Sienna Senior Living Inc

Sienna Senior Living Inc. (TSX: SIA) is a Canada-based seniors' living providers. The Company serves the independent living (IL), independent supportive living (ISL), assisted living (AL), memory care (MC) and long-term care (LTC) through the ownership and operation of seniors' living residences in the Provinces of British Columbia and Ontario.

Investment Rationale

• Resilient Business Model: The group's business depends on the aged population of the country. The services are essential in nature, hence are immune to economic cycles. The business is expected to remain resilient in the coming days as the size of the aged population is likely to increase going forward.

• Ample Liquidity: Liquidity increased to CAD 240.5 million as on June 30, 2020, from CAD 144.0 million as at December 31, 2019, comprised of cash and cash equivalents and available credit facilities. The current liquidity position seems sufficient to help the group in navigating through a challenging time.

Source: Company

• An income play: The company has a healthy practice of dividend pay-out; this translates in an important factor for regular income-seeking investors with a long-term horizon. During the current quarter, the Management announced a dividend of CAD 0.234 per common share, higher than CAD 0.230 in Q2 FY2019. At the last traded price, the stock was offering a dividend yield of 7.83%, which is lucrative considering the current interest rate environment.

2QFY20 Financial Overview

Source: Company

• During 2QFY20, revenue decreased by 1.8% to CAD 162.9 million compared to CAD 163.0 million in the previous corresponding period.
• In the Retirement segment, revenue declined by CAD 0.941 million in Q2 2020 compared to Q2 2019 due to the result of occupancy softness, partially offset by in-place rental rate increases.
• LTC's revenues for Q2 2020 decreased by CAD 2.4 million compared to Q2 2019.

• Operating Expenses increased by 4.0% in Q2 2020 to CAD 131.03 million compared to Q2 2019. The increase was mainly a result of net pandemic expenses, which consisted primarily of additional staffing and PPE costs to manage COVID-19, partially offset by lower variable expenses related to reduced Retirement occupancy.
• The company’s Long-Term Care (LTC) – average occupancy, during the quarter stood at 92.6% against 98.3% in Q2FY19.

Upcoming Event

The company announced that it will report its 2020 third quarter results after market close on Wednesday, November 11, 2020.  

Risk associated to investment 

Several factors like a risk on the mortgage, interest rate volatility etc. might impact the company’s overall performance. Further higher cost related to sanitization would result in a surge in total operating costs, which might hinder the overall margin of the company. 

Valuation Methodology (Illustrative):

All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation

Rent collection, for the month of August, stood at 99.6%, while occupancy remained stable at 81.1%. As per the recent announcement, the business is likely to receive additional funding for COVID-19 prevention and containment and the Government of British Columbia’s funding announcement to cover extra staffing costs dedicated to safe social visitations, which is likely to provide cushion to the margins. Further, the Company continued to pay the dividend amid the challenging time, which shows the financial flexibility. Hence, based on the rationales discussed above and valuation, we have given a “Speculative Buy” rating at the closing price of CAD 11.95 on October 21, 2020. We have considered Chartwell Retirement Residences, Killam Apartment REIT, Extendicare Inc, etc. as the peer group for the comparison.

SIA daily technical chart. Source: Refinitiv (Thomson Reuters)

Village Farms International

Village Farms International (TSX: VFF) is one of the biggest and only publicly traded greenhouses producer in Canada that is operating a vertically integrated greenhouse. It produces, markets, and sells tomatoes, bell peppers, and cucumbers. The company’s JV cannabis segment produces and supplies cannabis products to other licensed providers and provincial governments across Canada and internationally.

Key Developments

On September 08, the company announced that it has entered into a definitive purchase and sale agreement with Emerald Health Therapeutics, Inc to acquire 36,958,500 common shares of Pure Sunfarms Corp. owned by Emerald, representing approximately 41.3% of the issued and outstanding common shares of Pure Sunfarms. Upon completion of the Pure Sunfarms Transaction, Village Farms will own 100% of the common shares of Pure Sunfarms.

Investment Rationales

• Industry Leading Margin Profile: The joint venture between Village and Emerald Health Therapeutics Inc- Pure Sunfarms is One of Canada’s Top Retail Cannabis Suppliers by net recreational cannabis sales of CAD 30.9 million, with Industry leading gross margin of 44% and Industry leading EBITDA margin of 30%.
• Top-selling brand: Recently Pure Sunfarms has begun shipping its Cannabis 2.0 and bottled oil products to customers in Ontario, Alberta, and British Columbia. Its products were the top-selling brand of dried flower products with the Ontario Cannabis Store, the regional wholesaler and online retailer in Canada's most populous province. 
• Pure Sunfarms Joint Venture Would be a Game changer:  Pure Sunfarms is the low-cost greenhouse cannabis producer, delivering high-quality products at a reasonable price to their customers. This has helped them generate positive EBITDA and Net Income from past quarters. Further, the footprint of Pure Sunfarms has been expanded with products now available in 5 of the 6 Largest Provincial Markets in Canada. Moreover, in addition to branded retail sales; long-term goal of the company is to supply as much as 1/3 of the Canadian cannabis market. Also, the acquisition of 100% of the common shares of Pure Sunfarms, would likely to benefit the company.

Q2FY20: Financial Highlights

Source: Company filing.

• The company saw an improvement in Sales for Q2FY2020, which increased USD 6,244, or 15.1%, to USD 47,573 from USD 41,329 on Y-o-Y basis. The increase in sales was primarily due to higher selling prices for tomatoes during this period compared to the same prior-year period.
• The group reported gross profit of USD 3.5 million vs gross loss of USD 2.97 million in the previous corresponding period.

Risk associated to investments

The company is exposed to price risk concerning commodity prices. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. This risk could impact their business, operations and financial results.

Valuations Methodology (Illustrative): EV to Sales

All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The company is adding high-value products such as Cannabis 2.0 and bottled oil products in its portfolio. We expect this is likely to enhance Pure Sunfarms' gross margin going forward. Also, the company is planning to begin its own extraction operations, which is expected to commence in a few months subject to Health Canada licensing. We expect the company to post better numbers in the second half supported by the continued sales momentum, which the company witnessed early in the third quarter, also the addition of new provincial markets and retail stores. Therefore, based on the above rationales and valuation, we have given a "Speculative Buy" rating at the closing price of CAD 6.92 on October 21, 2020. We have considered Grow Generation Corp, OrganiGram Holdings Inc, Columbia Care Inc etc. as the peer group for the comparison.

1-Year Price Performance (as on October 21, 2020, after the market close). Source: Refinitiv (Thomson Reuters)

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.