OceanaGold Corp

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

Key highlights 

• Vigorous production outlook: The company's asset bases are functioning well, and numerous recent good events are supporting this. Consequently, the company intends to boost output and profitability while decreasing expenses in the future, which is a huge plus. In addition, the company expects that restarting "DIDIPIO" mine would contribute around 120 koz gold and around 12 kt copper each year.

Source: Company 

• Industry beating margin profile:The group reported strong operational efficiency during Q1 2021, on the back of healthy production and increased average realization price of gold, which helped the company leaping the industry median numbers on many fronts. The chart below gives a glimpse of this.

• Healthy guidance on FY2021: For the full year, the Company expects to produce 340,000 to 380,000 ounces of gold from the Haile Gold Mine and the New Zealand operations on a consolidated basis. The combined AISC is estimated to be between USD 1,050 and 1,200 per ounce sold, with consolidated cash costs between USD 750 and 850 per ounce sold.

• Event update: The company will be releasing its financial and operational results for the second quarter ending June 30, 2021, after the market close on Thursday July 29, 2021.
  

Financial overview of Q1 2021

Source: Company 

• In Q1 2021, the revenue reported by the company increased 8% to USD 148.9 million compared to USD 138.2 million, primarily due to improved performance from Haile and higher average gold prices received.
• Operating profit stood at USD 28.7 million in Q1 2021, against a loss of USD 6.5 million in pcp, primarily due to lower operating expenses.
• The company reported a Profit before income tax of USD 21.7 million in Q1 2021 compared to a loss of USD 31.7 million in the previous corresponding period.
• Higher revenue and lower operating expenses along with higher average realization price of metal helped the company to clock a net income of USD 16.0 million, against a loss of USD 26.0 million in pcp.
  

Risks associated with investment

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

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

Q1 2021 was a transformational period for the company as it came out with robust performance, strong cash position, and healthy outlook for FY2021; all these factors give a glimpse of solid foundations led by the company to achieve higher growth in future. Furthermore, the company is excited about the next few years, and the opportunity to drive value from internal growth with the lower operating cost is a key positive. Additionally, the relentless focus on delivering restarting Didipio mine and advancing organic growth is expected to create value over the long term. Based on technical analysis, the stock has support at CAD 1.9 level. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 2.24 on July 12, 2021. We have considered Yamana Gold Inc, B2Gold Corp, Alamos Gold 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 12, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Martinrea International Inc.

Martinrea International Inc. (TSX: MRE) is a Canadian producer of steel and aluminium parts and fluid management systems. Its products are used primarily in the automotive sector by the majority of vehicle manufacturers.

Key Highlights:

• Stable cash flows and prudent capital investments: During the last decade, MRE reported consistent growth in its operating cash flows, except FY20, due to the persisting lower demand across the Automobile industry. However, the management showed a prudent capital management, which led to a stable capital expenditure in the last three financial years. The company is likely to reap the benefits of the investments made over the year as the demand from automobile segment is likely to improve.                 

Source: Company Report

• Strong Demand Revival from Europe: The company’s operations were supported by strong momentum from the European segment, aided by the acquisition of Metalsa coupled with positive response from the company’s new launches programs. The automobile industry witnessed a surge in the sales volume, which resulted to a higher production from company’s premium clientele. We expect the above trend to continue in the coming period supported by easing of restrictions norms from the governments.
  

• Surge in dividend distribution amidst the economic turbulence: The corporation has increased its dividend distribution to CAD 015 million in Q1FY21, from CAD 3.612 million in Q1FY20.

Q1FY21 Financial Highlights:

• MRE impresses with its first quarter FY21 result, wherein the company posted revenue of CAD 997.150 million, up 14.3% on y-o-y basis. The growth was driven by solid demand from the European Geography, while the North American segment showed a 2.4% improvement as compared to the previous corresponding period (pcp).
• Adjusted EBITDA improved marginally to CAD 109.815 million, from CAD 107.724 million in the previous corresponding period (pcp). The group witnessed a lower Research and development costs (CAD 7.809 million v/s CAD 9.453 million in Q1FY20), while higher Selling, general and administrative costs (CAD 60.750 million v/s CAD 57.408 million in pcp) combined with the inclusion of restructuring costs amounting CAD 1.029 million remained a drag.
• The group reported its net income at CAD 38.701 million, jumped 33.6% on y-o-y basis. The improvement was partially supported by a lower finance expense (CAD 8.411 million v/s CAD 9.462 million in pcp).

Q1FY21 Financial Highlights (Source: Company Report)

Risks: The company is prone to many risks associated with the nature of its business which could hamper the performance of the company. Some of these risks include fall in demand from automobile manufactures, disruptions from the supply chain, any technological change, increased prices of raw materials and commodities, etc.

Valuation Methodology (Illustrative): EV to EBITDA based

Stock Recommendation:

The company’s net debt to Adjusted EBITDA ratio stood at 2.24 times at the end of Q1FY21, while the management is focusing to improve it to 1.5x through investing in the company’s research & development and prioritizing on organic opportunities. 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 would provide new avenues for cash flow. Based on technical analysis, the stock has support at CAD 10.6 level. We have valued the stock using the EV to EBITDA based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered industry peers like Linamar Corp, Abc Technologies Holdings Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the last closing price of CAD 12.60 on July 12, 2021.

*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 12, 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.