KeyStone’s Stock Talk Show, Episode 228.

We have a great show for you this week. In our YSOT segment, Aaron answers a listener question on Pet Valu Holdings Ltd. (PET:TSX), Canada’s leading retailer of pet food and pet-related supplies with over 750 corporate-owned or franchised locations across the country. A pandemic star with the boom in pet ownership driving optimism, Pet Valu has dropped 37% in 2023, Aaron let’s you know if it is an opportunity long-term or a falling knife near-term. I will answer a listener question on ATS Corporation (ATS:TSX), an industry-leading automation solutions provider servicing the life sciences, chemicals, consumer products, electronics, food, beverages, transportation, energy industries. The company has a solid track record of long-term growth, in an exciting segment and just completed an acquisition last week. I will let you know its current and forward valuations and whether or not it meets our criteria for investment. Brett takes a look Equinox Gold Corp (EQX:TSX), a growth-focused gold producer with seven operating mines and a clear plan to increase production by advancing a pipeline of growth projects. The stock is up 21.15% year to date But is down roughly 65% since its 2020 high of just under $17 – Brett let’s you know if it is an opportunity or one to avoid. Last but not least, Brennan delves into Verde AgriTech Ltd. (NPK:TSX), which produces and sells fertilizers in Brazil and internationally. We covered Verde Agritech on the podcast as a dog back in April 2023 following a decline of over 50% in three trading days, and this week we got a question from Rob via email on whether we believe the stock offers value at its current price.

Let’s get to the show – we welcome my cohost, Mr. Aaron Dunn and the killer B’s, Brett, with Brennan.

ATS Corporation (ATS:TSX)

Price: $44.33

Market Cap: $4.38 Billion

Company Description: ATS is an industry-leading automation solutions provider with global capabilities in custom automation, repeat automation, automation products and value-added services, including pre-automation and after-sales services. ATS services multinational customers in markets such as life sciences, chemicals, consumer products, electronics, food, beverages, transportation, energy and oil and gas.


On Friday morning, ATS announced it had entered into a definitive agreement to acquire

Avidity Science LLC for US$195 MM (~C$265 MM).



Avidity Science is a growing designer and manufacturer of automated critical water purification systems, components and consumables used in biomedical and life sciences applications.

In fiscal 2022, Avidity generated revenues of US$81.9 MM (CY20 – CY22 CAGR of 10.4%)

and posted a 20.4% adj. EBITDA margin (vs. ATS’ adj. margin profile in the mid-teens) – so it should help margins. Price tag: price of US$195 MM represents 11.2x Avidity’s projected calendar 2023 adjusted EBITDA of US$17.4 million.

Let’s look at the business.

Q1 FY 2024 highlights:

  • Revenues increased 23.4% year over year to $753.6 million.
  • Net Income was $47.7 million compared to $39.4 million a year ago.
  • Basic earnings per share were 50 cents, compared to 43 cents a year ago.
  • Adjusted basic earnings per share1 were 69 cents compared to 57 cents a year ago.

At July 2, 2023, Order Backlog was $2,023 million, 30.1% higher than at July 3, 2022. Order Backlog growth was primarily driven by higher Order Bookings in fiscal 2023 within the transportation market, primarily from EV projects.

Order Bookings were $690 million, 6.3% lower compared to $736 million a year ago.

Valuations – trailing valuations:

P/E 41.92

Forward P/E 21.39

Our Take:

ATS is a good business with a strong longer-term growth profile:

Revenues have grown from 683.4 million in 2014 to $2.7 billion over the past 12-months. Gross profit has also increased smartly over that period.

Given this growth, the company deserves a premium multiple. It trailing PE is in the range of 40 which is high, but forward looking it is closer to 22, which is better given the growth. There is the threat that growth slows significantly organically in a recession or downturn, and we do not that while the backlog was up 30% year over year, bookings were down 6% which may be indicative of a slowdown.

