Canadian National Railway Company: (TSX: CNR) is in the rail transportation-related business, with miles of tracks across Canada and the USA. Its network and connections to all Class I railroad provide its customers access to Canada, the USA, and Mexico. It offers its services across industries such as automotive, coal, fertilizer, food and beverages, forest product, etc.

Key highlights:

• Strong FY21 operational performance: For FY21, the company reported increased revenue ton miles (RTM) to CAD 233,138 million against CAD 230,390 million in FY20. The group saved almost CAD 40 million in FY21 by reporting 29% of lower total accident costs when compared with FY20. The total car velocity (car miles per day) was increased by 5% in FY21 against FY20. In terms of fuel efficiency, CNR achieved 0.867 (US gallons of locomotive fuel consumer per 1,000 GTMs) against 0.894 in FY20. Below is the pictorial representation of how efficiently the group performed its operations in FY21.

Source: Company presentation

• Strong outlook for FY22: The group is optimistic about FY22 and expects to generate free cash flows of CAD 4.0 billion (approximate) as compared to the free cash flow of CAD 3.3 billion in FY21. The company is all set to invest around 17% of revenue in its capital program during FY22.

• Higher adjusted EBITDA: For FY21, the company reported an increased adjusted EBITDA of CAD 7,351 million against the adjusted EBITDA of CAD 6,995 million in FY20.

• Increased liquidity: The cash and cash equivalents for FY21 were increased to CAD 838 million against CAD 569 million in FY20. The net cash flow from operating activities surged to CAD 6,971 million in FY21 as compared to CAD 6,165 million in FY20. The higher liquidity will help the group to meet its operating expenses as well as carry out its expansionary plans.

• Corporate update: The company will release its Q1FY22 results after the market closes on April 26, 2022.

• Improved profitability margins: Below is the graphical representation of the improved profitability margins in FY21 as compared to the industry median.

Source: Refinitiv, Analysis by Kalkine Group 

Risks associated with investment

The group is exposed to any fresh lockdown restrictions coming up because of rising COVID-19 cases, along with the higher fuel and other input costs. The company is also facing the challenges of rising interest rates which may hamper its financials because of the heavy debt on its book.    

Financial overview of FY21 (Expressed in millions of CAD)

 Source: Company Filing

• The group witnessed an increase of 9% in the total revenue to CAD 14,477 million in FY21 as compared to the total revenue of CAD 13,819 million in FY20. Most of the revenue came from its fright revenue which climbed to CAD 13,888 million in FY21 against CAD 13,218 million in FY20. 

• The total expenses declined marginally to CAD 8,861 million in FY21 as compared to CAD 9,042 million in FY20. Because of falling labor and fringe benefits, and fuel expenses during FY21 against FY20, the group recorded lower operating expenses in FY21.

• The operating income, on account of shrinking operating expenses, increased to CAD 5,616 million in FY21 against the operating income of CAD 4,777 million in FY20.

• The company reported a Net income of CAD 4,892 million in FY21, vs CAD 3,562 million in FY20.
  

Valuation Methodology (Illustrative): EV to Sales based valuation

Source: Refinitiv, Analysis by Kalkine Group

Stock recommendation

For FY21 the group declared a dividend of CAD 2.46 per share which is higher than the total dividend of CAD 2.30 per share in FY20, offering a lucrative opportunity for the regular income-seeking investors. During FY21 the company has improved its operational performance on various fronts such as threshold pricing, enhanced carload, and intermodal business mix, priority train service at a premium price, to name a few. The increased revenues of CAD 14,477 million in FY21 against CAD 13,819 million in FY20 along with the declining operational expenses and improving fuel efficiency, reduced cost of accidents, are making the CNR a strong player in the railroad segment. For the valuation, we have considered Union Pacific Corp., CSX Corp, Canadian Pacific Railway Ltd., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing market price of CAD 158.00 on April 13, 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 April 13, 2022). Source: REFINITIV, Analysis by Kalkine Grou 

Technical Analysis Summary

Superior Plus Corp

Superior Plus Corp (TSX: SPB) is a diversified business corporation which operates three reportable operating segments: Energy Distribution and Specialty Chemicals. 

Key Updates:

• Acquisition of Quarles Petroleum Inc.: The company recently purchased the retail propane distribution and refined fuels assets of Quarles Petroleum Inc. at a price of ~USD 180 million. The acquisition is expected to be close in Q2FY22. Quarles Petroleum is an established retail propane distributor servicing approximately 55,000 residential and commercial customers primarily in Virginia and is expected to add meaningful prospects in the coming days.

• Closure of CAD 288 million of Equity Offerings: On April 2022, the company reported the closure of bought deal equity offering of 25,670,300 common shares and received gross proceeds of ~CAD 288 million. The company intends to use the net proceeds to reduce existing indebtedness and for general corporate purposes, including possible future acquisitions.
  

• Stable FY22 Guidance: For FY22, the management expects that the wholesale propane prices are likely to remain in line with FY21, which indicates revenue and cash flow stability and is a key positive. Moreover, the company is likely to continue to realize synergies from its recent acquisitions primarily through supply chain efficiencies, margin improvements and operational expense savings.
  

• Impressive Dividend yield: The company distributed a higher dividend of CAD 150.7 million in FY21, which is higher than CAD 125.6 million in FY20. This is impressive as most of the companies are lowering their dividend payment in order to retain liquidity. Moreover, the SPB stock carries a dividend yield of ~6.086% on an annualized basis, which looks impressive considering the futuristic interest rate scenario. The Board of Directors paid a monthly cash dividend of CAD 0.06 per share, payable on May 13, 2022.
  

