Teck Resources Limited

Teck Resources Limited (TSX: TECK.B) is a diversified mining company and operates through coal, copper, zinc, and oil sands across Canada, the United States, Chile, and Peru. The company is the leading producer of seaborne metallurgical coal and is a top-three zinc miner.

Key Highlights:

• Surge in Cash flows: The company reported a robust cash flow growth from its operations, wherein it reported cash from operating activities of CAD 585 million, up from CAD 279 million in Q1FY21. The increase was primarily due to a net profit as compared to a net loss reported in the previous corresponding period.
• Sustainable production guidance amidst tumultuous times: For FY21, the company expects its copper production within the range of 275,000 to 290,000 tonnes, higher than 275,700 tonnes in FY20. The company’s zinc production is expected in between 585,000 to 610,000 tonnes, higher than 587,000 tonnes in FY20. At the same time, refined zinc production is expected at par FY20 levels.

Q1FY21 Financial Highlights:

• The company declared its quarterly result, wherein the company reported revenues of CAD 2,547 million, improved from CAD 2,377 million in the previous corresponding period (pcp). The increase was driven by significant growth from the copper segment (CAD 767 million v/s CAD 570 million in pcp), while a lower income from the zinc segment (CAD 570 million v/s CAD 608 million in pcp) remained a drag.
• Gross profit surged to CAD 654 million, from CAD 398 million in Q1FY20. The increase was driven by higher income coupled with a slide in the cost of sales (CAD 1,893 million v/s CAD 1,979 million in pcp).
• Profit from operation stood at CAD 603 million, versus a loss from operation of CAD 351 million in pcp. The difference was principally due to an asset impairment expense of CAD 647 million in Q1FY21.
• Net profit for the period was recorded at CAD 292 million, as compared to a net loss of CAD 311 million in pcp.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The group reported a constant surge in the total debt in the recent quarters, which remains a key challenge for the company, as it may dampen the financial position of the firm. Also, volatility in the underlying commodity price would affect the overall performance.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

At the end of Q1FY21, the company reported robust liquidity of CAD 6.3 billion, which includes CAD 5 billion of funds under committed revolving credit facilities. The current liquidity seems to be sufficient to fund its short term and long-term capital needs. A significant portion of the steelmaking coal was supplied to China, which reported an elevated demand in the recent past. Notably, the demand from China has surpassed pre-COVID-19 levels, supported by Chinese government stimulus measures to revamp the economy. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a target upside of single-digit (in percentage terms). For the said purposes, we have considered Nevada Copper Corp, First Quantum Minerals ect., as a peer group. Hence, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 29.37 on July 12, 2021.

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

Parkland Corporation

Parkland Corporation (TSX: PKI) distributes and markets fuels and lubricants, which are delivered to motorists, businesses, consumers, and wholesalers in the United States and Canada.

Key Highlights:

• Consistent Dividend Growth: The company has a resilient business model, which resulted in consistent dividend growth over the years. Despite a sluggish economic scenario, the group reported a dividend distribution of CAD 38 million in Q1FY21, higher than CAD 31 million in Q1FY20. Notably, the PKI stock offers a dividend yield of ~3.1%, which is decent considering the current interests rate scenario.
• Acquisitions: On July 06, 2021, the company reported the acquisition of Pétroles Crevier Inc., which has impressive retail (36 company-owned) and wholesale (138 retail dealers) branches across Montreal, Canada. Moreover, Pétroles strong wholesale footprints along with significant unbranded fuel volumes are likely to enhance its supply advantage and import optionality. The above collaboration would add an annual fuel and petroleum product volume of roughly 700 million litres, of which ~70 % is attributable to wholesale. The Management expects an annual run-rate of CAD 12 million to be added to the group’s adjusted EBITDA from the above acquisition.

Q1FY21 Financial Highlights:

• Parkland declared its first quarter result, wherein the group posted its sales and operating revenue of CAD 4,233 million, slide marginally from CAD 4,316 million in the previous corresponding period (pcp). The slide was primarily due to lower fuel, petroleum product commodity prices coupled with a lower demand scenario attributable to the COVID-19 pandemic.
• Adjusted EBITDA soared to CAD 314 million from CAD 191 million in Q1FY20, supported by cost reductions initiatives coupled with continued growth in non-fuel sales along with stronger unit margins from the Canada region.
• The quarter was marked by lower input costs such as a decline in operating costs and cost of purchases, which further supported the profitability.
• The group turned profitable and posted a net profit of CAD 38 million, versus a net loss of CAD 74 million in Q1FY20, due to the above-mentioned factors.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The income and the cash flows are related to international crude oil prices, and price volatility would affect the overall performance.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

In the last one year, the group acquired eight entities in order to achieve its FY25 target of CAD 2.00 billion Adjusted EBITDA through expansion strategy. The group expects FY21 Adjusted EBITDA at CAD 1.2 billion. The company has leading proprietary brands with ample market share and the group is focusing on marking its presence across the renewable fuel business and providing electric vehicle charging options.

We have valued the stock using the P/CF-based relative valuation method and have arrived at a single-digit (in percentage terms) upside. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 39.80 on July 12, 2021.

One-Year Technical Price Chart (as on July 12, 2021). Source: REFINITIV, 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.