Teck Resources Limited

Teck Resources Limited (TSX: TECK.B) is a diversified mining company and operates through coal, copper, zinc, and oil sands across Canada, the United States, Chile, and Peru. The company is the world's second- largest exporter of seaborne metallurgical coal and is a top-three zinc miner.

Key Updates:

• Robust quarterly performance: The group reported strong first quarter operational performance, in line with the management’s expectation. Higher commodity prices contributed to a very solid start to 2021. Adjusted profit attributable to shareholders of CAD 326 million, an increase of 247% compared to the same period last year. Adjusted EBITDA came in at CAD 967 million in Q1 2021, an increase of 59% compared to the same period last year.

• Executing on the copper growth strategy: The management indicated that copper production is likely to remain high in FY21 as compared to FY20. Total copper production is estimated within the range of 275-290 kt in FY21, higher than 275.7kt in FY20. The improved production level is supported by improved performance from Highland Valley and Antamina projects. In Q1FY21, the copper segment contributed highly to the overall EBITDA of the company and the continuation of the above trend would enhance the company’s upcoming profitability as well.

Q1FY21 Financial Highlights:

• The group announces its quarterly result, wherein the company posted revenues of CAD 2,547 million, higher than CAD 2,377 million in the previous corresponding period (pcp). The increase was driven by significant growth from the copper segment (CAD 767 million v/s CAD 570 million in pcp), partially offset by a lower income from the zinc segment (CAD 570 million v/s CAD 608 million in pcp).
• Gross profit soared to CAD 654 million, as compared to CAD 398 million in Q1FY20. The increase was driven by higher income coupled with a slide in the cost of sales (CAD 1,893 million v/s CAD 1,979 million in pcp).
• Profit from operation was recorded at CAD 603 million, as compared to a loss from operation of CAD 351 million in Q1FY20. The drastic difference was primarily due to an asset impairment expense of CAD 647 million in pcp.
• Net profit for the period was recorded at CAD 292 million, as compared to a net loss of CAD 311 million in pcp.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The group reported a constant surge in the total debt in the recent quarters, which remains as key challenge for the company, as it would dampen the financial position of the firm. Notably, total debt stood at CAD 8,308 million in Q1FY21, significantly higher than CAD 6,476 million in Q1FY20.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

Despite the ongoing economic downturn, the group reported its adjusted EBITDA at CAD 967 million for Q1FY21, significantly higher than CAD 608 million in Q1FY20, supported by a net income as compared to a net loss in pcp. From a macro perspective, the long-term demand for commodity, which the group produces is likely to remain high in the coming days. We have valued the stock using Price to Cash Flow based valuation method and arrived at a target offering single digit upside potential (in percentage terms). We have considered First Quantum Minerals Ltd, Hudbay Minerals etc. as a peer group for comparison. Hence, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 28.35 on June 9, 2021.

One-Year Technical Price Chart (as on June 09, 2021). Analysis by Kalkine Group

GFL Environmental Inc

GFL Environmental Inc (TSX: GFL) is a diversified environmental services company in North America, offering non-hazardous solid waste management, infrastructure & soil remediation, and liquid waste management services throughout Canada and in 27 states in the United States.

Key highlights

• Upsized private offering of senior notes: Recently, the company announced the pricing of USD 750.0 million in aggregate principal amount of 4.750% senior notes due 2029 in a transaction that was significantly oversubscribed. The offering was upsized by USD 150.0 million over the previously announced offering size of USD 600.0 million. It intends to use the net proceeds to redeem all of GFL's outstanding USD 360 million aggregate principal amount of 8.500% Senior Notes due 2027 and to repay borrowings under its revolving credit facility.
  

• Strong Traction from Solid waste segment: The majority of income, around 83%, comes from solid waste management, which is mostly sourced from municipal residential contracts and originates from big metropolitan areas or core markets. The business recorded a 260bps increase in Adjusted EBITDA margin (31.0% vs. 28.4% in pcp) during the quarter, owing to increased pricing and cost efficiency.

Source: Company

• Enormous increase in free cash flow: The company reported a significant cash flow generation in Q1 2021, with adjusted free cash flow expanding by 504.1% from CAD 85.2 million to CAD 102.1 million. Increased cash flow from operations drove the rise, which was somewhat offset by higher net capital expenditure.
  

Financial overview of Q1 2021 (In millions of CAD)

Source: Company

• GFL announced its quarterly result, wherein it posted revenue of CAD 1,186.6 million, higher than CAD 931.3 million in the previous corresponding period (pcp). The increase 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 marked by an increase in Cost of sales at CAD 1,086.7 million, against CAD 852.3 million in pcp, partially offset by a fall in SG&A expenses, which stood at CAD 133.2 million against CAD 155.1 million in Q1FY20.
• Loss before income taxes lowered to CAD 315.5 million, as compared to a loss of CAD 365.7 million in Q1FY20.
• Net loss compressed to CAD 226.2 million from a net loss of CAD 278.0 million a year ago.

Risks associated with investment

Public health outbreaks, epidemics or pandemics, such as the COVID-19 pandemic, is not the only risk associated with the business which could adversely impact the business of the company, other risks are also there such as increase in labor, disposal, and related transportation costs; fuel supply and fuel price fluctuations, etc.

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

When compared to Q1 2020, the firm started FY2021 on a high note, with solid waste pricing, volume recovery, and acquisition contribution all exceeding expectations, resulting in a 37.6% rise in Adjusted EBITDA and a massive rise in free cash flow. Terrapure Environmental was acquired in March, and the management believes that this deal provides a once-in-a-lifetime chance to purchase a highly complementary, free cash flow accretive collection of businesses at an attractive price. The deal is expected to finalize in the third or fourth quarter of this year. Hence, based on the rationales discussed above and valuation, we recommend a “Hold” rating on the stock at the closing price of CAD 39.03 on June 09, 2021. We have considered Clean Harbors Inc, Republic Services Inc, Waste Connections Inc, etc. as the peer group for the comparison.

One-Year Price Chart (as on June 09, 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.