Extendicare Inc.

Extendicare Inc. (TSX: EXE) operates long-term care facilities across Canada, operating under the Extendicare, Esprit Lifestyle, ParaMed, Extendicare Assist, and SGP Purchasing Partner Network brands. The Company has a total network of 122 long-term care homes and provides ~9.2 million hours of home health care services annually.

The Board of Directors announced a cash dividend of CAD 0.04 per common share, payable in May 2020, which is payable on June 15, 2020.

Q1FY20 Financial Highlights: Extendicare impresses with its quarterly results and reported robust growth in earnings from continuing operations to CAD 1.87 million as compared to CAD 1.05 million in pcp. The Group reported its revenue at CAD 271.82 million as compared to CAD 274.26 million in the previous corresponding quarter. The quarter was marked by a decent growth across long-term care and retirement living, partially offset by slippage in revenue within the home health care segment. Adjusted EBITDA grew to CAD 19.9 million from CAD 19.55 million in pcp, underpinned by lower administrative costs and decline in operating expense. Adjusted EBITDA improved 20 bps on y-o-y basis to 7.3%. Net earnings jumped to CAD 5.90 million from CAD 2.95 million in Q1FY20, supported by higher earnings from discontinued operations.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock of EXE corrected ~33% so far this year and is trading close to the lower band of its 52 weeks trading range of CAD 9.61 and CAD 4.91. Due to the ongoing COVID 19 pandemic, the Group reported a slump in occupancy levels within the retirement communities. However, the long-term prospect of the business continues to be positive due to the growing aged population. The Group has announced a dividend payout ratio of 92%, significantly higher than 84% in the previous corresponding quarter. The stock carries a lucrative dividend yield of ~8.5%. The business model of the Company is strong, and we continue to remain upbeat on the stock, and believe that the recent price correction offers a good entry point. The stock is available at an EV to Sales of 0.9x on TTM basis, as compared to the industry (Healthcare) median of 6.5x. Hence, we recommend a ‘Speculative Buy’ on the stock at the current price of CAD 5.67 as on May 20, 2020.

EXE One-Year Daily Price Chart, Source: Refinitiv (Thomson Reuters)

Clearwater Seafoods Incorporated

Clearwater Seafoods Incorporated (TSX: CLR) is one of North America’s largest vertically integrated harvester, processor and distributor of premium seafood. The Company is a leading global provider of wild-caught shellfish with harvesting operations in Canada, Argentina and the UK.

Due to the ongoing pandemic, the Company witnessed a soft demand across several locations in Asia and other places. To weather the current downturn, the Company is preserving its liquidity and halted its non-essential expenditures, followed by a temporary suspension dividend payment. The above actions are expected to support the Company’s near-term working capital.

Q1FY20 Financial Highlights: CLR declared its quarterly results, wherein the revenue stood at CAD 100.34 million, as compared to CAD 120.08 million in pcp. The decline was primarily attributable to a lower demand across China and North America, which has impacted the performance of the Company’s frontline species, namely, scallops, clam, coldwater shrimp, lobster etc. Gross margin shrank to CAD 16.14 million from CAD 21.55 million in the previous corresponding period due to lower sales, offset by a lower cost of goods sold. The quarter witnessed a decline in administrative and selling expense, net finance costs while reported a loss on derivative financial instruments and foreign exchange losses. The Company reported a loss before income taxes of CAD 28.88 million, as compared to earnings of CAD 10.78 million in Q1FY19. Net loss stood at CAD 31.53 million, as compared to a profit of CAD 10.78 million in pcp.

Q1FY20 Income Statement Highlights (Source: Company Reports) 

Stock Recommendation: The stock of CLR corrected ~4% and 3.6% in the last three-months and one-year, respectively, which is impressive considering the price erosion across the market. The group operates in the food processing business, which is essential in nature. Due to COVID 19 restrictions, the group has witnessed a temporary glitch in demand for its products within the foodservice supply chains segment while an elevated demand from the online segment, which is encouraging. We expected a demand improvement in coming quarters, owing to the relaxation norms from the Governments. The Company expect a margin improvement on account of lower costs and higher value for certain harvested species followed by an added cushion from the lower fuel costs. The Company is well-capitalized and has an excellent product portfolio. The group is well-positioned to take advantage of future growth opportunities as global seafood demand recovers. The stock is trading at a forward EV/Sales multiple of 1.4x against the industry (Food & Tobacco) average of 2.7x. Hence, we recommend a ‘Speculative Buy’ on the stock at the current price of CAD 5.01 as on May 20, 2020.

CLR One-Year Daily Price Chart, Source: Refinitiv (Thomson Reuters)

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