Mines

Quebecor Inc.

Quebecor Inc. (TSX: QBR.B) is a communication holding company, which operates through the Telecommunication segment and offers services like television distribution, internet access, business solutions, cable and mobile telephony and over-the-top video services. 

Key Updates

• An Income Play: The stock of QBR.B carries an annualized dividend yield of ~3.793%, which looks attractive considering the persisting interest rate scenario. Moreover, the company paid a total dividend of CAD 201.8 million in 9MFY21, higher than CAD 151.3 million in pcp.
  

• Robust Profit Margins: The group commands a solid profit margin compared to the industry median, which is a key positive as it indicates improved operational efficiency. Notably, in Q3FY21, the company posted EBITDA and operating margins of 45.3% and 27.3%, respectively, compared to the industry median of 26.2% and 15.6%. Moreover, its net margin for the quarter was 15.6%, higher than the industry median of 8.8%.

• Launch of an Ambitious Digital Project: Recently, the company launched QUB, which is a content stream aggregator and includes four segments like news, video, music, and radio. The user would access millions of content live or on-demand like news, video & radio clips, music playlists, podcasts etc., from one platform. As per the management, the above service would provide the best-in-class content across the Québec region and is expected to enhance consumer satisfaction with a superior browsing experience.

Q3FY21 Financial Highlights

• B announced its quarterly results, wherein the company reported CAD 1,148.2 million, compared to CAD 1,111.7 million in pcp. The increase was supported by higher income from the internet and advertising segments.
• The quarter was marked by higher employee costs and increased costs relating to goods and services. Income before income taxes stood at CAD 235.8 million v/s CAD 199.9 million in pcp.
• Net profit jumped to CAD 179.2 million from CAD 143.5 million in pcp, partially offset by slightly higher income taxes.

Q3FY21 Income Statement Highlight (Source: Company Reports)

Risks Associated with Income

The operations are capital intensive, and hence a shift in consumer demand would dampen the company’s ROE and profitability. Additionally, the company reported a constant surge in its total debt in the recent quarters, and the continuation of the above trend might impact its financial flexibility.

Valuation Methodology (Illustrative): P/E-Based Valuation

Stock Recommendation

The company witnessed strong traction within the media segment and reported a revenue of CAD 190.6 million in Q3FY21, supported by higher revenues from film production and audiovisual services, the TVA Network, and production and distribution coupled with a 13.5% y-o-y increase in advertising revenues. Notably, adjusted EBITDA from the media segment stood at CAD 36.6 million in Q3FY21, up 47% on a y-o-y basis. Continuation of the above trend is likely to support the company’s upcoming performance as well. We have valued the stock using the Price to earnings-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Cogeco Communications Inc, Corus Entertainment Inc, etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of QBR.B at the last traded price of CAD 29.00 on November 29, 2021.

One-Year Price Chart (as on November 29, 2021). Source: Refinitiv (Thomson Reuters)

*The reference data in this report has been partly sourced from REFINITIV. 

B2Gold Corp.

B2Gold Corp. (TSX: BTO) is a Canada based low-cost international senior gold producer. The company has three operating gold mines and numerous exploration and development projects in various countries, including the Philippines, Namibia, Mali, and Colombia.

Key Highlights

• Robust Production Figures: The company's total gold production in Q3FY21 was 310,261 ounces, with consolidated gold production of 295,723 ounces from its three operating mines. The consolidated gold revenue is USD 511 million on sales of 286,650 ounces at an average realized price of USD 1,782 per ounce in the third quarter of 2021. The increase in gold revenue by 5% was attributable to an increase in gold ounces sold by 13%, mainly due to the higher gold production and timing of gold shipments.

• Healthy Guidance: BTO has raised its overall gold production forecast range for the full year of 2021 to between 1,015,000 and 1,055,000 ounces, including 50,000 – 60,000 attributable ounces expected from Calibre. The original guidance was between 970,000 and 1,030,000 ounces. Hence the higher guidance is a key positive.

• Increase in Cash Flows: Operating activities generated USD 320 million in cash flow in Q3FY21, compared to USD 300 million in the previous similar period. In the reported period, the rise was primarily due to increased inflows of value-added tax receivables. Also, higher than expected gold output and sales volumes helped the group record a cash flow growth.

