Altus Group Ltd

Altus Group Ltd (TSX: AIF) is a real estate investment & services company based out of Canada. It is engaged in the business of providing technology-enabled, data solutions and software services to the commercial real estate industry.

Q2FY20 Financial Highlights: Altus declared its quarterly results, wherein, the company posted an 8.6% growth in the top-line to CAD 155.470 million. The increase was driven by the acquisition of One11 coupled with growth in Over Time revenues aided by higher subscription license and Appraisal Management revenues. Adjusted EBITDA stood at CAD 34.899 million, reflecting a growth of 16.2% on y-o-y basis while EBITDA margin improved to 22.4% from 21% in the previous corresponding period (pcp). The company posted a lower adjusted EBITDA from its Analytics segment due to increased expense from software consulting and costs related to One11 acquisition, partly offset by cost savings initiatives. Meanwhile, the company witnessed improved adjusted EBITDA performance from CRE Consulting  segment driven by the record revenue performance at Property Tax, partially offset by compensation for increased headcount across the US and UK Property Tax businesses. During the quarter, the Company initiated a global restructuring program across all of its businesses, which resulted in one-time restructuring costs of CAD 7.5 million. The Company reported profit from continuing operations at CAD 11.333 million, as compared to CAD 12.719 million in pcp.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The group is exposed to interest rate risk in the event of fluctuations in the Canadian Prime rates, Canadian Bankers’ Acceptance rates, U.S. Base rates or LIBOR rates, as the interest rates on the bank credit facilities fluctuate with changes in these rates. The group is also exposed to credit risk with respect to cash and cash equivalents, trade receivables and other and derivative financial instruments.

Valuation Methodology: Price to CF 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 soared ~42% so far this year. The company’s operation remained strong in the recent past and posted an impressive quarter, amidst the current economic downturn. The acquisition of One11 has shown growth for the company, which is a key positive. In Canada, the group benefitted from increased case settlements in Ontario that were at more regular levels compared to the prior year, which has contributed to strong growth across Montreal and Manitoba regions, which is impressive. Furthermore, we expect Altus would continue to benefit from add-on sales to existing customers, new license sales and cloud migrations as the group witnessed strong traction of migrating existing customers from the on-premise product and selling AE cloud to new customers. The group is likely to face certain challenges in the near term which include delays of anticipated appeal settlements in certain jurisdictions as hearing dates are being deferred, as well as some tax abatement and deferral programs that could have some impact on the group’s ability to invoice clients. This is expected to cause some deferral of revenue into future quarters. The stock of AIF gained by ~44 % in the last nine months and is trading near the upper band of its 52-weeks trading range of CAD 54.76 and CAD 33.18. We have valued the stock using Price to CF based relative valuation method and have arrived at a single-digit downside (in percentage terms). For the said purposes, we have considered peers like CGI Inc, Open Text Corp and Real Matters Inc etc. Hence considering the current price movement, we recommend a wait and watch stance at the closing market price of CAD 53.81 on September 01, 2020 and wait for a better entry point.

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

BRP Inc

BRP Inc (TSX: DOO) is a Leisure Goods Company based out of Canada. The Company is engaged in the business of designing, developing, manufacturing, distributing and marketing of marine products and power sports products. The Company employees over 12,600 people and have manufacturing facilities in Austria, Finland, Mexico, the United States and Canada.

Financial Highlights – H1 and Q2 Financial Year 2021 (31 July 2020, CAD, million)

(Source: Quarterly Report, Company Website) 

In the first half of the financial year 2021, reflecting the lower volumes of products sold due to temporary production suspension, the revenue declined to CAD 2,463.1 million (H1 FY2020: CAD 2,793.2 million). The revenue declined by 15.5% to CAD 1,233.3 million in Q2 FY2021 (Q2 FY2020: CAD 1,459.5 million). Driven by lower revenue and higher operating expenses for the period, the Company reported an operating loss of CAD 67.8 million in H1 FY2021 (H1 FY2020: operating profit of CAD 198.9 million). The Company reported operating income of CAD 59.5 million in Q2 FY2021 (Q2 FY2020: CAD 109.9 million). Due to higher finance costs, the Company reported LBT (loss before tax) of CAD 108.3 million in H1 FY2021 (H1 FY2020: PBT (profit before tax) of CAD 158.2 million). In the Q2 FY2021, due to foreign exchange gains, the PBT increased to CAD 126.2 million (Q2 FY2020: CAD 114.8 million). The Company reported a net loss of CAD 100 million in H1 FY2021, while in Q2 FY2021 net income of CAD 126.1 million. The basic and diluted loss per share in the first half of the financial year 2021 stood at $1.14. The cash balance as on 31 July 2020 stood at CAD 1,086.1 million (31 January 2020: CAD 42.5 million).

Share Price Performance

BRP Inc shares closed at CAD 74.87 at the time of writing after the market close on 1 September 2020. Stock's 52 weeks High is CAD 75.37 and Low is CAD 18.56.

Key Risks

The outbreak of Covid-19 pandemic resulted in disruption in financial markets, world economy, regional economies and supply chain, which impacted negatively on the financial and operational performance. Any change in regulations and government policies could affect the overall business of the Company. The Company is also exposed to foreign currency exchange rates fluctuations, seasonal sales fluctuations and competition in product lines.

Conclusion

The Company has shown a decline in financial performance in the first half of the financial year 2021, while in Q2 FY2020 the financial performance improved due to foreign exchange gains. The Company witnessed a decline in revenue in both H1 and Q2 FY2021. Despite the poor performance, the Company managed to increase its cash position significantly with a well-positioned balance sheet. The Company’s operational performance was impacted by the outbreak of covid-19 as it results in temporary production suspension and also impacted the supply chain. Moreover, the company’s share price is trading near  52-week high, which raises doubt over its upside potential.

Based on the factors as highlighted above, we believe the stock of BRP Inc is “Watch” at the closing price of CAD 74.87 (as on 1 September 2020), with support from few catalysts needs to be evaluated at a later stage.

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.