Martinrea International Inc (TSX: MRE) is a Canada based manufacturer of metal parts and fluid management systems. Its products are used primarily in the automotive sector by most vehicle manufacturers.

Key highlights

• Strong growth led by a North American and European region: Despite the pandemic's impact on the automobile industry, the company demonstrated resilience in Q2 2021, expanding in the North American and European regions. The North American region performed well, with revenues soaring 99.9% to CAD 635.8 million from CAD 318.1 million in the previous quarter, while sales in Europe climbed by a whopping 111%. The rise was mostly attributable to the recovery in total light vehicle manufacturing volumes.
• Positive Long-Term Outlook: Despite the current constraints, the firm is optimistic about its long-term prospects, owing to high customer demand for automobiles, low vehicle inventory levels, and a solid order book. Total sales are expected to be in the range of CAD 4.6-4.8 billion in FY2023, with an adjusted operating income margin above 8% and Free Cash Flow exceeding CAD 200 million.

• Ventured into electric vehicle battery production: The Company recently formed a 50/50 joint venture with NanoXplore called VoltaXplore to develop and build graphene-enhanced electric car batteries. We believe the company has unique technology that has the potential to provide a solution for producing electric car batteries that will assist governments and automakers in meeting ambitious objectives for electric vehicle production.

Financial overview of Q2 2021 (in thousands of Canadian dollars)

Source: Company

• Sales in Q2 2021 increased by CAD 424.3 million or 92.1% to CAD 884.9 million compared to CAD 460.6 million in Q2 2020. The increase in sales was driven by healthy performance from the North America and Europe operating segments, partially offset by a slight decrease in the Rest of the World.
• Gross profit in the reported period improved to CAD 111.7 million against a loss of CAD 12.4 million in the previous corresponding period, mainly on the back of higher revenues.
• The group reported the gross margin of 12.6% in the reported period.
• Operating income in Q2 2021 stood at CAD 34.6 million against a loss of CAD 163.3 million in pcp, although it registered higher SG&A expenses.
• The company reported a net income of CAD 23.9 million compared to loss of CAD 146.8 million in pcp.

Risks associated with investment

Many risks are linked with the nature of the company's operation that might obstruct its performance. Some of these risks include a drop in demand from automotive manufacturers, supply chain disruptions, any technological development, increasing pricing of raw materials and commodities, etc. The company also hold high debts in its books. 

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

The company continued to experience short-term headwinds in the second quarter, as customer releases have fluctuated due to the shortage of semiconductors and other supply constraints. In addition, the group is progressing through a heavy new business launch cycle which is having a greater impact on margins than what is normal in a typical year. On a positive note, vehicle demand remains very strong, and vehicle inventories are at record lows. Furthermore, the company’s current launch activity is expected to generate future sales growth as well as strong margins once supply bottlenecks are removed, and production normalizes. Recently, the business launched VoltaXplore, a joint venture with NanoXplore to develop and create graphene-enhanced electric car batteries. As the demand for electric vehicles grows, we anticipate that this segment will provide new avenues for cash flow. Therefore, based on the above rationales and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 12.08 on August 31, 2021. We have considered American Axle & Manufacturing Holdings Inc, Linamar Corp, Superior Industries International Inc, 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 August 31, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Glacier Media Inc

Glacier Media Inc (TSX: GVC) is a Canada based company which offers information and marketing solutions. It operates in three segments Environmental, Property and Financial Information, Commodity Information and Community Media.

Key highlights 

• Healthy outlook: The Company has experienced an improvement in market conditions under different business segments but is still being affected by the pandemic in several areas. It is working to strengthen the financial position and operating profitability. Revenues were significantly affected, although they have continued to improve during the latter part of 2020 and into 2021. The combination of improved revenues along with continued cost management and stronger business conditions in numerous markets where Company operates has resulted in significantly improved levels of operating profitability.
• Strong liquidity ratios and leverage Profile: The company’s quick ratio in Q2 2021, stood at 1.25x compared to industry median at 1.11x. The ratio is improving on a continues basis compared to the last sequential quarters, and it shows that company can meet its short-term liabilities comfortably, which is a healthy sign. Moreover, its Debt/Equity ratio stood at 0.06x against an industry median of 1.03x, which is again a positive aspect.

• Strong liquidity position: The Company is now in a significantly stronger financial position with the Cash and cash equivalents balance at CAD 14.5 million, increased from CAD 14.3 million on December 31, 2020. Moreover, As of June 30, 2021, the Company had no senior debt, while its mortgages and other loans totaled CAD 2.5 million.
  

Financial overview of Q2 2021 (In thousands of CAD)

Source: Company

• In Q2 2021, the company reported higher revenue at CAD 41.0 million revenue, compared to 30.9 million in the previous corresponding period.
• The company's operating profit fell to CAD 4.2 million in the reported period, compared to CAD 6.1 million in pcp. The decrease was mainly due to higher direct expenses, which stood at CAD 27.1 million V/s CAD 17.8 million in pcp.

• Net income in Q2 2021 stood at CAD 0.8 million against a loss of CAD 7.3 million in pcp, although it experienced higher depreciation expense, but no impairment was done in this period.
  

Risks associated with investment

The company derives its revenues from selling advertising and subscriptions related to its publications; a drop in the subscription level can lead to adverse results. Foreign exchange rate fluctuations, the seasonal and cyclical nature of the agricultural and energy sectors, government programs discontinuation, general market conditions in Canada and the United States, changes in the prices of purchased supplies such as newsprint, and cybersecurity risk are among the other risk factors.

Stock recommendation

While the pandemic has had an impact on the Company's operations, its digital media, data, and information businesses have fared better. Revenues have begun to rise and are continuing to rise in several sectors. A significant positive is that the company took substantial steps to decrease operational expenditures in order to ensure that its businesses can function successfully at lower sales levels. Furthermore, the Company is trying to maintain adequate levels of operational income within these limits, as well as making deliberate efforts to improve revenues, profits, and cash flow. On the valuation front, the stock is available at TTM EV/SALES of 0.5x against the industry (Media & Publishing) median of 2.4x. Hence, considering the rationale mentioned above, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 0.460 on August 31, 2021, with a lower double digit (in percentage terms) upside potential.

Technical Analysis Summary

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.