Pretium Resources Inc.

Pretium Resources Inc. (TSX: PVG) is an exploration and development company engaged in the acquisition, exploration, and development of precious metal resource properties in the Americas. 

Key Highlights:

• Solid Growth in cash flow: The group reported a significant surge in cash from operations, which stood at USD 61.263 million, as compared to USD 51.284 million in the previous corresponding period (pcp). The increase was driven by elevated net earnings, which is a key positive. Moreover, the company’s free cash flow surged to USD 50.969 million, from USD 41.803 million in Q1FY20.           

• Drilling Updates: Recently, the company reported that it is conducting the drilling activities in Phase 2 of the North Block resource, located at the Brucejack Mine in British Columbia. This includes high-grade gold mineralization with five intersections assaying above 1,000 gram/ tonne gold. Another drilling result assayed 561.6 grams/tonne of gold across more than 15.0 meters, which includes 8,400 grams/ tonne gold over 1.0 meter. Based on the positive response from the phase 2 drilling program, the company would initiate the third and fourth phase of the drilling program within the North Block Zone, located near the Valley of Kings deposit.
  

• Declining net debt: Despite being a capital-intensive business, the company has reduced its net debt in recent years, which is a key positive. Notably, at the end of Q1FY21, the company reported a 6% q-o-q decline in its total borrowings to USD 247.710 million. A reduction in the debt amidst the current economic turbulence, is noteworthy.

Q1FY21 Financial Highlight:

• PVG declared its quarterly result, wherein the group posted revenue of USD 142.428 million, up from USD 126.560 million in the previous corresponding period (pcp). The growth was aided by a 12.5% increase in gold prices (USD 1,804/oz v/s USD 1,605/oz in pcp), coupled with higher gold production (85,795 oz v/s 82,888 oz in pcp).
• Operating earnings surged to USD 43.916 million, from USD 35.749 million in pcp. The period witnessed higher cost of sales (USD 93.796 million v/s USD 84.141 million in pcp), while the group reported a slide in corporate administrative costs (USD 4.445 million v/s USD 5.576 million in pcp) along with exploration and evaluation costs (USD 0.271 million v/s USD 1.094 million in pcp).
• Net earnings were reported at USD 26.595 million, jumped from USD 8.770 million in pcp. The growth was supported by lower interest and finance expense (USD 3.953 million v/s USD 7.722 million in pcp) coupled with a decline in deferred income tax.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The performance of the company is directly correlated to the gold prices, and an volatility in gold prices is likely to dampen the company’s realization price, cash flows and margins.

Valuation Methodology Illustrative: Price to Cash Flow

Stock Recommendation:

For FY21, the company expects gold production in between 325,000 to 365,000 oz, while total cash cost is expected in between USD 820/oz to USD 920/oz. The management expects its free cash flow in between USD 120 to 170 million. Sustaining capital is estimated in between USD 50 to 55 million for FY21. We have valued the stock using the Price to 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 B2Gold Corp, First Majestic Silver Corp and Argonaut Gold Inc. etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 11.63 on July 30, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on July 30, 2021). Source: REFINITIV, Analysis by Kalkine Group

Lassonde Industries Inc

Lassonde Industries Inc (TSX: LAS.A) operates as a developer, manufacturer, and distributor of ready-to-drink fruit and vegetable juices and drinks. Apart from these, the group is also a producer of store brand shelf-stable fruit juices and drinks in the United States, along with a principal producer of cranberry sauces. 

Key Highlights:

• Product portfolio supports changing consumer preferences: The company has a strong brand presence and offers than 3,800 products to the consumers. Meanwhile, the company offers innovative products within the beverage segment, which are in line with the recent consumer preferences of maintaining a healthy diet.
  

• Increase volumes in the specific segment: Amidst the current turbulent economic scenario, the company reported higher single-digit sales growth from the shelf and refrigerated products across North America in Q1FY21, which is a key positive and indicates demand revival. Moreover, retailer and distributors income improved to 91% of the total sales in Q1FY21 from 87% in pcp.
  

• Diversified Revenue Stream: During, 2010 the company was solely dependent on the Canadian market for the revenue generation, where 92% of the revenue came from Canada and only 6% from USA and other geography. The company has advanced and diversified its revenue stream, where currently ~41-43% of the revenue generated from Canada, ~55-58% from USA and rest from other markets.
  

Q1FY21Financial Highlights:

• The group announced its first-quarter results, wherein the company posted CAD 466.794 million, slide from CAD 472.446 million in the previous corresponding period (pcp). The slide was primarily attributable to unfavorable foreign exchange impact of CAD 16 million. On the other hand, the group witnessed higher sales of CAD 10.4 million, supported by a favorable change in the sales mix of national brands.
• Operating profit stood at CAD 31.382 million, slightly higher than CAD 30.348 million in Q1FY20. The period was marked by lower cost of sales and a higher Selling and administrative expense. On the other hand, the group witnessed a drastic fall in the finance expense due to a decline in the total debt.
• The company posted its net profit at CAD 20.454 million, lower than CAD 23.734 million, a year ago.

Source: Company Report

Risks: The group derives its major income from the US segment, and in the recent past, it is observing a surge in the input costs like transportation and warehousing costs etc., which resulted to a slide in profitability from the above geography. Continuation of the above trend is likely to dampen the company’s overall performance.

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

The company provides development, manufacturing, and marketing of ready-to-drink fruit and vegetable juices and drinks and also offers innovative products as per the changing consumer preferences. In the recent past, the industry has witnessed a surge in demand from locally made products and increase in demand of products with environmentally friendly packaging. Moreover, we believe the company has the upper hand, as the company is emphasizing the above two criteria in order to attain better revenue-mix. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a target upside of double-digit (in percentage terms). For the said purposes, we have considered peers like B&G Foods Inc, Hostess Brands Inc. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 172.57 on July 30, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on July 30, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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