Its brands grew 9% in value and 4% in volume compared to the three months ended December 31, 2020, which is a key positive.

Source: REFINITIV, Analysis by Kalkine Group 

• Industry beating margins: The company's strong determination enabled them to outperform the industry median margins on several fronts in Q2 2022, which demonstrates the company's competitive edge within the industry. The following graph is portraying the same aspects.

Source: REFINITIV, Analysis by Kalkine Group 

• An income play: The Company has an excellent track record of dividend distribution and has increased its distribution over the years, reflecting resilience and healthy cash flow generation. Recently, the Company declared a quarterly dividend of CAD 0.24 per share, to be paid on March 4, 2022. Additionally, at the last closing price of CAD 17.41, the stock is offering a healthy dividend yield of 5.51%, which looks attractive.

Source: REFINITIV, Analysis by Kalkine Group 

Risks associated with investment           

Since the company operates primarily in the alcoholic beverages industry and has its own brands, any disruption in the supply chain, demand disturbance, export limitations, or covid restrictions could have a negative impact on the company's financials. 

Financial overview of Q2 FY 2022 (in thousands of Canadian dollars)

Source: Company Filing 

• The revenue of the company increased to CAD 45.1 million in Q2 2022 from CAD 42.1 million in the previous corresponding period, primarily due to strong shipments led by strong consumer demand.
• In the reported period, the company has increased its cost of sales by 3% to CAD 18.1 million against CAD 17.5 million in pcp, along this marketing, sales, and administration expenses were also on the higher side.

• Primarily due to higher the company clocked elevated earnings from operation, which stood at CAD 12.0 million compared to CAD 10.6 million in pcp.
• The net earnings of the company stood at CAD 8.8 million against CAD 7.8 million in pcp, partially offset by higher tax expense.

Stock recommendation

The company witnessed positive consumer environment in the first half of FY2022, as the spirits market grew in volume and value with a rebound of the on-premises channel, resilience in the off-premises channel and dynamism in international markets. It has enjoyed share gains on some of its owned and represented key brands and categories, which is a key positive. In addition, the company's industry beating margin profile illustrates its competitive advantage within the industry. Furthermore, the stock is carrying a good dividend yield of 5.51%, which is appealing given the present macroeconomic and interest considerations.

On the valuation front, the stock is available at a TTM EV/ Sales multiple of 2.8x against an industry (Beverages) mean of 12.5x. Hence, considering the aforesaid rationales and discounted valuations, we recommend a “Speculative Buy” rating on the stock at the current market price of CAD 17.30 at 9.50 A.M Toronto time on February 14, 2022.

One-Year Technical Price Chart (as on February 14, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Technical Summary Analysis

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.