Linamar Corporation

Linamar Corporation (TSX: LNR) is engaged in the manufacturing of powertrains and drivelines for vehicle and power generation markets and operates under two business segments, namely, Transportation and Industrial. Within the Transportation segment, the company develops and manufactures precision metallic components, modules and systems used in vehicles and power generation machines.

Key Highlights:

• Significant Reduction in Total Debt: At the end of Q1FY21, the company reported a significant reduction in the total debt at CAD 980.829 million, from CAD 1,303.214 million in Q4FY20, which reflects a decline of 24.7%. This is an indication of prudent capital management and improved financial flexibility.

• Impressive FY21 outlook: The company expects its FY21 sales growth to remain in double-digit, as compared to a ~22% slide in FY20. Also, for FY21, EPS and EBITDA expected to grow in double digit as compared to FY20. Moreover, the company’s free cash flow levels are expected to grow in double-digits from FY20. Notably, from its mobility segment, the group expects revenue within the range of CAD 500 to CAD 600 million, compared to CAD 376 million in FY20.

FY21 Outlook (Source: Company Presentation)               

• Elevated Performance from Access & Material Handling Equipment segment: The company reported a consistent growth within the Access & Material Handling Equipment segment during the last two decades, which indicates resilient performance. In Q1FY21, the segment has been benefited from an increase in market share across North America for products like telehandlers, scissors and booms etc.

Source: Company Presentation

          Q1FY21 Financial Highlights:

• LNR declared its quarterly results, wherein the group reported sales of CAD 1,781.857 million, as compared to CAD 1,549.765 million in the previous corresponding period (pcp). The increase was driven by the strong performance from the automobile sector across Asia and North America.
• The company reported a surge in EBITDA to CAD 341.3 million, compared to CAD 213.9 million in pcp. The growth was aided by improved volumes and margins from the new launches combined with several cost initiatives strategies taken during the period, which has resulted in lower selling, general and administrative costs (CAD 91.520 million v/s CAD 97.441 million in pcp).
• Net earnings stood higher at CAD 153.532 million compared to CAD 78.486 million in the previous corresponding period (pcp).

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: Extension of lockdown restrictions are likely to impact the supply-chain and logistics of the company, and subsequently the overall performance.

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

In FY21, the industry saw a strong momentum within the global light vehicle markets, primarily across the key regions like China, Europe and the US. We believe the momentum to continue in the coming days supported by ease of restrictions across the regions. The group expects a growth in the market share within the European region from its MacDon product line, which offers combine draper headers and self-propelled windrowers to the agricultural harvesting industry. We have valued the stock using the P/E based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered the industry (Consumer Cyclicals) median on an NTM basis. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 81.25 on June 14, 2021.

One-Year Technical Price Chart (as on June 14, 2021). Analysis by Kalkine Group

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, the Mulatos and El Chanate Mines in Sonora, Mexico. 

Key Highlights:

• Robust Margin v/s Industry median: The company commands a higher margin as compared to its peers, which indicates impressive cost management. Notably, total cash costs per ounce of gold sold stood at USD 757/ounce in Q1FY21, lower than USD 759/ounce in Q1FY20.

• Zero Debt Balance sheet: Despite operating in a capital intensive sector, the company is virtually debt-free, which is impressive. The group reported a negligible total debt of USD 0.4 million at the end of Q1FY21, which was significantly low from USD 100.6 million in Q1FY20.
  

• Impressive mineral reserve: The company has constantly upgraded its assets in recent years, which has resulted in higher mineral reserve, which is noteworthy. The group has constantly added new mines under its portfolio, which indicates a higher possibility of ore mined in the coming days. The group is working on the construction activities of the La Yaqui Grande mine and Lynn Lake, which are expected to be ready in FY22.                                  

Mineral Reserve (Source: Company Report) 

Q1FY21 Financial Highlights:

• AGI announces its quarterly result, wherein the company posted 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 higher at USD 76.3 million, as compared to USD 46.2 million in the previous corresponding period (pcp). The quarter was marked by higher mining and processing costs (USD 92.7 million v/s USD 82.5 million in pcp), increase in exploration expense (USD 2.9 million v/s USD 2 million in pcp), partially offset by slightly lower corporate and administrative costs (USD 6.1 million v/s USD 6.2 million in pcp).
• The company turned profitable and recorded 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 Sales is directly correlated with the international gold prices, and a volatility in the commodity prices would impact the financial performance.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The group reported strong growth in its operating cash flows at USD 99.3 million in Q1FY21 as compared to USD 56.6 million in Q1FY20, aided by strong free cash flow from Young-Davison & Island Gold. For FY21, the group expects total gold production of 470 to 510 koz, while total cash cost is expected within USD 710 to 760/oz. The group expects its all-in sustaining cost at USD 1,025 to 1,075 per oz. Moreover, the company seems confident to achieve annual production & cost guidance. 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 like New Gold Inc, Kirkland Lake Gold Ltd etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 10.61 on June 14, 2021.

One-Year Technical Price Chart (as on June 14, 2021). 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.