Silvercorp Metals Inc

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

Key highlights

• Based on the YTD production levels, the Company would achieve its annual production and cost guidance. The group expects its Fiscal 2021 drilling program to exceed the yearly guidance.

Source: Company

• Increase in Cash flow from operations and working capital: In Q2 2021 the company registered a growth in cash flow from operations to USD29.6 million, an increase of USD3.4 million, compared to USD26.2 million in Q2 2020. The increase was mainly because of higher operating income. Working capital was USD169.3 million, an increase of USD39 million or 30% compared to USD130.4 million on March 31, 2020.

• Liquidity:The Company ended Q2 2021 with strong liquidity. Cash and short-term investments increased by USD21.7 million or 12% to USD200.1 million compared to USD178.4 million on June 30, 2020.

Financial Overview: Q2FY21

Source: Company

• In Q2 2021 the company posted a revenue of USD 56.4 million, 13% or USD6.5 million higher compared to USD49.9 million recorded in the previous corresponding period. The rise in revenue was mainly due to an increase in the net realized selling prices for silver, gold, and lead.
• Income from mine operations in Q2 2021 was USD26.7 million or 47% of revenue, compared to USD22.7 million or 45% of revenue in Q2 2020. Income from Ying Mining District was USD23.1 million or 51% of revenue, compared to USD20.5 million or 49% in pcp. Income from GC Mine was USD2.9 million or 32% of revenue, compared to USD2.2 million or 29% in pcp.
• Net income attributable to equity shareholders in Q2 2021 was USD15.5 million, or USD0.09 per share, compared to USD12.2 million, or USD0.07 per share in Q2 2020, driven by increased net realized selling prices for silver and gold.

Risk associated with investment

The Company is exposed to many risks in conducting its business, including but not limited to metal price risk. The Company’s financial performance is mostly dependent on the price of metals, which directly affects the Company’s profitability, Margins, and cash flows. The prices are subject to volatility. The Company may be affected by various other factors, such as foreign exchange, Interest rates, Inflation rates, demand and supply, all of which are beyond the Company’s control. 

Valuation Methodology (Illustrative): Price to Cash Flow

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

Stock recommendation

The company witnessed robust numbers on the back of high realization prices of metals. In Q2 2021, the company was able to sell approximately 1.7 million ounces of silver, 2200 ounces of gold, 18.6 million pounds of lead, and 7.4 million pounds of zinc, an increase of 100% and 11% in gold and zinc sold, and a decrease of 8% and 3% in silver and lead sold, compared to Q2 2020. We believe higher silver prices are expected to fuel growth for the company in coming quarters. Therefore, based on the above rationale and valuation, we have given a ‘Hold’ rating at the closing price of CAD 10.05 as on 9 Nov 2020. We have considered Maverix Metals Inc, First Majestic Silver Corp etc. as the peer group for the comparison.

SVM daily technical chart. Source: Refinitiv (Thomson Reuters)

GFL Environmental Inc

GFL Environmental Inc (TSX: GFL) is a diversified environmental services company in North America, offering non-hazardous solid waste management, infrastructure & soil remediation, and liquid waste management services throughout Canada and in 27 states in the United States.

Key highlights

• Focus on Inorganic Growth: On October 1, 2020, the company acquired WCA Waste Corporation and its subsidiaries for aggregate consideration of CAD 1,616.7 million. The purchase price for the acquisition was partially funded with the net proceeds of the 3.750% 2025 Secured Notes and the private placement of USD 600.0 million of perpetual convertible preferred shares. On October 30, 2020, GFL acquired the divestiture assets resulting from the transaction between Waste Management, Inc. and Advanced Disposal Services, Inc. The assets were acquired for a purchase price of CAD 1,150.0 million (US$863.5 million).
• Healthy Cash flow: Cash flow from operating activities saw an increment of 214.2% to CAD 256.7 million in Q3 2020 compared to CAD 81.7 million in Q3 2019. This increase was predominantly attributable to improved working capital, an increase in Adjusted EBITDA and reduced interest expense during the period.
• Ample Liquidity:The company is having a cash balance of more than CAD 1.8 million as on September 30, 2020. The group also reduced its long-term debts to CAD 6 billion as on September 30, 2020, compared to CAD 7.5 billion as on December 31, 2019. The company has a revolving credit facility of totalling CAD 628.0 million and USD 40.0 million of which USD 20.0 million was drawn as on September 30, 2020. The current liquidity level seems sufficient to meet the near term requirement.

Financial overview of Q3 2020 (Fig. In million except per share data)

Source: Company

• In Q3 2020, the company’s revenue increased by CAD 138.0 million to CAD 1,036.0 million compared to CAD 898 million in Q3 2019. The increase was primarily attributable to the revenues cornered from the acquisitions.
• Cost of sales posted by the company in Q3 2020 stood at CAD 909.5 million, up from CAD 807.8 million in the same period a year ago. However, the cost of sales as a % to revenues in Q3 2020 came down to 88% as compared to 90% in Q2 2020.
• On the back of higher other expenses in Q3 2020, the company posted a loss before income tax of CAD 159.6 million compared to a loss of CAD 143.2 million in the previous corresponding period.
• The company posted an Adjusted EBITDA of CAD 281.2 million, an increase of 24.6%, primarily attributable to strong revenue growth in the quarter.

Risk associated with investment

The group is exposed to various risks which include, further breakout of the coronavirus, increases in labour, disposal, and related transportation costs, fuel supply and fuel price fluctuations, etc.

Valuation Methodology (Illustrative): EV to Sales

All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

During Q3 2020, the company continued to see sequential improvements in commercial activity and volumes in its solid waste line of business. The company, however, experienced lower sales volume in its liquid waste business resulting from the temporary suspension of specific customers' operations and deferral of capital expenditures to mitigate the impact of COVID-19. The improving macro conditions would be favourable for the company as the industries have started working on a regular course taking health precautions. The recent acquisitions have already giving healthy signals in terms of revenues. Also, the company got opportunities to enhance its geographical reach via these acquisitions. With a strong balance sheet, available liquidity, the group is well-positioned to continue to pursue strategic and accretive opportunities. Therefore, based on the rationales discussed above and valuation, we have given a 'Hold' rating at the closing price of CAD 28.20 on November 9, 2020. We have considered Clean Harbors Inc, Republic Services Inc, Waste Connections Inc, Casella Waste Systems Inc, etc. as the peer group for the comparison.

GFL daily technical chart. Source: Refinitiv (Thomson Reuters)

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