Dye & Durham Limited

Dye & Durham Limited (TSX: DND) is a Canada based company which offers business support services to organizations, government, and private firms through its cloud-based platform. The group offers legal services like due diligence, securities filings, litigation solutions, investigative services, court filing, KYC services, and financial risk management services.

Key Highlights:

• Increase in cash flows: The company reported higher cash from operations of CAD 79.354 million in FY21, as compared to CAD 33.167 million in pcp. The above is impressive as it increases the overall liquidity of the firm.
• Recent acquisitions to add improved prospects: The company made two meaningful acquisitions in the recent past, namely GlobalX Information Pty Ltd and Future Climate Info Limited. With the acquisitions, the company would enhance its product offerings and would cater to a new customer base. GlobalX Information Pty Ltd would expand its footprint across Australia delivering value to Australian legal, property and business professionals. On the other hand, Future Climate Info Limited (FCI) provides access to critical intelligence needed in assessing environmental risk in property transactions by analyzing proprietary data.
• Robust profitability margins: The company commands higher profitability margins as compared to its peers, which is encouraging. EBITDA margin and operating margin was recorded at 54.3% and 20.5%, respectively, in Q4FY21 as compared to the industry median of 8.6% and 1.7%, respectively. Additionally, the corporation reported its net margin at 7.5% in Q4FY21, as compared to the negative industry median of 3.2%.

FY21 Financial highlights:

• DND reported its annual revenue at CAD 208.945 million compared to CAD 65.510 million in FY20. The increase was driven by higher income from UK and Canada.
• The period was marked by higher direct costs, increase in technology and operations costs and general &administrative expenses. Moreover, sales & marketing and stock-based compensation also remained higher as compared to FY20.
• The company reported net loss of CAD 40.849 million, which widened from CAD 11.237 million in pcp. The period was marked by higher net finance costs and increase in amortization & depreciation.

FY21 Income Statement Highlights (Source: Company Report)

Risks: The company witnessed a higher input cost, which has taken a toll on the company’s margin and continuation of the above trend would act as a drag. A part of the group’s revenue is derived from the real estate conveyancing product line, which is prone to cyclicality due to seasonal patterns in the real estate market from fluctuations in real estate transaction activity.

Valuation Methodology (Illustrative): Price to Cash Flow Based

Stock Recommendation:

With the recent acquisitions the company is expected to generate improved prospects in the coming years. Moreover, the group has enhanced is offerings in the recent past which is expected to provide an edge amidst the changing business scenarios. We have valued the stock using the Price to CF based relative valuation method and have arrived at a target upside of single digit (in percentage terms). For the said purposes, we have considered industry median on an NTM basis as a proxy to target multiple. Hence, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 41.59 on October 05, 2021.

One-Year Technical Price Chart (as on October 05, 2021) Source: REFINITIV, Analysis by Kalkine Group

Exco Technologies Limited

Exco Technologies Limited (TSX: XTC) is a global designer, maker and producer of dies, moulds, components and assemblies, and consumable equipment for the diecast, extrusion and automotive segments.

Key Highlights:

• Improved margin: The company commands higher profit margins as compared to its competitors, which indicates enhanced operational efficiencies. EBITDA margin and operating margin stood at 13.2% and 8.7%, respectively, in Q3FY21, as compared to the industry median of 11.9% and 7.9%, respectively. Additionally, the group reported its net margin of 7.6% in Q3FY21, which was significantly higher than the industry median of 4.7%.
• Impressive dividend yield: The company has a track record of consistent dividend payment backed by stable cash flows. Notably, the company posted a dividend payment of CAD 11.585 million in H1FY21, as compared to CAD 11.170 million in pcp. The company reported a 14% CAGR growth in its dividend distribution from FY11 to FY21. Moreover, the stock of XTC carries a dividend yield of ~4.0%, which looks impressive considering the current interest rate scenario.

Source: Company Presentation

• Positive outlook: The company is currently targeting a ~10% CAGR in its revenues for the next five years. Moreover, the company is also focusing on improving its EBITDA and net income through several measures like the launch of new programs, general market growth, coupled with market share gains and operational efficiencies.

