Toronto-Dominion Bank

Toronto-Dominion Bank (TSX: TD) is one of the largest Canadian banks, which operates across three segments: Canadian retail banking, U.S. retail banking, and wholesale banking. The bank's US operations spread across Maine to Florida with a strong presence in the Northeast. 

Key highlights

• Dividend declaration: The company declared a dividend of CAD 0.89 per fully paid common share for the Q1FY22, as compared to CAD 0.79 per share in the pcp. Currently, the stock is offering a dividend yield of 3.59% which is respectable in the current scenario among the regular income-seeking investors. Below is a graphical representation of the consistent dividend paying history of the group.

Source: Company Presentation

• Increased Net income: For Q1FY22, the net income from the Canadian retail segment grew by 11% to CAD 2,254 million as compared to CAD 2,037 million in the previous comparable period. For the bank's US retail segment, the Net income increased by 27% to CAD 1,272 million in the reported period vs CAD 1,000 million in the Q1FY21.

• Increase in Asset under Administration (AUA): The group reported an increase in AUA in the Canadian retail segment to CAD 557 billion in Q1FY22 as compared to CAD 484 billion in the pcp. Across the US Retail segment, the AUA rose to USD 32 billion vs USD 26 billion in the previous comparable period. The higher AUM will generate more fees for the banks which will increase its revenues.

• Improved Capital ratios: For the Q1FY22, the Common Equity Tier 1 capital ratio increased to 15.2% vs 13.6% in the Q1FY21. The total capital ratio was improved to 19% for the reported period vs 17.4% in the pcp. The Total Loss Absorbing Capacity (TLAC) increased to 28.6% as compared to 23.8% in Q1FY21. As per the Basel III norms, the higher the ratios, the more external shocks and economic downtrends the banks can absorb.

Source: Company filing, Analysis by Kalkine Group 

Risks associated with investment

The group is exposed to the interest rates risks that impact the demand for mortgages, consumer durables loans, etc. Further, the operation risks involve scams, cyber security threats, credit risk which includes the defaults, foreign exchange risks, etc are few to name.   

Financial overview of Q1FY22 (Expressed in millions of CAD) 

Source: Company Filing 

• The company reported an increase in its Net Internet income to CAD 6,302 million in the Q1FY22 as compared to CAD 6,030 million in the pcp. The increase in the interest income of Securities to CAD 1,011 million for the Q1FY22 vs CAD 949 million in Q1FY21, helped the Net interest income to grow further. 

• The Non-Interest income grew to CAD 4,979 million in the Q1FY22 vs CAD 4,782 in the previous comparable period.

• The total revenue increased to CAD 11,281 million in the reported period as compared to CAD10,812 million in the pcp.

• For Q1FY22 the company reported a net income to its common shareholder of CAD 3,690 million vs CAD 3,212 million in pcp.
  

 Valuation Methodology (Illustrative): Price to Book value based Multiple

Analysis by Kalkine Group 

Stock recommendation 

The company delivered a positive return of 4.09% in past three months and  20.53% in the past six months. The bank reported an increase in the AUA across both Canada and US, with a strong increase in Net income for the Q1FY22. Further, the bank increased its prime rate by 25 basis points to 2.70% which is applicable from March 3, 2022, onwards.

On the valuation front, the stock is measured on the Price to Book value based multiple and we have considered Royal Bank of Canada, National Bank of Canada, Bank of Nova Scotia, etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the current market price of CAD 98.20 at 10:13 AM Toronto time on March 15, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 15, 2022). Source: REFINITIV, Analysis by Kalkine Group 

 Technical Analysis Summary

Kinross Gold Corporation

Kinross Gold Corporation (TSX: K) is a Canada-based leading gold producer and operates through mines and focuses its greenfield and brownfield exploration in the Americas, West Africa, and Russia.

Key Updates:

• Strategic Investment in Allegiant Gold Ltd.: On March 14, 2022, the company reported that it has acquired 10,036,034 units at CAD 0.40 per unit of Allegiant Gold Ltd. Notably, each unit consists of one common share of the Allegiant, along with one-half of one common Share purchase warrant. Total purchase consideration stood at CAD 4.01 million and is expected to accelerate the exploration and development activities of the company across the Eastside property in Nevada.

• Surge in Mineral reserve: During FY21, the company increased its proven and probable mineral reserve to ~32.6 million Au oz., adding 2.7 million Au oz. net of depletion, mainly due to additions of 3.0 million Au oz. at Udinsk location coupled with a net increase of 792 Au koz. at Round Mountain. Additionally, after the completion of the feasibility study, the company’s LoboMarte project also added ~300,000 oz of mineral reserves. This is impressive, as a higher reserve base indicates better mining prospects in the coming days.
  

• Increase in the dividend distribution: In FY21, the company reported a dividend payment of USD 151.1 million, which is higher than USD 75.5 million in FY20. This is impressive, as most of the companies are lowering or discarding their dividend payment in order to retain liquidity.

Risks associated with the investment:

The company’s performance is correlated to the international gold prices, and price volatility in the commodity prices are likely to dampen the company’s income and cash flows on account of lower realization. 

