First Quantum Minerals Ltd (TSX: FM) is a Canada-based company engaged in the production of copper, nickel, gold, zinc, silver and acid, and other related activities including exploration and development of mining properties. 

• Robust copper and gold production: The company recorded total copper production of 199,689 tonnes in Q2 2021, an increase of 18% over the previous equivalent quarter due to record production at the Cobre Panama mine. While gold output grew by 49% from Q2 2020 to 81,375 ounces, this was due to a record 35,898 ounces produced at the Cobre Panama mine and continuous supply from the Kansanshi mine.

Source: Company

• Reduced net debt: The company was able to generate good cash flows and reduced its net indebtedness thanks to agile management, cautious measures, healthy production, and higher average metal realization costs. The company's net debts were reduced by USD 311 million to USD 6,751 million in Q2 2021, and given the present strength of the copper price, a considerable further reduction is projected in the second half of this year.

Source: Company

• Higher production guidance: The management has shared production guidance for the different metals for 2021 where they expect copper production in a range of 785 – 850 (‘000 tonnes) and the gold production will be of 280 – 300 (‘000 ounces). However, by FY 2023 the company will be producing copper in a range of 820-880 (000 tonnes) and gold production to be in a range of 290-310 (000 ounces).

Financial overview of Q2 2021 (Expressed in millions of USD)

Source: Company

• The company reported higher revenues in Q2 2021, which increased 82% to USD 1,847 compared to USD 1,014 million in Q2 2020. The increased sales volumes of copper, gold and nickel, and a significant increase in the realized copper price were the prime reasons behind higher revenues.
• Operating profit stood at USD 588 million, against USD 77.0 million in the previous corresponding period.
• On the back of higher gross profit, the company posted healthy earnings before tax at USD 396 million, against a loss of USD 87 million in pcp.
• The company posted net profit of USD 214 million in Q2 2021, compared to a net loss of USD 184 million in pcp. The rise in net profit was primarily due rationales discussed above, partially offset by higher income tax expense.

Risks associated with investment

The Company is prone to commodity price risk from fluctuations in the market prices of copper, gold, nickel, zinc and other elements, interest rate risk, and foreign exchange risk. The demand for the metals is other factors that may cause the actual results, performance or achievements.

Valuation Methodology (Illustrative): EV to EBITDA

*1USD=1.26CAD 

Stock recommendation

The second quarter saw continued strong operational and financial performance. Additionally, the company is also pleased to see the progress at Cobre Panama as it ramps up to the targeted 85 million tonnes of throughput in 2021, which is a key positive. Recently, the company divested its 30% equity interest in the Ravensthorpe Nickel and expects the closure of the deal in Q3 which would contribute to the debt reduction program. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating on the stock at the closing price of CAD 23.88 on October 06, 2021. We have considered Teck Resources Ltd, Nevada Copper Corp, Lundin Mining Corp, etc. as the peer group for the comparison.

One-Year Technical Price Chart (as on October 06, 2021). Source: REFINITIV, Analysis by Kalkine Group

Bausch Health Companies Inc.

Bausch Health Companies Inc. (TSX: BHC) is a global specialty pharmaceutical, consumer health, and medical device company. The group operates through its branded products for the dermatology, gastrointestinal, and ophthalmology markets. 

Key Highlights:

• Approval of ARAZLO(TM) (Tazarotene) Lotion: Recently, the company received approval for its ARAZLO ^TM (tazarotene) lotion, 0.045%, from Health Canada. This is used for the topical treatment of acne vulgaris (common acne) in patients  above 10 years of age. The above medicine is formulated with PRISMATREX ^TM technology and has been shown to provide strong efficacy with a good tolerability profile. PRISMATREX ^TM technology is known for hydrating and moisturizers, which is expected to relieve dryness of skin.
• Growth in cash from operations: The company reported a surge in its cash flows and posted its cash from operating activities at USD 838 million in H1FY21, significantly higher than USD 461 million in pcp.
• Product pipeline looks promising: The company has a strong product portfolio, while its pipeline remains impressive as it has more than 200 projects in its global pipeline. The group expects Phase 3 clinical studies of its LUMIFY® Line Extensions in FY21. The group also expects clinical study results from New Ophthalmic Viscosurgical Device in Q4FY21. The company is focusing on intraocular lens and is expected to launch in the first half of FY22. The above products offer significant prospects for the business in the coming days.

