First National Financial Corporation

First National Financial Corporation (TSX: FN) is a Canadian-based originator, underwriter and servicer of predominantly prime residential and commercial mortgages. The Company is Canada's largest non-bank originator and underwriter of mortgages and is among the top three in market share in the mortgage broker distribution channel.

The Management announced a monthly dividend of CAD  0.1625 per common share, payable on August 14, 2020.

Q2FY20 Income Statement Highlights: First National Financial Corporation declared its quarterly results, wherein the Company reported revenue of CAD 344.6 million as compared to CAD 335.2 million in the previous corresponding period (pcp). The Company reported decent growth in single-family mortgage originations, up 15% y-o-y to CAD 4.5 billion. Commercial segment originations stood at CAD 2.1 billion, representing a 17% decline over the previous corresponding quarter, driven by lower conventional mortgage origination as investor appetite for uninsured product declined as a result of pandemic-related risks. The Company reported a 47% y-o-y increase in placement fees at CAD 88.7 million, while mortgage servicing income increased 5% to CAD 41 million. The Group reported Mortgages under administration (MUA) at CAD 114.9 billion, representing a 5% y-o-y growth. The quarter was marked by new mortgage originations growth of 2% y-o-y to CAD 6.6 billion, while total mortgage renewals stood at CAD 2.5 billion, as compared to CAD 2.1 billion a year ago. The Company reported higher net income at CAD 69.8 million as compared to CAD 44.2 million in pcp.

Q2FY20 Financial Snapshot (Source: Company Reports)

Risks: The group might see a delay in loan repayment from consumers on account of a fall in consumer’s income, which would hamper the financial performance.

Valuation Methodology: P/E Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The stock plunged ~11% so far this year as COVID-19 took a heavy toll on the equity market. The company reported a decent financial performance amid the challenging time. The company's diverse funding sources have helped in sustaining the ability to offer competitive mortgage products across the country, which is a key positive. The company expects a strong third quarter aided by substantially higher seasonal residential origination, coupled with improved productivity from the company's work from home strategy. The company expects the origination in the commercial segment to be lower but with a higher spread, which is encouraging. Further, the group continued to distribute the dividend amid a time when most of the business are cutting down or suspending dividend. At the last traded price, the stock was offering a dividend yield of ~5.78%, which is lucrative considering the current interest rate environment. We have valued the stock using the P/E multiple based illustrative relative valuation and have arrived at an upside of lower double-digit (in percentage terms). For the said purposes, we have considered industry (Banking Services) average on NTM basis. Hence, we recommend a 'Buy' rating on the stock at the closing market price of CAD 33.74 on 28 July 2020.

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

TFI International Inc

TFI International Inc (TSX: TFII) is a transportation and logistics company domiciled in Canada. The company operates via four segments: package and courier, less-than-truckload, truckload, and logistics. The package and courier segment picks up, transports, and delivers items across North America. The less-than-truckload segment transports smaller loads.

Recent Acquisition Updates:

• Recently, the Company reported the acquisition of MCT Transportation at a price consideration of USD 9.6 million. MCT Transportation provides quality transportation for major companies in the packaged food, agricultural, medical and automobile industries, primarily throughout the Southeast and Midwest regions of the US.
• The Company also acquired CT Transportation at a price consideration of USD 15 million. CT Transportation operates across 270 tractors and 560 trailers and has 11 terminals from Maryland to Florida.

Q2FY20 Financial Highlights: TFII declared its quarterly results, wherein the company reported total revenue of CAD 1,106.2 million as compared to CAD 1.337.8 million in the previous corresponding period (pcp). The decline was primarily attributable to lower performance from Package and Courier segment, Less-Than-Truckload  and  Truckload segments, partially offset by improved performance from Logistics. The company reported better than expected numbers amidst the lockdown phase in the recent past. Adjusted EBITDA stood flat at CAD 232.1 million against CAD 236.3 million in pcp. Operating income from continuing operations dipped to CAD 131.5 million as compared to CAD 149 million in pcp. Net income from continuing operations slides to CAD 69.7 million as compared to CAD 100.2 million in Q2FY19. Net cash from continuing operating activities stood at CAD 227.9 million, increased drastically from CAD 141.4 million the pcp. The 61% growth was driven by disciplined working capital management combined with the deferral of certain tax payments due to economic stimulus measures.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: A prolonged lockdown or second wave of the novel virus might hinder the operations of the company in an adverse manner.

Valuation Methodology: Price to Earnings Based (Illustrative)

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

Stock Recommendation: The stock stood resilient in the recent past and gained ~25% and ~33% in the last six months and nine-months, respectively. The company acquired three business during the quarter and is expected to look for further opportunities for inorganic growth. The group has rolled back certain cost-saving measures implemented at the onset of the COVID-19 pandemic and has reinstated a full five-day work week for 594 employees and rehired 793 employees full-time who had been furloughed, which is encouraging. The group mentioned that it had witnessed a notable improvement in operating conditions. The group is likely to benefit from the increased e-commerce activities and expected synergies from the recent acquisitions. Going forward, we expect the demand for the group's offerings to increase as governments across the states are easing the lockdown restrictions and allowing businesses to resume operations. With the opening up of the economy, we expect improved business prospects for the logistics and transportation industry. We have valued the stock using the Price to Earnings based relative valuation approach and arrived at a target price, which suggests a lower single-digit upside potential (in % terms). For the said purpose, we have considered industry (freight and logistic services) median on NTM basis. Hence, considering the aforesaid facts, we recommend a 'Hold' rating on the stock at the closing market price of CAD 55.28 as on July 28, 2020.

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

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.