Maverix Metals Inc.

Maverix Metals Inc. (TSX: MMX) is a precious metals royalty and streaming company which offers a mining-related investment that provides exposure to metal price appreciation, and exploration and expansion potential.

Key Highlights

• Preliminary numbers Q4FY20 surpass guidance: Recently, the management shared its preliminary numbers for Q4 2020 and FY 2020, where they sold 8,836 ounces of gold, an increase of 25% from Q4 2019 and on an annual basis. In FY20, the company sold 28,916 ounces of gold which exceeded the guidance and increased by 20% against FY 2019. Furthermore, for FY2021, the company expects to sell 27,000 to 30,000 ounces of gold at approximately 90% cash margin.

Source: Company

• Acquired Newmont's Royalty Portfolio: The company acquired a portfolio of 10 gold royalties from Newmont Corporation, including a 2.0% net smelter return ("NSR") royalty on the Camino Rojo project, currently in the construction stage, and the first gold pour from this project is expected in Q4 2021. We believe this portfolio would further propel the cash flows for the company.

• Increase in cash flow from operations: In Q3 2020, the company clocked a cash flows from operations at USD 13.8 million compared to USD 6.0 million in the previous corresponding period. The increase in cash flows was mainly due to a gain on the amendment of its Beta Hunt royalty interest, ramping up the production at the Moss mine, along with a 30% increase in the average realized gold price per total attributable gold equivalent ounce sold.

• Strong Liquidity Position:On the back of robust operations, the Company is maintaining healthy liquidity. The company had cash and cash equivalents of USD 28.4 million and working capital of USD 41.9 million. Along with this, the company also holds USD 85.0 million under its credit facility.

Financial overview of Q3 2020 (in thousands of United States dollars)

Source: Company 

• The company reported a record revenue of USD 14.9 million, increased by 41% in Q3 2020, as against USD 10.5 million in the previous corresponding period (pcp).

Source: Company

• In Q3 2020, the company posted a Net Income of USD14.4 million as against USD1.8 million in the pcp. The increase in Net Income was primarily due to a gain on the amendment of its Beta Hunt royalty interest, ramping up the production at the Moss mine along with a 30% increase in the average realized gold price. 

Risk associated with investment

The company is prone to many risks, including commodity price risk and risks related to international operations, government and environmental regulations, delays in mine operations, actual results of mining and current exploration activities, etc. any single or a group of these risks can affect the financials of the company. 

Valuation Methodology (Illustrative): EV to Sales 

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

Stock recommendation

The Company presented robust numbers in Q3 2020, where they have registered a 41% of growth in its revenue, and substantial growth was seen in the bottom-line. Recently it acquired a High-Quality Gold Royalties portfolio from Newmont Corporation, and we expect that it will enhance its cash flows through this. On the liquidity front, the group holds strong liquidity, which seems to be sufficient to meet the near-term requirements. Therefore, we have valued the stock using EV/Sales multiple and have arrived at a double-digit upside (percentage term). Hence, we recommend a “Speculative Buy” rating at the closing price of CAD 6.13 on March 01, 2021. For the said purpose, we have considered peers like Wheaton Precious Metals Corp, Ely Gold Royalties Inc, Franco-Nevada Corp, etc.

1-Year Price Chart (as on March 01^st, 2021). Source: Refinitiv (Thomson Reuters)

Charlotte’s Web Holdings Inc.

Charlotte’s Web Holdings Inc. (TSX: CWEB) is engaged in the production and marketing of hemp-based cannabidiol (CBD) wellness products. The company’s product categories include tinctures (liquid product), capsules and topical products. 

Key Updates:

• Collaboration with McLean Hospital: On February 26, 2021, the company declared its collaboration with McLean Hospital, a Harvard Medical School affiliate, wherein the company would provide funding and product support. With the above collaboration, the group would enhance its research on the efficacy of a custom-formulated, hemp-derived high-CBD product. 

• Strong Sequential Top-line Growth: The company reported higher revenues and gross profit of USD 25.16 million and USD 15.26 million in the third quarter of FY20, respectively as compared to USD 21.68 million and USD 11.48 million, respectively in Q2FY20. Moreover, the group reduced its operating loss to USD 13.55 million, from USD 18 million in Q2FY20, which is worth mentioning.

Q3FY20 Financial Highlights:

• CWEB announced its quarterly results wherein, the group posted revenue of USD 25.156 million, improved from USD 25.045 million in the previous corresponding period (pcp).
• Gross profit stood at USD 14.757 million, as compared to USD 17.881 million in Q3FY19, primarily due to a significant increase in the cost of sales (USD 9.898 million against USD 7.181 million in pcp).
• CWEB reported an operating loss of USD 13.55 million, increased from USD 1.719 million in Q3FY19.
• The corporation reported higher operating expense at USD 28.312 million, as compared to USD 19.600 million in pcp. The increase was due to higher general and administrative expense (USD 17.816 million versus USD 13.064 million in pcp) combined with increased sales and marketing expenses (USD 8.512 million versus USD 6.281 million in Q3FY19). Moreover, a higher research and development expense (USD 1.984 million versus USD 0.255 million in Q3FY19) also contributed to the lower profitability.
• The group reported a cash balance of USD 65.891 million, while total assets were recorded at USD 330.46 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The products are relatively new to the market, and a change in consumer preference may impact the overall demand dynamics. Moreover, due to the lengthy procedure of product-approval and product innovations, along with an increase in the higher input costs, the company might witness a subsequent fall in the profitability and margins.

Valuation Methodology (Illustrative): EV to Sales

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

Stock Recommendation:

In the recent past, the group enhanced its brand presence through major acquisitions of CBD CLINIC, CBDMEDIC, and Harmony Hemp brands and witnessed improved traction from the consumers. The management is focusing on growing its brand presence across the international and as well as domestic markets, which is likely to improved business prospects for the company in the coming days. Further, its shares are taking support near its crucial short-term support level of 50-day and bouncing back, a consistent close above this level can bring CWEB shares back in the bullish zone. We have valued the stock using the EV to Sales based relative valuation approach and arrived at a target price, which suggests a double-digit upside side potential (in % terms). For the said purpose, we have considered peers like Charlotte's Web Holdings Inc, Intersect Ent Inc etc. Hence, considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 6.22 on March 01, 2021.

CWEB Daily Technical Chart (as on March 01^st, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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