• Industry Beating Margins: The management's solid determination helped them leap the industry margins on many fronts in Q3FY21, which is a key positive. The chart below gives a glimpse of this.

Source: REFINITIV, Analysis by Kalkine Group

• Dividend Distribution:Based on BTO's stable net cash position, robust operating results and the current higher gold price environment, the group recently declared a dividend of USD 0.04 per common share (USD 0.16 per share on an annualized basis) for Q4FY21. Notably, the stock carries a dividend yield of ~3.98%, which looks impressive considering the current interest rate scenario.

Financial Overview of Q3FY21 (In USD thousands)

Source: Company

• Consolidated gold revenue for the third quarter of 2021 was USD 510.9 million against USD 487.2 million. A 5% increase in gold revenue was attributable to the increase in gold ounces sold by 13%.
• On the back of higher production costs and increased depreciation costs, the company's gross profit in the reported period declined to USD 235.2 million against USD 271.6 million in pcp.
• Operating income stood at USD 218.5 million compared to USD 426.9 million in pcp. The decline was due to the reversal of impairment of assets the company clocked in the previous corresponding quarter.
• Due to the above-discussed rationales, the net income for the period was USD 134.9 million, lower than USD 277.0 million in pcp.

Risks Associated with Investment 

The company's financial performance is primarily dependent on the price of gold, which directly affects its profitability and cash flow. Therefore, any drawdown in the gold prices would impact the group's performance.

Valuation Methodology (Illustrative): Price to Cash Flow

*1USD=1.28CAD 

Stock Recommendation 

We believe the company is delighted with its Q3 and 9MFY21 gold production results, as it has increased its overall gold production guidance to between 1,015,000 and 1,055,000 ounces, which is commendable, based on solid production performance to date. Furthermore, it is advancing its development initiatives while also assessing its portfolio and divesting non-core assets that do not match its investment standards to maintain a healthy level of liquidity. In addition, BTO has outperformed the industry profit margins on several fronts in Q3FY21, which, combined with a healthy dividend yield, is a big plus for investors. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 5.12 on November 29, 2021. We have considered Alamos Gold Inc, SSR Mining Inc, Endeavour Mining PLC, etc., as the peer group for comparison.

One-Year Technical Price Chart (as on November 29, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV. 

Taseko Mines Ltd 

Taseko Mines Ltd (TSX: TKO) is a Canadian mining company principally engaged in the production and sale of metals, as well as related activities, including exploration and mine development, within the province of British Columbia in Canada and the State of Arizona in the US.

Investment Highlights 

• Electric Vehicles – A Rapidly Emerging Market: The growth of the electric vehicle sector will have a significant influence on copper, with demand for the metal anticipated to rise by 1.7 million tonnes by 2027. Copper is being utilized to improve the efficiency of various electrical technologies, from motors and transformers to solar and wind energy systems, as the world moves toward a more sustainable and energy-efficient future.
  

• Robust Copper Prices: Due to depleted warehouse inventories and a unique supply squeeze attributed to smelter closures resulting from an Asian and European energy crisis, as well as continued supply chain challenges caused by the economic restart, copper prices averaged USD 4.25 per pound in the third quarter and are currently around USD 4.30 per pound. High copper prices, along with downside protection provided by copper hedges, enables solid financial success.
  

• Higher Cash Flows from Operations: The company produced 34.5 million pounds of copper in the third quarter, up 29% from the second quarter, as better ore grades were mined and processed from the Pollyanna pit. Copper recoveries improved as the ore grade increased. As a result, the company's cash flows from operations increased to CAD 68.3 million in Q3FY21, up from CAD 31.0 million in the previous corresponding period.

• Industry Beating Margins: The management's solid determination and resilience of business helped them beat the industry margins on many fronts in Q3FY21, which indicates improved operational efficiency. The chart below gives a glimpse of this.

