New Gold Inc

New Gold Inc (TSX: NGD) is an intermediate gold mining company and has operations across the globe. The company has a portfolio of four producing assets, the New Afton Mine in Canada, the Mesquite Mine in the United States, and the Cerro San Pedro Mine in Mexico.

Recent Highlights:

The company announced the redemption of USD 200 million of the principal amount of the outstanding 2025 Notes on December 23, 2020. The company would fund the redemption of the 2025 Notes with its cash on hand.

Key Highlights:

• Strong Liquidity: At the end of Q3FY20, the company reported ample liquidity of USD 510 million, which includes USD 205 million of cash and cash equivalents and ~USD 305 million of credit facility. The current liquidity seems sufficient enough to support the company’s short-term working capital requirements. Moreover, the group does not have any immediate debt maturity, which also augurs well for the retention of liquidity.                                                      

Source: Company Presentations

• Improved Production Outlook: The company has guided a 26% increase in the production during FY20 to FY25 at ~550k gold eq. oz., driven by the ramp-up of Rainy River and production from the New Afton C-Zone. Moreover, the group expects to drive USD 1.5 billion of free cash flows during the coming five years.

Q3FY20 Financial Highlights:

• NGD announced its quarterly results, wherein the company posted revenue of USD 173.7 million, as compared to USD 168.4 million in the previous corresponding period (pcp). The slight increase was driven by significantly higher gold and copper prices, partially offset by lower sales volumes of both gold and copper.
• Income from operations soared to USD 30.2 million, from USD 6 million in pcp, aided by a slightly improved revenue and lower operating expenses and significantly lower depreciation and depletion costs. A slight decline in corporate administration expense (USD 3.4 million versus USD 3.8 million in pcp) further supported the profitability.
• The company reported a net profit of USD 15.7 million, as compared to a loss of USD 24.7 million in Q3FY19, supported by improved cost-structure, while higher finance costs (USD 21.5 million vs USD 16.5 million in pcp) remained a drag.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company’s performance is correlated to the gold prices. Volatility in gold price would affect the group’s performance.

Valuation Methodology: Price to Earnings Based (Illustrative)

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

Stock Recommendations:

We expect the Gold prices to remain elevated for the time being, and the company would be benefited by higher realized prices, which would support the company’s margins. Moreover, the company is focusing on prudent operational and cost optimization, which is likely to provide a push to the margins. We have valued the stock using Price to Earnings-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 Alamos Gold Inc, Eldorado Gold Corp etc. Hence, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 2.39 on November 30, 2020.

Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

BlackBerry Limited

BlackBerry Limited (TSX: BB), provides security software and services to enterprises and governments. The Company leverages artificial intelligence (AI) and machine learning to deliver solutions in the areas of cybersecurity, safety and data privacy and offers endpoint security management, encryption, and embedded systems. 

Key highlights

• Redeemed convertible debentures: The company redeemed the existing USD 605 million of convertible debentures and issued USD 365 million of new convertible debentures, reducing the level of debt by USD 240 million and saving USD 16 million of interest expense on an annualized basis.

• Building Partnership: In Q2 2021, the Company made partnerships with Vodafone, Bell and TELUS. TELUS will partner to sell the Company’s AtHoc, which is the most secure critical event management solution, across Canada.

• Added new customers: The Company won some more customers in this quarter, for their new BlackBerry Spark Suites. To name some of these customers are US Air Force, UK Ministry of Defence, Royal Canadian Mint, Rolls Royce and Lloyds Bank.

• Ample liquidity and Free cash flows: The Company’s net cash flow provided by operating activities was USD 31 million, and capital expenditures were USD 2 million. All this resulted in a free cash flow of USD 29 million in 2Q 2021. The company also holds total cash, cash equivalents along short-term and long-term investments of USD 977 million. This liquidity provides enough space to carry its daily operations without any interruption.

Financial overview of 2Q 2021 (United States dollars, in millions, except per share data)

Source: Company 

• In Q2 2021 the Company reported consolidated revenue of USD 259 million, increased by 6% as compared to USD 244 million in the previous corresponding period.

• Software and Services segment reported revenue of USD 151 million, or 58.3% of revenue, in Q2 2021, compared to USD 168 million, or 68.9% of revenue, in Q2 2020. The decrease was primarily due to a decline of USD 21 million in recurring royalties in BlackBerry QNX, driven by a slowdown in the automotive market related to the COVID-19 pandemic.

• Licensing and Other segment generated a revenue of USD 108 million in Q2 2021, an increase of USD 32 million compared to USD 76 million in Q2 2020, primarily due to the Company’s patent licensing agreement with Teletry.

• The Company posted a net loss of USD 23 million in the reported quarter as against a loss of USD 44 million in Q2 2020. The loss minimized due to reduced SG&A expenses.

Comparative breakdowns of the geographic regions

Source: Company 

Risk associated with investment

The company’s performance can be affected by changes in technology, evolving industry standards, intense competition and short product life cycles that characterize the industries in which the company operates. 

Valuation Methodology (Illustrative): EV to Sales

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

Stock recommendation

The company expect total revenue for the year to be around USD 950 million. Given the strong performance of the Licensing business during the quarter, the company expect Licensing revenue to finish the fiscal year modestly above the USD 250 million. The company’s QNX car software sales numbers have started showing a positive reversal sign on the back of recovering demand for new vehicles. From now on, this technology will also be used by StradVision, in ADAS and autonomous vehicle systems. This will result in improved numbers in term of revenues in coming quarters. Therefore, based on the above rationale and valuation, we have given a ‘Hold’ rating at the closing price of CAD 7.65 on November 30, 2020.  We have considered Absolute Software Corp, Citrix Systems Inc, Adobe Inc, etc. as the peer group for the comparison. 

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.