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 

• Share Consolidation: The group announced the consolidation of its common shares on the basis of one post-consolidation common share for every ten pre-consolidation shares issued and outstanding as of the close of business on May 31, 2021. The shares are expected to begin trading on a consolidated basis on the Toronto Stock Exchange and the OTCQX market on June 3, 2021. 

• 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.

• 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. 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.

Source: Company

• 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 

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 was 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 that would allow Nomad to continue to generate strong free cash flow and support further growth. Moreover, we expect that gold as an asset class would continue to remain in the limelight. Based on technical analysis, the stock has support at CAD 9.0 level. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 10.5 on June 02, 2021. We have considered Osisko Gold Royalties Ltd, Sandstorm Gold Ltd, Metalla Royalty & Streaming Ltd. as a 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 June 02, 2021). Analysis by Kalkine Group

GURU Organic Energy Corp.

GURU Organic Energy Corp. (TSX: GURU) is a wellness company that is engaged in the business of manufacturing and marketing of organic energy drinks. Geographically, it derives a majority of revenue from Canada and also has a presence in the United States.

Key Highlights:

• Strong Macro Potential: In the recent past, the North American energy drink market has increased consistently, supported by a shift in consumer preferences towards energy drinks. As per the recent trend, millennials are more inclined towards the healthy beverages segment rather than alcoholic beverages. Notably, in 2020, non-alcoholic beverage saw a 7.9% jump, which is significantly higher than the total beverages segment growth of 2.8% on y-o-y basis. North American energy drink industry offers solid potential in the coming years, while we believe GURU is highly poised to utilize the opportunity arising from the sector.                  

Source: Company Presentation

• Availability of GURU Yerba Mate in the U.S. market: Last month, the company launched, a Plant-Based Energy drink “Yerba Mate” in the Canadian market and witnessed an overwhelming response from the consumers. The management decided to launch the product in the U.S. market too in order to boost its existing portfolio. Notably, GURU’s key products, GURU Original, GURU Lite and GURU Matcha, are available online and through 11,500 points of sale in the U.S. 

• Additional Credit Facility: On April 20, the company entered in an agreement with the Canadian Imperial Bank of Commerce (CIBC) for a credit facility of CAD 10 million. This credit facility with improved terms provides the company with additional flexibility to actively pursue expansion and reach new consumers across Canada and in the U.S. As recently announced, GURU will be rolling out its products to 5,300 new points of sale in markets outside of Quebec, supported by strategic and methodical sales and marketing activities.

Q1FY21 Financial Highlights:

• GURU came up with its first-quarter result, wherein the group reported its top line at CAD 6.602 million, significantly higher than CAD 5.328 million in the previous corresponding period (pcp). The growth was primarily driven by improved traction from both Canada and United States.
• Gross profit surged to CAD 4.097 million, from CAD 3.542 million in Q1FY20. The increase was driven by higher revenue, while a higher cost of goods sold (CAD 2.505 million v/s CAD 1.785 million in pcp) acted as a drag.
• The period was marked by a higher selling, general and administrative expense (CAD 4.679 million v/s CAD 2.882 million in pcp) due to a significant surge in employee benefits expense.
• The company reported a net loss of CAD 0.63 million v/s a net income of CAD 0.44 million in pcp. The decline was mainly due to an increase in selling, general and administrative expense, partially offset by significantly lower net financial expenses (CAD 0.028 million v/s CAD 0.111 million in pcp).

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The group has seen a surge in selling, general and administrative expense in the recent past, which has taken a toll on the company’s profitability. Continuation of the above trend would likely to dampen the company’s performance. Moreover, a shift in consumer preference towards other product might hamper the company’s overall sales volume.

Stock Recommendation:

During FY18 to FY20, GURU’s revenue grew at a CAGR of 34.4%. We expect the momentum to continue in the coming days supported by increasing penetration within the Canadian market coupled with increasing its product portfolio across the US market, which is encouraging. The group has listed its products on the online website Amazon and across other multi-channel segments, while it is targeting to increase its customer base. The company is propagating its products through listing on main banners to support its health and wellness focus, which is a key positive considering the current shift in market trend towards energy drinks. Based on the technical analysis, the stock has support at CAD 13.2 level. Considering the business prospect, growing market penetration and risk associated, we recommend a “Speculative Buy” on the stock at the closing price of CAD 16.02 on June 02, 2021.  

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock if the price closes below the support level.

One-Year Technical Price Chart (as on June 02, 2021). 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.