AltaGas Ltd.

AltaGas Ltd (TSX: ALA) owns and operates a diversified basket of energy infrastructure businesses. Business is conducted through four segments: Midstream, power, utilities and corporate. Utility business owns and operates rate-regulated natural gas distribution assets across North America. 

Key Highlights:

• Improved short-term liquidity position: The company reported its quick ratio and current ratio at 0.74x and 1.02x, respectively, in Q2FY21, which was higher than the industry median of 0.68x and 0.82x, respectively.
• Increase in dividend distribution amidst turbulent times: The company reported a higher dividend payment of CAD 141 million in H1FY21, as compared to CAD 134 million in pcp. This was backed by stable cash flows. Moreover, the stock carries a dividend yield of ~3.95%, which looks attractive considering the ongoing interest rate environment.
• Growth from the Utilities segment due to improved base rates: In the recent past, the group witnessed growth from rate base due to ongoing capital investment across the network through accelerated replacement program (ARP) investments. Moreover, the recent implementation of D.C. and Maryland rate cases (rate-hike proposal), coupled with improved power and gas margins within the retail segment, supported the company’s overall performance. Normalized EBITDA from the utility segment stood at CAD 99 million in Q2FY21, higher than CAD 80 million in pcp.

Q2FY21 Financial Highlights:

• ALA announced its quarterly results, wherein the company posted revenue of CAD 2,009 million, as compared to CAD 1,059 million in the previous corresponding period (pcp). The increase was driven by higher income from both midstream and utility segments.
• The company posted a reduction in the total expense of CAD 1,924 million, as compared to CAD 984 million in pcp. The decline was primarily due to a lower cost of sales and a lower depreciation and amortization cost.
• Income before income taxes stood higher at CAD 47 million, as compared to CAD 46 million in pcp.
• ALA reported its net income after tax at CAD 44 million, as compared to a net income of CAD 43 million in the previous corresponding period (pcp).
  

Q2FY21 Income Statement Highlight (Source: Company Reports)

Risks: Lower consumer demand, unfavorable weather conditions etc. might hinder the overall demand dynamics of the utility business, which subsequently could take a toll on the overall margins and cash flows of the company.

Valuation Methodology (Illustrative): Price to Cash flow

Stock Recommendation:

For FY21, the company expects its Normalized EBITDA in between CAD 1.475 billion to CAD 1.525 billion, while Normalized EPS is expected in between CAD 1.65 to CAD 1.80 per share. Capital expenditure is expected in CAD 910 million. The majority of capital expenditures are related to the projects within the utilities platform, which are anticipated to deliver stable and transparent rate base growth and strong risk-adjusted returns. We have valued the stock using the Price to CF based relative valuation method and have arrived at a target upside of single-digit (in percentage terms). For the said purposes, we have considered peers like Black Hills Corp, NiSource Inc etc. Hence, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 25.28 on October 12, 2021.

One-Year Technical Price Chart (as on October 12, 2021) Source: REFINITIV, Analysis by Kalkine Group 

Goodfood Market Corp.

Goodfood Market Corp. (TSX: FOOD) is a leading online grocery company in Canada, which provides fresh meal solutions and groceries to the retailers via the eCommerce segment. 

Key Highlights:

• Ample scope from the online grocery segment: Due to the added restrictions on account of the pandemic, the demand for online groceries has grown across the globe, which has resulted in rapid growth in the subscriber’s base. In order to optimize the opportunities, the company is investing in highly targeted marketing campaigns and looking for capacity expansion through additional facilities and investments within automation. Moreover, the group is also increasing its product offering and also continuing to expand its national platform.
• Rise in cash balance: At the end of Q3FY21, the company reported a cash balance of CAD 157.112 million, which is higher than CAD 77.987 million in pcp and CAD 104.402 million in Q4FY20. The above indicates improved liquidity position and is a key positive.
• Management Updates: Recently, the company reported the joining of Bipasha Chiu for the post of Chief Technology Officer, effective September 27, 2021. 

Q3FY21 Financial Highlights:

• FOOD impresses with its second quarter result, wherein the company posted its revenue at CAD 107.795 million as compared to CAD 86.600 million in pcp. The growth was driven by the expansion of the company’s same-day delivery option across the two new metropolitan cities in Canada. Moreover, the group reported an increase in the average basket size and higher-order frequency, which positively contributed to the company’s topline.
• Gross profit stood significantly higher at CAD 37.732 million compared to CAD 24.910 million in Q3FY20, thanks to the elevated revenue, partially offset by a higher cost of sales (CAD 70.063 million v/s CAD 61.690 million in pcp).
• The quarter was marked by a surge in selling, general and administrative expense (CAD 36.875 million v/s CAD 19.486 million in pcp), higher depreciation and amortization (CAD 2.379 million v/s CAD 1.484 million in pcp), partially offset by a lower net finance cost (CAD 0.431 million v/s CAD 1.154 million in pcp).
• The group reported a net loss of CAD 2.014 million, as compared to a net profit of CAD 2.786 million in pcp.

Q3FY21 Income Statement Highlight (Source: Company Reports)

Risks: The group reported higher borrowings in Q3FY21, as compared to Q4FY20, which remains a major concern for the company. Moreover, a higher shareholder’s deficit has also dampened the company’s overall performance.

Stock Recommendation:

The company reported strong growth in the subscriber’s base at 317,000 at the end of Q3FY21, as compared to 272,000 in Q3FY20. An elevated active subscriber’s base also indicates greater acceptability of the company’s offerings, which is a key positive. We believe, due to the change in consumer preference, the above momentum is likely to continue in the coming days and would subsequently improve the company’s sales volume. On the valuation front, the stock is available at an EV to Sales multiples of 1.4x on an NTM basis, as compared to the industry median of 4.3x. Hence, considering the aforesaid facts, we give a ‘Hold’ rating on the stock at the closing price of CAD 8.93 on October 12, 2021.

One-Year Technical Price Chart (as on October 12, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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