Imperial Oil Limited

Imperial Oil Limited (TSX: IMO) is one of Canada's leading integrated oil companies, focusing on upstream operations, petroleum refining operations, and the marketing of petroleum products.

Dividend Update:

Recently, the company declared a quarterly dividend of 22 cents per share on the outstanding common shares of the company, payable on January 1, 2021.

Key Highlights:

• Prudent Capital Management: In order to combat the current challenging time, the company has lowered its capital expenditure by ~45% from its estimated capital investment through deferral programs, which is prudent and would help in preserving liquidity. Moreover, a reduction in the production and the manufacturing expenses of ~16% from FY19 is commendable and supports the groups working capital.        

Source: Company Presentations

• Recovery in WTI price: Most of the oil-companies struggled during the first half of FY20 due to a drastic fall in the oil price coupled with a slide in the global demand. However, the gasoline and diesel segment witnessed a demand recovery during the recent past, and the segments witnessed 85% to 95% of normal demand, which is encouraging. Going forward, we expect a recovery in the crude oil prices owing to a stable demand on account of gradual reopening of the economies, which would result in the higher realized price for the group.                     

Price Trends (Source: Company Presentations)

• Consistent dividend payment: The group has a track record of consistent dividend payment. The group has consistently increased its dividend distribution over the years. At the last traded price, the stock was offering a dividend yield of ~3.7%, which is decent amid a low-interest rate environment.

Q3FY20 Financial Highlights:

• IMO announced its quarterly results, wherein the company posted total revenues and other income of CAD 5,955 million, as compared to CAD 8,736 million in the previous corresponding period (pcp). The decline was primarily attributable to a lower West Texas Intermediate (WTI) prices, which averaged at USD 40.93 per barrel in Q3FY20, lower than USD 56.44 per barrel, a year ago.
• Total expenses stood at CAD 5,952 million, significantly lower than CAD 8,182 million in the Q3FY19, due to a lower cost for purchases of crude oil and products and lower production and manufacturing.
• Net income stood significantly lower at CAD 3 million, as compared to CAD 424 million, a year ago.
• The company posted a cash balance of CAD 817 million, while total assets stood at CAD 39,382 million.                 

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risk: The group’s revenue is correlated with crude oil prices. Volatility in oil prices or change in oil demand would hamper the group’s performance.

Valuation Methodology (Illustrative): Price to CF based

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

Stock Recommendation:

The company is focusing on developing new carbon-efficient product offerings and exploring technology pathways in support of a net-zero carbon future. Furthermore, the company is emphasizing on Helping the customers to reduce their emissions through leveraging industry-leading technologies, which is a key positive. For FY20, the company expects its Cash flow from operating activities to be ~CAD 875 million.

We have valued the stock using P/CF based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Exxon Mobil Corp, Cenovus Energy Inc etc. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 24.01 on November 23, 2020.

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

Guardian Capital Group Ltd

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

Key Highlights

• Elevated Operating Performance: The company reported elevated revenue growth over the years and reported stable operating earnings, which indicates operational resilience. The increase was driven by prudent diversification of its revenue base coupled with stable organic growth. The company reported a 5% growth in its AUM from FY19 to CAD 32.7 billion in September 2020.

Source: Company Presentation

• Stable Portfolio Management: The company offers an impressive portfolio management service, which consists of prudent risk management and diversified investment areas.

Source: Company Presentation

• Stock hovering in a bullish zone: At the last closing price the stock was trading well above the short term as well as long term support level of 20-day, 50-day, 100-day and 200-day SMA, which reflects a bullish price trend.

Q3FY20 Financial Highlights:

• GCG announced its quarterly results, wherein the company posted net revenue of CAD 52.042 million, higher than CAD 45.983 million in the previous corresponding period (pcp). The increase was driven by higher net commission revenue and an increase in net management fees.
• The company reported a higher total expense of CAD 39.934 million, as compared to CAD 33.878 million in Q3FY19, due to higher employee compensation and benefits, increase in amortization costs and higher other expense, partially offset by lower interest costs.
• Operating earnings stood at CAD 12.108 million, at par with CAD 12.105 million in pcp, partially offset by higher expense.
• Net earnings stood at CAD 42.652 million, as compared to CAD 8.952 million in pcp.
• The company posted a cash balance of CAD 43.364 million, while total assets stood at CAD 997.655 million.

Q3FY20 Income Statement Highlight (Source: Company Reports)

Risk: The group's performance is correlated to the performance of the global equity market. Volatility in the equity market would affect the group's performance.

Stock Recommendation: The stock of GCG.A corrected ~10% so far this year, due to lower investor sentiment on account of COVID 19 pandemic. Despite a challenging operating environment, the company reported impressive results and growth in its AUM, which is encouraging and reflects the company's resilient business model. With the resumption of various economic activities, we expect a higher investment from the consumers across Canada, 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 company made several remarkable acquisitions in the recent past. These acquisitions, coupled with the launch of new products, are likely to improve the business prospects of the company. On the valuation front, the stock is trading at relatively lower Price to book value multiple of 0.9x on a TTM basis, as compared to the industry (investment banking & investment services) median of 3x. Hence, we recommend a 'Buy' rating in the stock at the current closing price of CAD 24.17 on November 23, 2020.

GCG 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.