Brookfield Infrastructure Partners L.P. (TSX: BIP.UN) is one of the world's leading owners and operators of vital global infrastructure networks that help transfer and store energy, water, freight, passengers, and data. It is a global infrastructure entity that invests in outstanding infrastructure assets with great growth potential, reliable cash flows, and high profits.

Key highlights

• A mammoth player in its own field: Despite the adverse economic environment, the company's financial results have been at the cut above level. High industry and geographic diversification, ownership of long-life and vital assets, significant hurdles to entry into the sectors it operates in, and cash flows generated under long-term contractual or regulated frameworks all contribute to this. Furthermore, the company's cash flow profile is consistent and predictable, thanks to its disciplined approach to counterparty selection and capital structure.

• Impressive uptrend in revenue: The company's revenues are expanding sequentially, which is a major plus. Its revenue climbed by 28% to USD 3,252 million in Q4 2021, up from USD 2,534 million the previous corresponding quarter. Solid performance across all operating segments led to organic growth of 9%, reflecting the early benefits of higher inflation, the commissioning of nearly USD 900 million in capital projects over the previous year, and higher market-sensitive revenues, primarily due to increased demand for transportation services.

Source: Company Filing

• Higher cash from operating activities: The company's cash flows have shown exceptional stability and sustainability over the previous many years, confirming the infrastructure sector's attractiveness as an asset class. The company generated the largest cash flows in the last six years in FY 2021, with USD 1,733 million, which is a significant plus. Another plus is that the company generated stronger FFO in all segments in FY 2021, compared to previous corresponding period.

Source: Company Filing

• An income play: The company’s business is resilient and has reported stable cash flows over the years. Recently it approved a quarterly distribution increase of 6%, to USD 0.54 per unit in 2022. This marks the 13th consecutive year of distribution increases, reflecting its positive outlook. Moreover, at the last closing price of CAD 75.20 as of February 24, 2021, the stock offered a healthy dividend yield of 3.64%, which looks decent considering the current macros and interest rates.

Risks associated with investment

The company is exposed to a number of risk factors that, individually or in combination, can have an impact on its operations and financial health. The supply and demand for energy, as well as realization prices, currency rates, inflation, and interest rates, are all potential concerns. A prolonged economic downturn could adversely impact customers, contractors, and suppliers' ability to fulfil their obligations and could disrupt operations and financial health.

Financial overview of FY 2021 (in USD millions)

Source: Company Filing

• In FY 2021, the company recorded higher revenue at USD 11,537 million compared to USD 8,885 million in pcp. The higher revenues got befitted from healthy performance from every segment.
• Gross profit in the reported period stood at USD 2,884 million against USD 2,025 million in FY 2020, partially offset by higher direct operating cost and higher G&S expenses.
• On the back of robust other income of USD 1,749 million the company posted income before income tax of USD 3,333 million compared to USD 1,195 million in pcp.
• The company posted higher net income attributable to partnership at USD 1,093 million compared to USD 394 million in pcp, partially offset by higher income tax.
  

Valuation Methodology (Illustrative): Price to Cash Flow

Analysis by Kalkine Group 

Stock recommendation

The company had a remarkable FY2021, highlighted by strong organic growth, capital recycling accomplishments, and the deployment of significant capital into new investments and other growth initiatives. The company started this year with a strong liquidity position, and half of the FY2022 deployment targets were already secured, which is a significant plus. The USD 1,733 million in Funds from Operations this year represents a 19% increase over FY2020. The results were boosted by strong growth in the core business, complete recovery from shutdown-related consequences in 2020, and a considerable contribution from more than USD 3 billion spent in development programs.

Furthermore, the company's pinnacle position is based on a high level of industrial and geographic diversity, ownership of long-life and critical assets, and strong barriers to entry into the areas in which it operates. In addition, the company has a 3.64 percent dividend yield, which appears to be reasonable given the present macroeconomic conditions and interest rates. Therefore, based on the above rationales and valuation, we recommend a "Buy" rating on the stock at the at the closing price of CAD 75.20 as on February 24, 2022. 

One-Year Technical Price Chart (as on February 24, 2022). Source: REFINITIV, Analysis by Kalkine Group 

 Technical Analysis Summary

Enghouse Systems Limited

Enghouse Systems Limited. (TSX: ENGH) is a Canada-based technology company that provides software and services for a wide range of markets. Its operations are spread across all major countries as the United Kingdom, France, Germany, Sweden, India, Japan, etc. The company operates in two major segments namely, the Interactive Management Group and the Asset Management Group.

