Gamehost Inc

Gamehost Inc (TSX: GH) is a Canada based company, which operates hospitality and gaming properties in Alberta. The group operates its business in three segments viz. gaming, hotel and food & beverages. Gaming segment includes casinos offering slot, VLT, lottery and table games, while hotel segment includes hotels catering to clients. Food and Beverage segment operates within the casinos and hotels as a complement to other offerings. The Company generates the majority of its revenue from the Gaming Segment.

Key Highlights:

• The company recently informed that it had reopened its Boomtown Casino, Great Northern Casino and Deerfoot Casino. The company would operate with a small reduction in slot machines and no table games, as per the guidelines issued by the Government of Alberta. The company also mentioned that the food and beverage services along with other amenities, would also resume with the casino operations.
• The Company informed that the Toronto Stock Exchange had approved its Notice of Intention to Make a Normal Course Issuer Bid to purchase shares for cancellation.

Q1FY20 Financial Highlights: GH announced its quarterly results, wherein the Company reported operating revenue of CAD 13.9 million, reflecting a decline of 18.2% on y-o-y basis. Gross profit plunged to CAD 5 million,  depicting a decline of 23.1% over Q1FY19. Profit from operating activities stood at CAD 4 million as compared to CAD 5.4 million, due to lower gross profit partially offset by slightly lower administrative expense. Net profit of GH tanked to CAD 2.3 million from CAD 3.6 million in the previous corresponding period, primarily attributable to lower operating profit and loss from fair value adjustments. The Company reported cash and cash equivalent of CAD 8.7 million at the end of Q1FY20.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: The business might witness lower traffic as people are likely to follow social distancing measures, which might cause a slide in the income and the cash flows of the Company. Further, a change in the consumer spending pattern might affect the group's performance.

Stock Recommendation: The stock of GH corrected ~33% so far this year, underperforming the index by ~29%. The decline was primarily attributable to closures of hotel and game segment in the recent past due to the COVID 19 pandemic. The Management highlighted gradual reopening of stores in the coming days, depending on the current scenario. However, we believe the reopening of selective stores would not be sufficient to retain its top-line and cash flow. We expect the group's outlook to remain bleak as there is an expectation of a rise in unemployment and a change in consumers spending behavior. On the valuation front, the stock is trading at a forward EV/Sales multiple of 3.1x, which is higher than the industry (hotel and entertainment services) median of 2.2x. Hence, considering the aforesaid facts, we prefer to remain on the sideline and recommend a 'Watch' stance on the stock at the closing market price of CAD 5.70 on July 21, 2020.

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

West Fraser Timber Co Ltd

West Fraser Timber Co Ltd (TSX: WFT) is a Forestry & Paper company, offering diversified wood products and produces wood chips, newsprint, lumber SPF (spruce-pine-fir) & SYP (southern yellow pine), panels and pulp. The Company has divided its operations into 4 reportable segments being Pulp & Paper, Panels, Lumber and Corporate and other. WFT carries its operations through joint operations and subsidiaries in Alberta, British Columbia and southern part of US.

Financial Highlights – Q1 Financial Year 2020 (31^st March 2020, CAD, million)

(Source: Quarterly Report Company Website) 

In the first quarter of the financial year 2020, total sales were at CAD 1,195 million (Q1 FY2019: CAD 1,241 million). The sales surged by 6% versus Q4 FY2019 data. The adjusted EBITDA stood at CAD 127 million in Q1 FY2020 (Q1 FY2019: CAD 110 million), reflecting improved prices, lower fibre costs and favourable foreign exchange movements. The operating earnings in Q1 FY2020 stood at CAD 13 million (Q1 FY2019: CAD 10 million), reflecting improved adjusted EBITDA. The Group pre-tax earnings stood at CAD 9 million in the first quarter of the financial year 2020 (Q1 FY2019: pre-tax loss of CAD 6 million). The earnings stood at CAD 12 million in Q1 FY2020 (Q1 FY2019: loss of CAD 5 million), the adjusted earnings stood at CAD 28 million in Q1 FY2020 (Q1 FY2019: CAD 22 million). The basic earnings per share stood at $0.18 in Q1 FY2020 (Q1 FY2019: basic loss per share of $0.07) and adjusted basic earnings per share of $0.42 in Q1 FY2020 (Q1 FY2019: $0.32).

Share Price Performance

Daily Chart as of 21 July 2020, after the market close (Source: Refinitiv, Thomson Reuters)

West Fraser Timber Co Ltd shares closed at CAD 58.69 at the time of writing after the market close on 21 July 2020. Stock's 52 weeks High is CAD 65.11 and Low is CAD 21.60.

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. The Company’s overall business could be impacted due to changes in the government policies  and regulations.

Conclusion

In the first quarter of the financial year 2020, the Company has shown an increase in financial performance against last year same period comparatives. The top-line performance has declined, while the bottom-line performance has improved for the period. The Group’s revenue from Panels division and Pulp & Paper division has declined for the period. WFT is expecting disruptions in supply chain and a decline in market demand due to the outbreak of the covid-19 pandemic. The Group is operating at a lower capacity and expects its production to be variable depending upon the foreseeable future. The Group has withdrawn its production guidance for the financial year 2020 and will take actions to reduce the costs and preserve cash. Presently, the company is trading near its 52-week high, raising doubts at its 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 58.69 (as on 21 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.