Chartwell Retirement Residences

Chartwell Retirement Residences (TSX: CSH.UN) is an unincorporated, open-ended trust, and the company is engaged in the ownership, operation, and management of retirement and long-term care communities in Canada.

Key Highlights:

• Strong demand for long-term care segment: The long-term care segment is expected to grow significantly in the coming years. As per the projections, the country would be requiring ~600,000 new suites by 2036. We believe the demand for the above segment is likely to remain stable driven by an increase in the aged population.               

Source: Company Presentations

• Ample Liquidity: Despite the current downturn and increase in input costs, the company reported strong liquidity of CAD 408.6 million on November 05, 2020, which is notable. We believe the current liquidity seems sufficient enough to meet the company’s working capital requirements and its capital investments.
• An income Play: The group has reported a stable dividend payment despite across cycles, which indicates operational resiliency, consistent cash flows etc. At the last closing price, the stock of was offering a dividend yield of ~5.156% amid the low interest rate environment.

Dividend History (Source: Refinitiv, Thomson Reuters)

Q3FY20 Financial Highlights:

• UN announced its quarterly results, wherein the company posted revenue of CAD 233.290 million, as compared to CAD 229.610 million in the previous corresponding period (pcp). The improvement was driven by higher resident income and higher lease revenue from joint ventures.
• The company posted a loss before income taxes at CAD 9.052 million, higher than the loss of CAD 2.179 million in pcp.
• The average occupancy rate of the company stood at 83.3%, as compared to 89.7% in the previous corresponding period.
• Net loss stood at CAD 6.766 million, as compared to CAD 0.816 million in Q3FY19.
• At the end of Q3FY20, the company posted cash and cash equivalent of CAD 51.387 million, while total assets stood at CAD 3,530.811 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The second wave of COVID 19 might hinder the average occupancy rate and would further increase the employee’s costs due to additional hiring.

Valuation Methodology (Illustrative): EV to EBITDA

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

Stock Recommendation:

As per the Management, the company’s tenant credit quality remains strong given the investment profile of Canadian senior’s segment, which is a key positive, and augurs well to retain the company’s occupancy level in the foreseeable future. During the month of October 2020, the company saw an increase in its operational activities over the previous month and reported higher move-in activity and a decline in move-out activity, which is encouraging. The company made LTC partnerships with hospitals, public health and provincial health officials and recruited more than 1,800 new hires as safety precautions for COVID 19 pandemic. The stock closed above the long-term support levels of 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish trend. We have valued the stock using EV to EBITDA based relative valuation approach and arrived at a target price offering lower double-digit upside side potential (in % terms). We have considered peers like Sienna Senior Living Inc, Capital Senior Living Corp etc. Considering the above-mentioned facts, current stock price movement, we give a ‘Buy’ rating on the stock at the current closing price of CAD 11.87 on December 15, 2020.

CSH.UN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Aecon Group Inc

Aecon Group Inc (TSX: ARE) is a diversified Canada-based construction company that operates in two major segments, namely, Construction and Concessions.

Key Updates:

• Kicking horse canyon project: Recently, the company reported the closure of the Kicking Horse Canyon Project – Phase 4 in British Columbia through Joint Venture. The company has the highest share of 50%, while the joint venture constitutes the other two construction companies, namely Parsons Corporation with 30% share and Emil Anderson Construction with 20% share. The total contract is valued at CAD 440.6 million and is expected to be completed till the second quarter of FY24. The above order is being awarded by the Province of British Columbia and is expected to boost the company’s future cash flows.
• Stable backlog to support future income: The company reported a higher backlog of CAD 6,664 million at the end of Q3FY20, improved from CAD 6,557 million in Q3FY19. Despite the current slowdown in the construction activities and delay in payment, the corporation managed to report new contract awards of CAD 2,440 million during 9MFY20, higher than CAD 2,279 million in 9MFY19, which indicates operational resiliency. The company’s operations were further supported by a diversified revenue base, in terms of geography, sector, contract size within the construction segment, which provides a stable risk profile.

Source: Company Reports                                          

Source: Company Presentation

Q3FY20 Financial Highlight:

• ARE announced its quarterly results, wherein the company posted revenue of CAD 1,039.456 million, as compared to CAD 1,025.435 million in the previous corresponding period (pcp).
• The company reported a solid gross profit of CAD 162.229 million, as compared to CAD 120.643 million in Q3FY19, supported by higher revenue and lower direct costs and expenses (CAD 877.227 million versus CAD 904.792 million in pcp.)
• Operating profit stood at CAD 106.779 million, as compared to CAD 58.769 million, a year ago. The increase was driven by lower marketing, general and administrative expense (CAD 37.868 million versus CAD 40.871 million in pcp) and a slide in depreciation and amortization costs (CAD 22.329 million versus CAD 26.828 million in Q3FY19).
• Profit for the period soared to CAD 73.624 million, as compared to CAD 42.116 million, a year ago.
• The company reported cash and cash equivalent of CAD 577.141 million, while total assets were recorded at CAD 3,390.133 million.             

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: Due to the restrictions imposed by State and Provincial Governments, the group might witness a disruption within its ongoing projects.

Valuation Methodology (Illustrative): Price to Earnings 

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

Stock Recommendation:

Despite the ongoing economic slowdown coupled with sectoral weakness, the company reported an improved adjusted EBITDA margin of 7% in 9MFY20, as compared to 6.3%, a year ago and improved operating margin during the same tenure (3.8% versus 3%, in pcp), which is noteworthy. Currently, the company has more than 900 discrete projects typically underway with an average project size of less than CAD 25 million. Moreover, the group has a solid recurring revenue base, which adds further stability to the revenue mix. We have valued the stock using P/E based relative valuation approach and arrived at a target price offering double-digit upside side potential (in % terms). We have considered peers like WSP Global Inc, SNC-Lavalin Group Inc etc. Considering the above-mentioned facts, current stock price movement, we give a ‘Buy’ rating on the stock at the current closing price of CAD 17 on December 15, 2020.

ARE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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