Profound Medical Corp.

Profound Medical Corp. (TSX: PRN) is a commercial-stage medical device company dedicated to the advancement and selling of customizable, incision-free therapeutic systems, primarily used for the ablation of diseased tissue. The primary products of the Company include TULSA-PRO® and Sonalleve®.

Q1FY20 Financial Highlights: PRN reported improved top line growth, while failed to retain the momentum in the bottom-line which ended in the red. Total revenue for Q1FY20 stood at 1.56 million, higher than CAD 1.47 million recorded in the previous corresponding quarter. The increase was primarily driven by growth in its service segment and an additional income from the lease of medical device segment while income from the product segment stood marginally higher over the previous corresponding quarter. Gross profit stood at CAD 0.59 million, compared to CAD 0.94 million in the previous corresponding period due to a substantial rise in the cost of sales. Total operating expenses surged to CAD 7.14 million against CAD 3.66 million in the previous corresponding period, due to a rise in general & administrative costs followed by an increase in the research & development expense. Selling and distribution stood at CAD 1.254 million, as compared to a recovery of CAD 0.53 million in pcp. Operating loss widened to CAD 6.55 million, as compared to CAD 2.72 million in Q1FY20, attributed by higher operating expenses. Net loss stood at CAD 3.61 million, as compared to CAD 2.92 million in the previous corresponding period. The Group exited the quarter with a cash balance of CAD 61.90 million, while total assets stood at CAD 82.67 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock of PRN has gained ~102% in the last one year, as investors had a positive sentiment regarding the company’s product line. The company seek to commercialize Sonalleve®, an innovative therapeutic platform used for the treatment of uterine fibroids and palliative pain treatment of bone metastases. Sonalleve® has also been approved by the China National Medical Products Administration for the non-invasive treatment of uterine fibroids. The other proprietary product of PRN named TULSA-PRO® has the potential to be a flexible technology in customizable prostate ablation, including intermediate stage cancer, localized radio-recurrent cancer. The group recently announced the first-ever U.S. multi-site imaging center agreement for TULSA-PRO® with RadNet, Inc. The group also repaid its long-term debt and have zero debt in its balance sheet. Notably, the stock is trading above the 200-days simple moving average (SMA) of CAD 14.56, which indicates a long-term bullish trend. The company is trading at a forward Price to Book multiple of 4x against the industry (Healthcare Equipment and Supply) average of 17.6x. Hence, we recommend a ‘Speculative Buy’ on the stock at the current market price of CAD 16.35 on June 11, 2020.

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

Sienna Senior Living Inc.

Sienna Senior Living Inc. (TSX: SIA) is a leading Canada-based seniors' living provider. The business offers a full range of seniors' living options, which includes independent living, assisted living, long-term care, and specialized programs and services while the group also provides expert management services.

The Company reported average occupancy in long-term care (LTC) at 97.9% during the first quarter of FY20. Due to the unprecedented circumstances on account of COVID 19 pandemic, the group withdrew its FY20 guidance. The management has announced a monthly dividend of CAD 0.078 per common share, payable on June 15, 2020.

Q1FY20 Financial Highlights: SIA announced its first-quarter result, wherein the Company posted revenue of CAD 166.43 million, as compared to CAD 163.66 million in Q1FY19. The marginal increase was due to inflationary increases in flow-through funding, partially offset by occupancy softness in the retirement segment. Income before net finance charges, transaction costs and provision stood at CAD 14.40 million, against CAD 12.62 million in Q1FY19, thanks to improved revenue followed by a decline in administrative expense, while higher operating expense remained a drag. The higher administrative expense was primarily attributed to higher labour costs and other annual inflationary increases. Net finance charges were significantly higher at CAD 16.78 million versus CAD 11.35 million in pcp primarily due to a fair value loss on interest rate swap contracts. Net loss during the quarter stood at CAD 2.49 million, as compared to a net profit of CAD 442 million. The group exited the quarter with cash and cash equivalent of CAD 60.98 million and total assets of CAD 1,718.72 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology: EV to EBITDA Based Relative Valuation (Illustrative)

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

Stock Recommendation: The business model of the Company depends on the growth rate in the population of senior citizen. The long-term outlook of the business remains solid as the Company caters to the ageing population, which is expected to grow in the coming years. At the current trading levels, the stock is offering a lucrative dividend yield of ~9% on an annualized basis, which will attract several income investors. Considering the aforesaid facts, a resilient business model and demographic potential, we remain upbeat on the stock. We have valued the stock using EV/ EBITDA based relative valuation approach and considered peers like Chartwell Retirement Residences (TSX: CSH), Extendicare Inc (TSX: EXE) and Dream Industrial Real Estate Investment Trust (TSX: DIR) etc. and arrived at a target price offering double-digit upside potential (in % terms).  Hence, we recommend a ‘Speculative Buy’ on the stock at the current market price of CAD 9.91 as on June 11, 2020.

SIA 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.