Strong Momentum led by Higher product Acceptability:  Shopify Inc. (TSX: SHOP) is a leading global commerce company, delivering trusted tools for managing retail businesses of any size. Shopify provides inbuilt-platform and services which enhances shopping experience for the consumers. The Company derives its revenue through subscription solutions and merchant solutions segments.

Operational Highlight: The Company witnessed a major surge in demand for its technology services during the last one year and reported more than 26,400 referrals from its existing customer base, which is impressive. Gross Payments Volume (GPV) grew to US$ 7.3 billion during the quarter, depicting an increase of 42% over Q1FY19.

Q1FY20 Financial Highlight: Shopify came up with an impressive set of numbers, wherein the Group reported a 47% y-o-y growth in its revenue to US$ 470 million. The stellar performance was driven by exemplary growth from both of its segments. The quarter was marked by higher subscription cancellations and merchant downgrades to lower-priced subscription plans in March due to COVID-19, resulting in a marginal impact to Monthly Recurring Revenue (MRR). Adjusted gross profit stood at US$ 263.8 million, up 44% over Q1FY19. Despite solid top-line growth, the Company failed to retain the momentum in its bottom-line, due to an abrupt increase in sales & marketing, research & development and general & administrative expenses. SHOP reported a higher loss from operations of US$ 73.23 million, as compared to US$ 35.79 million in pcp. Net loss widened to US$ 31.43 million from CAD 24.15 million in Q1FY19, witnessed support from income tax recovery amounting to US$ 28.70 million. The Company exited the quarter with a cash balance of US$ 969.36 million.

Q1FY20 Financial Highlights (Source: Company Reports)

Stock Recommendation: The stock of SHOP generated a stupendous return of ~188% in the last one year, and currently trading close to the upper band of its 52-weeks range of CAD 1043.00 and CAD 326.70. Shopify deals in new-generation business and provides solutions to the organizations that cater to the changing consumer tastes and preferences. The Group reported a tremendous growth in its Monthly Recurring Revenue (MRR) aided by an increased number of merchants into the Shopify platform due to added offers provided to the merchants. As most of the customers are choosing to stay at home, we have noticed an uptick of traffic across the e-commerce platforms during COVID 19 pandemic. Due to the temporary closure of retail outlets, most of the businesses are leaning towards e-commerce segment in order to continue their operations during the economic downturn. The Company launched its mobile-friendly shopping applications to enhance customer accessibility and to cater to the growing customer base dependent on mobile applications. However, it needs to be seen that how the traffic behaves once the government eases the lockdown. Hence, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 1,016.31 per share, as on May 07, 2020.

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

Real Matters Inc.

Revenues of U.S. Appraisal and U.S. Title Hit a Record High: Real Matters Inc. (TSX: REAL) is a Canadian network management services provider for the mortgage lending and insurance industries.

Strong Quarterly Performance with a Record US Appraisal and Title Revenues: The company has recently released strong second quarter results, driven by new client additions, a robust U.S. mortgage market and an increase in market share. During the quarter, U.S. Appraisal and U.S. Title revenues hit record high levels. The significant increase in revenues in these segments resulted in an increase in consolidated adjusted EBITDA to US$14.6 million and in adjusted EBITDA margins to 40.6% from 13.8%. In the quarter, the company also reported a healthy balance sheet with cash and cash equivalents of US$89.1 million and access to an additional credit facility of US$40 million.

Quarterly Financial Highlights (Source: Company Reports)

Future Expectations and Growth Opportunities: REAL has not witnessed any material impact on its operations from the outbreak of the coronavirus, demonstrating the resilience of its business model and its ability to maintain a competitive advantage in this uncertain environment. The lower interest rate environment has created significant long-term opportunities for the company. The company believes that the industry underwriting capacity is expected to pose a significant hurdle to mortgage market growth in the near-term because of the reduced productivity from COVID-19. REAL is, however, focused on growing market share in both its U.S. Appraisal and U.S. Title businesses over the long-term with continued focus on operational excellence.

Valuation Methodology (Illustrative): EV/Sales Multiple Based Relative Valuation

EV/Sales Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per TSX, the stock of REAL has given returns of 50.3% in the past one month and is inclined towards its 52-week high of $21.74. The company’s business model and competitive advantage in the uncertain environment reflect the resilience of the business. REAL has reported strong results in the second quarter and is well-placed to capitalize on increasing growth opportunities from new clients and expanded market share. Considering the returns in the past one month, strong financial performance midst the pandemic and positive long-term outlook, we have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target upside of higher single-digit (in percentage terms). Hence, we recommend a ‘Hold’ rating on the stock at the closing price of $20.07, down by 0.3476% on 07 May 2020.

REAL 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.