Methanex Corp

Methanex Corp (TSX: MX) is a Canada-based leading producer and supplier of methanol to international markets in North America, Asia Pacific, Europe and South America. The company’s customers use methanol as a feedstock to produce end-products like adhesives, foams, solvents, and windshield washer fluids.

Key highlights 

• Well placed on Industry cost curve:  Methanex assets are positioned on the low-to-mid portion of the industry cost curve since the company’s plants are competitive across a wide range of methanol prices. The industry consists of several high-cost operators and get affected during the distress period of excess supply and demand; however, MX is successfully managing significant cost shift in the prices and thus remain indifference with the sudden change of prices.
  

• Industry leader: The company is the world leader in its division, with a global market share of 13%, more than twice that of its nearest rival. The firm serves many customers and works to improve global sourcing strategies while maintaining customer supply security. Furthermore, the company has a competitive advantage as the only manufacturer with well-established production and distribution in all major regions.

Source: company 

• Strong production guidance: Company has provided strong production guidance mainly for the plants of Geismar, New Zealand and Chile. Out of total 11 plants, company has reported total production estimate for 2021 of around ~6700K tonnes, total annual operating capacity of around ~9250K tonnes and future estimated potential of 11,150k tonnes.

• Higher cash flow from operations: Cash flows from operating activities increased in Q1 2021 and stood at USD 167 million compared with USD 142 million in the previous corresponding period. The rise was primarily a result of higher methanol pricing and higher earnings.
  

Financial overview of Q1 2021 (In thousands of U.S. dollars)

Source: Company 

• In Q1 2021, the company registered higher revenue to USD 1,015.5 million, against USD 745.0 million in the previous corresponding quarter. The increase was primarily due to higher average price realizations of USD 363 per tonne in Q1 2021 v/s USD 267 per tonne in the pcp and increase in total sales volume of 2.793 million tonnes in Q1 2021 v/s 2.788 million tonnes in pcp.
• Operating income stood at USD 179.0 million in the reported period compared to USD 66.4 million in pcp, mainly due to higher revenue.
• Adjusted EBITDA stood at USD 242 million for Q1 2021 compared with USD 136 million for the Q4 2020 and USD 138 million for Q1 2020. The rise in adjusted EBITDA was mainly due to the increased average realized price.
• The company posted earnings before tax at USD 154.2 million in Q1 2021, against USD 43.3 million in pcp. EBT increased mainly due to higher operating income and a rise in associates' earnings, partially offset by higher finance cost.
• On the back of the rationales discussed above, the company posted a healthy net income at USD 123.9 million in Q1 2021, compared to USD 33.7 million in pcp, partially offset by higher tax expenses.
  

Risks associated with investment 

The company is highly exposed to the volatility in the methanol prices in the international market, which can weigh on the group’s performance. Further, the hefty investment of around USD 60 million on the Geismar Project 3 could comprise the cost structure. Any failure in commencement of the project would severely dampen revenue and profitability of the company. Further the company is exposed to the forex risk as well. 

Valuation Methodology (Illustrative): Price to Earnings 

Stock recommendation

The company has ~13% global market share and has strong global customer base that are leading the industry. Additionally, the new market developments, ability to optimize global plans would further increase the company’s presence. Moreover, the increased production at the New Zealand and Geismar facilities and increased annual operating capacity of all the 11 plants would benefit the company’s operations in near term. The newly Geismar 3 project is a 1.8 million tonne methanol plant is under construction in Geisma. The management anticipates commencement of this new plant would bring remarkable change in the company’s operations and reduction in cost structure. Based on technical analysis, the stock has support at CAD 34.0 level. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 40.99 on June 17, 2021. We have considered LyondellBasell Industries, BASF, Superior Plus Corp, etc as the peer group for comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

1-Year Price Chart (as on June 17, 2021). Analysis by Kalkine Group

Questor Technology Inc.

Questor Technology Inc. (TSXV: QST) is an environmental cleantech company which is active in Canada, the United States, Europe and Asia. It is focused on clean air technologies that improves air quality, supports energy efficiency and greenhouse gas emission reductions.

Key Highlights

• Fulfilling client’s requirements from small scale to large scale:The Company's highly skilled technical staff collaborates with the customer to attain a combustion efficiency of 99.99 percent. The incinerators range in size from 20 mcf/d to 5,000 mcf/d and can handle small to big volumes of gas. Its incinerators are now employed in a wide range of energy infrastructure applications, including drilling, completions, production, midstream, downstream, transportation, and distribution which provides ample diversity.

• Enhancing regulations creates demand for the Company’s services:  The US Environmental Protection Agency (EPA) has announced regulations aimed at reducing harmful air pollution caused by crude oil and natural gas sector operations, with an emphasis on the effective destruction of volatile organic compounds (VOCs) and hazardous air pollutants (HAPs). Following this, California has prohibited open flaring by 2021, and other US states are attempting to improve waste gas emission rules. Mexico has set a goal of reducing methane emissions by 75% by 2025. All of these restrictions, we think, provide the Company with a chance to reduce venting through its clean combustion technology.

• Decent financial position: The company continues to maintain a strong financial position with CAD 15.7 million in cash accomplished through managing costs and maintaining capital discipline. We believe this, strong balance sheet would serve as a foundation to launch into new products and markets as the economy rebounds.

Financial overview of Q1 2021 (Stated in Canadian dollars)

Source: Company

• In Q1 2021, the company posted lower revenue, which fell by 66% to CAD 1.5 million against CAD 4.4 million in Q1 2020. Revenue decreased primarily due to lower performance from all the segments due to lower activities in oil & gas industry.

• The company reported a gross profit of CAD 0.03 million in Q1 2021 compared to a gross profit of CAD 1.9 million in the previous corresponding period.
• The company witnessed loss before tax at CAD 1.1 million against a profit of CAD 1.6 million mainly due to net foreign exchange losses and higher amortization along higher other expenses.

• Primarily due to lower revenue and above stated reasons, the company posted a net loss of CAD 0.8 million in the reported quarter against a profit of CAD 1.2 million in pcp.
  

Risks associated with investments

Global slowdown in macroeconomic environment and a lower crude oil demand offtake are the key risks for the company as it can have significant decline in demand for their equipment and services.

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

The Company’s operations and financial performance have suffered negative economic impacts, as COVID-19 and the macroeconomic environment continues to have a significant effect on the oil & gas industry, which curtailed its production. During the Q1 2021, many governmental health restrictions on economies around the world have started to lessen. This has been especially true in the United States. However, in recent weeks certain areas have seen a renewed level of economic restrictions as the pandemic’s third wave takes hold in markets such as Canada and India. Furthermore, the Company believes that the focus on ESG matters combined with an improved economic outlook and a stronger oil and natural gas commodity price environment will result in improved performance in the second half of 2021 and beyond. Based on technical analysis, the stock has support at CAD 1.4 level. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the closing price of CAD 1.71 on June 17, 2021. We have considered Computer Modelling Group Ltd, Pulse Seismic Inc, Superior Drilling Products Inc, etc. as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

One-Year Price Chart (as on June 17, 2021). Source: 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.