Chorus Aviation Inc.

Chorus Aviation Inc. (TSX: CHR) is a Canada-based company that provides regional aviation solutions and offers a range of regional aviation support services. The company operates in two segments namely, Regional Aviation Services and Regional Aircraft Leasing. It generates maximum revenue from the Regional Aviation Services segment.

Key highlights

• Leasing revenue: The company began making leasing revenue on five additional CRJ900s delivered under the CPA near the end of Q4 2020, bringing the total CRJ900 aircraft received in 2020 to eight. Recently they received the ninth CRJ900 in February 2021; we expect it would boost their revenues further. 

• Improving Industrial scenarios: The Company continues to deal with the impact of COVID-19, but it saw some encouraging signs since Q2 2020, such as increased flying under the CPA to approximately 23% in the last quarter from 10%. Furthermore, the company collected around 60% of lease revenue billed in the fourth quarter from its lessees, excluding repossessed aircraft, an improvement of 10% over Q3 2020, which seems quite impressive.

• Raised funds: Recently, the company closed CAD 115 million bought deal public offering and concurrent CAD 30 million private placement from AIMCO and NordStar capital. The net proceeds would be used to pursue growth opportunities and repay indebtedness, providing additional balance sheet flexibility. 

• Industry beating margins: Despite the hard time for the industry and economy, the management’s solid determination helped them leaping the industry median margins on many fronts in FY2020, which is a key positive. The matrix below gives a glimpse of this.

Source: Refinitiv (Thomson Reuters)

• Ample liquidity: The company expects its liquidity to be relatively stable by the end of 2021 as it continues with measures to manage liquidity. On December 31, 2020, total liquidity stood at CAD 201.0 million, including cash of CAD 165.7 million and CAD 35.3 million of available room on its operating credit facility. 

• Event update: The company would be presenting its first quarter 2021 financial results on Thursday, May 13, 2021.

Financial overview of Q4 2020

Source: Company

• In Q4 2020, the group reported operating revenue of CAD 218.1 million, compared to CAD 338.6 million in the previous corresponding period. Decreased revenue in the Regional Aviation Services segment (RAS) was attributable to the decline in Controllable Revenue, Pass-Through Revenue and decreased third-party MRO activity. Although on Sequential basis the company registered a growth of 11% in sales, which reflects the change in scenario.
• Total operating expenses in Q4 2020 fell to CAD 219.3 million, compared to CAD 287.1 million in Q4 2019, primarily due to lower salaries, decreased engine overhaul maintenance events and decreased Pass-Through Costs.
• Adjusted EBT stood at CAD 9.5 million against CAD 28.6 million in Q4 2019, the decline in EBT was mainly due to lower leasing margins.
• The company's net income was CAD 9.1 million in the reported quarter, against CAD 36.5 million, primarily due to the above-stated reasons.   

Risks associated with investment

Further extension of restrictive measures to contain Covid-19 would dampen the group’s performance. The company may witness a headwind from lower passenger footfalls. 

Valuation Methodology (Illustrative): EV to EBITDA 

All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The COVID-19 pandemic and government restrictions have created unprecedented challenges for the passenger aviation industry worldwide, but now the company is encouraged by the development of various COVID-19 vaccines and expects the flying volume gradually to improve, which would help them to propel more revenue and cash flows. Furthermore, despite the hard times, the company is still leaping the industry median margins on many fronts, reflecting the strength. The company also expects its liquidity to be relatively stable by the end of 2021. It continues with measures to manage liquidity by reducing non-essential capital expenditures and reducing overhead costs. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating at the closing price of CAD 4.58 on April 8, 2021. We have considered Cargojet Inc, SkyWest Inc, Magellan Aerospace Corp, etc., as the peer group for comparison.

Source: Refinitiv (Thomson Reuters)

PRO Real Estate Investment Trust

PRO Real Estate Investment Trust (TSX: PRV.UN) is a Canada-based open-ended real estate investment trust (REIT), with four classifications of investment properties: Retail, Office, Commercial Mixed Use and Industrial. Company derives majority if the revenue from the Retail segment.

Key Highlights

• Solid track record: Despite the turmoiled period in 2020, the Company maintained its pace and witnessed the spirited performance, along with healthy CAGR across its property revenue, gross leasable area and net cash flows. The Company is continuously working closely with tenants; thus, its presence is increasing along with net operating income (NOI), which is appreciable. 

Source: Company

• An Income Play: The group continues with a healthy track record of dividend payment. Recently, the company announced a monthly dividend of CAD 0.0375 per common share payable on April 15, 2021. Moreover, at the last closing price, the stock was offering a dividend yield of ~6.9%, which is lucrative considering the current interest rate environment.

Source: Refinitiv (Thomson Reuters)

• Robust Rent collection: The group reported a healthy and stable gross rent collection trend from November 2020 to February 2021, which stood at 99.8%, indicating high-quality tenants coupled with solid operational fundamentals. The performance seems impressive amidst the ongoing economic cycle.

Source: Company

• Well-diversified and Strong Tenant Base: The company has well-diversified tenant mix. Around 86% of the total portfolio base rent comes from national and government tenants. In addition, 66.5% of the base rent comes from retail segment, which mainly includes groceries, pharmacies, financial institutions, and medical offices. The company’s top ten tenants accounted for approximately 37.1% of the base rent.

Source: Company

Financial overview of FY2020 (In thousands of CAD)

Source: Company

• For FY2020, the company reported the Property revenue of CAD 69.8 million, increased by CAD 12.1 million, compared to CAD 57.6 million over the previous corresponding period, primarily due to incremental revenues from property acquisitions.

• Net operating income reported by the company, stood at CAD 40.5 million, increased by CAD 5.1 million as against CAD 35.4 million in the previous corresponding period. The higher operating income was primarily due to the favourable impact of property acquisition.
• On the back of higher NOI, the company reported a net income of CAD 21.0 million in FY 2020, against a net profit of CAD 14.9 million in FY 2019, partially offset by higher G&A expenses, interest expenses and fair value adjustments.

Risks associated with investment

The company's revenue and operating results depend significantly on the occupancy levels and rent collection. Hence, fluctuations in occupancy levels and business volumes, competition from other players, and general economic conditions would affect the group’s performance.

Valuation Methodology (Illustrative): EV to EBITDA

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The Company has reported consistent and impressive rent collection on a month-on-month basis. For February 2021, the Company reported a rate of 99.8%, which is impressive. Along with this, they also retain a well-diversified and solid tenant base. In FY2020, the REIT’s occupancy rate remained stable at 98.0%. also, the company generated 86% of the total portfolio base rent from national and government tenants. Furthermore, the stock offers a dividend yield of ~6.9%, which is lucrative considering the current environment. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the closing price of CAD 6.51 on April 8, 2021. We have considered Inovalis Real Estate Investment Trust, Plaza Retail REIT, True North Commercial REIT as the peer group for the comparison.

One year price chart (As on April 8, 2021). Source: Refinitiv (Thomson Reuters)

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.