TC Energy Corporation

TC Energy Corporation (TSX: TRP) is engaged in energy infrastructure providers, consisting of pipeline and power generation assets in Canada, the United States, and Mexico. The Group’s pipeline network consists of more than 92,600 kilometers of natural gas pipeline, along with 4,900 kilometers from the Keystone Pipeline system. 

Dividend Update:

The Board of Directors announced a quarterly dividend of CAD 0.81 per common share, payable on January 29, 2021.

Key Highlights:

• An income play: The company has delivered a consistent dividend during the last two decades, which is impressive. From FY15 to FY21, the group is expecting its dividend to record a CAGR of 8% to 10%, which is encouraging from an income investor’s standpoint. At the last traded price, the TRP stock offers an attractive dividend yield of ~53% amid the low interest environment.                   

Dividend History (Source: Company Presentation)

• Strong Liquidity: The company managed to secure USD 2 billion of committed credit facilities, which brings the total liquidity to USD 13 billion. Furthermore, the company has generated funds from operations of USD 5.3 billion during 9MFY20, which along with the current liquidity level seems sufficient to fund the working capital and capital investments.

Q3FY20 Financial Highlights:

• TRP announces its quarterly results, wherein the company posted an improved revenue of CAD 3,195 million, higher than CAD 3,133 million in pcp. The increase was driven by a higher income from Canadian Natural Gas Pipelines and U.S. Natural Gas Pipelines, partially offset by lower income from Liquids Pipelines.
• Income before Income Taxes stood higher at CAD 1,202 million, as compared to CAD 1,113 million in pcp, supported by a lower interest expense.
• Net income stood at CAD 1,012 million, higher than CAD 839 million in Q3FY19.
• Cash and cash equivalents stood at CAD 1,192 million, while total assets stood at CAD 101,862 million.                        

Q3FY20 Financial Snapshot (Source: Company Reports)

Risks: The corporation is prone to several challenges like optimum performance from its pipeline, power and storage assets which would determine TRP’s production levels within supply basins.

Valuation Methodology (Illustrative): Price to Earnings based

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

Stock Recommendation:

The company reported that a substantial portion of Coastal GasLink and Keystone XL funding in place, while construction activities would continue at 2.1 Bcf/day pipeline. For FY20, the group expects ~CAD 7 billion of funds from operations, out of which ~98% of comparable EBITDA is expected from regulated assets and long-term contracts. The group continued to advance its industry-leading USD 37 billion secured capital program and placed over USD 3 billion of assets into service during the first nine months of 2020. Importantly, all of the capital projects are underpinned by long-term contracts giving visibility to the earnings and cash flow they will generate as they enter service over the next four years.

We have valued the stock using P/E based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Enbridge Inc, Kinder Morgan Inc etc. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 58.57 on November 24, 2020.

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

Winpak Ltd.

Winpak Ltd. (TSX: WPK) manufactures and sells a variety of packaging materials and related packaging machines. The packaging materials are used primarily for perishable foods, beverages, and healthcare applications. 

Key Highlights:

• Positive Outlook: WPK's product pipeline remains very strong, and the company secures several business opportunities through organic and inorganic sales growth. The management hinted of several product launches in the fourth quarter of FY20, which includes retort pet food tray and dessert custom container offerings, spouted pouches etc. We expect the above launches would likely to support the sales in the coming quarters. The management stated that specialty beverage cup business should no longer be a headwind to Winpak's volumes going forward on comparison to prior year quarterly time periods. The lidding product group experienced slight volume gains with the specialty beverage die-cut lids.  The packaging machinery segment remains very dynamic with a strong machine order backlog which will keep it busy entering 2021.
• Stable Financials: The group reported stable revenue and net profit growth over the years, reflects the operational resiliency. We expect the future growth would be driven by improved volumes from flexible packaging segments and improved traction across the retail segment followed by expansion within the Mexican market.

• Margin Expansion: The company reported strong growth in its EBITDA and EBITDA margin, which indicates improving revenue-mix along with cost-efficiencies. The company recorded an 8% CAGR in its EBITDA during FY09 to FY19, which is impressive. Moreover, a downtrend in the prices of raw materials further supported the company’s margin.  

(Source: Company Presentation)

Q3FY20 Financial Highlights:

• WPK announced its quarterly results, wherein the company posted revenue of USD 210.605 million, as compared to USD 212.734 million in the previous corresponding period (pcp). The decline was primarily attributable to a 2% lower volume on a y-o-y basis, while flexible packaging segment reported volume growth of 1% over pcp, aided by overall enhanced demand for retail meat and cheese products.
• Gross profit stood at USD 66.002 million, against USD 67.115 million in Q3FY19, due to a lower income.
• Income from operations stood at USD 37.792 million, slightly lower than USD 38.197 million, a year ago, due to a lower gross profit, coupled with an increase in the sales, marketing and distribution expense, partially supported by a lower general and administrative expenses.
• The company reported net income of USD 27.372 million, as compared to USD 29.462 million in Q3FY19, due to a lower finance income, partially offset by a lower finance expense.
• The company posted cash and cash equivalent of USD 485.986 million, while total assets stood at USD 1,303.640 million.            

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The second wave of the novel virus may dampen the demand of the group’s offerings, especially from the restaurant and foodservice segment. 

Valuation Methodology (Illustrative): Price to Earnings based

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

Stock Recommendation:

WPK’s product pipeline remains very strong as the corporation reported several business opportunities across the existing and new business lines. The management expects new business generation during Q4FY20, with new product launches for a retort pet food tray and dessert custom container offerings, which augurs well for added business prospects. We expect gradual reopening of restaurants and foodservice businesses across North America would likely to support the company's sales volume, which is a key positive.

We have valued the stock using P/E based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like CCL Industries Inc, Aptar group Inc etc. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 42.54 on November 24, 2020.

WPK 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.