Timbercreek Financial Corp.

Timbercreek Financial Corp. (TSX: TF) is a Canada-based non-banking commercial real estate lender. The company provides shorter-duration, customized financing solutions to professional real estate investors.

Key Updates:

• An Income Play: The group has a solid history of consistent dividend payment, backed by stable cash flows. During 9MFY20, the group paid a total dividend of CAD 39.124 million, close to CAD 39.228 million, a year ago despite decline in cash from operations (CAD 60.069 million in 9MFY20 versus CAD 71.302 million in 9MFY19). Moreover, at the last closing price, the stock was offering a dividend yield of ~7.9%, which is lucrative, considering the current interest rate environment.

Dividend History (Source: Company Reports)

• Improved performance from the previous quarter: During Q3FY20, the group reported higher net investment income, income from operations, and net income of CAD 24.064 million, CAD 20.227 million and CAD 14.447 million, respectively, as compared to CAD 21.970 million, CAD 18.227 million and CAD 11.743 million, respectively in Q2FY20. The improvement was supported by the improved income from gross interest and other income, including mortgage syndications.

• Dividend Update: The company declared a monthly cash dividend of CAD 0.0575 per common share, payable on March 15, 2021.

Q3FY20 Financial Highlights:

• TF announced its quarterly results, wherein the group posted net investment income of CAD 24.064 million, as compared to CAD 24.742 million in the previous corresponding period (pcp).
• Total expenses stood higher at CAD 4.181 million compared to CAD 3.768 million in pcp, primarily attributable to increase in management fees (CAD 3.116 million versus CAD 3.037 million in pcp) and a higher general and administrative costs (CAD 0.520 million versus CAD 0.367 million in pcp).
• The group reported income from operations at CAD 20.227 million versus CAD 21.333 million in pcp.
• The company reported net income of CAD 14.447 million, as compared to CAD 13.914 million in pcp.
• The group reported cash and cash equivalents stood at CAD 69.529 million, while total assets were recorded at CAD 1,823.017 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company’s growth might be hindered due to the volatility in the occupancy levels, currency fluctuations and change in consumer preferences.

Valuation Methodology (Illustrative): Price to Book based valuation

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

Stock Recommendation:

As on Q3FY20, the company has a credit facility of CAD 535 million, which seems sufficient to withstand the current downturn. Moreover, due to the persisting low-interest rate scenario, the company’s operations would be benefitted from lower interest rates on credit facilities, which is a key positive and would support the company’s bottom-line.  The corporation took several cost management initiatives, which would further support the company’s net income. During Q3FY20, the company funded ten new net mortgage investments amounting to CAD 69.4 million and made additional advances of CAD 20.0 million. Portfolio turnover increased to 12.3% in Q3FY20, as compared to 6.4% in Q2FY20, which is encouraging.  Further, the stock is offering a lucrative dividend amid low interest rate environment, which encouraging from income seeking investors. We have valued the stock using the Price to Book value based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers Equitable Group Inc, Home Capital Group Inc and TMX Group Ltd. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 8.73 on February 18, 2021.

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

HLS Therapeutics Inc.

HLS Therapeutics Inc. (TSX: HLS) is a specialty pharmaceutical company which is focused on the acquisition and commercialization of branded pharmaceutical products within the North American markets. The company is focused on several treatment products used for the central nervous system (CNS), and cardiovascular specialties.

Key Highlights:

• Private payer coverage includes Vascepa: The company reported that its product Vascepa, a health-care product used to reduce the risk of cardiovascular, would get reimbursement from private payer, starting from the end of February 2021. The medicine has a market share of more than ~80% across Canada. Notably, Vascepa received approval from Health Canada in 2020, and received tremendous response from cardiovascular patients. Moreover, the group reported ongoing negotiations with the pan-Canadian Pharmaceutical Alliance (pCPA) for reimbursement of Vascepa by publicly funded health plans.

• Stock Hovering above long-term support levels: The stock of HLS is closed above the long-term support levels of 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish price trend. Moreover, in the recent past, the stock appreciated ~8% and ~13%, respectively in the last three months and six months, respectively.

(Source: Refinitiv, Thomson Reuters)

• Improved Sequential Performance: The company reported improved performance on a quarter-on-quarter basis and posted total revenue and gross profit of USD 13.13 million and USD 12.31 million, respectively, higher than USD 12.61 million and USD 11.93 million, respectively, in Q2FY20. Operating loss and net loss stood significantly lower at USD 1.48 million and USD 1.73 million, respectively, as compared to USD 7.17 million and USD 6.47 million in Q2FY20. Moreover, total operating expenses reduced to USD 14.61 million, lower than USD 19.78 million in Q2FY20, which indicates operational efficiency.

Q3FY20 Income Statement Highlights:

• HLS announced its quarterly results, wherein the group posted revenue of USD 13.129 million, as compared to USD 13.426 million in the previous corresponding period (pcp). The marginal decline was due to lower revenue from the United States, partially offset by improved performance from Canada.
• The quarter was marked by higher selling and marketing costs (USD 2.847 million versus USD 1.6 million in pcp), increase in general and administrative costs (USD 3.700 million versus USD 2.087 million in pcp) and a higher medical, regulatory and patient support expenses (USD 1.238 million versus USD 1.156 million in pcp), partially offset by a decline in amortization and depreciation expenses (USD 6.916 million versus USD 8.135 million in pcp).
• Net loss for the period was lower at USD 1.733 million versus USD 1.998 million pcp.
• The group reported cash and cash equivalents of USD 20.890 million, while total assets were recorded at USD 305.992 million.

           Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: Cash from operations stood significantly lower at USD 3.498 million in 9MFY20, as compared to USD 24.063 million a year ago. Continuation of the above trend would likely to dampen the overall operating performance of the group.

Valuation Methodology (Illustrative): EV to EBITDA

*Note: All forecasted figures have been taken from Refinitiv (Thomson Reuters)

Stock Recommendation:

The company’s product Clozaril received tremendous response from the patients suffering from schizophrenia, and recently, the product became market-leader within the segment, which is a key positive. Moreover, the company operates through its franchisee CSAN, a dedicated resource network of Clozaril and conducts ~2,00,000 blood tests per year and has a leading market share of ~55% and is expected to grow within the genericized Canadian market. The company has ample liquidity of cash and cash equivalent of USD 20.9 million and a senior secured term loan amounting to USD 109.9 million, which seems sufficient to meet its working capital requirements. We have valued the stock using EV to EBITDA based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered industry (Food & Drug Retailing) NTM mean multiple. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 18.30 on February 18^th, 2021.

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

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