Nomad Royalty Co Ltd

Nomad Royalty Co Ltd (TSX: NSR) is a royalty mining company. The company mines for silver, gold, and other base metals. The portfolio includes Woodlawn property, Blyvoor property, Gualcamayo property, Suruca property, and other properties.

Key highlights

• Improving operating matrix: On the back of healthy contribution from maximized numbers of assets compared to previous corresponding period, the company improved its operating matrix with an increase in GEOs earned, GEOs sold, total revenue and cash operating margin. Higher average gold price also played a crucial role in achieving healthy revenues and margin. In Q1 2021 the revenue was sourced 100% from gold and silver. The management's objective for the portfolio is to maintain a focus on precious metals (primarily gold and silver) with a target of no more than 10% in revenue from other commodities.

• Improving cash flow from operating activities: On the back of higher GEOs sold and higher Average gold price, the company generated USD 6.3 million of cash flow from the operation in Q1 2021, increased by 14.5%, against USD 5.5 million in the previous corresponding period, while on sequential basis it reported a growth of 34%, which is notable.

Source: Company

• Acquired Caserones Royalty and Blackwater Gold Royalty: Recently, the company announced that it has completed its previously announced acquisition of an indirect interest in a 0.28% net smelter return royalty on the producing Caserones mine in the Atacama region of Chile for a cash consideration of USD 23 million. Moreover, it also completed the acquisition of a 0.21% NSR royalty on the Blackwater Gold Project and satisfied the second and last tranche of the purchase price by issuing 791,856 common shares of the Company and by paying USD 0.87 million in cash.
  

Financial overview of Q1 2021 (In thousands of USD)

Source: Company 

• In Q1 2021, the company reported revenue of USD 9.7 million, against USD 6.4 million in the previous corresponding period. An increase of USD 3.3 million in revenue is primarily due to an increase of 7% in gold prices and an increase of 46% of gold equivalent ounces sold.
• Gross profit for the reported period increased to USD 2.8 million, against USD 0.7 million in pcp.
• The company earned operating loss of USD 0.2 million compared to profit of USD 1.0 million in pcp, primarily due to higher G&A expenses and change in fair value of gold prepay loan along share-based compensation.
• Primarily due to above discussed rationales the company clocked a net loss of USD 0.2 million, against a profit of USD 1.0 million in pcp.
  

Risk associated with investment

The Company’s financial performance is mostly dependent on the price of gold, which directly affects their profitability and cash flow. Any drawdown in the gold prices would impact the group’s performance.

Valuation Methodology (Illustrative): Price to Cash Flow 

Stock recommendation

The company’s portfolio delivered a strong first quarter of gold and silver production and represents a great start to the year. Going forward the company’s focus is on maintaining this positive momentum by delivering on its stated goal of delivering value through further deployment of capital in new opportunities across the globe, coupled with the strong organic growth of its current portfolio would allow Nomad to continue to generate strong free cash flow and support further growth. Moreover, we expect the gold prices to remain elevated and believe that gold as an asset class would continue to remain in the limelight. Based on technical Analysis, the stock has support at CAD 8.2 level. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 9.63 as on July 06, 2021. We have considered Osisko Gold Royalties Ltd, Sandstorm Gold Ltd, Metalla Royalty & Streaming Ltd. 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 or if the price closes below the support level.

One-Year Technical Price Chart (as on July 06, 2021). Source: REFINITIV, Analysis by Kalkine Group

Delta 9 Cannabis Inc

Delta 9 Cannabis Inc (TSX: DN), is a Canada-based company engaged in Biotechnology & Medical Research. The principal activities of the Company are the production, storage and sale of medical marijuana.

Key highlights 

• Healthy guidance on Q2 2021 numbers: On the back of healthy performance from its all-business segments, the company anticipates a record revenue in the range of CAD 15.5 - 17.25 million against CAD 13.01 million in Q2 2020.

• Increasing retail stores: The organization is making steady strides against its target of opening up to 20 Delta 9 Cannabis specialty stores throughout the Prairie provinces this year and has a long-term vision of opening many more Delta 9 branded retail stores across Canada. The group also announced the grand opening of three more cannabis retail stores since the beginning of 2021 and now have 12 retail stores in total with nine in Manitoba, two in Alberta and one in Saskatchewan.

• Focusing on medical cannabis market: The company derives a small portion of its revenues from the sale of medical cannabis products directly to patients who have received a medical document from their health care practitioner. The management expects that its recent introduction of oils and extract products into the company’s product offering would result in expanded revenue streams and provide a stronger value proposition for medical clients.

• Event update: The company would release the results for the second quarter of 2021 on August 16, 2021, before the market opens.
  

  Financial overview of Q1 2021

Source: Company 

• In Q1 2021, the company reported higher revenue at CAD 13.2 million compared to CAD 11.7 million in the previous corresponding period. The rise was due to solid performance in its retail and wholesale segment.
• On account of an increase in cost of sales to CAD 9.5 million V/s 6.8 million and after accounting for changes in the fair value of biological assets, the gross profit declined to CAD 2.9 million in Q1 2021, compared to CAD 7.6 million in pcp.
• In the reported period the company’s operating expenses increased to CAD 6.1 million against CAD 4.7 million in pcp, as a result the group posted loss from operations of CAD 3.2 million against a profit of CAD 2.9 million in pcp.
• Primarily due to above stated reasons, the company posted net loss of CAD 3.9 million in Q1 2021 against a profit of CAD 2.1 million in pcp.
  

Risks associated with investment

Several risk factors could impact the Company’s ability to execute its key strategies successfully and materially affect future events and financial performance. Some of these risks include reliance on licenses and authorization, disruption in the supply chain, inability to sustain pricing and inventory models, etc. 

Valuation Methodology (Illustrative): EV to Sales 

Stock recommendation

The group would continue its expansion within the retail store chain and market the Company’s price leader strategy to leverage customer acquisition at new and existing Company stores. Moreover, it focuses on building momentum in the cannabis wholesale segment through product expansion and enhancing its distribution across the markets. Furthermore, the management expects that its recent introduction of oils and extract products offering would result in expanded revenue streams and provide a stronger value proposition for medical clients. Additionally, the company anticipates a record revenue in the range of CAD 15.5 - 17.25 million against CAD 13.01 million in Q2 2020, which is key positive. Based on technical analysis, the stock has support at CAD 0.35 level. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 0.440 on July 6, 2021. We have considered Aytu Biopharma Inc, Nuvo Pharmaceuticals Inc, Aquestive Therapeutics 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 or if the price closes below the support level.

One-Year Technical Price Chart (as on July 06, 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.