FirstService Corporation

FirstService Corporation (TSX: FSV) operates in the essential outsourced property services sector, serving its customers through two industry-leading service platforms, namely FirstService Residential and FirstService Brands. The Company caters to the North American market and manages thousands of residential communities, including high, medium and low-rise condominiums and co-operatives.

 Recently, the Company acquired Royln one of the largest privately-owned, full-service restoration companies in the United States with collaboration with Interstate Restoration. This acquisition would enhance the geographic reach and increase its service capabilities by adding Rolyn's nine operations centers and more than 150 highly skilled experienced employees to Interstate's North American operations.

Q2FY20 Financial Highlights: FSV released its quarterly results, wherein the Company reported revenues of USD 621.597 million, reflecting an 8% y-o-y increase. The increase was underpinned by the strong momentum from FirstService Brands segment due to the positive impact from the acquisition. However, FirstService Residential revenues declined 9% on y-o-y basis to USD 338.2 million, primarily attributable to the closure of several client facilities which impacted the delivery of the amenity management services on account of the COVID-19 pandemic. The Company reported operating earnings of USD 44.903 million, as compared to a loss of USD 268.470 million in the previous corresponding quarter, thanks to the higher income. Adjusted EBITDA improved to USD 71.231 million from USD 65.031 million reported in the previous corresponding period (pcp). The quarter witnessed a higher interest expense as compared to the previous corresponding quarter. The Company reported net earnings of USD 29.917 million as compared to a net loss of USD 275.68 million in pcp. FSV ended the quarter with cash and cash equivalent of USD 245.257 million, while total assets stood at CAD 2,034.015 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The group earns its revenue both in USD and CAD. Hence, the group is exposed to exchange risk.

Valuation Methodology: EV to Sales Based (Illustrative)

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

Stock Recommendation: The stock of FSV remained resilient in the recent past and appreciated ~34% and ~18% in the last three months and six months, respectively. Investors should note that at the last traded price, the stock is trading above its 200-days simple moving average of CAD 126.21. The Company’s recent acquisition of Rolyn would provide the company with a higher geographical presence, which is a ley positive. Further, we believe, the Company would likely to deliver improved organic growth, as most of the partners would recommence their businesses in the coming days. Amidst all the positives, the stock moved ~14% in the last one month and currently the stock is trading close to the upper band of its 52-weeks trading range of CAD 83.37 and CAD 156.65. We have valued the stock using EV to Sales value-based relative valuation method and have arrived at a target upside of single-digit (in percentage terms). For the said purposes, we have considered peers like Colliers International Group Inc, Altus Group Ltd, and Information Services Corp etc. Hence, we recommend a ‘Watch’ rating on the stock at the closing market price of CAD 155.22 on July 24, 2020.

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

Winpak Ltd

Winpak Ltd (TSX: WPK) is a general industrials company engaged in the business of manufacturing and distributing packaging materials and associated packaging machines. The Company’s products are used to pack healthcare products, beverages, and perishable foods. The Group provides three packaging technologies, which include packaging machinery, flexible packaging and rigid packaging and flexible lidding.

Financial Highlights – Financial Performance in Q2 & H1 FY2020 (28 June 2020, USD, thousand)

(Source: Quarterly Report, Company Website) 

In the first half of the financial year 2020, due to lower revenue from Rigid packaging and flexible lidding division, the revenue declined to $429,797 thousand (H1 FY2019: $443,653 thousand), and revenue in Q2 FY2020 declined to $216,201 thousand (Q2 FY2019: $219,618 thousand). The operating income decreased to $71,507 thousand in H1 FY2020 (H1 FY2019: $80,422 thousand), and operating income decreased to $40,386 thousand in Q2 FY2020 (Q2 FY2019: $41,836 thousand), reflecting lower revenue. The net income stood at $53,466 thousand in the first half of the financial year 2020 (H1 FY2019: $61,081 thousand), and net income in Q2 FY2020 declined to $29,920 thousand (Q2 FY2019: $31,893 thousand). The basic and diluted earnings per share stood at 81 cents in H1 FY2020 (H1 FY2019: 92 cents), and basic and diluted earnings per share stood at 45 cents in Q2 FY2020 (Q2 FY2019: 48 cents). The cash balance as on 28 June 2020 stood at $455,673 thousand (31 December 2019: $397,159 thousand). The total assets stood at $1,277,886 thousand as on 28 June 2020 (31 December 2019: $1,212,388 thousand).

Share Price Performance

Winpak Ltd shares closed at CAD 46.86 at the time of writing after the market close on 24 July 2020. Stock's 52 weeks High is CAD 52.65 and Low is CAD 33.11.

Key Risks

The market conditions in which the Company operates is full of challenges and might impact the operational performance and reduce financial performance as well. Any change in regulations and government policies could affect the overall business of the Company. Liquidity and interest rate risks which could affect the operations of the Company.

Conclusion

The Company has shown a decline in financial performance in the first half and the second quarter of the financial year 2020. Both the revenue, the bottom-line performance have declined, with a decline in the profitability for the period. The Group needs to manage its operating expenses unless it results in further deterioration in financial performance in the coming years. The Group’s cash balance has increased and generated strong cash flow from operations. All facilities of Winpak in North American region are under shelter-in-place order or level of the health state of emergency, which is restricting business activities. The Group will pause all development and acquisition activities and will take measures to preserve cash and reduce costs. Presently, the company is trading near a 52-week high, raising doubts at its upside potential at current prices.

Based on the factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of CAD 46.86 (as on 24 July 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.