Cominar Real Estate Investment Trust

Cominar REIT (TSX: CUF.UN) is a Canada-based real estate investment trust (REIT) that owns and manages properties in Quebec's province. Its segments include Office, Retail and Industrial and flex. It holds a portfolio of approximately 331 properties, composed of office, retail and industrial and flex buildings, of which 201 are located in the Montreal area, 111 in the Quebec City area and 19 in the Ottawa area. 

Key highlights 

• An Income Play: The group has consistent track record of dividend payment. The company paid a monthly dividend of CAD 0.03 per unit payable on 31^st December 2020, which equates to an annual distribution of CAD 0.57 per Unit. At the last closing price, the stock was offering a dividend yield of 4.5%, which translates in an essential factor for regular income-seeking investors with a long-term horizon. Also, the company’s dividend yield is higher than the TSX Composite dividend yield of 3.3%. 

• Improved rent collection: Despite the headwind, the REIT’sconsolidated rent collection for the third quarter improved to 95.6% compared to 89.7% in the second quarter of FY20, which is impressive. Retail segment reflected the most significant positive change.

Source: Company 

• Implementing cost management to improve free cash flows: For minimizing the impact on free cash flows due to pandemic, the company is working to reduce operating expenses and capital expenditures. The group took various initiatives to reduce or deferring operating expenses and capital expenditures including reduction of tenant incentives, deferral of property tax and hydro payments, temporary layoffs and reduction of operating costs, including energy and cleaning and maintenance service costs. 

Financial overview of Q3 2020 (in thousands of Canadian dollars)

Source: Company 

• In Q3 2020, the Company reported total rental revenue of CAD 162.5 million, compared to CAD 171.5 million in the previous corresponding period. The decrease in rental revenue was primarily due to the fall in committed occupancy rate to 93.8% from 94.4% for the same period in 2019.
• Net operating income in Q3 2020 stood at CAD 80.9 million compared to CAD 91.44 million in Q3 2019.The fall in net operating income was primarily due to higher operating cost.
• The Company's net income in the quarter stood at CAD 44.1 million, compared to CAD 47.4 million in the previous corresponding period. The decline in net income was primarily due to low committed occupancy rate, a decrease of 8.1% in same property NOI and higher Trust administrative expenses.  

Risks associated with investment

The revenue and operating results depend significantly on the occupancy levels and rent collection; hence, any fluctuations in occupancy levels and business volumes would affect the group’s performance. 

Valuation Methodology (Illustrative): Price to Earnings 

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The company reported decent improvement in overall occupancy rate on a sequential quarter basis. The trust recorded an 8.8% growth in the average net rent of renewed leases for the first nine months of the year, driven by the industrial and office segments. Furthermore, the current liquidity position of CAD 397 million seems to be sufficient to pass through this challenging times. Further, an improvement in the rent collection and a decline in operating cost would further support its overall performance and free cash flows. Therefore, based on the above rationale and valuation, we have given a "BUY" rating at the closing price of CAD 8.0 on January 8, 2021. We have considered InterRent Real Estate Investment Trust, Killam Apartment REIT, and SmartCentres Real Estate Investment Trust, etc. as the peer group for comparison.

1-Year Price Chart (as on Source: Refinitiv (Thomson Reuters)

iA Financial Corporation Inc.

iA Financial Corporation Inc. (TSX: IAG) is a life and health insurance company, which offers life and health insurance products, savings and retirement plans, mutual funds, securities, auto and home insurance, mortgages etc.

Key Updates:

• Consistent Dividend Distribution: The company has a strong history of consistent dividend payment, backed up by stable operating performance. The company reported a dividend payment of CAD 156 million in 9MFY20, as compared to CAD 140 million, a year ago. At the last traded price, the IAG stock was offering an attractive dividend yield of ~3.43%, slightly higher than TSX Composite yield of ~3.30%.

10-year Dividend History (Source: Refinitiv, Thomson Reuters)

• Robust Financial Metrics: Over the years, the company reported a consistent growth in net premiums, premium equivalents and deposits, supported by additional sales and strong retention of in-force business. Asset under management (AUM) remained elevated, supported by consistent growth in gross sales and the stable return on assets, which are key long-term profitability drivers. Moreover, the organic growth is supported by the company’s comprehensive product offering along with a vast distribution network.

Source: Company Reports

Q3FY20 Financial Highlights:

• IAG announced its quarterly results, wherein the company posted a higher revenue of CAD 4,099 million, as compared to CAD 3,715 million in the previous corresponding period (pcp). The increase was driven by higher net premiums of CAD 3,248 million, as compared to CAD 2,189 million in pcp, partially offset by lower investment income (CAD 396 million versus CAD 1,110 million in pcp).
• Premiums and deposits stood at CAD 3.9 billion at the end of the third quarter, reflecting an increase of 43% y-o-y basis, primarily due to the added contribution from the Group Savings and Retirement and Individual Wealth Management business lines.
• The quarter was marked by a higher Policy benefits and expenses which stood at CAD 3,831 million, as compared to CAD 3,474 million in pcp. Income before income taxes stood at CAD 268 million, as compared to CAD 241 million in pcp.
• Net income was recorded at CAD 219 million, higher than CAD 189 million in Q3FY19.
• Cash and short-term investments stood at CAD 1,768 million, while IAG posted its total assets at CAD 82,825 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The group’s operations are linked to capital markets and interest rate movements. Any volatility in the capital market and interest rate would affect the group’s performance.

Valuation Methodology: Price to Book Based (Illustrative)

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

Stock Recommendation:

The stock closed above the long-term support levels of 100-days, 150-days and 200- days SMA, indicating a bullish price trend. The company has a solid balance sheet and a low debt ratio that provides strong financial flexibility. Moreover, with the ongoing digital transformation, along with the intervention of artificial intelligence, the group is expected to improve its client servicing and optimize operational efficiency. The group would implement Robotization to improve operational processes and to analyze predictive events, in order to reduce claims. We have valued the stock using the price to book value based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Sun Life Financial Inc, Bank of Montreal etc. Considering the aforesaid facts, trading levels, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 56.63 on January 8, 2021.

IAG 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.