Air Canada

Air Canada (TSX: AC) is a travel & leisure company with operations in the domestic Canadian market, International market, and United States transborder. The group has a global network and operates from more than 62 airports in the Canadian region, around 52 airports in the US and over 101 airports from Central America, South America, Mexico, the Caribbean, Australia, Asia, Africa, Europe, and the Middle East.

Q1 FY2020 Trading Update and Actions taken to Combat Covid-19 Pandemic

(Source: Quarter Report, Company Website)

On 4^th May 2020, Air Canada released an update on the trading performance for the Q1 FY2020. The group’s operating reported revenue declined by CAD 712 million to CAD 3,722 million in Q1 FY2020 from CAD 4,434 million in Q1 FY2019. AC reported an operating loss of CAD 433 million in the first quarter of the FY2020 versus an operating income of CAD 127 million in Q1 FY2019. The EBITDA declined significantly by CAD 512 million to CAD 71 million in Q1 FY2020 from CAD 583 million in Q1 FY2019, EBITDA margin stood at 1.9 per cent for the period. The group reported a net loss of CAD 1,049 million in Q1 FY2020 versus net income of CAD 345 million in Q1 FY2019. The diluted loss per share stood at 4 cents in Q1 FY2020 versus diluted earnings per share of 1.26 cents in Q1 FY2019. The unrestricted liquidity declined by CAD 516 million from CAD 7,039 million in Q1 FY2019 to CAD 6,523 million in Q1 FY2020. The net debt surged by CAD 512 million to CAD 4,170 million in Q1 FY2020 from CAD 3,658 million in Q1 FY2019. The group has taken all required steps to preserve cash and reduce costs. In March, Air Canada drew revolving credit facilities of $200 million and US$600 million from the available facility of $1.027 billion.

Share Price Performance

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

Air Canada shares trading at CAD 16.93 at the time of writing on 8 May 2020. Stock's 52 weeks High is CAD 52.71 and Low is CAD 9.26.

Key Risks

The market conditions in which the company operates is full of challenges and might impact the operational performance and reduce financial performance as well. Any change in regulations and government policies could affect the overall business of the company.

Conclusion

The company has shown a decline in financial performance in the first quarter of the financial year 2020. Both the Top-line and the bottom-line performance have declined, and profitability remained in the negative zone for the period. The group needs to manage its operating expenses unless it results in further deterioration in financial performance in the coming years. The net debt for Q1 FY2020 increased, while the unrestricted liquidity declined. Due to the travel restrictions imposed by the government, the capacity has declined in the first quarter versus Q1 FY2019 and is expected to decline in the second and third quarter for FY2020 as against Q2 and Q3 of FY2019. The group has taken actions to increase liquidity, reduce costs and is confident towards its innovative and disciplined business model to tackle the crisis.

Based on the factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the current price of CAD 16.53 (as on 8 May 2020), with support from few catalysts needs to be evaluated at a later stage.

Atlantic Power Corporation

Lack of Growth Catalyst to Dampen Investor’s sentiment: Atlantic Power Corporation is an independent power producer and owns power generation assets across the United States and Canada. The Company sells electricity to the utilities segment and other large customers primarily under long-term power purchase agreements.

Q1FY19 Income Statement Highlights: For the period ended March 31, 2020, ATP reported revenue of US$ 72.8 million, reflecting a marginal fall from US$ 73 million recorded in the previous corresponding quarter. Project Adjusted EBITDA slide to US$ 50.8 million, as compared to US$ 53.7 million Q1FY19. Project income stood at US$ 24.7 million, as compared to US$ 30.6 million in pcp. The decrease was predominantly attributable to an increase in operation and maintenance costs amounting to US$ 4.2 million. Net income stood at US$ 29.5 million, increased significantly from US$ 8.9 million in the first quarter of FY19. The increase was underpinned by foreign exchange gain of US$20.6 million versus a foreign exchange loss of US$ 5.0 million.

Financial Snapshot of Q1FY20 (Source: Company Reports)

Guidance: For FY20, ATP expects its adjusted EBITDA within the range of US$ 175 million to US$ 190 million. Cash from operating activities is expected to be in the range of US$100 million to US$ 115 million.

Stock Recommendation: The stock of ATP corrected ~16% in the last one year and currently trading close to the lower band of its 52-weeks price range of CAD 3.48 and CAD 2.46. The Company operates in the utility segment, and the operations were not hindered by the coronavirus pandemic. The company is waiting for an approval for six months extension of PPA from Ontario Electricity Financial Corporation, while PPA with Southern California Edison is expiring in May 2020. Unlike the other utility generation Companies, ATP reported a tepid growth rate and its performance failed to impress the investors. T Williams Lake plant is under planned outage since April 09, 2020 and will not be operational till July. We expect it will dampen the capacity utilization in the coming days. The stock is available at a lower multiple against the industry (Electric Utilities & IPP) average which, we believe is justified due to the lack of growth drivers. Hence, we recommend a ‘Watch’ stance on the stock at the current price of CAD 2.72 as on May 8, 2020.

ATP One-Year Daily Price 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.