Guardian Capital Group Ltd.

Guardian Capital Group Ltd. (TSX: GCG.A) is a financial service company, which is engaged in providing investment management services to private wealth clients. The group’s offerings include pension plan sponsors, third-party broker-dealer platforms, closed-end funds, Exchange Traded Funds and mutual funds, endowment funds, and foundations.

Key Updates:

• On October 08, 2020, the company informed its entry to the Actively managed Exchange Traded Funds through Guardian Capital LP (GCLP), which aligns with its innovative approach to investment solutions, and its newly created positioning for its solutions available to retail investors – Guardian Create™ and Guardian Prosper™.
• Recently, the company informed its acquisition of Copoloff Insurance Agencies Ltd., Shelly K. Copoloff Insurance Agencies Inc. and Rate Watchers Life Insurance Brokers Ltd., a managing general agency (MGA) with its head office based in Montreal, Quebec.
• Earlier, the company confirmed its acquisition of 70% interest in Agincourt Capital Management, LLC, an investment management firm based in Richmond, Virginia, USA.

Q2FY20 Financial Highlights: Guardian Capital declared its quarterly results, wherein the Company posted net revenue of CAD 50.124 million against CAD 45.963 million in Q2FY19. This surge in the top-line was aided by growth from the Investment Management Segment, underpinned by an increased proportion of non-Canadian equity AUM, which earn fees at higher rates.  The group posted operating earnings at CAD 13.427 million as compared to CAD 12.590 million in the previous corresponding period (pcp). EBITDA, during the quarter, stood at CAD 17.3 million, against CAD 16.2 million in Q2FY19.  Net earnings, during the quarter, stood at CAD 51.244 million as compared to CAD 17.601 million in pcp, driven by a higher income from the fair value of the Company’s Securities. GCG’s AUM, at the end of the quarter, grew 4% on y-o-y basis to CAD 31.2 billion. The sharp recovery in the global equity markets coupled with a significant inflow of assets into the Company’s UK subsidiary has contributed to the growth. 

Q2FY20 Financial Highlights (Source: Company Reports)

Risks: A heightened volatility in the financial markets would likely to result in a higher redemption rate which might dampen the AUM.

Stock Recommendation: The stock of GCG.A corrected ~12% so far this year due to increased volatility driven by COVID-19. The company made several remarkable acquisitions in the recent past. The above acquisitions coupled with the launch of new products, are likely to improve the business prospects of the company by enhancing its footprints through increasing the customer base. Despite a recent slowdown across the overall economy, the company reported impressive results and a growth in its AUM, which is a key positive and depicts the company’s resilient business model. With the re-opening of the overall economy, we expect a higher investment from the consumers across Canada driven by a surge in the consumer income and savings rate, which is a key positive.  Going forward, we expect the Group's AUM to increase as the equity market has made a sharp recovery in the recent past, and it has increased the investor's confidence in the market. Higher AUM is likely to result in improved management fee, which is a key positive for the Group. The stock is trading at relatively lower at book value of 1.0x on TTM basis, as compared to the industry (investment banking & investment services) median of 1.2x. Hence, we recommend a 'Buy' rating on the stock at the closing market price of CAD 23.55 on October 13, 2020.

1 Year Daily Technical Chart. Source: Refinitiv (Thomson Reuters) 

Canadian Natural Resources Limited

Canadian Natural Resources Limited (TSX: CNQ) is an independent crude oil and natural gas exploration, development, and production company.

Investment rationale

• A dividend play yielding significantly higher at 7.25%, well above the benchmark S&P/TSX Composite Index Dividend Yield of 3.67%. Also, the group has consistently paid dividend over the past ten years.
• Total production before royalties for the second quarter of 2020 increased 14% to 1,165,487 BOE/d from 1,025,800 BOE/d for the second quarter of 2019 and was comparable with 1,178,752 BOE/d of the first quarter of 2020.
• Gradually improving Crude oil prices, Global benchmark crude oil prices decreased significantly in the first half of 2020 due to the erosion of global demand, reflecting the severity of COVID-19 and related economic conditions. In response to the collapse of oil prices in April 2020, OPEC and Russia agreed to cut 9.7 MMbbl/d of production through July 2020. Following these actions, pricing improved in the latter half of the quarter with June 2020 WTI benchmark pricing averaging US$38.31 per bbl and the WCS Heavy Differential averaging US$4.34 per bbl. Subsequent to quarter end, in July 2020, WTI benchmark pricing averaged US$40.77 per bbl and the WCS Heavy Differential averaged US$8.27 per bbl.

Q2FY20: Financial Highlights

• The net loss for the second quarter of 2020 was CAD 310 million compared to a net loss of CAD 1,282 million for the first quarter of 2020.
• Cash flows used in operating activities for the second quarter of 2020 were CAD 351 million compared with CAD 1,725 million for the first quarter of 2020.
• Total production before royalties for the second quarter of 2020 increased 14% to 1,165,487 BOE/d from 1,025,800 BOE/d for the second quarter of 2019 and was comparable with 1,178,752 BOE/d for the first quarter of 2020
• On March 4, 2020, the Board of Directors approved an increase in the quarterly dividend to CAD 0.425 per common share, beginning with the dividend payable on April 1, 2020 (previous quarterly dividend rate of CAD 0.375 per common share).
• As of June 30, 2020, the Company had in place revolving bank credit facilities of CAD 4,958 million, of which CAD 3,879 million was available. Including cash and cash equivalents and other liquidity, the Company had approximately CAD 4,112 million in available liquidity. During the second quarter of 2020, the Company repaid CAD 900 million of 2.05% medium-term notes and issued US$600 million of 2.05% notes due July 2025 and US$500 million of 2.95% notes due July 2030.

Valuation Methodology (Illustrative) – EV to Sales

*Note: All forecasted figures have been taken from Refinitiv (Thomson Reuters)

Stock Recommendation: Over the past five trading sessions, shares of CNQ have bagged approximately 9% and outperformed the benchmark TSX Composite by 9% and sector as well.

The Company remains committed to maintaining a strong balance sheet, adequate available liquidity, and a flexible capital structure. Therefore, based on the above investment rationale, and valuation done using the above methodology, we have given a “Buy” recommendation, at the closing price of CAD 23.43 on October 13, 2020.

1-Year Price Chart (as on October13 2020). 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.