Morguard Corporation

Morguard Corporation (TSX: MRC) is a North American real estate and property management company. The group has extensive retail, office, industrial, hotel and residential holdings owned directly and through its investment in Morguard Real Estate Investment Trust and Morguard North American Residential REIT.

Q2FY20 Financial Highlights: Morguard declared its second-quarterly results, wherein the group reported total revenue of CAD 240.905 million, as compared to CAD 300.247 million in Q2FY19. The decline was primarily attributable to a drastic 86.5% decline in hotel properties income on a y-o-y basis to CAD 8.8 million due to hotel closures combined with lower occupancies. Net operating income stood at CAD 131.2 million, reflecting a 12.6% decline on y-o-y basis majorly attributable to a lower NOI from the hotel portfolio and higher bad debt expense. The group reported net loss stood of CAD 105.0 million, as compared to a net income of CAD 69.3 million, in the previous corresponding quarter (pcp)  on account of a decline in the net fair value gain amounting CAD 183.8 million. Normalized FFO decreased by 29.5% y-o-y basis to CAD 41.7 million, against CAD 59.1 million in pcp. During the second quarter, the Company financed new and existing mortgages for additional net proceeds of CAD 53.5 million and repaid bank debt amounting CAD 80.7 million.

Q2FY20 Financial Snapshot (Source: Company Reports)

Risks: The second wave of the COVID-19 would result in extended closure of hotels and restaurant segments. Any such scenario would dampen the group’s overall performance. Due to the remote working concept, the office leasing segment might witness a setback.

Valuation Methodology: EV to EBITDA Based (Illustrative)

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

Stock Recommendation: The stock of MRC corrected ~43% so far this year. Amidst a challenging macro scenario, some segments of the Canadian commercial real estate industry remained resilient. While the office leasing market softened between April and June, the industrial and multi-suite residential segments performed at healthy levels. The food and the restaurant chains are resuming its operations with proper safety and cleaning measures, though running at a lower capacity, which indicates a steady recovery. On the flip side E-commerce and related logistics companies are witnessing higher traction with an increased volume of online shopping and distribution for both essential and non-essential consumer goods, which is a key positive. Within the residential segment, the company collected 95.3% of the rent, which is in-line with the historical trend. Rent collection and occupancy stood stable across Canada and the U.S. region, which is encouraging. In the Retail segment, all of the company's enclosed malls are now open, and the vast majority of tenants are allowed to operate, which is a key positive. With the gradual reopening of shops and other commercial spaces, we expect an improved scenario for the second part of FY20. We have valued the stock using EV to EBITDA based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Boardwalk Real Estate Investment Trust, Northview Apartment REIT and H&R Real Estate Investment Trust. Hence, considering the above-mentioned facts, we recommend a 'Buy' rating on the stock at the closing market price of CAD 113.28 on September 11, 2020.

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

Evertz Technologies Limited

Evertz Technologies Limited (TSX: ET) provides software, equipment, and technology assistance and produces, markets video & audio infrastructure solutions for the television, telecommunications, and media segments.

Q1FY21 Financial Highlights: ET announced its quarterly results, wherein the company posted revenue of CAD 56.337 million, significantly lower than CAD 103.411 million in the previous corresponding period (pcp). The decline was majorly driven by widespread shutdowns, travel restrictions and projects on hold or cancelled on account of COVID 19 pandemic. Revenue from the US/Canada region was down by 51% on y-o-y basis while income from the international segment was down by 31% over Q1FY20.  Gross margin plunged to CAD 32.224 million, from CAD 59.152 million in the previous corresponding period (pcp) due to lower revenue, partially offset by lower cost of goods sold. Total expenses stood lower at CAD 31.289 million as compared to CAD 41.423 million in pcp. Earnings before income taxes stood at CAD 0.785 million as compared to CAD 17.758 million in pcp. Net earnings stood at CAD 0.575 million, as compared to CAD 13.207 million in Q1FY20. The company ended the quarter with cash and cash equivalent of CAD 102.035 million, while total assets stood at CAD 443.668 million.

Q1FY21 Income Statement Highlights (Source: Company Reports)

Risks: Prolong delay in the project execution would lead to a fall in revenue and a decline in the cash flows. Travel ban and cancellation of sports events in the recent past has led to a fall in the order book of the company.

Valuation Methodology: Price to Earnings Based (Illustrative)

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

Stock Recommendation: The stock of ET corrected ~31% so far this year. The company is a leading solutions provider to the television broadcast, telecommunications and new-media industries and the services and solutions are purchased by content creators, broadcasters, specialty channels and television service providers to support their increasingly complex multi-channel digital and high definition television. The company is likely to benefit from the resumption of sports activities across the globe. Furthermore, the Management believes that the current situation is temporary in nature, and a strong economic revival industry transition to IP and Cloud-based solutions would help the company to improve its order book and future cash flows. Despite the ongoing uncertainty in the economy, the company is continuing its investments across the Research & Development, which is a key growth driver considering the segment in which it caters. Further, despite the challenging operating environment, the group continued to distribute a dividend, which shows the financial flexibility of the group. We have valued the stock using P/Earnings based relative valuation method and have arrived at a lower double-digit upside (in percentage terms). For the said purposes, we have considered peers like EXFO Inc, BlackBerry Ltd etc.  Considering the aforesaid facts, current project execution and current price movement, we recommend a ‘Buy’ rating in the stock at the current market price of CAD 12.27 on September 11, 2020.

ET 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.