Sienna Senior Living Inc

Sienna Senior Living Inc. (TSX: SIA) offers a full range of seniors’ living options, including independent living, assisted living, long-term care, and specialized programs and services.

Key Highlights:

• Balanced Portfolio: The company has a stable portfolio, which consists of both government-funded long-term care residences and private-pay retirement residences, which augers well for stable performance irrespective of economic cycles. The company is operating for the last 48 years and has 43 long-term residences, 27 retirement residences and 13 managed residences. As the operation of the company is directly linked with the aged population, we believe, the long-term prospect remains healthy.
• Stable Financials and liquidity: The company maintained a stable financial profile over the years, supported by more than 99% of rent collection and more than 80% of occupancy rate. The corporation reported stable liquidity of CAD 240 million, which seems sufficient to withstand the current challenging environment.

• Consistent dividend payment: Despite the challenging operating environment, the company continued with its dividend distribution, which is encouraging from an income investor’s stand point. The Board of Directors declared a monthly dividend of CAD 0.936 per Common Share payable on December 15, 2020. At the last traded price, the stock was offering a dividend yield of 7.12%, which is lucrative considering the low interest rate environment.

Q3FY20 Financial Highlights:

• SIA announced its quarterly results, wherein the company posted revenue CAD 166.850 million, as compared to CAD 167.947 million in pcp. The slight decline was primarily due to occupancy softness, partially offset by an improvement in the annual rental rate.
• Operating expenses stood higher at CAD 137.895 million compared to CAD 127.785 million in pcp, which resulted in a lower EBITDA of CAD 19.105 million, down from CAD 34.565 million in Q3FY19.
• The company reported a net loss of CAD 6.484 million, as compared to CAD 3.763 million in pcp, due to higher operating and administrative expenses, partially offset by lower net finance costs and a recovery in income tax of CAD 2.720 million.
• The company ended the quarter with cash and cash equivalents of CAD 88.795 million, while total assets stood at CAD 1,733.832 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: Due to the COVID 19 pandemic, the group might face lower occupancy. Further, higher cost related to sanitization would result in higher operating cost, which might hinder the profitability.

Valuation Methodology: EV to EBITDA Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

The company has high-quality care and community offerings, which focus on improved resident experience, along with health and safety protocols of the residents. Furthermore, the population above 80 plus cohort is expected to more than double over the next 20 years to 3.4 million, which augurs well for the long-term prospect of the group. The company focused on cost-controlled measures and has lowered its net pandemic expenses by 8% from Q2FY20, which is encouraging. The company further received various financial funding from governments, which supports the group’s operations. We have valued the stock using EV to EBITDA based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Chartwell Retirement Residences, Extendicare Inc etc. Hence, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 13.14 on November 16, 2020.

SIA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Extendicare Inc.

Extendicare Inc. (TSX: EXE) is a long-term care facilities company. The business has five segments, including Long-term care; Retirement living; Home health care; Other Canadian operations and Corporate segment. 

Key Highlights:

• Stable Occupancy Rate: Despite the current economic downturn, the company reported average occupancy rate at above 95%, which is commendable. Furthermore, the company has approvals on several redevelopment projects and working to improve project economics before proceeding. Net operating margin stood fairly stable above ~10%, which represents operational resiliency.

Source: Company Reports

• Diverse Source of Revenue: The company offers several services like Long-term Care, Retirement-living, Home Health Care and Assist/ SGP, which offers operational diversification and less concentration on one source, which is a key positive. The business model offers sufficient growth as it renders services which are required for the aged population and is expected to remain elevated in the foreseeable future.
• An income play: Despite the challenging operating environment, the company continued to distribute dividend. The company announced a monthly dividend of CAD 0.04 per common share, payable on November 16, 2020. At the last traded price, the stock was offering a dividend yield of ~7.87%, which would attract several income seeking investors. 

Q3FY20 Financial Highlights:

• EXE announced its quarterly results, wherein the company posted revenue of CAD 296.786 million compared to CAD 282.733 million in the previous corresponding period (pcp). The rise was aided by additional income from funding related to COVID-19 amounting CAD 28.7 million, LTC funding enhancements, expansion of the retirement living operations and growth in other operations, partially offset by a lower home health care volumes.
• Earnings before depreciation, amortization, and other expense stood at CAD 63.794 million, as compared to CAD 23.846 million in Q3FY19, thanks to higher revenue and a lower operating expense.
• Net earnings were recorded at CAD 34.466 million, significantly higher than CAD 7.259 million in pcp.
• Cash and cash equivalents stood at CAD 170.061 million, while total assets came at CAD 930.556 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: Due to COVID 19 pandemic the company might witness low occupancy rate.

Stock Recommendation:

Extendicare is one of Canada’s largest seniors care providers and offers high-quality care. We believe technology-driven transformation would likely to improve performance and organic growth for the corporation in the foreseeable future. The company reported an improved financial performance year over year in retirement from lease-up activity and in SGP from growth in client base. The company has strong financial flexibility and liquidity with CAD 170M of cash on hand at Q3 2020 and no scheduled debt maturities until Q1 2022. Moreover, the EXE stock offers an attractive dividend yield of ~7.87% on an annualized basis, which would appeal to several income investors. On the valuation front, the stock is available at forward EV to Sales multiple of 0.8x which is significantly lower that the industry (Healthcare Provider & Services) median of 2.0x. Hence, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 6.10 on November 16, 2020.

EXE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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.