Chorus Aviation Inc.

Chorus Aviation Inc. (TSX: CHR) is a Canada-based company that provides regional aviation solutions and offers a range of regional aviation support services.

Key highlights

• Improving Industrial scenarios: The Company is still dealing with the effects of COVID-19, but there have been some promising signals since Q2 2020, such as a rise in flying under the CPA from 10% to about 23% in the last year. Furthermore, the firm received about 60% of lease income billed in the fourth quarter from its lessees, except repossessed planes, a 10% increase over Q3 2020, which seems to be very remarkable.

• Started earning leasing revenue: Near the end of Q4 2020, the firm started earning leasing revenue on five more CRJ900s sold under the CPA, taking the cumulative number of CRJ900s delivered in 2020 to eight. In February 2021, they got their ninth CRJ900, which we expect to boost their revenues even further.

• Raised funds:  Recently, the company completed a CAD115 million bought deal public offering and a subsequent CAD30 million private placements from AIMCO and NordStar. The net proceeds will be used to seek growth prospects and repay loans, giving the company more leverage on its balance sheet. 

• Industry beating margins: Despite the hard time for the industry and economy, the management’s solid determination helped them leaping the industry median margins on many fronts in FY2020, which is a key positive. The chart below gives a glimpse of this.

Source: Refinitiv (Thomson Reuters) 

• Upcoming financial event: The company will be presenting its first quarter 2021 financial results on May 13, 2021. 

Financial overview of Q4 2020

Source: Company

• In Q4 2020, the group reported its operating revenue of CAD 218.1 million, compared to CAD 338.6 million in the previous corresponding period. Decreased revenue in the RAS segment was attributable to the decline in Controllable Revenue, Pass-Through Revenue and decreased third-party MRO activity. Although on Sequential basis the company registered a growth of 11% in sales, reflects the change in scenario.
• Total operating expenses in Q4 2020 fell to CAD 219.3 million, compared to CAD 287.1 million in Q4 2019, primarily due to lower salaries, decreased engine overhaul maintenance events and decreased Pass-Through Costs.
• Adjusted EBT stood at CAD 9.5 million against CAD 28.6 million in Q4 2019, the decline in EBT was mainly due to lower leasing margins.
• The company's net income was CAD 7.7 million in the reported quarter, against CAD 23.3 million, primarily due to the above-stated reasons.   

Risks associated with investment

Further extension of restrictive measures to contain COVID-19 would dampen the group’s performance. The company may witness a headwind from lower passenger footfalls. 

Valuation Methodology (Illustrative): EV to EBITDA 

All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The COVID-19 pandemic and government sanctions have posed unparalleled obstacles for the passenger aviation industry around the world, but the organization is now excited by the development of various COVID-19 vaccinations and anticipates that flying volume would steadily increase, allowing the group to generate more sales and cash flows. Furthermore, amid the difficulties, the group continues to outperform the industry median margins on a number of fronts, demonstrating its resilience. At the end of 2021, the firm expects its liquidity to be reasonably stable. It would continue to take steps to control liquidity by cutting non-essential capital spending and lowering operating costs. Based on technical analysis, the stock has support at CAD 3.6 level. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating at the closing price of CAD 4.39 as on May 6, 2021. We have considered Magellan Aerospace Corp, Heroux Devtek Inc, SkyWest Inc etc., as the peer group for 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 Price Chart (as on May 06, 2021). Source: Refinitiv (Thomson Reuters)

Viemed Healthcare Inc

Viemed Healthcare Inc (TSX: VMD), provides equipment and home therapy to service patients with various respiratory diseases. The group is a high-level service provider using best in class technology and equipment to increase the quality of life in the homes of patients with respiratory conditions.

Key highlights

• Robust financial performance: The pandemic posed more tailwinds than headwinds for the company, which resulted in a record year for it. The group posted a growth of 63.6% in revenues to USD 131.31 million, against USD 80.26 million in FY2019 and net income stood at USD31.5 million, compared to USD8.5 million for the year ended December 31, 2019.

Source: Company

• Foraying into the new sector:The Company announced its foray into “Remote Patient Monitoring” (RPM) sector as they acquired a 5% interest in VeruStat, Inc, a newly created company focusing on RPM, for approximately USD 600,000 using cash in hand. The investment is part of the Company’s launch into the healthcare technology sector. This would immediately allow the Company’s salesforce to offer a new revenue source to its physician network around the country. 

• Revenue guidance for Q2 2021:The management strongly believes in generating net revenues of approximately USD 26.2 – USD 27.2 million from the core business, and additional revenues of about USD 0.5 – USD 1.0 million from sales and support related to the COVID-19 pandemic. Hence for Q2 2021, the total revenues, are estimated to be in a range of USD 26.7 - USD28.2 million.

• Healthy balance sheet: On March 31, 2021, the Company had a cash surplus of USD 31.1 million, compared to USD 31.0 million on December 31, 2020, and a total working capital balance of USD 26.4 million, compared to USD 24.2 million on December 31, 2020. In addition, the company reduced its gross long-term debt from USD 6.6 million on December 31, 2020 to USD 6.1 million on March 31, 2021.

Financial overview Q1 2021 (Expressed in thousands of U.S. Dollars)

Source: Company

• Significant growth was registered in Q1 2021, as the Net revenues from core business stood at USD 25.5 million, an increase of 12% compared to the previous corresponding period. Total revenues came at USD 28.4 million, including approximately USD 2.9 million of product sales and services related to the ongoing COVID-19 pandemic.
• In Q1 2021, the company's operating income stood at USD 1.3 million, against USD 4.6 million in pcp. The decrease in operating income was primarily due to higher SG&A expenses coupled with loss on disposal of property and equipment.
• Net income registered by the Company in the reported period, totaled USD 1.6 million, compared to USD 4.2 million in pcp, the decline in net income was primarily due to higher SG&A expenses.  

Risks associated with investments

The company is susceptible to various risks, including the uncertainty from the general business, market and economic conditions, impact of the covid-19 pandemic, financial constraints, the company's ability to implement business strategies and pursue opportunities, etc.

Valuation Methodology (Illustrative): EV to Sales

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The group's new patient uploads in March were the best in any month since the outbreak started, allowing it to expand its core market despite the difficulties it encountered in January and February. As more healthcare networks open around the world, the organization is eager to begin using its new programs alongside conventional sales approaches. Furthermore, the management expects net sales to be in the region of USD 26.7 – USD 28.2 million in Q2 2021 is a considerable aspect. With a decent liquidity the company remain optimistic about the strategic partnerships, organic growth, and acquisition opportunities that it expects to contribute to its expansion in 2021. Based on the technical analysis, the stock has support at CAD 9.40 level. Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating at the closing price of CAD 11.62 on May 06, 2021. We have considered Electromed Inc, Protech Home Medical Corp, Itamar Medical Ltd, 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 Price Chart (as on May 06, 2021). 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.