Source: REFINITIV, Analysis by Kalkine 

Financial Overview of Q3FY21 (in CAD thousands)

Source: Company 

• The company reported higher sales of CAD 132.6 million against CAD 87.8 million in the previous corresponding period. The rise in revenue was mainly due to higher production.
• On the back of lower production costs and reduced depreciation expenses, TKO's earnings from mining operations in the reported period increased to CAD 66.7 million compared to CAD 11.8 million in pcp.
• Income before income tax stood at CAD 44.8 million v/s CAD 0.41 million in pcp, partially offset by a loss on foreign exchange.
• The company reported higher income tax at CAD 22.3 million and reported its net income at CAD 22.5 million compared to CAD 0.99 million in pcp.

Risks Associated with Investment 

Copper price volatility has a substantial impact on the company's business. Additional inherent risks associated with mining and mineral processing include the possibility that the company's mines will not perform as expected, uncertainty regarding its ability to secure additional capital to execute its business plans, and the speculative nature of mineral exploration and development. 

Valuation Methodology (illustrative): Price to Cash Flow based 

Stock Recommendation

In Q3FY21, the company's Gibraltar mine produced 34.5 million pounds of copper, up 29% from the previous quarter, as copper grades improved in line with its estimates and the mining plan. The copper markets remained strong throughout the quarter, resulting in an adjusted EBITDA of CAD 76.3 million, 60% higher than the previous quarter and 140% higher than the same period last year. Furthermore, as the number of electric vehicles grows, a newly developing market is emerging, with metal consumption estimated to rise by 1.7 million tonnes by 2027, a key positive for the company. TKO also has industry-leading margins, demonstrating its operational efficiency. Hence, considering the aforesaid facts and valuation, we recommend a 'Buy' rating on the stock at the last traded price of CAD 2.69 on November 29, 2021.

One-Year Technical Price Chart (as on November 29, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV. 

Andrew Peller Ltd

Andrew Peller Ltd (TSX: ADW.A) is amongst Canada's leading producers and marketers of quality wines and craft beverage alcohol products. The company markets wines produced from grapes grown in Ontario's Niagara Peninsula, British Columbia's Okanagan and Similkameen Valleys, and vineyards worldwide.

Key Highlights

• Expanding Product Offering: The company continues to expand its product offerings outside the traditional table wine segment into other alcoholic beverages, where it can leverage its detailed knowledge of growth opportunities in the Canadian market. It also plans to make packaging design changes that are more appealing to its target audience and are consistent with its initiative to be more environmentally friendly. In addition, new product launches and key brands through all of ADW.A's distribution channels will continue to receive increased marketing and sales support.

• Made Entry into Spirits and Craft Beer Categories: Thanks to its strategic collaboration with Wayne Gretzky, the company has expanded into the spirits and craft beer industries and produced ciders and seltzers under its brand labels. Furthermore, ADW.A expects that higher-priced premium wine and spirits sales will continue to expand in Canada, resulting in more significant margins and profitability than its lower-priced goods, which is a major positive.

• Disposed Port Coquitlam Property: On September 28, 2021, it completed the previously announced sale of its Port Coquitlam, British Columbia property and related assets for total proceeds of approximately CAD 8.8 million, net of transaction costs, and generated a realized gain on the sale of CAD 7.5 million or CAD 0.21 per Class A share.
  

• Deleveraging the Balance Sheet: The company's overall bank debt decreased to CAD 170.4 million as on September 30, 2021, from CAD 174.5 million on March 31, 2021, owing to the repayment of the debt, partially offset by working capital needs and increased investment in its properties and operations. Its Debt/Equity ratio improved to 0.62:1 on September 30, 2021, compared to 0.66:1 on March 31, 2021.

Financial Overview of Q2FY22

Source: Company

• In Q2FY22, the company clocked revenue of CAD 99.2 million compared to CAD 104.4 million in the previous corresponding period. However, on a sequential basis, the revenue increased by 7.4% as the government-mandated closures of restaurants and hospitality businesses were lifted.
• Gross profit for the period stood at CAD 40.0 million compared to CAD 41.5 million in pcp.
• On the back of higher S&A expenses and higher amortization of equipment, the company posted earnings before tax of CAD 16.6 million compared to CAD 16.5 million in pcp.
• A posted a net income of CAD 13.1 million in Q2FY22, compared to CAD 12.7 million in pcp.

