Champion Iron Limited  

Superior Iron Ore Concentrate Driving Growth: Champion Iron Limited (TSX: CIA) is an iron ore exploration and development company. The group’s major projects are located in Canada’s largest iron ore producing region. The company is a high-grade iron ore producer with its flagship asset, the Bloom Lake iron ore mine ("Bloom Lake" or "Bloom Lake Mine"), a long-life, large-scale open pit operation located in northern Quebec.

Recent update:  On March 24, the company announced to ramp down its operations at the Bloom Lake Mining Complex in an effort to contain COVID-19 spread.

Financial Highlights:  Champion Iron Limited posted revenues of CAD 171.1 million in the third quarter of fiscal 2020. The reported revenues represent a y-o-y growth of about 16%. During the third quarter, the company sold a total of 1,922,100 tonnes of high-grade iron ore concentrate at a gross price of US$106.2/dmt. The gross price implies a premium of 20% over the benchmark P62 price. Moreover, this compares favourably to the premium of 4% in the previous quarter. The company’s total cash (cost1 or C1 cash cost1 per tonne) totalled to CAD 54.2/dmt, as compared to CAD 49.4/ dmt in Q3FY19. Unscheduled downtimes and higher costs from SFPPN port operations drove costs higher. Champion Iron Limited reported gross profit of CAD 62.35 million, as compared to CAD 60.47 million in the prior-year period. The gross profit benefitted from higher gross realized price and increased volumes. However, increased freight costs and production costs remained a drag. The company posted EBITDA of CAD 57.91 million in the third quarter, down from CAD 65.41 million in the prior year period. The decline in EBITDA reflects higher costs. In Q3FY19, the company posted all-in sustaining cost of CAD 62.2/dmt compared to $55.5/dmt. Net finance costs fell drastically to CAD 4.72 million as compared to CAD 9.28 million in the third quarter of FY19. Refinancing at a much lower interest rate helped the company to drive finance cost down. Champion Iron Limited posted net income of CAD 30.18 million, as compared to CAD 31.20 million in the prior year period. The y-o-y decline reflects higher cash costs which more than offset the benefits from lower finance costs.

At the end of the quarter, the company had cash & cash equivalents of CAD 170.28 million. Total assets stood at CAD 797.86 million.

Financial Highlights (Source: Company Reports)

Valuation Methodology (Illustrative): EV/EBITDA based approach

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock recommendation: Champion Iron Limited is likely to benefit from its high-grade iron ore and a long-life flagship asset. Champion Iron Limited produces superior quality iron ore concentrate, which is likely to drive its cash flows in the coming quarters. For instance, high-quality nature of its iron ore attracts higher pricing.  The company’s iron ore concentrate has 66.2% Fe content which attracts a premium over the benchmark (IODEX 62% Fe CFR China Index – P62).  Barring near-term headwinds from COVID-19, we expect Champion Iron Limited to benefit from the rebound in global iron and steel market and increased demand for high-quality and low-contaminated product. CIA stock trades at a lower valuation multiple and we expect it to expand further. We have valued the stock using the EV/EBITDA based relative valuation methodology with a target multiple of 3.5x. We arrived at a target price offering double-digit upside potential (in % terms) from the current level. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 1.63 as on April 21, 2020.

 CIA Daily Price Chart (Source: Thomson Reuters)

Corus Entertainment Inc. 

Prominent Brand presence: Corus Entertainment Inc. (TSX: CJR.B) is a leading media and content company. The company’s portfolio consists of premium brands such as Global Television, W Network, HGTV Canada, Food Network Canada, HISTORY etc.

Recently, the company announced the appointment of Alex Carloss, Stephanie Coyles and Sameer Deen to the company’s board.

The company paid a quarterly dividend of CAD 0.06 to its Class B Non-Voting shareholders. Meanwhile, the company paid dividend of CAD 25.36 million during H1FY20, as compared to CAD 12.72 million in H1FY19.

In response to the COVID-19 outbreak, the company announced that it will refrain from share buybacks, while it also deferred the declaration of June dividends.

Q2FY20 Financial Highlights: CJR.B came up with its quarterly results, wherein the company reported total revenue of CAD 375.99 million, down from CAD 384.11 million in the previous corresponding period. The decline was majorly due to the decline in revenues from both advertising and subscriber fees, partially offset by improved performance from merchandising, distribution, and other business. Net income of the company stood at CAD 22.42 million, improved drastically from CAD 11.72 million in Q2FY19, thanks to lower cost of sales, lower depreciation & amortization and lower interest expense, partially offset by an increase in income tax expense. The company exited the quarter with a cash and cash equivalent of CAD 58.46 million and total assets of CAD 489.40 million.

Q2FY20 Income Statement Highlights (Source: Company Reports) 

Valuation Methodology (Illustrative):P/E based approach

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: CJR.B has corrected ~62% in last one year. However, the stock showed some recovery in the recent past. While challenges persist, Corus Entertainment stock is trading dirt cheap. The stock is trading at a forward P/E multiple of 4.1x, as compared to the peer group average of 13.4x. The company remains well-positioned on the liquidity front and continues to reduce costs. Besides, it owns some of the Canada’s best TV and radio assets. As said earlier, the stock is quoting at a significantly lower valuation, as compared to its peers and we expect the multiple of to expand. We have valued the stock using the price to earnings-based relative valuation methodology and considered industry (media & publishing) median and arrived at a target price offering double-digit upside potential (in % terms) from the current price level. Hence, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 2.79 as on April 21, 2020.

CJR.B Daily Price Chart (Source: Thomson Reuters)

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