   FY21 Financial Highlights:

  FY21 Income Statement Highlights (Source: Company Report)

• Kinross announced its full-year results, wherein the company posted revenue of USD 3,729.4 million in FY21, as compared to USD 4,213.4 million in FY20. The decline was primarily due to a slide in gold equivalent ounces sold (2,075,738 oz in FY21 v/s 2,375,548 oz in FY20) , partially offset by higher average metal prices realized (USD 1,797/oz in FY21 v/s USD 1,774/oz in FY20).

• The quarter was marked by a higher cost of sales, an increase in other operating expenses and higher exploration and business development costs. Additionally, general and administrative costs also stood higher at USD 126.6 million in FY21 v/s USD 117.9 million in FY20. Hence, operating earnings stood lower at USD 463.6 million in FY21 as compared to USD 1,899.4 million in FY20.
• The company reported its net earnings of USD 218.7 million, significantly lower than USD 1,358.7 million in FY20. The slide was primarily attributable to lower operating earnings, partially offset by lower finance expense coupled with a lower net income tax expense.

   Valuation Methodology (Illustrative): Price to CF-based

Analysis by Kalkine Group 

Stock Recommendation:

For the full-year 2022, the company expects its attributable gold production at around 2.65 moz, which is higher than the FY21 production of 2.07 moz. The Attributable production cost of sales is expected at USD 830/ Au eq.oz.   We have valued the stock using the P/CF based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Torex Gold Resources Inc, OceanaGold Corp etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the current price of CAD 6.62 at 9.48 AM Toronto Time on March 15, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 15, 2022). Analysis by Kalkine Group 

Technical Analysis Summary:

Baytex Energy Corp

Baytex Energy Corp. (TSX: BTE) is an oil and gas company which is engaged in the acquisition, development and production of crude oil and natural gas in the Western Canadian Sedimentary Basin and in the Eagle Ford in the United States. The Company has oil and gas operations in Canada and the United States.

Key highlights

• Strong production in FY 2021, and positive projection for FY 2022: Robust performance of oil wells throughout the period resulted in production of 80,156 boe/d, which was slightly higher than the annual projection range of 77,000 - 79,000 boe/d, which is a significant positive. Furthermore, the business provided robust production guidance for FY 2022, ranging from 80,000 to 83,000 boe/d.

• Maximizing free cash flows: As a result of strong output and higher commodity prices, the company's cash flow from operations climbed to CAD 712.3 million from CAD 353.0 million in pcp, while free cash flows increased to CAD 421.3 million from CAD 18.0 million. Furthermore, it aims to earn more than CAD 550 million in free cash flow in 2022, which would be a significant plus.     

Source: Company Filing

• Curtailing net debt: The company prioritizes debt management in order to continue operations and support long-term ambitions. On December 31, 2021, the firm reduced its net debt by 24%, or CAD 437.9 million, to CAD 1.41 billion, compared to CAD 1.85 billion in pcp. The decrease in net debt is mostly due to the allocation of CAD 421.3 million of free cash flow in debt repayment. Furthermore, the business anticipates meeting its initial CAD 1.2 billion net debt target in Q2 FY2022, which is a huge bonus.
  

Risks associated with investment 

Since the company is in the oil and gas exploration sector, its revenues are linked to oil prices. Oil price volatility is anticipated to have an impact on the company's performance. Brent prices have recently shown significant fluctuation, reaching highs of USD 127.98/barrel on March 8, 2022, and presently trading at USD 101.48/barrel. Other variables that may have an influence on company’s financials include low demand for oil and gas, fluctuation in dollar index, and financial risk on the company’s hedged assets. 

Financial overview of FY 2021 (In 000 of CAD)

Source: Company Filing

• In FY 2021, the company’s reported total revenues increased to CAD 1,529.0 million, compared to CAD 811.7 million in the previous corresponding period. An increase was primarily due strong production and higher commodities realization price.
• On the back of impairment reversal worth of CAD 1,542 million in FY 2021, the company managed to report net income before tax of CAD 1,694.8 million against a loss of CAD 2,599.3 million in pcp.
• Primarily due to above stated reason the company transformed its net loss of CAD 2,438.9 million into net profit of CAD 1,613.6 million in FY 2021. 
  

Valuation Methodology (Illustrative): EV to EBITDA based multiple

Analysis by Kalkine Group 

Stock recommendation

In fiscal year 2021, the company generated good operating and financial success. Energy prices rose in tandem with rising demand as countries recovered from the COVID-19 epidemic, while supply remained constrained by OPEC production cuts and limited global oil and gas investment. In addition, the business pledged to maintain capital discipline, optimize free cash flow, and minimize net debt.

With ongoing operational momentum and current commodity prices, the company expects to produce more than CAD 550 million free cash flow in 2022, on the back of higher guided production. The company will also meeting its initial CAD 1.2 billion net debt target by the second quarter, which would be a significant positive. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating at the current market price of CAD 5.11 at 9:49 AM Toronto Time on March 15, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 15, 2022). Source: REFINITIV, Analysis by Kalkine Group 

 Technical Analysis Summary

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.