Q3FY21 Financial Highlights:

• XTC announced its quarterly result, wherein the group reported its revenue of CAD 114.967 million, higher than CAD 70.962 million in the previous corresponding period (pcp). The growth was driven by strong momentum from the automotive segment coupled with improved performance from the Casting and Extrusion segments.
• Total expenses stood at CAD 105.059 million, jumped from CAD 71.901 million in the previous corresponding period. The increase was primarily due to a rise in the cost of sales, increase in Selling, general and administrative expenses, partially offset by lower Depreciation and Amortization.
• The company reported a net income of CAD 8.682 million, as compared to a net loss of CAD 0.848 million in pcp.

Q3FY21 Income Statement highlights (Source: Company Report)

Risks:  The company might witness setbacks in its operations due to a rise in raw material cost, change in consumer preference etc. Moreover, the entry of any new players might ruin the market share and lead to price competition.

Stock Recommendation:

Due to the change in demand dynamics, consumers are preferring light-weighted vehicles for fuel efficiency and lower emissions. Hence, the light vehicle aluminum content market in North America is expected to remain favorable in the coming days. Exco has expertise in manufacturing complex aluminum components and associated tooling, and the company is highly poised to take advantage of the upcoming opportunities arising from the industry. On the valuation front, the stock of XTC is available at P/E multiples of 8.1x on an NTM basis, as compared to the industry (Consumer Cyclicals) median of 11.9x. Hence, considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 9.88 on October 05, 2021.

One-Year Technical Price Chart (as on October 05, 2021). Source: REFINITIV, Analysis by Kalkine Group

Firan Technology Group Corporation

Firan Technology Group Corporation (TSX: FTG) provides aerospace and defense electronic products and subsystems. The company has two operating segments, namely FTG Circuits and FTG Aerospace. FTG Circuits manufactures printed circuit boards within the global marketplace. 

Key Highlights:

• Constant reduction of total debt: Over the recent quarters, the company has reported a constant reduction in its total debt, which is a healthy sign and indicates prudent capital management. At the end of Q2FY21, the group reported the lowest total borrowings during the last five quarters.

• Win of new order: Recently, the company reported that it has received an order from the United States Defense Logistics Agency (DLA), wherein the former would provide electronic assemblies to retrofit airborne radar systems on various US Armed Forces aircraft. The above work will be done at the FTG facilities in Chatsworth, California.
• Improved liquidity: In Q2FY21, the company reported an improved quick ratio and a current ratio of 2.25x and 3.39x, respectively, as compared to the industry median of 1.78x and 2.52x, respectively. The above indicates that the company is well managing its short term liabilities and other short-term obligations through its current assets.

Q2FY21 Financial Highlights:

• FTG announces its quarterly result, wherein the company posted sales of CAD 20.330 million, down from CAD 26.822 million in the previous corresponding period (pcp). The decline was primarily attributable to negative impact on commercial aerospace activity due to pandemic. The company reported lower sales from Circuits (CAD 12.984 million vs CAD 19.599 million in pcp) due to reduced demand for commercial aerospace products.
• Gross margin declined to CAD 5.454 million, from CAD 8.674 million in pcp, due to lower income, partially offset by lower cost of sales (CAD 13.467 million versus CAD 16.678 million in pcp).
• Total expenses stood lower at CAD 4.876 million, as compared to CAD 5.374 million in pcp. The quarter was marked by lower Selling, general and administrative costs, marginally lower research and development costs coupled with a foreign exchange loss as compared to a foreign exchange gain in pcp.
• The group reported a net loss of CAD 0.011 million, as compared to a net profit of CAD 1.998 million in pcp.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The company’s top five clients constitute more than half of the company’s net sales, and hence any loss of clients would lead to lower financial performance.

Stock Recommendation:

An increase in Government stimulus would lead to higher defense spending and would subsequently support the company order book. Moreover, an increase in vaccination rate would further lead to the reopening of Air Transport, which is a key positive. On the valuation front, the stock is available at an EV to EBITDA multiples of 3.1x on an NTM basis, as compared to the industry mean of 9.6x. Hence, considering the above rationale, we recommend a ‘hold’ rating on the stock at the closing price of CAD 2.65 on October 05, 2021.

One-Year Technical Price Chart (as on October 05, 2021). Source: REFINITIV, Analysis by Kalkine Group

*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.