Ensign Energy Services Inc. 

Ensign Energy Services Inc. (TSX: ESI) is a Canada-based oil service company. The group offers oilfield services include drilling and well servicing, oil sands coring, directional drilling, underbalanced and managed pressure drilling, equipment rentals and transportation. The company provide these services in Canada, the United States and in international markets.

Key highlights 

• Reduced Debts: The company’s total debt decreased by CAD 159.4 million to CAD 1,474.3 million in Q3 2020, as compared to CAD 1,633.7 million in Q3 2019.

• Acquisition:The Company completed the acquisition of Halliburton’s 40% ownership interest of the Trinidad Drilling International ("TDI") joint venture. The Company purchased ownership interest, inclusive of working capital of CAD 20.2 million in the TDI joint venture. With this acquisition, the Company now owns 100% of TDI.

• Liquidity: The Company’s available liquidity consisting of cash and available borrowings under its revolving credit facility was CAD 181.4 million at September 30, 2020, which seems sufficient to meet the group’s near term requirement. 

Financial overview: Q3FY20

Source: Company 

• The company posted revenue of CAD 156.9 million in Q3 2020, decreased by 60% as compared to CAD 393.4 million in the previous corresponding period, primarily due to adverse impact of the COVID-19 pandemic on the oil and natural gas industry led to decrease in the number of operating days in all regions.

• Adjusted EBITDA posted by the company in Q3 2020 was CAD 39.5 million, decreased by 60% as compared to CAD 97.9 million in Q3 2019 due to above-stated reason. 

• The company posted a Net loss attributable to common shareholders of CAD 36.1 million (CAD 0.23 per common share) compared to CAD 37.6 million (CAD 0.24 per common share) in Q3 2019, primarily due to low revenue, higher depreciation and restructuring expenses, offset by a gain on repurchase of Senior unsecured notes. 

Risk associated with investment

The company is exposed to the volatility in the oil and gas prices. Further breakout of COVID-19 would further weigh on the oil demand. 

Valuation (Illustrative): EV to EBITDA 

(Note: All forecasted figures and peers have been taken from Thomson Reuters) 

Stock recommendation

The global energy industry is among the hardest hit sector due to COVID-19 outbreak. However, we believe that the oil market likely to stabilize in the coming days in the wake of higher industrial and manufacturing activities and easing in travel restrictions would further bolster the oil industry. A stable demand scenario is likely to result in higher demand for drilling, servicing, and other related equipment. Based on the rationales discussed above and valuation, we have given a ‘Speculative Buy’ rating at the closing price of CAD 1.0 on November 24, 2020. We have considered Step Energy Services Ltd, Trican Well Service Ltd, CES Energy Solutions Corp, etc. as the peer group for the comparison.

Daily technical chart. Source: Refinitiv (Thomson Reuters)

Chorus Aviation Inc

Chorus Aviation Inc. (TSX: CHR) is a Canadian holding company which aims to deliver regional aviation to the world through its businesses. The company operates an airline with aviation interests including Jazz Aviation LP (Jazz), Voyageur and Chorus Aviation Capital.

Key Positives:

• The company took prudent measures in order to combat the current slowdown and has reduced its furloughed employees from 65% to 45% during Q3FY20 within the regional aviation services.
• The company is expected to operate within the overseas humanitarian flights and cargo segment, and the air ambulance operation in New Brunswick. Within the Voyageur's contract flying, charter sales and MRO services revenue is expected to improve in the foreseeable future, which is a key positive.
• CHR shares have recorded a technical breakout on the daily price chart after breaking its crucial resistance of 200-day SMA of CAD 3.30 on November 09, 2020. Further, a golden cross chart pattern is forming on the daily price chart, where short-term 50-day SMA is about of crossover 200-day SMA, a strong bullish technical indicator.

