Morguard Corporation

Morguard Corporation (TSX: MRC) is a real estate company that acquires, owns, and develops properties in Canada and the United States. The group operates through three business segments, namely investments in real property, ownership in real estate investment trusts (including Morguard REIT and Morguard North American Residential REIT), and real estate advisory services and portfolio management.

Key Updates:

• Strong margins: The company reported improved margins than the industry median, which indicates better operational efficiencies and is a key positive. Gross margin and EBITDA margin stood at 73.7% and 52.3%, respectively, in Q3FY21, higher than the industry median of 32.9% and 11.2%, respectively. Moreover, the company reported its net margin at 40.1% in Q3FY21, higher than the industry median of 5%.

• Increase in cash from operations: The company reported its cash from operations of CAD 157.025 million in 9MFY21, as compared to CAD 134.700 million in pcp, supported by a net income as compared to a net loss in pcp. The above are key positives and would support the company’s liquidity in the coming days.

• Improved occupancy levels: During Q3FY21, the company reported occupancy levels of 93.5% and 91.8%, respectively, improved from 92.6% and 90.9%, respectively, in Q2FY21. Moreover, the occupancy level of the retail segment was reported at 92.7%, higher than 92.2% in the previous quarter. The above indicates improved operating performance.

Q3FY21 Financial Highlights:

• MRC announced its quarterly result, wherein revenue from real estate properties stood at CAD 210.557 million, declined from CAD 216.706 million in the previous corresponding period (pcp). Meanwhile, revenue from hotel properties was recorded at CAD 38.723 million, jumped from CAD 21.780 million in pcp.
• The company reported an improved net operating income of CAD 135.445 million, as compared to CAD 130.268 million in Q3FY20.
• The corporation reported strong growth in other revenue at CAD 22.155 million, as compared to CAD 12.983 million in pcp, supported by increased revenue from interest and other income.
• The quarter turned profitable, and net profit was recorded at CAD 108.776 million, as compared to a net loss of CAD 37.602 million in the previous corresponding period. The difference was supported by a fair value gain of CAD 87.073 million, as compared to a fair value loss of CAD 102.386 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: Decline in the fair value of properties are likely to impact the company’s bottom line. New working preferences like work from home option is likely to dampen the occupancy rate of the office premises and would subsequently take a toll on the overall performance.

Valuation Methodology (Illustrative) Price to Earnings: 

Stock Recommendation:

At the end of Q3FY21, the company reported its available liquidity of CAD 476 million, which includes a cash balance of CAD 129 million and available credit facilities of CAD 347 million. The above is sufficient to support the company’s upcoming operations. We have valued the stock using the Price to Earnings-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Summit Industrial Income REIT, CT Real Estate Investment Trust etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of MRC at the last traded price of CAD 143.38 on November 18, 2021.

One-Year Technical Price Chart (as on November 18, 2021). Analysis by Kalkine Group 

Lassonde Industries Inc

Lassonde Industries Inc (TSX: LAS.A) operates as a developer, manufacturer, and distributor of ready-to-drink fruit and vegetable juices and drinks. Apart from these, the group is also a producer of store brand shelf-stable fruit juices and drinks in the United States, along with a principal producer of cranberry sauces. 

Key Highlights:

• Constant reduction in total debt: The company reported a constant reduction in its total debt, which indicates prudent capital management. Reduction in debt enhances the financial flexibility of the firm, which is a key positive. Notably, at the end of Q3FY21, the company reported its total debt of CAD 182.5 million, which is the lowest in the last five quarters. Notably, the debt to equity ratio stood at 0.23x in Q3FY21, lower than the industry median of 0.54x.

• Higher Dividend Payment: The company reported a higher dividend payment of CAD 16.710 million in 9MFY21, as compared to the industry median of CAD 13.139 million in pcp. The above is supported by stable cash flows and is a key positive as most of the companies are lowering its dividend distribution in order to retain liquidity.

• Stability of orange concentrate price: Amidst the supply chain crisis, the management highlighted that the orange concentrate has returned to the price levels of the previous corresponding period. The reduction was primarily due to the maintenance of good control of its supply chain by one of the leading suppliers, despite the ongoing supply chain crisis. The above indicates lower raw material prices and would subsequently benefit the company’s margin in the coming quarters.

Q3FY21 Financial Highlights: 

• LAS.A announced its third-quarter results, wherein the company posted CAD 469.263 million, slide from CAD 495.207 million in the previous corresponding period (pcp). This decrease was largely due to decrease in sales of private label products in the United States as certain plants witnessed a slower production due to labour scarcity, partly offset by a higher sales volume of national brands in the United States.
• Operating profit stood at CAD 25.408 million, as compared to CAD 40.018 million in Q3FY20. The period was marked by a lower cost of sales and a slide in Selling and administrative expense. The company reported a drastic fall in the finance expense due to a decline in the total debt.
• The company posted its net profit at CAD 17.173 million, lower than CAD 26.370 million, a year ago.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: The group is witnessing a rise in several input costs like transportation and logistics costs, warehouse costs and certain rise in specific raw material costs. Continuation of the above trend might pose a threat to the company’s margins and cash flows.

Valuation Methodology (Illustrative): Price to Earnings based

Stock Recommendation:

The company reported its net debt to EBITDA of 0.23x in Q3FY21, lower the industry median of 4.49x, as compared to the industry median of 8.94x. The above indicates higher debt protection metrics of the firm. We have valued the stock using the Price to Earnings 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 High Liner Foods Inc, Rogers Sugar Inc and Hostess Brands Inc etc. Hence, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 160.47 on November 18, 2021.

One-Year Technical Price Chart (as on November 18, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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