Norbord Inc.

Norbord Inc. (TSX: OSB) is a leading global manufacturer of wood-based panels and is a leading producer of oriented strand board (OSB). The Company also manufactures particleboard, medium density fiberboard and related value-added products. The Company has 17 facilities across the United States, Canada and Europe.

Recently, the company reported that it has entered into an automatic share purchase plan (ASPP) with a broker in order to facilitate repurchases of Norbord's common shares under its previously announced normal course issuer bid.

Q2FY20 Financial Highlights: Norbord announced its quarterly results, wherein the Company reported marginally lower revenue at USD 421 million, as compared to USD 447 million in the previous corresponding period (pcp). The lower revenue was due to a decline of 4% and 19%, respectively in US and European shipments on a year-on-year basis. Meanwhile, the quarter was marked by healthy traction from US new home construction activity, which has been responsible for strong OSB demand. Operating income soared to USD 31 million as compared to an operating loss of USD 2 million in Q2FY19. The significant increase was underpinned by lower costs of sales, partially offset by lower shipment volumes. Meanwhile, the y-o-y growth was driven by higher realized North American oriented strand board (OSB) prices. The group posted net earnings of USD 18 million, as compared to a net loss of USD 14 million. OSB posted cash and cash equivalent of USD 20 million, while total assets stood at USD 1,785 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risk: A prolonged lockdown or second wave of the novel virus would hamper the demand for the group’s offerings and might affect the financial performance adversely.

Valuation Methodology: EV/EBITDA Based (Illustrative)

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

Stock Recommendation: The stock gained handsomely in the recent past and appreciated ~148% and ~40% in the last six months and one-year respectively. The financial performance of the company remained strong in the quarter, and the company has accelerated its production activities during the latter half of the period underpinned by improved across North America and European regions. The company reported strong liquidity of USD 378 million, while the Management hinted, that it would be sufficient to withstand the current downturn. Further, to improve its operational efficiency, the Management would implement a flexible operating strategy to adapt production as per the current demand, which augers well to reduce operating costs. To ensure proper liquidity, the Company extended the maturity of its revolving bank lines to May 2022 and increased aggregate commitment from USD 245 million to USD 300 million. Furthermore, on a year-to-date basis, the Company reported a USD 34 million from the net Margin Improvement Program (MIP) due to improved mill productivity and lowered controllable manufacturing and overhead costs. We have valued the stock using the EV to EBITDA based relative valuation approach and arrived at a target price, which suggests a high single-digit upside potential (in % terms). For the said purpose, we have considered peers like Interfor Corp, Western Forest Products Inc and Canfor Corp etc.  Hence, considering the aforesaid facts, current price movement, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 41.70 on October 08, 2020.

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

Silvercorp Metals Inc

Silvercorp Metals Inc (TSX: SVM) is a mineral mining company. It acquires, explores, develops, and mines precious and base metal mineral properties at its producing mines and exploration and development projects in China.

Q1FY21 Financial Highlights: SVM announced its quarterly results, wherein the company reported sales of USD 46.705 million as compared to USD 45.576 million in the previous corresponding period (pcp). The increase was mainly due to improved performance form gold and silver segment on account of improved realized prices, partially offset by a decrease in net realized selling price and sales volume from lead and zinc. Income from mine operations stood at USD 19.285 million, against USD 17.773 million in Q1FY20. The company reported production cost of USD 17.7 million, marginally lower than USD 18 million in pcp. General and administrative expenses came in at USD 4.7 million, reflecting an increase of USD 0.2 million from Q1FY20, due to higher share-based compensation, partially offset by lower salary and benefits. The company reported income before income taxes at USD 23.074 million as compared to USD 16.059 million in pcp. Net income stood higher at USD 18.492 million against USD 17.301 million in pcp, thanks to improved income from operations, partially offset by an income tax expense of USD 5.382 million, as compared to an income tax recovery of USD 0.488 million in pcp. The company ended the quarter with cash and cash equivalent of USD 94.024 million, while total assets stood at USD 554.318 million.

Q1FY21 Income Statement Highlights (Source: Company Reports)

Risks: The group’s performance is correlated with the international commodity prices and volatility in the prices would likely to affect the performance of the company.

Valuation Methodology: P/CF Based (Illustrative)

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

Stock Recommendation: The stock of SVM soared ~75% in the last one year. The company has shown an improvement in financial performance in the first quarter of the financial year 2021. Both the top-line and the bottom-line performance have improved, with an increase in the profitability margins for the period. The liquidity position has improved, and the balance sheet remained well-positioned. The group derives the majority of its revenue from silver and gold. Prices of both commodities remained firm in the recent past, and we expect them to remain firm in the near to medium term as global economic outlook remain uncertain. Higher gold and silver prices bode well for the group’s revenue and cash flow. Furthermore, the company is investing in a facility which would provide crush and recycle waste rock in the Ying Mining District and is expected to be commissioned from October 2020. We have valued the stock using the P/CF based relative valuation approach and arrived at a target price, which suggests a single-digit upside potential (in % terms). For the said purpose, we have considered peers like Pan American Silver Corp, Maverix Metals Inc etc. Hence, considering the aforesaid facts, current price movement, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 9.63 on October 8, 2020.

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

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