Risk Associated with the Investment:

The company’s reported a havoc increase in input costs in the recent past, which has hindered overall performance. Hence, a continuation of the above trend would dampen the company’s profitability in the coming quarters.

FY21 Financial Highlights:

      FY21 Income Statement Highlights (Source: Company Report)

• SPB announced its full-year result, wherein the company posted its revenue of CAD 2,392.6 million in FY21, stood higher than CAD 1,806.9 million in FY20. The growth was supported by elevated propane prices coupled with the positive impact from acquisitions completed in the current and prior year.
• Cost of sales surged to CAD 1,479.9 million in FY21 from CAD 893.2 million in FY20, which resulted to a slightly lower gross profit of CAD 912.7 million in FY21, as compared to CAD 913.7 million in FY20.
• The period witnessed a rise in the total expense of CAD 889.8 million versus CAD 786.6 million in FY20 due to an increase in Selling, distribution and administrative costs and a surge in finance costs. This resulted in a lower Earnings before income taxes of CAD 22.9 million versus CAD 127.1 million in FY20.
• Net earnings stood higher at CAD 206.7 million, as compared to CAD 86.8 million in FY20, due to lower income tax expense combined with higher earnings from discontinued operations (CAD 189.5 million v/s CAD 24 million in FY20).

  Valuation Methodology (Illustrative): Price to CF-based

Analysis by Kalkine Group

Stock Recommendation:

The company company has reported strong sales growth FY21, and expects the momentum to continue driven by the recent acquisitions. In the recent past, SPB has implemented several cost-savings initiatives, which would help the company to battle the ongoing inflation. 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 AltaGas Ltd, Gibson Energy Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the last closing price of CAD 11.83 on April 13, 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 April 13, 2022). Analysis by Kalkine Group 

 Technical Analysis Summary

Dundee Precious Metals Inc

Dundee Precious Metals Inc. (TSX: DPM) is into mining with its operations spread globally. The company is primarily engaged in the exploration, development, mining, and processing of precious metals. Its key reportable operating segments are Chelopech and Ada Tepe in Bulgaria and Tsumeb in Namibia.

Key highlights:

• Q1FY22 preliminary production updates: For Q1FY22, the company reported its preliminary production data across all its mines and smelters, stating the output from Chelopech stood at 41,500 ounces of gold, which was above the estimates. The total output from Ada Tepe was 21,400 ounces of gold also came above the expectations and Tsumeb smelter processed close to 47,200 tonnes of complex concentrate all during the Q1FY22.

• Debt Free balance sheet: Despite operating in a capital-intensive sector, DPM followed a very cautious approach and managed to stay debt-free, whereas the industry median debt to Equity ratio stood at 0.22x.

• Improved adjusted EBITDA: For FY21, the company witnessed an increased adjusted EBITDA of USD 336.85 million as compared to USD 319.32 million in FY20. The Ada Tepe mine reported an increase in its adjusted EBITDA of USD 182.17 million during FY21 vs USD 156.20 million in FY20, contributing almost half of the total adjusted EBITDA of the group.

• Increase in the mine life extension: On March 31, 2022, the group announced a mine life extension, optimized life of mine (‘LOM) plan, and other updates on the Chelopech mine in Bulgaria. This extension will result in an increased production of close to 286,000 ounces of gold and 47 Mlbs (Million pounds) of copper between 2022 and 2030, implying higher recoveries for gold and copper. 
  

• Improved profitability margins: Below is the graphical representation of the improved profitability margins in Q4FY21 as compared to the industry median.

  Source: Refinitiv, Analysis by Kalkine Group 

Risks associated with investment

The group is exposed to the commodity prices, whereas any significant unfavorable movement will negatively impact the financials. Besides this, the other risks that the company is facing are Environmental, Social, and Governance compliance norms, shortage of labor, input costs, and supply chain disruption to name a few.    

Financial overview of FY21 (Expressed in thousands of USD)

 Source: Company Filing

• For FY21, the company recorded an increase in revenue to USD 641.44 million as compared to the total revenue of USD 609.55 million in FY20. The increase in the average realized gold price in FY21 to USD 1,790 per ounce from USD 1,709 per ounce in FY20, elevated the revenues. The revenues from gold in FY21 climbed to USD 499.63 million vs USD 462.91 million in FY20, contributing to the increased total sales. 

• The total cost and expenses increased to USD 412.02 million in FY21 vs USD 391.63 million in FY20. During FY21, the cost of sales escalated to USD 359.94 million as compared to USD 330.85 million in FY20, pushing the overall cost and expenses of the group.

• The earnings before income taxes rose to USD 229.41 million as compared to USD 217.92 million in FY20.

• The company reported Net earnings of USD 209.82 million in FY21, against USD 194.86 million in FY20.
  

Valuation Methodology (Illustrative): EV to Sales based valuation

Source: Refinitiv, Analysis by Kalkine Group 

Stock recommendation 

The company recently declared the first quarter dividend of USD 0.04 per common share, (an increase of 33% to its quarterly dividend), payable on April 18, 2022. The management is optimistic about the FY22 and expects the gold production to range between 250,000 and 290,000 ounces in FY22, keeping the all-in-sustaining cost within the range of USD 750 to USD 890 per ounce of gold. During FY21, the group increased its cash balance to USD 334.37 million against the cash balance of USD 149.53 million in FY20, indicating enough liquidity for the company to meet its operating expenses as well as strategic expansion plans.  On the valuation front, the stock is measured on the EV to Sales and the stock is currently trading at a multiple of 1.2x during FY21 against the industry median (Basic materials) of 1.7x, implying there is enough room for the stock to match its peers. For the valuation, we have considered New Gold Inc. Torex Gold Resources Inc., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing market price of CAD 7.81 on April 13, 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 April 13, 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.