Great Canadian Gaming Corporation

Great Canadian Gaming Corporation (TSX: GC) is a gaming, entertainment, and hospitality company that operates across Canada and the United States. The group operates through 16,000 slot machines, 575 table games, 71 dining amenities across more than 500 hotels. The group has more than 25 gaming, entertainment and hospitality facilities in Ontario, British Columbia, New Brunswick, and Nova Scotia. The firm's sources of revenue include casinos, horse racing tracks, and various hospitality and community gambling-related facilities. The company also operates hotels, theatres, conference facilities, and dining venues.

Key Highlights:

• With a recent update, the Company informed that TSX has accepted the company’s notice of intention to repurchase 10% of its shares, representing 3,674,077 units through open market operations.
• On a recent update, the Company informed that the Company’s casinos have re-opened from June 26, FY20 with appropriate distancing, sanitizing and operational plans that respect Public Health Guidelines.

Q1FY20 Financial Highlights:  GC announced its quarterly results, wherein the Company posted lower revenues of CAD 273.9 million, down 10% on y-o-y basis. The decline was primarily attributed to the closure of all gaming facilities from mid of March 2020 due to COVID 19 pandemic. Adjusted EBITDA stood at CAD 103 million, down 6% on y-o-y basis, primarily attributable to lower revenue, partially supported by lower human resource and property, marketing and administration expenses. Despite lower EBITDA, EBITDA margins improved to 37.6% as compared to 36.1% on account, aided by lower input costs. Net earnings from the continuing operations plunged 29% from Q1FY20 at CAD 28.5 million. The decline was due to a higher business acquisition, restructuring and other expense along with higher amortization costs and higher interest and financing costs.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: Due to prolonged shut-down of gaming centers, the performance of the business remained below expectation. Furthermore, changing consumer spending behavior would dent the group’s business prospect.

Valuation Methodology: EV to Sales Relative Valuation (illustrative)

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

Stock Recommendations: The stock of GC corrected ~36% so far this year, due to the extended closure of gaming centers in the recent past on account of COVID 19 pandemic. The Company reported gradual re-opening of gaming centers, which augurs well for business prospects. The Business does not fall under the ‘essential’ and might witness lower traffic on account of decreasing consumer spending and lower income, due to the challenging environment. Further, traffic might be on the lower side as people are likely to follow social distancing measures and may avoid public places. We have valued the stock using the EV to Sales based relative valuation approach and arrived at a target price offering lower double-digit downside. For the said purpose, we have considered the industry median (Hotels & Entertainment Services). Hence, we recommend a 'Watch' rating on the stock at the closing market price of CAD 26.77 on July 20, 2020.

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

Ballard Power Systems Inc

Ballard Power Systems Inc (TSX: BLDP) is an alternative energy company based out of Canada. It is engaged in the business of designing, developing, manufacturing, selling, and servicing of PEM (Proton Exchange Membrane) fuel cell for multiple uses including Technology Solutions, Portable Power, Backup Power, Material Handling and Heavy-Duty Motive.

The Company will announce Q2 results on 6^th August 2020.

Financial Highlights for the period Q1 FY2020 (31^st March 2020)

(Source: Quarterly Report, Company Website)

In the first quarter of the financial year 2020, driven by higher revenue from Technology Solutions and increased shipments of Heavy Duty Motive products, the revenue increased to $24,026 thousand (Q1 FY2019: $16,008 thousand). Reflecting the higher revenue mix for the period, the gross profit stood at $5,170 thousand (Q1 FY2019: $2,203 thousand). Due to an increase in the operating expenses, the Company reported an operating loss of $10,516 thousand in Q1 FY2020 (Q1 FY2019: operating loss of $8,524 thousand). The net loss for the period stood at $13,503 thousand in Q1 FY2020 (Q1 FY2019: net loss of $12,024 thousand). The cash reserves as at 31^st March 2020 stood at $181,620 thousand (31^st December 2019: $147,792 thousand).

Share Price Performance

Daily Chart as of 20 July 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Ballard Power Systems Inc shares closed at CAD 25.71 at the time of writing after the market close on 20 July 2020. Stock's 52 weeks High is CAD 29.20 and Low is CAD 5.27.

Key Risks

The market conditions in which the Company operates is full of challenges and might impact the operational performance and reduce financial performance as well. Any change in regulations and government policies could affect the overall business of the Company. Risks related to environment and climate change could hamper the operations of the Group. Liquidity and interest rate risks could affect the operations of the Company.

Conclusion

The Company has shown a decline in financial performance in the first quarter of the financial year 2020. Despite an increase in the revenue, the bottom-line performance has declined, and profitability remained in the negative zone for the period. The Group needs to manage its operating expenses unless it results in further deterioration in financial performance in the coming years. The Company has signed an agreement with SFC Energy AG and adKor GmbH for 500 FCgen®-1020ACS fuel cell and will be integrated to backup power systems of Jupiter for deployment in Germany based radio tower sites in end of 2021. The Company has received new orders which will increase the revenue further and improve its profitability in the later period. Presently, the company is trading near its 52-week high, raising doubts at the upside potential at current prices.

Based on the factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of CAD 25.71 (as on 20 July 2020), with support from few catalysts needs to be evaluated at a later stage.

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.