BTB Real Estate Investment Trust

BTB Real Estate Investment Trust (TSX: BTB.UN) is an unincorporated, open-ended real estate investment trust based in Canada. Its operating segment includes Retail, Office and Industrial. 

Key highlights:

• Attractive Dividend yield: Over the years, the company reported consistent dividend distribution backed by stable cash flows. Moreover, the stock carries a dividend yield of ~7.3%, which is lucrative, looking at the current interest rate scenario.

Five years Dividend distribution, Source: REFINITIV

• Revival in industrial occupancy rate: The company reporetd a solid revival in the industrial segment occupancy in Q2FY21 at 96.5%, as compared to 93.6% in pcp. The increase was driven by various new signed leases and no significant departures. Notably, occupancy in the month of June 2021 stood at 100%, which is commendable.
• Rise in Funds from Operations (FFO): The company reported a solid growth in the funds from operations in both Q2FY21 and H1FY21, respectively, as the group turned profitable as compared to the previous correspondoning periods. FFO stood at CAD 014 million and CAD 14.744 million in Q2FY21 and H1FY21, respectively, as compared to CAD 3.828 million and CAD 9.197 million in Q2FY20 and H1FY20, respectively.

Q2FY21 Financial Highlights:

• The group announced its quarterly results, wherein the company posted rental revenue of CAD 26.034 million, as compared to CAD 23.063 million in the previous corresponding period (pcp). The quarter witnessed strong growth in the rental income from the industrial segment and retail segments.
• Total Operating expenses stood at CAD 10.460 million, declined from CAD 10.644 million in pcp, due to lower property taxes and insurance expenses (CAD 5.492 million v/s CAD 5.682 million in pcp).
• The group reported a net income of CAD 7.161 million, as compared to a net loss of CAD 1.101 million in pcp.

Source: Company Report

Risks: The company’s performance is dependent on occupancy rate, rent collection etc. Volatility in rent collection or delay in rent collection would affect the revenue and cash flow.

Stock Recommendation:

With the gradual reopening of the economy, the group witnessed a boost in the office occupancy rate at 91.1%, which is the highest in the last five quarters. The company continued to renew leases coming to maturity post FY21 to ensure the stability in the group’s portfolio and posted 86.2% renewal rate in Q2FY21, representing almost 175,487 sq. ft. area. The above is impressive considering the persisting sluggish economic scenario. Notably, overall occupancy rate stood at 92.2% in Q2FY21, grew by 1.2% compared to the previous quarter. On the valuation front, the stock is available at an EV to Sales multiples of 7.9x on NTM basis, as compared to the industry (Residential & Commercial REITs) median of 10.3x. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 4.11 on August 13, 2021 with lower double digit (in percentage terms) upside potential.

Technical Analysis Summary

One-Year Technical Price Chart (as on August 13, 2021). Source: REFINITIV, Analysis by Kalkine Group

Kelso Technologies Inc.

Kelso Technologies Inc. (TSX: KLS), is a railway equipment supplier that produces and sells tank car service equipment used for the safe loading, unloading and containment of hazardous materials during transport.  

Key Highlights

• Future business prospects appear to be promising: Despite present uncertainty, the Company's commercial prospects for the next three years look promising. It provides specialised solutions for a fleet of over 30,000 ethanol tank trucks that must meet new regulatory criteria by early 2023. Furthermore, the business has created new products that can service an estimated fleet of 85,000 pressure tank trucks.
• Development plans for “KXI”:The Company’s KXI Suspension System is going through a detailed engineering design analysis to move from innovative concept to a viable commercial vehicle for a variety of markets. The Company has secured the services of several OEM suspension experts that would support the company’s R&D schedules to produce prototypes in late 2021 with the goal of pilot production and sales in 2022. Moreover, this Heavy-Duty platform represents a much larger and more accessible commercial market opportunity to pursue.
• Strong working capital: On March 31, 2021, the Company's working capital remained robust at USD 10.18 million, up from USD 6.25 million on December 31, 2020. Moreover, there is no long-term interest-bearing debt, and the Company can currently operate without the need for new equity capital or credit facilities.
• Product diversification:The company is a multi-faceted product engineering firm that specializes in the creation, manufacture, and marketing of unique transportation equipment. While its roots are in rail tank car equipment, new growth areas are a good fit for its commercial skills, and they're progressively expanding the pie.
  

Financial overview of Q1 2021 (Expressed in US Dollars)

Source: Company

• In Q1 2021, the company reported revenue of USD 1.22 million, compared to USD 5.60 million in the previous corresponding period. The decline in revenue was impacted by the unfavorable circumstances surrounding the COVID-19 pandemic.
• Gross profit stood at USD 0.45 million (36.9% of revenues) in Q1 2021 compared to USD 2.6 million (46.1% of revenues) in the previous corresponding period.
• On the back of lower revenues, coupled with higher office & administration cost, consulting and filling fees and accounting & legal expenses dragged the company to post a net loss of USD 0.8 million against a profit of USD 1.28 million in the previous corresponding period.Risks associated with investment

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

Stock recommendation

Business volumes are gradually returning to pre-pandemic levels. The negative trends that emerged from the decline in rail tank car activity in 2020 continued into the first quarter of 2021. This explains the company's dismal financial performance for the three months ending March 31, 2021. However, the tank car industry is experiencing a phase of modest fleet growth, which is being accompanied by increased rail tank car usage. The need for new tank vehicles is anticipated to rise to 14,800 in 2022 and 19,100 in 2023. The predicted increase in new construction and retrofit activity is likely to create new rail operations financial development possibilities in the long run. On the valuation front, the stock is available at forward EV/Sales multiple at 0.8x against the industry median of 1.8x. Hence, considering the aforesaid rationale, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 0.77 on August 13, 2021 with a lower double digit (in percentage terms) upside potential.

Technical Analysis Summary

One-Year Technical Price Chart (as on August 13, 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.