Quebecor Inc

Quebecor Inc (TSX: QBR.B) is a communication holding company that operates through Telecommunication, Media, and Sports and Entertainment segment.

Key highlights 

• Videotron, a game-changer: Videotron Ltd. (“Videotron”) has shown a stellar performance and significantly increased its revenues from customer equipment sales (CAD 60.9 million or 87.5%), mobile telephony (CAD 12.7 million or 8.2%) and Internet access (CAD 6.2 million or 2.2%) in the third quarter of 2020. Its cable Internet access services and business penetration rate increased to 59.5% in Q3 2020, as compared with 58.6% in Q3 2019.

• Consistent dividend distribution: The company continues to distribute dividend, which shows the financial strength of the group. The company declared a quarterly dividend of CAD 0.20 per share, payable on December 15, 2020, to shareholders with a record date of November 20, 2020.

• Ample liquidity: As on September 30, 2020, the company holds unutilized revolving credit facilities of CAD 1.80 billion, out of total CAD 1.83 billion, along with CAD 26.1 million in cash and cash equivalents. 

Financial overview

Source: Company 

• In Q3 2020, the company reported Revenues of CAD 1.11 billion, increased by CAD 38.3 million or 3.6% as compared to CAD 1.07 million in the previous corresponding period.
• In the telecommunications segment, revenues increased by CAD 61.2 million, or 7.0% to CAD 937.9 million as against CAD 876.7 million in Q3 2019.
• In the media segment, revenues decreased by CAD 10.0 million, or -6.0% to CAD 157.2 million as against CAD 167.2 million in Q3 2019.
• In the sports and entertainment segment, revenues decreased by CAD 7.3 million, or -13.1% to CAD 48.5 million as against CAD 55.8 million in Q3 2019.

• The company posted an EBIT of CAD 199.9 million, decreased by CAD 46 million or 19% as compared to CAD 245.9 million in Q3 2019, primarily based on higher expenses regarding the purchase of goods and services which rose by CAD 40 million, depreciation, and restructuring cost.
• Net income attributable to shareholders in Q3 2020 stood at CAD 140.9 million, as against CAD 178.5 million, due to above-stated reasons. 

Risks associated with investment

This pandemic crisis has reduced operations of many of the company’s business partners that led to a substantial slowdown in many of the group’s segments in the first half of 2020. Many restrictions played a direct role to drag down the company’s financial performance. Although the government has gradually announced the stages of its reopening plan, if the pandemic continues to evolve, it might hinder the business of the company also.

Valuation Methodology (Illustrative): Price to Earnings 

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

Stock recommendation

The pandemic had a significant impact on the Company. From now on, we believe that the worst of the COVID‐19 pandemic is behind us. We believe that the Company would gradually return to regular revenue. Videotron has already started showing its stellar performance, and we believe that this would improve further as the Company is increasing its penetration rate. Therefore, based on the above rationale and valuation, we have given a ‘Hold’ rating at the closing price of CAD 32.97 on November 26, 2020. We have considered Rogers Communications Inc, Shaw Communications Inc, Telus Corp, etc. as the peer group for the comparison.

Daily technical chart. Source: Refinitiv (Thomson Reuters)

Imaflex Inc.

Imaflex Inc. (TSXV: IFX) is engaged in the manufacturing and sale of polyethylene films for the flexible packaging industry. The company's flexible packaging products consist of polyethylene film and bags, including garbage bags, as well as metalized film. Its agriculture products are comprised of both non-metalized and metalized mulch films, including standard, compostable and barrier films.

Key highlights:

• Impressive Financial Performance: The company has shown tremendous growth over the years, backed up by strong operational growth, innovative product offerings, better revenue-mix etc. The company is a Leader in agricultural film development with the revolutionary patented film. The company expected to tap a huge market after the commercialization of ADVASEAL®, which is a herbicide used for releasing mulch over crops.

Source: Company Presentation

• Balanced Portfolio: The company caters a diversified client base like converter films, industrial products, metalized films, agricultural films etc., which would deleverage the company’s risk profile and is expected to provide a stable income. The company offers customized offerings to its client’s and has worked with global brands to develop the patent protected novel film.

• Ample opportunities within Agricultural segment: The company caters a to the agricultural segment and derives significant revenue from it. The company provides immediate protection with faster and more efficient than existing chemicals. Moreover, the company’s product would save CAD 100‐200 removal and disposal costs per acre compared to traditional mulches. Furthermore, the demand for agriculture-based products is correlated to the consumption pattern, which is likely to remain elevated due to the increase in population.

Q3FY20 Financial Highlights:

• IFX announced its quarterly results, wherein the company posted revenues of CAD 22.904 million, reflecting an increase of 19.3% on y-o-y basis. The company’s growth was driven by higher flexible packaging sales volumes, coupled with heightened sales of agricultural films and converted products.  Meanwhile, on a poundage basis, overall extruded film volumes grew 21.5% year-over-year.  
• Gross profit soared to CAD 4.385 million, from CAD 2.521 million in the previous corresponding period (pcp).
• The company reported a 6.1% y-o-y increase in the selling & administrative expense to CAD 1.923 million.
• The corporation reported EBITDA at CAD 2.953 million, as compared to CAD 1.735 million in pcp, while EBITDA margin improved drastically to 12.9%, against 9%, a year ago.               

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The sector is prone to several challenges like labor shortages, poor revenue mix, higher input costs, which might take a toll on the company’s overall performance. Further, the Company is exposed to volatility in the US dollar against the Canadian dollar, as a weaker dollar against the Canadian dollar would drag group's profitability as the majority of the group's revenue comes from the US market. 

Stock Recommendation:

The stock of IFX appreciated ~56% so far this year. Despite the ongoing restrictions, the company did not report any delays with the suppliers or distribution channels, which is impressive. The stock is trading above the 50-days, 100-days, and 200-days simple moving average (SMA), indicating a bullish trend. Commercialization of ADVASEAL® is likely to drive the company’s future growth. Considering the aforesaid, facts and current price movement, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 1.10 on November 26, 2020.

IFX Daily Technical Chart (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.