Key highlights

• FY21 Results:On December 16, 2021, the company announced its Q4FY21 results, stating a dip in its annual revenues by 7.3% to CAD 467.17 million for FY21 as compared to the revenues of CAD 503.77 million in FY20. This dip is majorly acknowledged to the one-time exceptional revenue from Vidyo of CAD 29.2 million which happened in FY20.

• Record Dividend distribution & strong liquidity management: For FY21 the company paid the record dividend of CAD 115.7 million which included a special dividend of CAD 83.2 million, recoding a steep rise of 329.3% from CAD 27.0 million in FY20. Considering the high valuations of technology companies, kept the management away from making any further acquisitions. The company closed the FY21 with cash and cash equivalents including a short-term investment of CAD 198.8 million. To simplify, below is the graphical representation of the Dividend per share.
  

Source: Company Filing, Analysis by Kalkine Group

• Industry beating margins: The company outperformed on the profitability front by reporting an EBITDA margin of 37.2% for Q4FY21 as compared to the industry median of 7.6%. On the threshold of the operating efficiencies, the company posted stellar operating margins of 25.4% vs the industry median of Negative 0.4%. The Net margins for the company in Q4FY21 stood positively at 26.7% as compared to the industry median of Negative 6.4%.
  

 Source: REFINITIV, Analysis by Kalkine Group 

• Technical chart pattern: The stock made touch the lows of CAD 35.87 in March 2020 and rallied from there, printing the highs of CAD 80.91 in September 2020. From there the stock started forming lower lows and lower highs and currently consolidating at the current levels of CAD 40. Encouragingly the Relative Strength Index is climbing up after touching the oversold territory of 30 levels and printed the readings of 44.18 as of now.
  

Risks associated with investment

The company is operating in the software services segment, which is prone to cyber security threats and scams which could dampen the financials and image of the company. Along with that, the employee retention challenge is what the complete Information Technology sector is going through, which had increased its cost of operations, negatively impacting the margins. The latest changes in this sector demand the company to be on its feet in terms of innovation and sustain the price wars, which could be a major headwind for the company in near future. 

Financial overview of Q4FY 2021 (Expressed in CAD)

Source: Company Filing 

• Decrease in Revenues: The company posted a decrease in revenues of 6.5% to CAD 113.09 million in Q4FY21 as compared to CAD 120.89 million in pcp. The decline was a result of hosted and maintenance revenue which was coming from the lower hardware support for Vidyo.

• Operating Income: The competitive environment and rising cost of operations lead to the dip in the revenues from the operating activities to CAD 39.13 million in Q4FY21 vs the CAD 42.69 million in pcp. There was a special charge of restructuring related to the acquisitions, of CAD 31 million in Q4FY21 which pulled down the operating revenues.

• Rise in Net Income:  For Q4FY21 the company reported the Net Income of CAD 30.18 million, which is marginally higher around 2.8% from the Net Income of CAD 29.37 million in Q4FY20.
  

Valuation Methodology (Illustrative): Price to Earnings Multiple Based

Analysis by Kalkine Group 

Stock recommendation 

The company experienced a slight decline in its revenues in FY21 facing the competitive environment where the rising cost of employee retentions, labor shortage, and depleting price margins are major concerns. Striving hard through the headwinds, the company reported a Net Income of CAD 30.18 million, which is 2.8% higher than the previous corresponding period. Due to a lack of acquisition opportunities, the company generously distributed dividends to its shareholders, rather than hoarding the cash to themselves, strengthening the corporate governance practices of the company. The stock is valued using the NTM Price to Earning-based multiples, which shows the much of the space remaining for the stock to match with its peers.

Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 41.71 on February 24, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing. We have considered Altus Group Ltd., Celestica Inc., Dye & Durham Ltd. as the peer group for the comparison.

One-Year Technical Price Chart (as on February 24, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Technical Analysis Summary:

Torex Gold Resources Inc

Torex Gold Resources Inc. (TSX: TXG) is a Canada-based intermediate gold and other precious metals producing company. The company is also engaged in the exploration and development of its wholly owned Morelos Gold Property.

