Wheaton Precious Metals Corp

Wheaton Precious Metals Corp (TSX: WPM) is a precious metal streaming company. The company has entered into over 20 long-term purchase agreements with 17 different mining companies, for the purchase of precious metals and cobalt.

Key highlights 

• Generated record revenue in Q1 2021: In the first quarter of 2021, the company generated record revenue of USD 324 million, which included USD 135 million in gold sales, USD 174 million in silver sales, USD 12 million in palladium sales, and USD 3 million in cobalt sales.
  

• Increasing free cash flows: On the back of agile management, record revenues and higher average realization price of metal in Q1 2021, the company generated an operating cash flow of USD 232.1 million, which increased 30.7% from USD 177.5 million relative to the previous corresponding period.
  

• Became debt free: The Company fully repaid USD 195 million under the Revolving Facility in Q1 2021 and became debt-free. We believe this would improve the company's margin profile, which is a major plus.

• Guidance on production: In 2021, the company expects to produce 370,000 to 400,000 ounces of gold, 22.5 to 24.0 million ounces of silver, and 40,000 to 45,000 gold equivalent ounces (“GEOs”) of other metals, for a total of 720,000 to 780,000 GEOs. It estimates that average production would be 810,000 GEOs over the five years ending in 2025, while for the ten years ending in 2030, its average annual production would amount to 830,000 GEOs.

• Increasing quarterly dividend: Recently the company declared its second quarterly cash dividend payment for 2021 of USD 0.14 per common share, an increase of 40% relative to the previous corresponding period. This increase in dividend distribution represented the third quarterly dividend increase in a row, which is praiseworthy.
  

• Event update: The company will release its FY2021, second quarter results on Thursday, August 12, 2021, after market close.
  

Financial overview of Q1 2021

Source: Company

• In Q1 2021, the company reported higher revenue at USD 324.1 million against USD 254.7 million in the previous corresponding period. Increased revenue was mainly due to a 27% increase in the average realized gold equivalent price.
• The gross margin stood at USD 175.1 million, against USD 123.0 million in Q1 2020. The company witnessed a drop in its total cost of sales at 45.9% V/s 51.7%, which helped grow gross profit.
• The company’s net income in the reported period pumped at USD 162.0 million, against USD 94.8 million in pcp. The rise in net income was mainly due to higher gross profit, lower expenses, lower finance cost and income tax recovery.
  

Risks associated with investment 

The Company’s financial performance is mostly dependent on the price of gold, which directly affects the profitability and cash flow. Any drawdown in the gold prices would impact the group’s performance. 

Valuation Methodology (Illustrative): EV to Sales 

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

*Premium (discount) is based on our assessment of the company’s growth drivers, economic moat, competitive advantage, stock’s current and historical multiple against peer group average/median and investment risks.

Stock recommendation

The company's broad, high-quality portfolio proved its strength and growth potential in the first quarter, with record sales and over USD 230 million in operating cash flow. As a consequence of this great performance, it has increased its dividend for the third quarter in a row and now has net cash on the balance sheet, which is a positive sign. Furthermore, the company added a new precious metals stream on a top-tier copper development project, Santo Domingo, which should provide additional growth. Additionally, it leaps the industry median margins on many fronts in Q1 2021, which is a key positive. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating on the stock at the closing price of CAD 54.92 on July 19, 2021. We have considered Franco-Nevada Corp, Agnico Eagle Mines Ltd. as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on July 19, 2021). Source: REFINITIV, Analysis by Kalkine Group 

CAE Inc

CAE Inc. (TSX: CAE) is a global company focused on delivering training for the civil aviation, defense, security, and healthcare markets. Multiple types of simulators and synthetic exercises may be sold to customers to serve as alternatives for live-training experiences.

Key Highlights:

• Improved Order Intake numbers: Although the Industry is adversely impacting with COVID-19 travel restrictions, the company has successfully managed to increase its order intake numbers to CAD 927.9 in Q4FY21 from CAD 778.8 during Q4 FY20. Moreover, the Book to Sales ratio for Q4 FY21 has been improved to 1.04 from 0.80 in pcp.

• Decline In total Debt: The company has successfully reduced its total debt to CAD 2,351.5 million in Q4FY21, from CAD 3,312.2 million in Q4FY20, amidst the ongoing economic turbulence, which is impressive. A decline in the total debt is encouraging, as it would lead to lower interest costs and an increase in profitability. Moreover, the company’s lower debt profile would lead to higher financial flexibility.

• Recent Collaboration: Recently, the company reported its collaboration with Volocopter, which is an urban air mobility business, wherein the group would develop, certify, and deploy an innovative pilot training program for electric vertical takeoff and landing (eVTOL) operations. The company would leverage CAE's advanced technologies such as Artificial Intelligence (AI), Virtual Reality (VR), Mixed Reality (MR) etc., for the above training program.

• Foray into a new segment: The company announced acquisition of L3Harris Technologies' Military Training business at a price consideration of USD 1.05 billion. This would expand the company’s position as a platform-agnostic training and simulation company serving the global defense and security market. Moreover, it would further enhance the company’s product offerings as a training and operational support solutions provider.

Q4FY21 Financial Highlights:

• CAE declared its quarterly results, wherein the company posted revenue of CAD 894.3 million, as compared to CAD 977.3 million in the previous corresponding period (pcp). The decline was due to a lower income generated from Civil Aviation Training Solutions and Defence and Security segment, partially offset by a strong performance from Healthcare segment.
• Gross profit was posted at CAD 237.1 million, down from CAD 311.7 million in Q4FY20, primarily attributable to lower revenue, partially supported by a lower cost of sales.
• The group’s operating income slide to CAD 47.6 million, from CAD 146.5 million in Q4FY20. The decrease was mainly due to a lower gross profit combined with the inclusion of restructuring costs amounting to CAD 58.6 million.
• CAE reported its net income at CAD 18.8 million, down from CAD 81.1 million in the previous corresponding period (pcp), slightly supported by an income tax recovery of CAD 3.2 million, versus an income tax of CAD 26.9 million in pcp.

Q4FY21 Income Statement Highlights (Source: Company Report)

Risk: The group derives a major part of the revenue from the aviation industry, and due to the ongoing lower operations on account of travel restrictions, most of the training programs were halted, which has impacted the company’s order flow. Continuation of the above trend would lead to a decline in cash flows and the company’s income levels.

Valuation Methodology (Illustrative): EV to Sales

Stock Recommendation:

CAE’s acquisition of Military Training business would bring scale, experience and capabilities, which would further support the company’s long-term strategy to align closely with the National Defense of United States. Moreover, with the gradual opening of the economies, we expect an improved demand from the aerospace segment in the coming days, which would further contribute to the company’s performance.

We have valued the stock using EV to Sales based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 34.70 on July 19, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on July 19, 2021). Analysis by Kalkine Group

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

Disclaimer

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