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

• Rising GEO outlook for 2021: The corporation forecasts 27,000 to 30,000 attributable GEOs in 2021, based on a solid portfolio of operational mines, with a cash margin of over 90% and earnings from gold and silver accounting for virtually all of it, which is noteworthy.

Source: Company

• Increase in cash flow from operations: The company's cash flows from operations were USD 8.8 million in Q2 2021, up from USD 6.6 million in the previous corresponding quarter. The rise in cash flows was primarily attributable to an expanding portfolio of cash-flowing Royalties and Streams, as well as a 6% increase in the realized gold price per GEO.
• Industry beating margins: The resilient business and management’s solid determination along prudent steps helped in leaping the industry median margins on many fronts in Q2 2021, which is a key positive. The chart below gives a glimpse of this.
  

Financial overview of Q2 2021

Source: Company

• In Q2 2021, the company’s reported revenue increased to USD 14.3 million compared to USD 10.9 million in the previous corresponding period. The increase was mainly due to higher sales and royalty income.
• Gross profit in the reported period increased to USD 8.8 million against USD 6.0 million in pcp, although it recorded higher cost of sales.
• Income from operation in Q2 2021 stood at USD 6.2 million compared to USD 4.2 million in pcp.
• On the back of higher income from operations, the company posted elevated net profit at USD 3.7 million against USD 3.0 million in pcp.

Risks associated with investment

The company is prone to many risks, such as risks related to international operations, government and environmental regulations, delays in mine operations, actual results of mining and current exploration activities, etc. Furthermore, its financial performance is mostly dependent on the price of gold, which directly affects its profitability and cash flow.

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

The company had a strong second quarter highlighted by the acquisition of a precious metals royalty portfolio from Pan American, which further strengthens our asset base to a total of 121 precious metals royalties and streams. Additionally, we believe the firm is on track to meet its previously disclosed forecast of 27,000 to 30,000 GEOs in 2021 at a cash margin of about 90%, with gold and silver accounting for nearly all the projected revenue. Moreover, we are bullish on the gold prices and believe that despite a little pullback, gold, as an asset class would continue to remain in the limelight. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 5.67 on September 27, 2021. We have considered Franco-Nevada Corp, Osisko Gold Royalties Ltd, Wheaton Precious Metals Corp, etc., as the peer group for the comparison.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on September 27, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Roots Corporation

Roots Corporation (TSX: ROOT) provides a portfolio of apparel, leather goods, accessories, and footwear for men, women, and children under the Roots brand. The company operates through two segments: Direct-To-Consumer (DTC), which accounts for majority revenue, and Partners & Other. The DTC segment sells products through the company's corporate retail stores and e-commerce.

Key highlights 

• Increasing demand offtake: Easing lockdown restriction along with more people getting inoculated against the deadly virus and an increase in discretionary spending has boosted demand dynamics. It can also be gauged by seeing its DTC sales performance, which increased by 6.6 % on a YoY basis and 16.4% on YTD basis, driven by healthy growth in store sales, despite being closed for longer in Ontario, its largest market.
• Sequentially increasing gross margin and EBITDA margin: The company's gross margin and EBITDA margin are improving sequentially, which is a positive indicator. Its gross margin increased to 58.1% in Q2 2021 from 57.5% in Q1 2021, and EBITDA margin increased to 9.0% from 0.6%. Furthermore, compared to the industry, it has a superior margins, showing that the company is truly excelling.
• Enlarging eCommerce reach: After been brutally shaken by the COVID-19 pandemic, the retail clothing sector is undergoing a fundamental transformation. Traditional brick-and-mortar stores are concentrating their efforts on expanding their reach and footprint in eCommerce. The company delivered significant eCommerce sales growth over pre-pandemic levels, despite year-over-year sales moderating as customers increasingly embraced in-store shopping again.

  Financial overview of Q2 2021 (In thousands of CAD)

Source: Company

• In Q2 2021, the company’s revenue improved marginally by 1.8% to CAD 38.9 million compared to CAD 38.2 million in the previous corresponding period. This was primarily driven by 6.6% jump in the Direct-to-Customer sales to CAD 30.3 million V/s CAD 28.4 million reported in pcp.
• Gross Profit surged by 8.2% to CAD 22.6 million compared to CAD 20.8 million reported in pcp, mainly due to lower COGS.
• The company’s income before interest expense and income tax stood at CAD 0.7 million compared to a loss of CAD 0.4 million in pcp.
• Net loss for the reported period stood lower at CAD 1.1 million compared to CAD 1.8 million in Q2 2020.
  

Risks associated with investment

The company is exposed to variety of risks ranging from supply chain risks, resurgence of Delta variant of COVID-19, a fresh lockdown and travel restrictions, intense competition, forex risks, credit risk. Additionally, the company’s highly leveraged balance sheet exposed it to interest rate risks. 

Valuation Methodology (Illustrative): EV to Sales

Sock recommendation

The company’s profitable growth in the quarter continues to highlight the desirability of our brand, loyal customer base, and strong fundamentals. On a sequential basis, the company is witnessing an improvement in its gross margin and EBITDA margin, which is a healthy sign. Moreover, it delivered significant eCommerce sales growth over pre-pandemic levels, despite year-over-year sales moderating as customers increasingly embraced in-store shopping again. Increased eCommerce penetration aided the firm in lowering operational costs, resulting in a posting operating profit. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 2.87 on September 27, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on September 27, 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.