Key highlights

• Production Update: On February 23, 2022, the company came up with its Gold production numbers which went at the record highs. The total production for the FY21 was 468,203 ounces which is at the upper range of the guidance of 430,000 to 470,000 ounces. Despite facing the challenges of rising costs of raw material, labor shortage, supply chain disruptions related to ongoing COVID 19, the company was able to meet its budgeted cost allocation and deliver the all-in sustaining margin of 47%.    

• Adhering to World Gould Council policies and strengthening on the ESG front: On October 29, 2021, the company came up with its 1-year Regional Gold Mining Principles (RGMP) implementation Progress Report. This was in conjunction with the limited assurance from KPMG LLP, stating it met the requirements laid down by the World Gold Council. On the Environmental Social and Governance front, the rating agencies, such as MSCI raised TXG to A from BBB, Refinitive to B from C+, and ISS governance rated it as 1.

• Improved Cash flows: For FY21 the company reported cash flows from the operating activities of USD 365.2 million compared to the USD 328.8 million in FY20. This strong set of numbers was because of the uptick in the Impairment provisions to USD 41.2 million in FY21 from USD 3.8 million in pcp. This rise in Cash Flows was slightly offset by the lower Depreciation and Amortization expenses of USD 198.7 million in FY21 from USD 224.0 million in FY20.

• Outlook for FY22: The company is quite optimistic about its gold production outlook for FY22, setting the range between 430,000 ounces to 470,000 ounces. The company has budgeted USD 39 million for the exploration and drilling activities for FY22.
  

Risks associated with investment

The company is primarily involved in the exploration and production of gold and other precious metals, where the underlying commodities are subject to global prices. Significant volatility and sustained downtrend deter the revenues, keeping the mining costs constant. Further, the hedging cost and slippages are also significant at times. Since the exploration activities are vulnerable to the government laws wherein the companies are supposed to restore the sites and prevent any major accidents happening during such activities, possess a risk to its operations. 

Financial overview of FY 2021

Source: Company Filing 

• Increase in Revenues: The company reported a significant growth in revenues from Metal Sales to USD 855.8 million in FY21 as compared to USD 789.2 million in pcp. The push was majorly from the increase in the total gold sales of 468,823 oz at an average realized gold price of USD 1,794 per oz in FY21 as compared to the gold sales of 437,310 oz at USD 1,771 per oz in FY20. 

• Improved Earnings from Mine Operations: For FY21 the company reported an increase of 27% in Earnings from Mining operations at USD 326.5 million as compared to the USD 257.2 million in pcp. This rise was despite the surge in the production costs to USD 304.9 million for the FY21 vs USD 277.2 million in FY20. The extra caution was stressed on the operational aspect because of which the Care and Maintenance cost was not reported in FY21.
  

• Net Income & Other Comprehensive Income:  For FY21 the company’s Net Income and Other Comprehensive Income came at USD 151.7 million which is close to 40% jump from the FY20 figures of USD 109.0. For FY21 there was a reduced Deferred Income Tax recovery amount of USD 14.0 million as compared to USD 48.8 million in FY20. Also, the company reported a gain on the Derivatives contracts of USD 3.1 million for FY21, where there was a loss of USD 36.4 million in pcp.
  

• Earnings per share: For FY21 the Earnings per share (basic) was USD 1.77 vs USD 1.27 in pcp. To further investigate, the diluted earnings per share for FY21 was 1.71 as compared to USD 1.25 in pcp.
  

Valuation Methodology (Illustrative): EV to Sales Based 

Analysis by Kalkine Group 

Stock recommendation 

The company delivered a positive return of 17.57% in the last one month and 12.96% returns in the past six months. The reported rise in gold production, which the company has been meeting its guidance for the past three years, reported annual production of 468,203 ounces which was supported by the milling rates and the record underground mining rates. The company faced the challenges of the rising cost of raw materials, labor shortages, supply chain disruptions and still came out with the all-in sustaining margin of 47%, which makes it a prominent player among its peers.

On the technical front, the stock made a high of CAD 25.52 in August 2020 and from there it was sold off at rallies. Currently, the stock has formed support at higher levels in the range of CAD 14 – CAD 15 and is trading above both the 50 DMA and 200 DMA, indicating the presence of the bulls in the stock. Further trend formation could be witnessed when the 50 DMA will cross over the 200 DMA and prices spend some time above those grounds.

Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 15.25 on February 24, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing. We have considered IAMGOLD Corp, Dundee Precious Metals Inc., Argonaut Gold Inc. as the peer group for the comparison.

One-Year Technical Price Chart (as on February 24, 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.