Q3FY20 Financial Highlights:

• CHR announced its quarterly results, wherein the company posted operating revenue of CAD 196.438 million, reflecting a 44.1% y-o-y decline due to the ongoing slowdown in the aviation sector due to a sluggish footfall of air-passengers on account of COVID-19 pandemic.
• Adjusted EBITDA stood at CAD 85.589 million, as compared to CAD 92.639 million in Q3FY19, due to a lower income, increase in the net interest expense, partially supported by lower operating expenses.
• The company reported net income of CAD 20.458 million, lower than CAD 24.195 million, a year ago.                  

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: Further extension of restrictive measures to contain COVID-19 would dampen the group’s performance. The group is likely to witness a headwind from lower passenger footfall.

Valuation Methodology (Illustrative): EV to EBITDA

(Note: All forecasted figures and peers have been taken from Thomson Reuters).

Stock Recommendation: Despite a gloomy sectoral outlook of the aviation industry, the company has reported a stable bottom-line, which is notable. The company collected ~50% of lease revenue billed in the third quarter from its lessees, excluding repossessed aircraft, reflecting a 22 percentage points improvement on sequential quarter basis, which is impressive. Furtehrmore, recent cost saving initiatives are likely to support the company’s bottom-line. The stock made a smart recovery in the recent past, due to a gradual recovery in travel sector and soared ~98% and ~49% in the last one month and three-months, respectively. We have valued the stock using EV to EBITDA based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Exchange income Corp, Heroux Devtek Inc, and TFI International etc. as a peer group. Hence, considering aforementioned facts and valuation, we recommend a ‘Speculative Buy’ on the stock on CHR at the current closing price of CAD 4.38 on November 24, 2020.

CHR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Ceres Global Ag Corp.

Ceres Global Ag Corp. (TSX: CRP) is engaged in the agricultural, energy, and industrial supply chains through sourcing, storing, transporting, and marketing of commodity-based products and raw materials.

Key Positives:

• During the quarter, the company reported long‐term agreements with Sevita International Corporation for the production and distribution of soybeans, and with Horizon Seeds Canada Inc. for the distribution of corn seed in Western Canada. These contracts are likely to boosts the company’s business prospects in the coming days.
• The company has acquired a grain elevator and related assets in Ridgedale, Saskatchewan and has successfully integrated the operations into its broader network. The above acquisitions are likely to support the company’s existing logistic network and would provide improved business prospects in the foreseeable future.
• The company caters to the procurement, storage, handling, trading, and merchandising of commodity and specialty grains and oilseeds. The business model is resilient in nature, as it is directly related to the consumption space.

Q1FY21 Financial Highlights:

• CRP announced its quarterly results, wherein the company posted revenue of USD 172.097 million, higher than USD 127.072 million in the previous corresponding period (pcp). The increase was driven by a 28% increase in grain bushels handled combined with a higher commodity price.
• Gross profit reduced to USD 3.81 million, stood lower than USD 6.686 million in Q1FY20, due to an exceedingly higher cost of sales (USD 168.287 million versus USD 120.386 million in pcp) on account of a rise in the US rail freight costs.
• The company reported a loss before income taxes at USD 1.080 million compared to an income of USD 1.780 million in pcp.
• CRP posted a net loss of USD 0.936 million, against a net income of USD 1.758 million in pcp.
• The group reported a cash balance of USD 0.148 million, while total assets stood at USD 270.432 million.

Q1FY21 Financial Snapshot (Source: Company Reports)

Risks: The group is exposed to various risks such as volatility in supply and demand along with prices for grains and other agricultural commodities, interest rate and foreign exchange.

Stock Recommendation: The company guided for an optimistic outlook wherein the company is focusing on the growth prospects, aided by higher traction during the second half of FY20. Furthermore, the company would concentrate on the expansion of its soybean crush plant in Jordan, which would cater to the growing demand of soybean across China. Further, large crops and increased demand is expected for the 2020-2021 harvest year as growing conditions in North America have generally been favorable, and demand for cereal grains continues to be strong. This is expected to provide the group with opportunities to effectively utilize its asset infrastructure to serve customers in and beyond North America. The stock of CRP appreciated ~17% in the last three months. Hence, considering the above facts, we recommend a ‘Speculative Buy’ on the stock at the closing price of CAD 3.87 on November 24, 2020.

CRP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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.