AirBoss of America Corp

AirBoss of America Corp (TSX: BOS) is a Canada based manufacturer of rubber-based products for the resource, military, automotive and industrial markets. The group is mainly operating in three segments: Rubber Compounding, Engineered Products and Automotive.

Key highlights

• Acquired BlackBox Biometrics: Recently, the company acquired BlackBox Biometrics, Inc. “B3”, a developer of the revolutionary Blast Gauge System of lightweight wearable blast overpressure sensors, which have been outfitted on U.S. Special Forces, Army, and SWAT teams across the U.S. We believe the acquisition would enable the company to own B3’s technology and market its solutions internationally.

• Healthy outlook: Based on the strong current outlook and healthy orderbook, the management reiterated its full-year 2021 outlook, which includes revenues in the range of USD 630 to USD 710 million, representing growth of approximately 25% to 41%, Adjusted EBITDA margin of 15.0% to 15.5%, and EPS of USD 1.80 to USD 2.19, representing growth of approximately 24%.
  

• Increase in dividend distribution: Despite the adverse situation, when most firms are restricting their dividend payout to maintain solid liquidity, the company boosted its dividend payout by 43% to CAD 0.10 per share from CAD 0.7. This demonstrates the group's financial strength and implies that it is a good friend to its shareholders.
  

• Strong financial position: On March 31, 2021, the Company's financial position remained robust, with a USD 150 million credit facility and a net debt to TTM EBITDA ratio of 0.01x. We believe it would allow the company to pursue organic and acquisitive growth possibilities even more effectively. The company would also manage its operations using internal resources, which is commendable.

 Financial overview of Q1 2021

Source: Company

• In Q1 2021, the company’s Consolidated net sales increased by 13.9% to USD 107.3 million compared to USD 94.1 million in Q1 2020. The increase in revenue was mainly due largely to the substantial completion of the HHS contract, supported by the continued integration of CSI into the AirBoss Defense Group segment.

• Operating income in the reported period increased to USD 9.7 million against USD 3.2 million in the previous corresponding period, based on high revenues and gross profit, partially offset by higher operating expenses.

• Total comprehensive profit in Q1 2021 stood at USD 6.3 million against USD 0.78 million in the previous corresponding period mainly due to higher operating profit and lower finance cost, although it registered higher income tax.
  

Risks associated with investment

Commodity prices are a key risk issue for the company. Commodity price risk might have a negative influence on the company's business, operations, and financial performance. Economic conditions, reliance on major clients, cyclical tendencies in the tyre and automotive sectors, and sufficient supply of raw materials are all risk concerns for the Company.

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

Compared to previous corresponding period, the company had a solid quarter, and is on track for continuing growth in the second half of 2021. Despite the fact that global difficulties are evolving at a quick pace, the firm has maintained its record year of change, solidifying its position in the PPE, health care, and survivability sectors. Furthermore, the business confirmed its expectation for full-year 2021, predicting solid revenue, adjusted EBITDA, and EPS growth based on the strong current outlook and large orderbook. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating on the stock at the closing price of CAD 36.11 on July 22, 2021. We have considered Core Molding Technologies Inc, Westlake Chemical Partners LP, etc., as the peer group for the comparison.

One-Year Technical Price Chart (as on July 22, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Sierra Metals Inc

Sierra Metals Inc (TSX: SMT) is a precious and base metals producer in Peru and Mexico. The company acquires, explores, extracts, and produces mineral concentrates consisting of silver, copper, lead, zinc and gold. Sierra has interests in the Yauricocha Mine in Peru, and the Bolivar and Cusi Mines, Mexico.

Key highlights

• Staging production Increase: The Company is aggressively drilling to increase and replace resources. It is also ramping up the exploration and infrastructure projects, which were on hold due to COVID-19. From FY2021 – FY2023, the Company expects to achieve a Tonnages Per Day capacity of 9,800 TPD, on the back of healthy performance from all three mines. Recently, it announced regarding receipt of permit allowing for a 20% increase of throughput to 3,600 Tonnes Per Day at its Yauricocha mine in Peru, is a key positive.

• The bullish stance of management: The management is optimistic on the operations of the company where they increased production levels. The improved efficiencies have helped them in lower costs on a per-unit basis, which is expected to continue with further production increases. With a consolidated capex of USD 106 million for FY2021, the company expects to achieve total EBITDA in a range of USD 170-185 million based on spot prices.
  

• Strong Balance Sheet: The Company continues to have a strong balance sheet, working capital and cash position to support its capital expenditures and growth initiatives. Metals prices have strengthened in 2020, especially for copper and precious metals and are expected to remain strong through 2021. The group reported cash and cash equivalents of USD 74.3 million and net debt of USD 25.2 million as on March 31, 2021.

• Event Update: The company would release Q2-2021 financial results on August 9, 2021, after market close.
  

Financial overview of Q1 2021 (In thousands of United States dollars)

Source: Company 

• The Company posted total revenue of USD 69.6 million in Q1 2021, increased by 25% from USD 55.5 million in Q1 2020. The rise was largely due to increase in realized metal prices, which more than compensated for the decrease in metal payable, except zinc and lead.
• Adjusted EBITDA stood at USD 25.3 million in the reported period, increased by 57.1% compared to USD 16.1 million in pcp. The increase in adjusted EBITDA was mainly due to higher revenues and higher gross margins at all sites.
• The company transformed from net loss to net income in the reported period. Net income stood at USD 3.7 million compared to loss of USD 1.7 million in the previous corresponding period, partially offset by higher income tax.
  

Risks associated with investment

The group’s revenue is directly correlated with the prices of commodities in international market. Any volatility in commodity (Copper, Gold, Zinc, etc) prices would affect the group’s financial performance. 

Valuation Methodology Illustrative: EV to Sales  

Stock recommendation

During 2020, the metal prices started experiencing declines in the second half of March due to weaker demand outlooks resulting from the economic uncertainty at that time. However, with the reopening of the economies later in 2020, industrial demand picked up, pushing these prices higher. The trend continued in Q1 2021, and metal prices averages during the quarter were much higher than their respective averages during Q1 2020. Furthermore, we are optimistic that with improved operating efficiencies, increasing production and continued metal price strength, the company would witness a strong FY2021. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating on the stock at the closing price of CAD 3.45 on July 22, 2021. We have considered Trevali Mining Corp, Foraco International SA, Capstone Mining Corp, etc. as the peer group for the comparison.

One-Year Price Chart (as on July 22, 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.