Agnico Eagle

Agnico Eagle (TSX: AEM) is a Canadian gold mining company which produces precious metals since 1957. The group’s operating mines are situated in Canada, Finland and Mexico, while its exploration and development activities are located in each of these countries as well as in the United States, Sweden and Colombia.

Key Highlights:

• Ample Liquidity levels with prudent maturity date: The company has ample liquidity as on March 2021, which includes USD 1.2 billion of undrawn credit facilities and USD 132 million of cash and cash equivalents. This seems to be sufficient to fulfil its working capital and capital investments. Additionally, the group has manageable debt maturities at various tranches from 2022 to 2033, which ensures burden-free payment.                           

• Surge in Cash Flows and Higher Dividend Payment: The company reported a robust cash flow growth in Q1FY21 and paid a significantly higher dividend to its shareholders. Notably, the company posted an operating cash flow of USD 356.387 million in Q1FY21, surged from USD 163.358 million in pcp. On the other hand, dividend distribution rose to USD 72.970 million during the period, as compared to USD 37.494 million in Q1FY20. The company reported a consistent dividend payment for the last thirty-eight years, which denotes operational resiliency.

Q1FY21 Financial Highlights:

• AEM posted its quarterly results, wherein the company reported revenue of USD 934.392 million, which surged from USD 671.878 million in the previous corresponding period (pcp). The increase was driven by higher gold sales of 513,286 ounces v/s 410,883 ounces in Q1FY20. Moreover, a higher gold realization price at USD 1,780/oz v/s USD 1,579/oz in pcp also supported the top-line.
• The corporation reported a rise in production costs (USD 412.400 million v/s USD 356.102 million in Q1FY20) and an increase in amortization costs (USD 181.115 million v/s USD 153.509 million in pcp) coupled with a surge in general and administrative expense (USD 44.933 million v/s USD 30.543 million in pcp).
• The company turned profitable and reported a net income of USD 136.148 million, as compared to a net loss of USD 21.656 million in Q1FY20.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risk: As the performance of the group heavily relies on the commodity prices, any major correction in the international prices of gold would trigger the company’s performance as it would weigh high on the margins.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company reported a steep decline in its total debt at USD 1682.7 million in Q1FY21, reflecting a decrease of ~40% on y-o-y basis. A lower debt would lead to lower finance costs, which is encouraging. The company is focusing on potential drilling activities across its LaRonde Complex mine, Canadian Malartic and its Hope Bay mines, which has the potential to deliver positive outcomes in the coming days. We have valued the stock using the P/CF based relative valuation method and have arrived at a single-digit (in percentage terms) upside. For the said purposes, we have considered peers like Kinross Gold Corp, Altius Minerals Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of AEM at the closing price of CAD 76.52 on July 09, 2021.

One-Year Technical Price Chart (as on July 09, 2021). Source: REFINITIV, Analysis by Kalkine Group 

GFL Environmental Inc

GFL Environmental Inc. (TSX: GFL) is a leading diversified environmental services company, primarily operates in North America. The group provides a comprehensive line of non-hazardous solid waste management, infrastructure & soil remediation and liquid waste management.

Key Highlights:

• Acquisition: Recently, the company reported the acquisition of Canadian Stewardship Services Alliance (CSSA). The acquisition would help the group in delivering a comprehensive resource recovery and compliance solution to its clients. This would also diversify the company’s product portfolio, which is a key positive.

• Issuance of Senior Notes: On June 09, 2021, the company reported the completion of the issuance of USD 750 million of senior notes, with a due date of 2029. The proceeds would be utilized for repayment of the debt burden of the company. Furthermore, the company is also planning to utilize a part of the fund for general corporate purposes, including acquisitions.

• Improved cash flow: In Q1FY21, the company reported its cash flow from operations at CAD 212.7 million, as compared to a loss of CAD 50.2 million in Q1FY20. The improvement was driven by improved working capital management. Notably, the corporation reported Adjusted Free Cash Flow of CAD 102.1 million in Q1FY21, increased by CAD 85.2 million from the previous corresponding period (pcp).

Q1FY21 Financial Highlights:

• GFL declared its first quarter result, wherein the group reported revenue of CAD 1,186.6 million, jumped from CAD 931.3 million in the previous corresponding period (pcp). The growth was driven by strong momentum from the Solid waste segment (CAD 1,117.4 million v/s CAD 796.4 million in Q1FY20).
• The quarter was marked by an increase in the cost of sales (CAD 1,086.7 million v/s CAD 852.3 million in pcp), partially offset by lower selling, general and administrative expenses (CAD 133.2 million v/s CAD 155.1 million in Q1FY20).
• Loss before income taxes declined to CAD 315.5 million as compared to a loss of CAD 365.7 million in Q1FY20.
• Net loss lowered to CAD 226.2 million from a net loss of CAD 278 million in Q1FY20.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: A change in the revenue mix might hinder the company’s overall margins. The company reported a higher debt burden on y-o-y basis (from CAD 4,692 million in Q1FY20 to CAD 6,401 million in Q1FY21), and the continuation of the above trend would dampen the overall financial flexibility of the group.

Valuation Methodology (Illustrative): EV to Sales  

Stock Recommendation:

The company’s adjusted EBITDA stood higher at CAD 306.6 million in Q1FY21, as compared to CAD 222.8 million in pcp. Moreover, the adjusted EBITDA margin improved to 25.8% in Q1FY21, from 23.4% in pcp. The company’s operation categorized under the essential services and is immune to the economic cycles. We have valued the stock using the EV to Sales based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like Clean Harbors Inc etc. Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of GFL at the last traded price of CAD 39.50 on July 09, 2021.

One-Year Technical Price Chart (as on July 09, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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