Onex Corporation

Weak Operating Environment: Onex Corporation (TSX: ONEX) is a private equity investment company. The company also works as an asset management company and invests its capital together with funds from public and private pension funds, sovereign wealth funds, banks, insurance companies, and family offices.

ONEX highlighted that it would disclose its first quarter FY20 results on May 15, 2020. The Group announced the appointment of Jason New as Co-Chief Executive Officer.

On April 16, the company announced that it has agreed to acquire Independent Clinical Services Group Ltd (ICS). ICS operates in specialized staffing, workforce management solutions, and health and social services and has a prominent presence across Europe.

Major Operational Highlights for the period ended December 31, 2020:

• For the fourth quarter of FY19, ONNEX reported net earnings of US$ 211 million, while the company’s total shareholder capital increased to US$ 7.2 billion.
• The company received realizations and distributions from its private equity investments of US$1.2 billion, driven by the secondary share sale of entities like Clarivate Analytics, SIG Combibloc Group and Jack’s Family Restaurants and BrightSpring Health.
• For the fourth quarter of FY19, the company reported a ~6% increase in the fair value of Onex’ private equity investments.
• During FY19, the company reported a growth of ~16% in fee-generating assets under management to US$10.5 billion, majorly aided by the issuance of three collateralized loan obligations totaling $1.5 billion and capital from Gluskin Sheff clients invested in its funds.

Shareholder Capital (Source: Company Reports)

Stock Recommendation: The stock is down by 22% since the start of the year. Moreover, it is down by about 17% in the last one year.  However, ONEX stock showed sharp recovery and soared ~30% in the last one month and currently trading at a market capitalization of CAD 6.33 billion. The company operates in investment management and Asset Management, and the performance is directly linked with the performance of the businesses it owns and state of the economy. The company has a diversified portfolio spread across major geographies of the world. The current economic slowdown is expected to remain a drag. However, Onex maintains a strong cash position and is debt free, which is likely to help the company to navigate the current crisis, pay dividends, and seize growth opportunities. On the valuation front, the stock is available at a bargain. On the price to book valuation basis, the stock is quoting at 0.7x on TTM, lower than the industry (Investment Banking and Investment Services) average of 4.6x. Hence, we recommend a ‘Watch’ rating on the stock at the current market price of CAD 64.88 as on April 28, 2020.

ONEX One Year Price Performance (Source: Thomson Reuters)

Chorus Aviation Inc.

Macro Slowdown to Hit Revenue: Chorus Aviation Inc. (TSX: CHR) is a global provider of integrated regional aviation solutions and provides a full suite of regional aviation support services that encompasses every stage of an aircraft’s lifecycle.

On account of the recent COVID-19 crisis, the company’s subsidiary JAZZ has taken a significant hit with ~90% reduction in the flying operations. JAZZ expects a significant fall in its revenues during the second half of March and the second quarter of FY20. The subsidiary is planning to reduce its input costs in order to pump liquidity for the near term and planned to cut its workforce to 60% or 3,000 staffs.

FY19 Financial Highlights: CHR came up with its full-year results, wherein the Company reported operating revenues of CAD 1,366.45 million, as compared to CAD 1,353.28 million in FY18. The increase was due to improved performance from the Regional Aircraft Leasing segment, while marginal degrowth from Regional Aviation Services remained a drag. Operating income stood lower at CAD 200.46 million, as compared to CAD 216.71 million in the previous financial year. The decline was due to the higher salaries, wages and benefits, higher depreciation and amortization, while lower aircraft maintenance and terminal handling services partly supported the operating income.Net income stood higher at CAD 133.16 million, as compared to CAD 67.43 million in FY18, due to a foreign exchange gain of CAD 30.61 million.

FY19 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock of CHR had a market capitalization of ~CAD 490.73 million as on 27 April market close and corrected ~61% in the last one month. At current market price, the stock is trading at the lower band of its 52-weeks trading range of CAD 8.45 and CAD 1.80. The COVID-19 pandemic wreaked havoc on almost all the industries with Airlines being badly battered. Flying restrictions has created a temporary freeze in the cash flow too. In order to curve the recent slowdown, the company has collaborated with Air Canada and will provide critical cargo lift on short and medium-haul routes for the delivery of essential products. The Company has taken cost-cutting measures in order to retain its liquidity levels. Despite of the measures to support business, we believe the current situation does not seem favorable for the Airline companies. On the EV/EBITDA front, the stock is quoting at 6.6x on TTM basis, as compared to 3.4x of the industry average. Hence, we recommend a ‘Watch’ rating on the stock at the current market price of CAD 3.29, as on April 28, 2020.

CHR One-Year Daily Price Chart (Source: Thomson Reuters)

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