Hudbay Minerals Inc

Hudbay Minerals Inc (TSX: HBM) is a Canadian mining company with its operations, property developments, and exploration activities across the United States. The major mines it operates are located in Manitoba, Canada, Arizona, United States, and Peru.

Key highlights

• Growing production outlook of Copper and Gold: The corporation recently upgraded its four-year output forecast. As it puts the Pampacancha and New Britannia projects into production, total copper and gold output are estimated to climb to 139,000 tonnes and 318,000 ounces, respectively, in 2024, representing a 46% and 154% increase over 2020 levels. We believe higher average realization prices of metals would propel healthy cash flows.

Source: Company

• Improving EBITDA margins: The company witnessed a continuous improvement in the EBITDA margin since March 2020. EBITDA margin improved to 38.9% in 1Q21 compared to 19.8% recorded in 1Q20. We expect the current trend to continue in the near term, as the company has large capital expenditure plans to support future development.

• Improving cash from operations: In Q1 2021, cash earned from operational activities grew to USD 51.8 million, up from USD 9.1 million in Q1 2020. Higher realized metal prices and higher zinc sales volumes were principally responsible for the rise in operational cash flow. 

• Healthy Production Guidance: For FY2021, management reiterated its guidance and emphasized robust production growth, predicting a good increase in copper, gold, silver, and molybdenum by 17.5%, 72.5%, 29.8%, and 41.2% at the upper range, respectively, compared to FY2020.

Source: Company

• Expanded exploration program at Copper World Discovery: Given the continued success of the Copper World exploration program, the company recently increased the 2021 budget by USD 24 million. Furthermore, it expects to complete an initial inferred resource estimate before the end of the year and a preliminary economic assessment in the first half of 2022. 

Financial overview of Q1 2021 (In thousands of US dollars)

Source: Company

• In Q1 2021, the company generated revenue of USD 313.6 million, against USD 245.1 million in the previous corresponding period. An increase of USD 68.5 million in revenue was mainly due to higher realized metal prices and higher sales volumes of zinc.
• Gross profit stood at USD 52.5 million in the reported period compared to a loss of USD 21.9 million in pcp.
• The company transformed its results from operating activities to USD 38.8 million in Q1 2021, against a loss of USD 38.3 million in Q1 2020. The transformation happened mainly due to higher gross profit.
• On the back of higher net finance cost and loss on the fair value of financial instruments in Q1 2021, the company posted a net loss of USD 60.1 million against USD 76.1 million in pcp. 

Risks associated with investment

The Company’s financial performance is primarily dependent on the price of different metals, especially copper and gold, which directly affects its profitability and cash flow. Any drawdown in the prices of these metals would impact the group’s performance.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock recommendation

In Q1 2021, the company's consolidated copper output was 24,553 tonnes, while gold output was 35,500 ounces, a new high. It recently reaffirmed FY2021 projection, predicting healthy growth in copper, gold, silver, and molybdenum. Moreover, as it brings the Pampacancha and New Britannia projects into production, it revealed a strong production prognosis for Copper and Gold for the next four years at a higher level. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating on the stock at the closing price of CAD 8.87 on May 26, 2021. We have considered Capstone Mining Corp, Lundin Mining Corp, Copper Mountain Mining Corp. etc, as the peer group for the comparison.

One-Year Technical Price Chart (as on May 25, 2021). Analysis by Kalkine Group

InterRent Real Estate Investment Trust

InterRent Real Estate Investment Trust (TSX: IIP.UN) is a real estate investment trust focusing on the acquisition, ownership, management, and repositioning of multi-residential properties. The company operations are carried out through the region of Canada.

Key highlights

• Robust operating matrix: The average monthly rent for March 2021 increased to CAD 1,325 per suite from CAD 1,270 per suite in March 2020, which increased by 4.3%. On the Same Property basis, the average rent increased by CAD 58 per suite to CAD 1,328 or up 4.6% over March 2020.

Source: Company

• Steady occupancy rates along with rising average monthly rent: The group reportedoccupancy of 91.3% in Q1 2021, standing above the mark of 90%. This looks commendable considering the current economic condition. The group also witnessed growth in its average monthly rent across the portfolio and same property average rent per suite, which increased to CAD 1,325 per suite and CAD 1,328 per suite, respectively in Q1 2021.

Data Source: Company

• Entered Vancouver market: In Q1 2021, the REIT compensated CAD 22.0 million for a property with 114 suites in St. Catharines, Ontario, and entered the Metro Vancouver market with a 50% equity share in 15 properties with 614 suites, acquired for a total of CAD 292.5 million with Crestpoint Real Estate Investments Ltd. Furthermore, on April 13, 2021, the REIT and Crestpoint expanded their Vancouver footprint by 45 suites for a total purchasing price of CAD 18.9 million. These acquisitions, we expect, will feed into InterRent's repositioning initiative, which usually lasts 3 to 4 years after acquisition and provides future value generation opportunities.

Financial overview of Q1 2021 (In Thousands of CAD)

Source: Company

• In Q1 2021, the Company reported revenue of CAD 43.0 million against CAD 39.3 million in the previous corresponding period. The increase in revenue was primarily due to higher average monthly rent per suite at CAD 1,325 from CAD 1,270, a year ago.

• NOI stood slightly higher at CAD 26.4 million compared to CAD 24.7 million in the previous corresponding period, on the back of higher revenue from investment properties. 

• Net income in the reported period, increased by CAD 66.8 million and stood at CAD 104.7 million, against CAD 37.9 million in pcp. This difference was primarily due to fair value gain on investment properties at CAD 97.6 million. 

Risks associated with investment

A fall in the consumer disposable income might lead to an increase in the deferred rent, which could take a hit on the company’s profitability. 

Valuation Methodology (Illustrative): Price to Earnings

Stock recommendation

Recently, the group purchased a building comprised of 114 suites in St. Catharines, as well as it acquired 50% interest in 15 properties (614 suites) in Metro Vancouver. The group is also committed to purchasing a building with 157 suites in St. Catharines, for CAD 31.4 million and two buildings with 45 suites in Vancouver, for CAD 18.9 million in April 2021. We believe that the REIT would get a unique opportunity to achieve critical mass and scale in Vancouver, Canada's third-largest rental market. With the strong cash flows of CAD 16.2 million and healthy rent collection rates at 99%, the REIT demonstrated the business's resiliency. Furthermore, The REIT believes that when immigration returns to more normalized levels and post-secondary institutions resume in-class learning, strong rental demand would return and drive down vacancy, and upward rental pressure would resume. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating on the stock at the closing price of CAD 15.41 on May 26, 2021. We have considered European Residential REIT, Killam Apartment REIT, Allied Properties Real Estate Investment Trust etc., as the peer group for the comparison.

1-Year Technical Price Chart (as on May 26, 2021). Source: Refinitiv

*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.