Risks Associated with Investment

The company's sales of wine and craft alcoholic beverages products are affected by the general economic conditions and social trends as changes in discretionary consumer spending and consumer confidence, future economic conditions, changes to inter-provincial trade laws, tax laws, the prices of its products and health trends. Moreover, it also faces competition from low-priced imported wines.

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

This year's business has been hampered by a slew of the unforeseen market and operational challenges brought on by the COVID-19 epidemic. However, it is expected that these characteristics would gradually diminish when the epidemic subsides, which is a significant advantage. Looking ahead, the company believes that as markets return to more normal conditions, sales will grow and margins will improve, owing to excellent brand positioning, the continuous launch of new and creative products in both its core wine business and new product categories, and general expansion in the Canadian beverage alcohol industry. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating at the closing price of CAD 8.09 as on November 29, 2021.

One-Year Technical Price Chart (as on November 29, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV. 

Premier Health of America Inc.

Premier Health of America Inc. (TSXV: PHA) is a Canadian Healthtech company that provides a broad range of staffing and outsourced service solutions for healthcare for governments, corporations, and individuals.

Key Highlights

• Commencement of Second Paratransit Contract: Recently, the group reported the launch of the second five-year paratransit contract with the Government of Quebec. Notably, PHA received the two contracts in March 2021, wherein the company would provide non-ambulatory adapted medical transport facilities required to transfer patients for treatments and medical appointments between facilities in light vehicles and specialized equipment such as multi-position chairs bariatric chairs, central oxygen devices, etc. The above contracts were valued at CAD 18 million, which is likely to support the company’s organic growth.

• Impressive Guidance: For FY21, the company expects its revenue to range between CAD 65 to 66 million, compared to CAD 20.739 million in FY20. The growth was primarily aided by the acquisition of Premier Health of America Inc during FY21. Gross margin is expected in between 24.0% to 24.2%, with adjusted EBITDA ranging from CAD 5.6 to 5.7 million.

• Positive Technical: On the daily chart, PHA’s stock closed near its oversold 14-day RSI zone of 40.76, which indicates a possible upside from the current trading level. Moreover, the stock is also trading near the lower range of its 20-days Bollinger band, suggesting a potential price appreciation in the coming days.

Technical Price Chart (as on November 29, 2021). Source: REFINITIV, Analysis by Kalkine Group

• Improved Cash Flows: In 9MFY21, the corporation posted its cash from operations of CAD 1.658 million, higher than CAD 0.652 million in pcp, supported by a net income of CAD 2.178 million v/s a net loss of CAD 171.970 million in pcp. The above is impressive, as it supports the company’s overall liquidity.

Q3FY21 Financial Highlights

• PHA declared its quarterly result, wherein the company posted its revenue of CAD 18.636 million, significantly higher than CAD 5.509 million in pcp. The growth was primarily attributable to organic growth coupled with the addition of Code Bleu and Solutions Nursing PHA to the company’s results.
• The quarter witnessed a surge in direct costs due to a corresponding increase in income. Moreover, administrative expenses stood higher at CAD 3.358 million v/s CAD 1.020 million in pcp. Operating income stood at CAD 1.116 million, as compared to CAD 0.483 million in pcp.
• Net income for the period was recorded at CAD 0.637 million, compared to CAD 0.398 million in pcp, supported by higher operating income, partially offset by the increase in financial expenses and higher income taxes.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks Associated with Investment

The company might witness higher costs of recruiting and retaining staff due to a shortage of healthcare personnel in many of the regions in which it operates. The above might lead to an increase in input costs.

Valuation Methodology (Illustrative): Price to Earnings-based

Stock Recommendation

For 9MFY21, the company reported a higher adjusted EBITDA of CAD 4.210 million compared to CAD 1.513 million in pcp. The above was supported by elevated revenue due to the recent acquisition. We expect the above momentum to continue in the coming days, further supporting the company’s operations. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Owens & Minor Inc, Extendicare Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of PFA at the last traded price of CAD 0.83 on November 29, 2021.

One-Year Price Chart (as on November 29, 2021). Source: Refinitiv (Thomson Reuters)

*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.