Teranga Gold Corp

Teranga Gold Corp (TSX: TGZ) is a Canada-based gold mining company, which is in the business of exploring, producing, and selling of gold. The company carry its exploration activities in West Africa. 

Key highlights

• Robust production guidance: The company has one of the lowest cost profiles in the industry and the way it is pumping the output to the next levels, portraits that the group would be making healthy operating margins in upcoming quarters. The company shared guidance on 533,000 (oz Au) consolidated production per year from FY21 at the AISC of USD785/oz.

Source: company 

• Decreasing consolidated per ounce costs:The management took some prudent steps to control the cost per ounce. With more Massawa ore going through the plant in the fourth quarter, the company expects to decrease costs per ounce materially, which would be a key positive for the company as it would help in generating healthy margins.

Source: Company 

Financial overview of Q3 2020 (in U.S. dollars)

Source: Company

• In Q3 2020, the company reported revenue of USD 192.6 million, increased by 169%, compared to USD 71.4 million in the previous corresponding period due to a 105% increase in ounces sold and 33% increase in average realized prices of gold.

• The company posted a gross profit of USD 77.0 million, increased by 348%, compared to USD 17.2 million in Q3 2019, mainly due to USD 34.8 million contribution from Wahgnion and initial mining processing of high-grade Massawa material. 

• In Q3 2020, the group reported complete turnaround as its consolidated net profit attributable to shareholders was USD 9.2 million (USD 0.05 earnings per share), compared to a net loss of USD 9.7 million (USD 0.09 loss per share) in Q3 2019.

Risks associated with investment

The company’s financial performance is mostly dependent on the price of gold, which directly affects its profitability and cash flow. The price of gold is subject to volatile price movements. It is affected by numerous factors, such as the strength of the US dollar, supply and demand, interest rates, and inflation rates, all of which are beyond the company’s control.

Valuation

Source: Refinitiv (Thomson Reuters) 

Stock recommendation

Recently, the company acknowledges that it is in discussions with Endeavour Mining Corporation regarding a potential merger of equals structured transaction. The group remained focused on the development of its strong growth pipeline of assets, as it strengthens its position as a low-cost, mid-tier gold producer in West Africa. Teranga’s strategy is to maximize shareholder value by increasing sustainable long-term free cash flow through diversification and growth while remaining fiscally conservative. Therefore, based on the above rationale and valuation, we have given a “Hold” rating at the closing price of CAD 14.14 as on December 24, 2020. We have considered Roxgold Inc, New Gold Inc, etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

GDI Integrated Facility Services Inc

GDI Integrated Facility Services Inc (TSX: GDI) is engaged in providing commercial facility services. The Company's operating segments include janitorial services, technical services, and complimentary services. The janitorial services segment provides a range of commercial cleaning services that include cleaning and dusting desks and tables, vacuuming carpets, cleaning floors, sanitizing kitchens and washrooms etc. Technical services segment provides building system controls, repairs and services across Canada and the United States.

Key highlights

• Building partnership to stop the spread of COVID-19: Recently, the company announced that Ainsworth Inc., a wholly-owned subsidiary of the group teamed up with Sanuvox Technologies Inc., a Quebec based company specializing in the design and manufacture of Ultraviolet Germicidal Irradiation (UVGI) air and surface disinfection units, to stop the spread of covid-19 by sanitizing the air.

• Increase in Net cash flows: The company reflected robust operations in this pandemic situation as the demand was higher for its services. The company generated CAD 30.6 million of net cash flows by operating activities, up by CAD 28.3 million in Q3 2020, compared to CAD 2.3 million in Q3 2019.

• Reduced Long term debt: The company managed to bring down its long‐term debt by CAD 52.1 million from CAD 241.2 million on June 30, 2020, to CAD 189.1 million on September 30, 2020. 

Financial overview of Q3 2020 (In thousands of Canadian dollars)

Source: Company

• In Q3 2020, the company reported revenue of CAD 365.4 million, an increase of CAD 42.5 million, or 13.1%, over CAD 322.8 million in the previous corresponding period. Organic revenue declined by only 1.1%, offset by revenue growth coming primarily from the acquisitions. COVID‐19 pandemic related impacts drove the organic decline.
• The company reported Adjusted EBITDA of CAD 30.2 million, an increase of CAD 10.0 million, or 49.3%, over CAD 20.2 million in Q3 2019, due to additional incremental services performed at a higher margin rate than recurring janitorial services.
• In the reported quarter, Net income stood at CAD 13.2 million, compared to net income of CAD 4.1 million in Q3 2019

Risk associated with investments

Due to the COVID‐19 pandemic, the second quarter of 2020 was extremely challenging for commercial real estate. The company’s business segments were affected differently based on both region and market sector. The risk persists as there can be a shortage of workforce performing these services. Other risks involved include the decline in commercial real estate occupancy levels, deterioration in general economic conditions, increase in competition, increase in costs which cannot be passed to customers etc.

Valuation Methodology (Illustrative): Price to Earnings

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

Stock recommendation

We expect that disinfection and cleaning service will not be limited until this COVID-19 pandemic spread. The clients are likely to start taking these services regularly. This would boost the company's business as it is the most prominent player having all the technical know-how and expertise of this segment. At present, the company's financial strength is strong due to the exceptional performance, and the leverage ratios are at multi‐year lows. Therefore, based on the above rationale and valuation, we have given a "Hold" rating at the closing price of CAD 42.45 on December 23, 2020. We have considered Park Lawn Corp, Winpak Ltd, Boyd Group Services Inc, etc. as the comparison's peer group.

Source: Refinitiv (Thomson Reuters)

Disclaimer

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