Gibson Energy Inc.

Gibson Energy Inc. (TSX: GEI) is an oil infrastructure company that collects, stores, and processes crude oil and refined products. The company operates through two major segments, such as marketing and infrastructure.

Key Highlights:

• Ample Liquidity: The company has liquidity of ~CAD 800 million including revolving credit facility, bilateral facilities and cash balances, which seems sufficient to withstand the current challenging operating environment. Moreover, the company does not have any significant note maturities until 2025 following the redemption of the 2024 Notes.

Source: Company Presentation

• An income Play: The company reported consistent dividend payments over the years, with a dividend payout ratio of 70% to 80% historically. This was backed by stable cash flows, primarily underpinned by the performance of the company’s Infrastructure segment. At the last closing price, the stock was offering an impressive dividend yield of ~6.32% amid low interest rate environment.
• Consistently investing in infrastructure: The company invested ~CAD 1.75 billion within FY11 to FY20, including 11.5 mmbbl of tankage. The company is expected to sanction 2 to 4 tanks a year on run-rate basis in the current environment.

Source: Company Reports

Q3FY20 Financial Highlights:

• GEI announced its quarterly results, wherein the company posted total revenue of CAD 1,364.213 million, significantly lower than CAD 1,993.440 million in the previous corresponding period (pcp). The decline was primarily attributable to a lower income from the marketing segment (CAD 1,293.519 million, against CAD 2,000.519 million in Q3FY19), partially supported by an improved infrastructure revenue.
• Gross profit stood lower at CAD 73.289 million, lower than CAD 92.522 million in pcp.
• Income before income taxes stood at CAD 19.064 million, lower than CAD 63.631 million, a year ago, due to a lower gross profit, a significantly higher general and administrative expenses (CAD 15.322 million, as compared to CAD 6.601 million in Q3FY19) and a higher finance costs (CAD 38.063 million versus CAD 23.444 million in pcp).
• Net income stood at CAD 17.550 million, against CAD 48.319 million in pcp.
• Cash and cash equivalents stood at CAD 45.746 million, while total assets stood at CAD 3,046.069 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The marketing segment is continuing with several setbacks due to prevailing lower crude oil prices, and continuation of the above trend would dampen the company’s margins.

Valuation Methodology (Illustrative): Price to CF based

(Note: All forecasted figures and peers have been taken from Thomson Reuters).

Stock Recommendation:

The company reported impressive performance from its infrastructure segment due to additional tankage brought into service, coupled with stable fee-based contracts. On the flip side, the marketing segment has remained weak in the recent past. We believe, with the gradual increase in global crude oil demand, the commodity price would likely to improve in the foreseeable future and would drive the company’s top-line and margins. We have valued the stock using P/CF based relative valuation method and have arrived at a lower-double-digit upside (in percentage terms). For the said purposes, we have considered peers like Pembina Pipeline Corp, Keyera Corp etc. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 21.51 on November 25, 2020.

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

Cogeco Communications Inc.

Cogeco Communications Inc (TSX: CCA) is a communication corporation. The company is a cable operator in North America operating in Canada. It provides residential and business customers with the internet, video, and telephony services with broadband fibre networks. The reportable segments of the company are Canadian broadband services and American broadband services.

Recent Updates:

The company announced the appointment of Zouheir Mansourati for the position of Senior Vice President and Chief Technology Officer for both Cogeco Inc. and Cogeco Communications Inc, with immediate effect.

Key Highlights:

• Government’s commitment to improve connectivity: The company’s operations is likely to be benefited by the recent launch of CAD 1.75 billion of Universal Broadband Fund by the Canada Broadband, which would help the Canadians to access to high-speed Internet from any place. This announcement is aligned with the company’s goal and will enable it to pursue more infrastructure projects and reach more communities in Canada.
• Impressive growth from Atlantic Broadband: The company acquired Atlantic Broadband during 2012, which showed robust revenue growth and supported the company’s top-line. The segment covers ~923,000 households and ~190,000 businesses and provides ample room for future organic growth across all the service categories. The segment grew significantly from contributing ~16% to the group’s revenue in FY13 to ~46% in FY20.

Revenue Contribution Trend (Source: Company Reports)

Q4FY20 Financial Highlights:

• CCA impresses with its fourth quarter performance and reported its revenue at CAD 605.168 million, reflecting an improvement of 3.7% over Q4FY19. The increase was fueled by a 4.9% y-o-y increase in American broadband income and 1.3% y-o-y revenue increase from Canadian broadband services.
• EBITDA and EBITDA margin improved to CAD 294.535 million and 48.7%, respectively, as compared to CAD 275.610 million and 47.2%, respectively. The improvement was primarily driven by decent growth from American broadband services, aided by the positive impact from Thames Valley Communications acquisition.
• The company reported profit for the period at CAD 96.148 million, slightly higher than CAD 94.323 million in the previous corresponding period (pcp).            

Q4FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology (Illustrative): Price to CF based

(Note: All forecasted figures and peers have been taken from Thomson Reuters).

Risks: The company gets affected by adverse economic conditions leading to a declining level of retail and commercial activity; this could hurt the demand for their products and services. Other risks such as currency fluctuations, technology risks, regulatory risks are also present.

Stock Recommendation:

The company reported strong growth in cash flow from operations at CAD 917.819 million in FY20, higher than CAD 868.711 million in FY19, which indicates improved operational performance despite the current downturn. Despite the many challenges of the crisis, which still has the world in its grip, the company was able to maintain its financial discipline. Demand for high-speed Internet product was sustained both in Canada and in the United States. The company announced the expansion of the network in several regions across its Canadian market and started offering a new IPTV platform. Robust financial performance in 4Q 2020, along with the expectation low-single-digit % growth in revenue, adjusted EBITDA, and free cash flow for fiscal 2021 gives confidence in the group

We have valued the stock using P/CF based relative valuation method and have arrived at a lower-double-digit upside (in percentage terms). For the said purposes, we have considered peers like Quebecor Inc, Shaw Communications Inc etc. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 94.84 on November 25, 2020.

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

Disclaimer

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