Maverix Metals Inc.

Maverix Metals Inc. (TSX: MMX), is a precious metals royalty and streaming company which offers a mining-related investment that provides exposure to metal price appreciation, and exploration and expansion potential.

Key highlights

• Rising GEO outlook for 2021: The corporation forecasts 27,000 to 30,000 attributable GEOs in 2021, based on a solid portfolio of operational mines, with a cash margin of over 90% and earnings from gold and silver accounting for virtually all of it, which is noteworthy.

Source: Company

• Increase in cash flow from operations: The company's cash flows from operations were USD13.5 million in Q1 2021, up from USD4.8 million in the previous corresponding quarter. The rise in cash flows was primarily attributable to an expanding portfolio of cash-flowing Royalties and Streams, as well as a 13% increase in the realized gold price per GEO.

• Increase in dividend distribution: The company has recently paid a quarterly dividend of USD 0.0125 per share on June 15, 2021, to shareholders.  The amount of the dividend is a 25% increase from the previous dividend of USD 0.01 per share, which is a key positive. An increase in dividend distribution reflects the resilience of business as well as an investor friendly status.

• Industry Beating Margins: The resilient business of the company assisted in outperforming the industry margins. The matrix below gives a glimpse of this.

• Ample Liquidity:The Company is maintaining solid liquidity as a result of its strong operations; at the end of the reporting quarter, the Company had cash and cash equivalents of USD 49.3 million and working capital of USD 59.1 million. In addition, the Company has a credit facility of USD 120.0 million. Furthermore, the firm has no outstanding obligations, which is commendable.
  

Financial overview of Q1 2021 (in thousands of United States dollars)

Source: Company

• In Q1 2021, the company reported revenue increased to USD 13.0 million compared to USD 9.2 million in the previous corresponding period. The increase was mainly due to higher sales and royalty income.
• Gross profit in the reported period increased to USD 7.9 million against USD 5.0 million in pcp, although it recorded higher cost of sales.
• Income from operation in Q1 2021, stood at USD 5.4 million compared to USD 2.4 million in pcp.
• On the back of gain on buy back of royalty interest and gain on conversion of debentures, the company posted massive increase in its net profit at USD14.7 million against USD 0.86 million in pcp.

Risks associated with investment

The company is prone to many risks, such as risks related to international operations, government and environmental regulations, delays in mine operations, actual results of mining and current exploration activities, etc. Furthermore, its financial performance is mostly dependent on the price of gold, which directly affects its profitability and cash flow. 

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

The company boosted its revenue by 41% in the first quarter of 2021, compared to the same period in the previous year. We believe the firm is on track to meet its previously disclosed forecast of 27,000 to 30,000 GEOs in 2021 at a cash margin of about 90%, with gold and silver accounting for nearly all the projected revenue. Furthermore, recently the company increased its dividend distribution by 25%, which reflects the company is an investor friendly. We believe that gold, as an asset class would continue to remain in the limelight as economic uncertainties are still prevailing. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 5.97 on July 30, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on July 30, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Chemtrade Logistics Income Fund

Chemtrade Logistics Income Fund (TSX: CHE.Un) offers industrial chemicals products and related services across North America and around the world. The company’s operates through four main operating segments: Sulphur Products and Performance Chemicals (SPPC), Water Solutions and Specialty Chemicals (WSSC), Electrochemicals, and Corporate. 

Key Updates:

• Exuberant dividend yield: Historically, the company has paid consistent dividends amidst economic cycles, backed by stable cash flows. Notably, the stock of CHE.UN carries a dividend yield of ~8.9%, which is attractive considering the current interest rate scenario.

Dividend History, Source: REFINITIV

• Attractive macros: The demand for caustic soda has remained elevated in the recent past and is expected to grow in the coming days, supported by rising aluminum demand across the globe coupled with increased demand for Lithium-Ion Batteries with the gradual transition to Electric Vehicles. Notably, caustic soda is used for aluminum production and is also used for the production of Lithium-Ion Batteries. The management expects the demand to rise in the coming days, and the company is highly poised to take advantage of the growing demand.

• Decent FY21 Outlook: For the whole year of FY21, the company expects sodium chlorate demand to surpass its previous year volumes. Moreover, the company’s products are used for water treatment purposes, and hence, it is least affected by the pandemic. The group expects its production of sodium chlorate in North America at around 365,000 metric tonnes. Maintenance Capital Expenditures is expected within the range between CAD 75.0 million to CAD 80.0 million.

Q1FY21 Financial Highlights:

• The group announced its quarterly results, wherein the company posted revenue of CAD 312.440 million, as compared to CAD 366.901 million in the previous corresponding period (pcp). The decline was primarily due to sluggish performance from the North American geography.
• Gross profit stood at CAD 20.929 million, as compared to a loss of CAD 21.056 million in pcp, primarily attributable to lower revenue, partially supported by a decline in cost of sales and services (CAD 291.511 million versus CAD 387.957 million in Q1FY20).
• Operating loss lowered to CAD 7.546 million, as compared to a loss of CAD 51.544 million, a year ago.
• The corporation reported a net loss of CAD 20.448 million, as compared to a loss of CAD 97.875 million in pcp.

Source: Company Report

Risks: The performance of the company’s industrial chemicals segment depends on the international commodity prices, and price volatility might affect the company’s revenue and margins.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

Caustic soda is used in the semiconductor market, while the demand of it is expected to rise, supported by higher demand for consumer electronics, IoT, and greater digitalization of autos. Moreover, the company is focusing to lower its cost-structure and launched both Productivity and Reliability initiatives in 2020, which is expected to provide ~CAD 10 million of annual savings. We have valued the stock using the P/CF based relative valuation approach and arrived at a target price, which suggests a double-digit upside side potential (in % terms). For the said purpose, we have considered peers like Mosaic Co, Ag Growth International Inc etc. Hence, considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 6.72 on July 30, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on July 30, 2021). Source: Kalkine, 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.