Canacol Energy Ltd.

Canacol Energy Ltd. (TSX: CNE) is a leading natural gas and oil exploration and production company in Colombia and Mexico. 

Key Highlights:

• Increase in Dividend Payment: Despite the current economic slowdown, the company paid a significantly higher dividend of USD 20.577 million in FY20, v/s USD 7.098 million in FY19. Moreover, the stock of CNE was offering a dividend yield of ~5.9%, which is lucrative considering the current interest rate environment.

• Increase in Demand Led to improved performance: In the recent past, demand for gas in Colombia has increased steadily at ~3% during the last ten years. Meanwhile, the management expects the above trend to continue in the coming years. Notably, Canacol has rapidly grown its production in recent years and supplies ~50% of demand in the Caribbean market aided by the rapidly growing demand at a time of declining supply from other conventional fields. The group reported ~40% CAGR growth in the sales of gas during FY13 to FY20, which is a key positive. 

Supply-Demand Trend

 (Source: Company Report)

Sales Statistics

 (Source: Company Presentation)

• Better than Industry margins: The company reported a higher margin than the industry, which is a key positive. Gross margin, EBITDA margin and operating margin in FY20 stood at 93.5%, 63.7% and 40.6%, respectively, as compared to the industry median of 56.7%, 36.7% and 5.7%, respectively. 

FY20 Financial Highlights:

• CNE announced its full-year results, wherein the company posted revenue of USD 278.805 million, significantly higher than USD 242.079 million in FY19. Realized contractual natural gas and LNG sales stood at 171,600 MMscfpd in FY20, v/s 142,603 MMscfpd in FY19.
• Total expenses stood at USD 170.397 million v/s USD 144.443 million in the previous year. The quarter was marked by higher transportation expenses (USD 32.001 million v/s USD 22.557 million in FY19), an increase in depletion and depreciation (USD 64.539 million v/s USD 54.283 million in FY19), coupled with a higher operating expense (USD 18.005 million v/s USD 17.138 million in FY19).
• Income before income taxes stood at USD 77.396 million v/s USD 64.734 million in FY19.
• The group reported a net loss of USD 4.743 million, as compared to a net profit of USD 34.247 million in FY19. The decline was primarily attributed to inclusion of deferred income tax amounting USD 51.370 million in FY20.
• The group reported cash and cash equivalents of USD 68.280 million, while total assets were recorded at USD 749.792 million.

FY20 Income Statement Highlights

(Source: Company Report)

Risks: Volatility in the international oil and gas prices would affect the company’s realization price, which might lead to suppress margins.

Valuation Methodology (Illustrative): Price to Cash Flow

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

Stock Recommendation:

The company reported a revival in demand, supported by improved commodity prices, which is evident from the improved performance in Q4FY20. The group reported total revenue of USD 71.53 million in Q4FY20, depicting a growth of 10.95% and 18.21% from Q3FY20 and Q2FY20, respectively. Meanwhile, operating income stood at USD 28.85 million, increased by 10.49% and 31.08%, respectively, from Q3FY20 and Q2FY20, respectively. The company’s operations are based on long-term fixed-price take-or-pay sales contracts, which assures income stability. Moreover, the group has a low costs model which assures high margins with growing economies of scale. We have valued the stock using the Price to CF based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have industry (Energy) mean on NTM basis etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of CNE at the closing market price of CAD 3.55 on March 22, 2021.

One-Year Price Chart (as on March 22, 2021). Source: Refinitiv (Thomson Reuters)

Extreme Vehicle Battery Technologies Corp

Extreme Vehicle Battery Technologies Corp (CSE: ACDC) is a Blockchain and Battery technology company with revolutionary, patented Battery Management Systems (BMS) designed to meet the exponentially growing demand for scalable, smart solutions for the rapidly growing Electric Vehicle (EV) and Energy Storage Solution (ESS) markets.

Key Highlights 

• World's fastest-growing markets: The Electric Vehicle (EV) market is one of the world's fastest-growing markets, which is projected to grow almost 5x over the next six years. EV infrastructure has become a global priority as major governments and corporations have committed to spending billions of dollars towards building EV charging infrastructure. Recently, US President Joe Biden has proposed to build 550,000 EV charging stations in the next few years as part of the USD 2 trillion plan to fight climate change. The company is likely to benefit from these opportunities. 

• Launched IoniX Pro EV Smart Charger: Recently, the company launched its previously unveiled IoniX Pro EV Smart Charger Series. Furthermore, the company wants to ensure that it is not only part of this rapidly growing revolutionary change but also wants to be a disruptive force in it. 

• Partnership with Daymak Inc.: The Company signed a partnership agreement with Daymak Inc., Canada’s largest distributor of Light Electric Vehicles (LEVs). The group has already commenced the process of getting its products into the Daymak distribution network, including some of the most prominent North America names, such as Costco, Walmart and Best Buy. The Company is also working with Daymak to introduce new products into the LEV market together. 

Financial overview in CAD

Source: Company 

• During the three months ended October 31, 2020, the Company earned zero revenue, against CAD 1,445 in the previous corresponding period.

• On the back of higher consulting fees of CAD 134,000 Vs CAD15,000 and higher professional fees of CAD 127,156 Vs CAD38,702 and share based compensation of CAD 24,098 the company posted Net loss of CAD 405,021 against CAD 167,731 in pcp. 

• As on October 31, 2020, the Company held cumulative assets of CAD 1.25 million, consisting of CAD 173,348 in cash. 

Risks associated with investment

There are many factors which could impact the operations and financials of the company such as customers’ ability to pay for the company’s EV charging equipment and related service, high completion, the impact of business disruption would lead to negative impact on demand for the company’s EV charging equipment and related services, etc. 

Stock recommendation

The accelerating adoption of electric vehicles represents an enormous opportunity for the Company. The Electric Vehicle (EV) market is one of the fastest-growing markets globally. It is projected to grow almost 5x over the next six years, which would generate plenty of opportunity for the Company. Furthermore, the Company launched its previously unveiled IoniX Pro EV Smart Charger Series and partnered with Daymak Inc., Canada’s largest distributor of Light Electric Vehicles (LEVs). Moreover, they are also working with Daymak to introduce new products into the LEV market together. Hence, considering the industry's scope of expansion, based on the above rationales and risks, we recommend a “Speculative Buy” rating at the closing price of CAD 0.50 on March 22, 2021.We recommend investors to assess their risk profile before taking any position in the stock.

1-Year Price Chart (as on March 22, 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.