Chartwell Retirement Residences

Chartwell Retirement Residences (TSX: CSH.UN) is an unincorporated open-ended trust, and is engaged in the ownership, operation, and management of retirement and long-term care communities in Canada. It operates its retirement and long-term care facilities separately. 

Key Updates:

• Stable dividend distribution: Over the years, the company reported stable dividend payout backed by strong cash flow generation. Moreover, the stock of CSH.UN carries a dividend yield of 5.191% on an annualized basis, which looks impressive considering the persisting interest rate scenario.

Five years dividend distribution

• New Collaboration to introduce Virtual Medical Appointments and medicine delivery: Recently, the company introduced telemedicine software to its retirement homes for virtual medical consultations. The above is programed by Think Research Corporation, which would provide efficient and secure access to a network of leading physicians and specialists. Additionally, the prescribed medicine would be delivered by CareRx, a leading provider of pharmacy services, to the resident on the same day, which is a key positive.

• Decline in total debt: At the end of Q3FY21, the company reported its total debt of CAD 2,404.517 million, which is lower than CAD 2,546.157 million in FY20. A decline in total borrowings is a key positive as it improved its financial flexibility.

Total Debt Snapshot (Source: Company Report)

Q3FY21 Financial Results:

• UN announced its quarterly result, wherein the company posted its operating revenues of CAD 223.279 million, slide from CAD 233.290 million in the previous corresponding period (pcp). Lower Resident revenue owing to property dispositions and occupancy declines in the company's existing property portfolio contributed to the revenue drop.
• The company reported a decline in the direct property operating costs, and a marginal slide in the general, administrative and trust expenses. Additionally, fiancé costs also stood lower than the previous corresponding period.
• The company turned profitable and posted a net income of CAD 0.917 million, as compared to a net loss of CAD 6.766 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: During Q3FY21, weighted average occupancy in the retirement same property portfolio was 76.5%, lower than 82.4% in pcp. Continuation of the above trend is likely to dampen the overall performance.

Valuation Methodology (Illustrative): EV to Sales-based

Stock Recommendation

At the end of Q3FY21, the company reported its liquidity of CAD 338.6 million, including CAD 86.3 million of cash and cash equivalents and CAD 252.3 million of available borrowing capacity on its credit facilities. We believe the above is sufficient to cater to the working capital and capital expenditure needs of the firm. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a single-digit upside (in percentage terms). Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of CSH.UN at the last traded price of CAD 11.79 on November 12, 2021.

One-Year Technical Price Chart (as on November 12, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

First National Financial Corporation

First National Financial Corporation (TSX: FN) is a leading Canada based mortgage originator, underwriter and servicer of prime residential and commercial mortgages. 

Key Updates:

• Impressive Dividend yield: The stock of FN carries a dividend yield of ~5.347% on an annualized basis, which is impressive considering the persisting interest rate scenario. Notably, the group paid a total dividend of CAD 101.436 million in 9MFY21, higher than the CAD 89.989 million in pcp.

• Sequential growth in MUA: At the end of Q3FY21, the company posted a 4% sequential growth in its Mortgages Under Administration (MUA) at CAD 122.3 billion, supported by company’s strategical initiatives from longer-term value from servicing rights, renewals and the growth of the customer base for marketing initiatives. We expect the above momentum to continue in the coming quarters, which would likely support the company’s overall performance.
  

• Improved outlook: For the fourth quarter of FY21, the company expects its commercial origination to remain strong, supported by robust pipeline. Moreover, the Company is confident that its strong relationships with mortgage brokers and diverse funding sources is likely to support improved prospects in FY22.

Q3FY21 Financial Highlights:

• FN announced its quarterly result, wherein the company posted revenue of CAD 353.7 million, lower than CAD 373.8 million in the previous corresponding period (pcp). The decrease was primarily due to lower interest revenue from the residential segment coupled with a decline in Placement fees.
• Income before income taxes stood at CAD 65.134 million, as compared to CAD 98.767 million in pcp. The period was marked by increase in Brokerage fees and higher Salaries and benefits expenses.
• The company reported its net income of CAD 47.614 million, declined from CAD 72.517 million in pcp.

Quarterly Result of FN (Source: Company Report)

Risks: The Company derives its major revenue from mortgage origination activities and are funded either by placement with institutional investors or through securitization conduits. The company’s profitability is dependent on current bond markets rates, which affect the value of gains and losses on financial instruments arising from the Company’s interest rate hedging program.

Valuation Methodology (Illustrative): Price to Earnings based.

Stock Recommendation:

In Q3FY21, the company reported its Mortgage Servicing Income at CAD 51.4 million, growing 12% y-o-y basis, supported by the growing administration revenue on growing MUA and growth in the Company’s third-party underwriting business unit. The above growth from the segment is a key positive considering the ongoing sluggish demand dynamics in the overall sector. We have valued the stock using the P/E-based relative valuation method and have arrived at single-digit (in percentage terms) upside. For the said purposes, we have considered industry (Banking Services) median on an NTM basis. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of FN at the closing price of CAD 43.95 on November 12, 2021.

One-Year Technical Price Chart (as on November 12, 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.