Q2FY21 Financial Highlights:

• BHC announced its quarterly results, wherein the company posted revenue of USD 2,100 million, jumped from USD 1,664 million in the previous corresponding period (pcp). The improvement was primarily driven by higher income from product sales segment.
• The company reported a total expense of USD 2,370 million, increased from USD 1,691 million in pcp. The increase in expenses was primarily due to the higher cost of goods sold higher Selling, general and administrative costs coupled with slightly higher research & development expense.
• The group reported an operating loss of USD 270 million, up from USD 27 million in Q2FY20.
• The company posted a net loss of USD 593 million, as compared to a net loss of USD 325 million in Q2FY20.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: Due to the ongoing restriction caused due to pandemic, the group might witness a setback in its overall demand and furthermore witness a hindrance in the supply chain and logistics. 

Valuation Methodology (Illustrative): Price to Cash flow

Stock Recommendation:

In order to retain its market share, the company is continuously looking for key trends within the eye health market to meet the changing consumer needs and identify areas for investment and growth. The company continues to cater to the increased demand for new eye health products, which are inter-related to increased screen time activities, lack of outdoor activities and academic pressures, increase in aging population etc. We have valued the stock using Price to CF based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like Viatris Inc, Bristol-Myers Squibb Co etc. Hence, considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 34.75 on October 06, 2021.

One-Year Technical Price Chart (as on October 06, 2021). Source: REFINITIV, Analysis by Kalkine Group

BlackBerry Limited

BlackBerry Limited (TSX: BB), provides security software and services to enterprises and governments. The Company leverages artificial intelligence (AI) and machine learning to deliver solutions in cybersecurity, safety and data privacy and offers endpoint security management, encryption, and embedded systems. 

Key highlights

• Building new partnerships:AWS and BlackBerry have teamed up to create BlackBerry IVY, a new intelligent vehicle data platform. To ensure compatibility across car models and brands, it will enable different vehicle operating systems and multi-cloud deployments. BlackBerry IVY is expected to be released in an early access version in October 2021, followed by a commercial release in February 2022, with installations starting in 2023 model year vehicles.
• Impressive long-term goals: Recurring Software Products are the company's main source of revenue. A larger recurring revenue boosts repeat business while also ensuring performance consistency. The goal is for it to account for 90% of overall revenue, ensuring that the company's top line continues to expand steadily in the future. In FY21, the firm recorded a gross margin of 73%, and it is aiming for a gross margin of 80% to 85% in FY22. The company is also looking for a 25%–30% EBITDA margin, up from the current 16%. To meet the above objectives, the firm is concentrating on product innovation and future category investments, as well as implementing a scalable financial model based on increased recurring income.

Source: Company

• Rising addressable market: The products of the company are being used across several new areas due to the rising security concerns across the globe. We believe the above increase in demand is likely to support the company’s operations, which is a key positive. Furthermore, by FY2025, the company is expecting a huge rise in its total addressable market, where IoT segment would be of around USD 45 billion, and the cyber segment will be of around USD 44 billion. This rising share provides large opportunities to the company.

Source: Company

Financial overview of Q2 2022

Source: Company

• In Q2 2022 the Company reported consolidated revenue of USD 175 million, which decreased by 32% compared to USD 259 million in the previous corresponding period. Although, the performance from Cyber Security and IoT segment were decent, but the Licensing and Other segment did not perform well due to which the consolidated revenues declined.
• On the back of lower revenues and higher cost of sales, the gross profit fell to USD 112 million compared to USD 199 million in pcp.
• The company saw higher operating expenses due to debentures fair value adjustment and reported an operating loss of USD 141 million compared to USD 22 million in pcp.
• Net loss in the reported period stood at USD 144 million against USD 23 million in pcp.
  

Risks associated with investment

The company’s product requires constant innovation in order to remain competitive and to retain its market share. Hence, this could cost higher R&D expenses, which might impact the company’s profitability and cash flows.

Valuation Methodology (Illustrative) EV to Sales

Stock recommendation

The Cyber Security business unit delivered robust sequential billings and revenue growth, the IoT business unit also performed well in the face of global chip shortage pressures. In IoT, design activity for the company’s QNX products remains very strong, demonstrating both the industry leadership position and secular trends. Furthermore, in Cyber Security the received strong third-party validation of the effectiveness of its AI-driven products. Also, on the back of new partnerships and new product launches, we expect the group to release healthy numbers in the upcoming time. Moreover, by FY2025, the company is expecting a huge rise in its total addressable market, which would provide large opportunities. Therefore, based on the above rationale and valuation done using the above methodology, we have given a "Hold" rating on the stock at the closing price of CAD 11.82 on October 06, 2021.  We have considered ProntoForms Corp, Absolute Software Corp, Citrix Systems Inc etc. as the comparison's peer group.

One-Year Technical Price Chart (as on October 06, 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.