AirBoss of America Corp.

Upside Capped, Stock Reflects Positives: AirBoss of America Corp. (TSX: BOS) manufactures high-quality rubber-based products for military, resource, automotive and industrial markets in Canada and the US.

On March 31, 2020, BOS announced that it received a contract of US$ 96.4 million from the U.S. Federal Emergency Management Agency (FEMA) for the manufacture and sales of FlexAir Powered Air Purifying Respirator. Notably, the contract amount represents about 1/3rd of its total annual sales.  Earlier, the company announced that its Rubber Solutions and AirBoss Defense Group segments are operating at the similar capacity as before the outbreak of COVID-19.

The Company has declared a quarterly dividend of CAD 0.07 per common share, payable on April 15, 2020. Notably, the company paid a dividend of CAD 0.28 per common share in FY19, remained unchanged from FY18.

FY19 Financial Highlights: BOS declared its full-year financial results, wherein the company reported net sales of US$ 328.12 million, up 3.6% over FY18, driven by growth in both Rubber Solutions and Engineered Products segments. EBITDA grew by 25% on y-o-y basis at US$ 32.08 million, reflecting a margin expansion of 170 bps to ~9.8%.The increase was driven by improved gross profit which was partly offset by higher compensation costs, professional fees, office expenses and a higher R&D expense. The company reported a stellar 19.7% growth in net income to US$ 10.22 million, driven by higher EBITDA growth, while higher finance costs and income tax expense remained a drag. The company made a capital addition of US$ 26.70 million, significantly higher than US$ 8.48 million in the previous financial year. BOS exited the quarter with total assets of US$ 249.66 million, higher than US$ 232.53 million in FY18.

FY19 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock of BOS is quoting at CAD 12.20 with a market capitalization of CAD 284.96 million on 14 April 2020 market close. The stock has generated excellent returns of ~85% and ~70% during the last three months and six months, respectively. The stock is trading above its 20 days and 50 days simple moving average (SMA) of CAD 7.96 and CAD 8.26, respectively. While COVID-19 outbreak plays spoilsport for most of the sectors, the company’s business didn’t witness much of disruption. Further, the company recently gained single largest contract, which is encouraging. However, investors should note that the BOS stock is up about 39% so far this year, implying that the positives are priced in. Hence, we recommend a ‘Watch’ on the stock and would like to wait for a better entry point.

BOS One-Year Daily Price Chart (Source: Thomson Reuters) 

Whitecap Resources

Volatility in Crude Oil Prices to Impact Business Performance: Whitecap Resources (TSX: WCP) is a Canada based company which operates in the exploration and production of oil and natural gas.

WCP stock has witnessed sharp sell-off in the recent past due to the plunge in the crude oil prices. WCP recently announced a cut in its monthly dividends to boost liquidity. The company reduced its monthly dividend to CAD 0.01425 from CAD 0.0285, resulting in savings of about CAD 70 million. Further, the company announced that it is reducing its 2020 capital spending by CAD 160 million.

 FY19 Financial Highlights: WCP came up with its full-year results, wherein the company posted total revenue of CAD 1,092.32 million, significantly lower than CAD 1,315.69 million in FY18 on account of a decline in average daily production (71.05 million boe/d vs 74,415 million boe/d in FY18) and lower average realized prices. The company reported a net loss of CAD 155.87 million, as compared to a profit of CAD 65.13 million in FY18. The loss was due to a combination of lower income and increased in overall expense, as compared to the previous financial year. Funds flow stood lower at CAD 675.61 million, as compared to CAD 704.42 million in FY18. Capital expenditure stood lower at CAD 407.01 million, as compared to CAD 517.98 million in FY18.

The company distributed a monthly dividend of CAD 0.0285 per share. Meanwhile, total dividend paid during FY19 was higher at CAD 138.34 million, as compared to CAD 132.30 million in FY18.

FY19 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock of WCP is quoting at CAD 1.47, with a market capitalization of CAD 599.74 million. The stock is trading at the lower band of its 52-week trading range of CAD 5.98 and CAD 0.73. The stock price fell ~61% and ~74% in the last six months and one year, respectively due to lower crude oil prices. The company announced a reduction in capital spending and lowered dividends to survive the current crisis. Management stated that at the end of FY19 it had CAD 580 million in liquidity and no debt maturities until 2022. Reduction in capital program and dividend will provide some breathing space to the company. Lower oil prices and decline in production is likely to keep investors on the edge. Further, prolonged low oil prices will hurt the company’s business significantly. Given the uncertainty around the company’s business, we recommend a ‘Watch’ stance on the stock at the closing market price of CAD 1.47, down 1.34% as on April 14, 2020.

WCP One-Year Daily Price Chart (Source: Thomson Reuters)

Disclaimer

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