Tidewater Midstream and Infrastructure Ltd.

Tidewater Midstream and Infrastructure Ltd. (TSX: TWM) is engaged in providing midstream infrastructure and a natural gas storage facility across North America. The group mainly focuses on the purchase, sale, and transportation of Natural Gas Liquids (NGLs) like propane and natural gasoline etc.

Key Highlights:

• Total debt is on a downtrend: The company reported prudent capital management and reported a constant decline in the total debt in the recent quarters. This is impressive as it would lead to a lower interest expense and higher profitability. Notably, net debt stood at CAD 932 million in Q2FY21, improved from CAD 1,052 million in Q2FY20.

• Attractive Dividend yield: The stock of TWM carries a dividend yield of ~3.1%, which is decent considering the current interest rate scenario. The company continued to pay a dividend during the hardest economic scenario, which is noteworthy. Dividend distribution stood at CAD 6.783 million in H1FY21, at par with CAD 6.751 million in the previous corresponding period.

Q2FY21 Financial Highlights:

• TWM announced its quarterly results, wherein the group posted revenue of CAD 369.781 million, significantly higher than CAD 178.568 million in the previous corresponding period (pcp). The strong growth was supported by significantly higher income from Marketing & extraction segment and Downstream segment due to stronger commodity prices coupled with strong utilization and throughput from Price George Refinery (PGR).
• The company reported a total expense of CAD 363.327 million, surged from CAD 171. 360 million in Q2FY20 due to higher operating expenses (CAD 335.258 million versus CAD 144.186 million in pcp).
• The group reported a net loss of CAD 63.867 million, as compared to a net income of CAD 0.882 million pcp. The

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The company reported higher operating costs in the recent past, which is dampening the company’s margins. Continuation of the above trend would impact the company’s overall performance.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The company reported a higher adjusted EBITDA of CAD 103.407 million in H1FY21 compared to CAD 83.379 million in pcp. Moreover, net cash from operations stood at CAD 97.857 million in H1FY21, higher than CAD 86.975 million in pcp. The management expects the commodity prices are likely to remain stable during the second half of FY21. Moreover, the group is uniquely placed to grab the upcoming opportunities from the energy transition and renewable sectors. We have valued the stock using P/CF-based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered peers like Frontline Ltd, Phillips 66 Partners LP and Antero Midstream Corp for the comparison purpose. Hence, considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 1.30 on August 31, 2021.

One-Year Technical Price Chart (as on August 31, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Firan Technology Group Corporation

Firan Technology Group Corporation (TSX: FTG) provides aerospace and defense electronic products and subsystems. The company has two operating segments, namely FTG Circuits and FTG Aerospace. FTG Circuits manufactures printed circuit boards within the global marketplace. 

Key Highlights:

• Reduction of debt amidst turbulent times: The company managed to reduce its total debt and posted total debt of CAD 4.252 million in Q2FY21, as compared to CAD 6.395 million in Q4FY20, reflecting a decline of ~34%. A lower borrowing indicates higher financial flexibility and reduces interest expenses as well.
• Revival in operations: Despite the sluggish industry scenario, the company achieved a second sequential quarter of increased bookings, supported by a recovery in the aerospace industry from the COVID-19 pandemic. In Q2FY21, bookings grew 8% and 20% from Q1FY21 and Q4FY20, respectively, which indicates a hint of revival in the operations.

Q2FY21 Financial Highlights:

• FTG announces its quarterly result, wherein the company posted sales of CAD 20.330 million, down from CAD 26.822 million in the previous corresponding period (pcp). The decline was primarily attributable to negatively impacted commercial aerospace activity due to pandemic. The company reported lower sales from Circuits (CAD 12.984 million vs CAD 19.599 million in pcp) due to reduced demand for commercial aerospace products.
• Gross margin declined to CAD 5.454 million, as compared to CAD 8.674 million in pcp, due to lower income, partially offset by lower cost of sales (CAD 13.467 million versus CAD 16.678 million in pcp).
• Total expenses stood lower at CAD 4.876 million, from CAD 5.374 million in pcp. The quarter was marked by lower Selling, general and administrative costs, marginally lower research and development costs coupled with a foreign exchange loss as compared to a foreign exchange gain in pcp.
• The group reported a net loss of CAD 0.011 million, as compared to CAD 2.034 million in pcp.

Source: Company Report

Risks: The company’s top five clients constitute more than half of the company’s net sales, and hence loss of any client would impact the company’s performance.

Stock Recommendation:

The stock of FTG gained 30% and 53% in the last six months and nine months, respectively, supported by a recovery from Canada geography. The company received an additional CAD 1.2 million of subsidy from the Canada Emergency Wage Subsidy (CEWS) in the quarter, which has been used to maintain its workforce cost in order to combat low revenue scenario. On the valuation front, the stock is available at an EV to Sales multiples of 0.4x on NTM basis, as compared to the industry median of 1.6x. Hence, considering the above rationale, we recommend a Hold rating on the stock at the closing price of CAD 2.72 on August 31, 2021.

One-Year Technical Price Chart (as on August 31, 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.