Alamos Gold Inc

Alamos Gold Inc (TSX: AGI) operates through the exploration and production of gold and other precious metals and has a presence across Canada and Mexico. The group has three active mines across North America, which are the Young-Davidson Mine in Canada and the Mulatos and El Chanate Mines in Sonora, Mexico. 

Key Highlights:

• Operational Update: Recently, the company conducted exploration activities at Young-Davidson Mine, wherein the company reported extended gold mineralization from Inferred Mineral Resources of 150 meters. The group further reported potential high-grade gold mineralization intersecting point across the hanging wall ultramafic-mafic stratigraphy and within the footwall sediments. The group also conducted exploration activities on the 350 square km Goudreau Project located north of Wawa, Ontario. As per the plan of action, the group would perform activities like soil geochemical sampling, induced polarization and ground magnetic surveys, prospecting, and geological mapping in order to increase targeting and generate drill targets for the next stage of drilling.

• Strong Margin Profile: The company commands a higher margin as compared to its peers, which indicates higher operational efficiency. The group reported a decline in its cash costs per ounce of gold sold at USD 757/ounce in Q1FY21, from USD 759/ounce in Q1FY20. During Q1FY21, EBITDA margin and net margin stood at 53.40% and 22.50%, which was higher than the industry median of 39.8% and 14.60%, respectively.
  

• Encouraging FY21 Production Guidance: The company expects its FY21 gold production in between 470 to 510 koz, significantly higher than 427 koz in FY20. Total capital expenditure is expected in between USD 354 million to USD 384 million in FY21, higher than USD 246 million in FY20.

Q1FY21 Financial Highlights:

• Alamos Gold Inc declared its first quarter result and reported a revenue of USD 227.4 million, higher than USD 176.9 million in the previous corresponding period (pcp). The growth was supported by higher gold prices of USD 1,798/oz v/s USD 1,582/oz in pcp.
• Earnings from operations stood at USD 76.3 million, jumped from USD 46.2 million in the previous corresponding period (pcp). The period witnessed higher mining and processing costs (USD 92.7 million v/s USD 82.5 million in pcp), an increase in exploration expense (USD 2.9 million v/s USD 2 million in pcp), partially offset by marginally lower corporate and administrative costs (USD 6.1 million v/s USD 6.2 million in pcp).
• The company turned profitable and posted net earnings of USD 51.2 million, as compared to a net loss of USD 12.3 million in pcp.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The company’s operation is directly correlated with the international gold prices, and a correction in the commodity prices would likely impact the company’s revenue and cash flows.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

Over the years, the group has constantly upgraded its assets that lead to an increase in the mineral reserve, which is a key positive. A growing reserve base indicates a higher possibility of ore mined in coming quarters. The company reported a surge in the cash flow from operations at USD 99 million in Q1FY21, significantly higher than USD 57 million in pcp. Additionally, total debt has been reduced to USD 0.4 million in Q1FY21, from USD 100.6 million in Q1FY20, which further illustrates prudent capital management. We have valued the stock using the Price to CF based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers B2Gold Corp, OceanaGold Corp etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 9.76 on July 20, 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 20, 2021). Analysis by Kalkine Group

Maxar Technologies Inc

Maxar Technologies Inc (TSX: MAXR) is an integrated space and geospatial intelligence company with a full range of space technology solutions for commercial and government customers including satellites, Earth imagery, geospatial data and analytics.

Key highlights

• Higher guidance for FY2021: The management highlighted strong revenue growth and expected it to be in a range of USD 1,760-1,840 million for FY2021. Moreover, it expects the adjusted EBITDA between USD 420-470 million, along with operating cash flow in a range of USD 260-290 million.

Source: Company

• Minimizing net debts: To attain financial flexibility, the company issued 10 million shares in a public offering at a price of USD 40 per share and used the proceeds to claw back USD 350 million of debt that was due in 2023. We believe this transaction strengthens its financial position and sets up the company for its continued growth. Also, this would improve the company's margin profile, which is a major plus.

Source: Company

• Robust backlog: The company is having a healthy backlog which stood at USD 1.8 billion as on March 31, 2021, along with positive book-to-bill ratio of 1.1x on a trailing 12-month basis. Furthermore, approximately 58% of the total backlog is expected to be converted into revenue in 2021, which is a key positive.
  

• Event update: The company would release its second quarter 2021 financial results after the market closes on Wednesday, August 4, 2021.
  

Financial overview of Q1 2021 (In millions of USD)

Source: Company

• In Q1 2021, the company reported revenue of USD 392 million against USD 381 million in the previous corresponding period. The increase of USD 11 million in revenue was primarily driven by the increase in revenue from Space Infrastructure segment partially offset by a decrease in revenue from Earth Intelligence segment. 
• The company posted lower operating loss of USD 7 million compared to USD 29 million.
• Net loss in the reported period stood at USD 84 million against USD 48 million in pcp. The rise in net loss was mainly due to impairment loss of USD 14 million and increase in interest expense due to USD 41 million loss on debt extinguishment from the partial redemption of its 2023 notes.
  

Risks associated with investment

The company’s business with various government entities is exposed to the risk associated with policies, priorities, regulations, mandate and funding levels. Furthermore, it requires innovative technologies to meet the needs of existing or potential new customers. It also faces competition that may cause either to reduce prices for imagery, related products and services or to lose market share. 

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

In Q1 2021, the company continued to make progress toward achieving the longer-term targets, including efforts to drive sustainable growth in both Earth Intelligence and Space Infrastructure segments and to reduce its debt and leverage. Although the revenue and earnings were negatively impacted by a USD 28 million charge related to the Sirius-XM7 satellite program. Importantly, the group issued ten million shares this quarter and used the proceeds to reduce indebtedness. We believe, this transaction would strengthen the financial position and further position the company for continued growth. Additionally, for 2021, the company expects to see revenue and adjusted EBITDA growth and improvement in free cash flow, which is a significant plus. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating on the stock at the closing price of USD 40.49 on July 20, 2021. We have considered Hexcel Corp, Lockheed Martin Corp, CAE Inc. 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 20, 2021). Source: REFINITIV, 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.