Yamana Gold Inc.

Yamana Gold Inc. (TSX: YRI) is a Canada-based precious metals producer and engaged in gold and silver production. The group has development stage properties, exploration properties, across the Americas, including Canada, Brazil, Chile, and Argentina. 

Key Highlights:

• Constant Growth in Cash flows: The company reported consistent growth in the cash flows during the recent quarters, which is a key positive. Net free cash flow stood at USD 455.7 million in FY20, significantly higher than USD 321.5 million in FY19. The growth in cash flows was driven by elevated production in the recent past coupled with higher gold prices.

Source: Company Presentation

• Ample Liquidity and Lower Net Debt: The company has sufficient liquidity of USD 1,401.2 million on FY20, which includes cash and cash equivalents of USD 651.2 million and an available credit balance of USD 750 million, which seems to be adequate to fund its working capital requirements. Notably, the company reported net debt of USD 565.7 million in FY20, significantly lower than USD 889.1 million in FY19. A lower net debt is a healthy sign and indicates higher financial flexibility.

Source: Company Report

• Result Update: The company would disclose its first quarter FY21 result on April 28, 2021.

Q4FY20 Financial Highlights:

• YRI announced its quarterly result, wherein the company posted revenue of USD 461.8 million, higher than USD 383.8 million in Q4FY19. The increase was primarily driven by higher realized prices for gold and silver during the quarter.

Source: Company Report

• Gross margin was recorded at USD 295 million, higher than USD 214.4 million in the previous corresponding period (pcp), thanks to the higher revenue and a slightly lower cost of sales.
• Operating earnings stood at USD 333.4 million, increased considerably from USD 66.9 million in the previous corresponding period. The surge was driven by an income from net Impairment reversal of mining properties amounting to USD 191 million.
• Net earnings were recorded at USD 103.0 million, as compared to USD 14.6 million in pcp.

Q4FY20 Income Statement Highlights (Source: Company Report)

Risks: The company’s income is directly related to the international commodity prices, and price volatility would affect the overall performance of the company.

Valuation Methodology (Illustrative): Price to Earnings based valuation.

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

Stock Recommendation:

For FY21, the company expects total production to increase by 11% y-o-y, which includes 862k oz of gold and 10.0M oz of silver. Cash cost for FY21 is expected to remain within the range of USD 655/GEO to USD 695/GEO, lower than USD 701/GEO in FY20. The company also expects reduction in All-in sustaining costs (AISC) to USD 1,020/GEO in FY21, from USD 1,080/ GEO in FY20.                                    

Source: Company Presentation

We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Kinross Gold Corp, B2Gold Corp etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the last closing price of CAD 5.94 on April 23, 2021.

One-Year Price Chart (as on April 23, 2021). Source: Refinitiv (Thomson Reuters)

Killam Apartment Real Estate Investment Trust

Killam Apartment Real Estate Investment Trust (TSX: KMP.UN) is a Canada based “REIT”, which specializes in the acquisition, management and development of multi-residential apartment buildings, manufactured home communities (MHCs) and commercial properties.

Key highlights

• Robust rent collection: Despite a slowing economy, the trust achieved an outstanding rent collection of 99.7% in fiscal year 2020. Historically, the firm has seen less than 0.3% of revenue uncollected, and management does not anticipate a significant uptick in leasing defaults in 2021, which is notable.

Source: Company

• Rental rate growth continues on Turns: In Q4 2020, the same property rental rates increased to 3.4% against 2.4% in Q3 2020. Despite the current economic environment, demand remains strong for turnover units, with trust achieving 5.7% rental rate growth on the regular unit turns during Q42020. 

Source: Company

• Healthy Financial metrics: The trust generated strong financial growth in the recent past, where it reported a 17.4% CAGR during FY16 to FY20 in its total assets, while the net operating income grew at a CAGR of 11.8% during the same time frame. Debts, in term of assets, reduced to 44.6% in FY20, from 53.5% in FY16. We believe the momentum to continue in the foreseeable future, as the company had CAD 1 billion of development pipeline to support future growth.

Source: Company

• Consistent dividend distribution: The group continues with a track record of dividend distribution and recently declared a monthly distribution of CAD 0.05667 per unit to be paid on May 17, 2021. Moreover, at the last closing price, the stock was offering a healthy dividend yield of 3.53%, which looks decent considering the current macro scenario.

Source: Refinitiv (Thomson Reuters)

• Event update: The company will release its financial results for the first quarter ended March 31, 2021, on Wednesday, May 5, 2021.

Financial Overview of Q4 2020 (In thousands of CAD)

Source: Company

• In Q4 2020, the Company posted a growth in its property revenue to CAD 66.8 million, compared to CAD 62.7 million in the previous corresponding period.
• NOI stood at CAD 41.7 million in Q4 2020, compared to CAD 39.9 million in Q4 2019.
• The Company's net income fell to CAD 48.5 million in the reported quarter, compared to 126.8 million in Q4 2019. The prime reason behind the fall in net income was higher fair value gains on investment properties recognized in Q4 2019.
• Despite the impacts of COVID-19, the Company achieved a 2.2% increase in the same property revenue and a 0.9% increase in the same property net operating income ("NOI") over Q4 2019.

Risks associated with investment

The Company's revenue and operating results depend significantly on the occupancy levels and rent collection; hence, any fluctuation in rent collection or occupancy rate would affect the financial metrics. 

Valuation Methodology (Illustrative): EV/Sales 

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

Stock recommendation

The Company faced several unexpected obstacles in FY2020, but it delivered a strong operational and financial result. In FY 2020, the Company had an impressive rent recovery record of 99.7%. Furthermore, it produced a 2.3% increase in same-property NOI compared to 2019 and a 2.0% increase in same-property sales, including 2.4% from the apartment portfolio, which looks promising. We expect an improvement in the rent collection and a decline in provisions in the coming time, further supporting the Company's overall performance. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating at the closing price of CAD 19.23 on April 23, 2021. We have considered InterRent REIT, Canadian Apartment Properties REIT, Allied Properties REIT, etc., as a peer group for the comparison.

1-Year Price Chart (as on April 23, 2021) 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.