OceanaGold Corporation

OceanaGold Corporation (TSX: OGC) is engaged in the exploration, development of gold and other minerals and has a presence across Philippines, New Zealand, and, to a lesser extent, the United States.

Key Highlights:

• Robust margins: The company reported an impressive gross margin and operating margin of 61% and 29.1%, respectively, in Q2FY21, which was higher than the industry median of 12.8% and 11.5%, respectively. Net margin during the quarter stood at 17.2%, as compared to the industry median of 9%. A higher profitability margin denotes higher operational efficiency.
• Increase in gold price resulted to improved performance: The company’s operation was benefitted from elevated gold prices. Notably, in H1FY21, Avg Gold Price stood at USD 1,843/oz, higher than USD 1,515/oz in pcp. Moreover, the company sold 178.8 oz of gold in H1FY21, higher than 153.3 oz in pcp. Revenue and EBITDA was recorded at USD 331.5 million and USD 151.9 million, respectively, higher than USD 234.0 million and USD 54.8 million in pcp.
• Operational highlights: The company reported high-grade deposit from its existing processing infrastructure in Wharekirauponga. The company conducted drilling from two platforms to Infill and extend all Three Vein Systems, and its 2021 exploration program includes 10,000 metres of drilling. The company expects to start its Prefeasibility Study for Waihi North Project in H1FY22.

Q2FY21 Financial Highlights:

• OGC announced its quarterly result, wherein the company reported revenue of USD 182.6 million, higher than USD 95.8 million in Q2FY20. The increase was primarily due to higher gold sales volumes mainly from Haile and a higher average gold price received.
• EBITDA stood higher at USD 89.9 million, as compared to USD 12.4 million in the previous corresponding period (pcp). The quarter was marked by higher Cost of sales, and higher General and administration expenses.
• Net profit was recorded at USD 31.4 million, as compared to a net loss of USD 31.5 million in pcp. The increase was supported by higher EBITDA, partially offset by increase in income taxes.

Q2FY21 Income Statement Highlights (Source: Company Report)

Riks: The company’s operations might be hindered by events like delay in execution of its upcoming projects, volatility in commodity prices etc. Moroevr, non achievement of desired results from new drilling area would impact the company’s performance and its mineral reserves.

Valuation Methodology (Illustrative): Price to Cash flow

Stock Recommendation:

For FY21, the group expects to produce 350,000 to 370,000 oz of gold, while All in sustainable costs (AISC) is expected to remain in between USD 1,200 to USD 1,250 per ounce sold and cash costs is expected within the range of USD 825 to USD 875/ounce sold. The company reported its production of 57,240 ounces in Q2FY21, reflecting a growth of 29% on q-o-q basis due to increased plant feed and gold recoveries.  We have valued the stock using the price to cash flow-based valuation method and have arrived at a lower-double-digit upside (in percentage terms). For the said purposes, we have considered peers like Resolute Mining Ltd, Regis Resources Ltd etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 2.08 on October 04, 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 October 04, 2021) Source: REFINITIV, Analysis by Kalkine Group

H2O Innovation Inc

H2O Innovation Inc. (TSX: HEO) designs and provides integrated water treatment solutions based on membrane filtration technology.

Key Highlights:

• Record Top-line and Bottom-line Numbers Reported in FY21: For the FY21, the company reported record revenue of CAD 144.3 million, up 8% on a YoY basis, and Net earnings of CAD 3.1 million vs net loss reported in the corresponding previous fiscal.
• Industry Leading Margin Profile: The company reported industry leading margin profile in the quarter just gone by, with Gross margin of 84.9% vs industry median of 43.1%, and Net margin of 10.8% vs industry median of 6.9%.
• Deleveraged Balance Sheet: HEO has a strong balance sheet with a net debt of CAD 0.5 million at the end of the year, compared to a net debt of CAD 10.5 million as of June 30, 2020. This implies company has very lower balance sheet risks.

Financial Highlights: FY21

Source: Company Filing

• Revenue for FY21 up by 8% to CAD 144.32 million from CAD 133.57 million in FY20.
• Gross margin improved by 80bps to 27.7% in FY21 vs 26.9% in FY20.
• EBITDA margin increased to 10.1% in FY21 vs 9.4% in FY20.
• Recurring revenue as a % of sales improved to 87.3% in FY21 vs 86.2% in FY20.

Risks Associated:  The company’s performance may affect by lower industrial demand offtake, and government regulations.

Valuation Methodology (Illustrative): EV to EBITDA 

Stock Recommendation:

The company reported decent performance in FY21, with WTS business revenue increased by CAD 1.1 million on a YoY basis, driven by growth in service activities.  Further, revenue from specialty products also improved by CAD 3.7 million largely coming from Genesys, which was acquired on November 15, 2019. Hence, based on the above rationale and valuation, we recommend a “Speculative Buy” recommendation at the closing price of CAD 2.29 on October 04, 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 October 04, 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.