Following the acquisition, pro forma leverage is approx. 2.5x expected adjusted EBITDA (up from 2.0x in Q1/F24). Management targets leverage of 2.0-3.0x (with flexibility to take leverage up to 3.5x) – we do think that the company is starting to push closer to its upper limit, and while the acquisition environment may become more attractive, there is less flexibility without an equity raise near-term to add growth. Good long-term business and we may look even closer at it on pullbacks.

We covered Verde Agritech on the podcast as a dog back in April 2023 following a decline of over 50% in three trading days after management cut guidance, and we got a question from Rob via email on whether we believe the stock offers value at its current price.



Verde AgriTech Ltd. (NPK:TSX) 

Price: $2.39

Market Cap: $126 million


Verde AgriTech is an agricultural company which produces and sells fertilizers in Brazil and internationally. The company offers multi-nutrient potassium fertilizer under the K Forte, BAKS, and Super Greensand brand names. It holds a 100% interest in the Cerrado Verde project, which is the source of potassium silicate rock.

Slide 2

The company is currently permitted to mine 2.8M tonnes per year and has manufacturing capacity  through its plant 1 & plant 2 for a combined 3M tonnes per year. And they are looking to expand this further with new mine pitts (pending permit approval) as well as an additional Plant #3 which could provide production capacity of up to 10M tonnes per year.

Slide 3

As I said before, on March 30th, 2023, Verde lowered its fiscal 2023 guidance from 2M tonnes of fertilizer sold, to a range of 800k-1.2M 🡪 stating “Potash trends did not meet the market’s expectations after the Ukraine war. The price of potash has been on a downward trend since late 2022, with a 67% decrease over the past year and a sharp 22% decline in the first 3 months of 2023, leading farmers to holdback potash purchases with expectations of even lower prices in the future…

** They are using an average KCI CFR Price of US$405.

Slide 4

Looking at their Q2 2023 results, the company’s tonnes sold were down to 107K, with total revenue of $10.3M which was down -59%, EBITDA was down -80% to $2.1M, and Net profit was also down substantially to $241K.

And of course, the primary reason for the decline in sales was both the decline in tonnes sold & price of Potassium Chloride, as well as the decline in USD which depreciated by 10% against the Brazilian Real.

Slide 5

And just quickly comparing the YTD 2023 results in comparison with the 2023 guidance:

  • Verde has sold 215M tonnes so far, meaning  they will need to sell over 585M tonnes in the second half of the year to meet the bottom range of their targeted 800M tonne guidance.
  • They generated $21.4M in revenue YTD meaning they will need to double this to $56M in over the second half to meet their target.
  • They are about half way there to meet their EBITDA target, but their EPS is lagging at just $0.0025 (1/4 of a penny in the first half of the year)… still a ways off the bottom end of $0.04 per share they are guiding toward.

(JUST A NOTE – THE additional after 2023 include the Pre-Feasability Study Plant 3 Scenarios of 10MTPY, 23 MTPY or 50 MTPY).

Slide 6

Here is a quick image from the companies MD&A of the average Potassium Chloride spot price in USD. So again we can see why the company’s results have been under pressure.

Slide 7

Lastly, just on the balance sheet, the company has $6.2M in cash & equivalents, with debt of $38.4M (bearing interest at 16.4% per annum), which is quite high. If we include leases, the company has a Q2 2023 annualized net debt to EBITDA multiple of 4x which is also quite elevated.

However, the business has noted in their investor presentation that they would like to aggressively pay this down. Ending the 2023 year with debt of $29M rather than $38M.

Slide 8

My take away here is pretty simple… Verde is an interesting business with a path of growth ahead of it. It trades at 4.6 times the midpoint of its Forward EBITDA guidance and at just 14.5 times the midpoint of its EPS guidance… However, so far in 2023 it appears the business may struggle to even achieve the bottom end of its guidance….

Now I cannot blame management as it is extremely difficult to gauge the forward financials of a business when its operations are extremely reliant on a volatile commodity – which happens to have collapsed from its highs just after the outbreak of the Ukraine war…. and reduced farmer demand as they anticipate paying lower prices in the future.

The good thing is the company has shown that they can produce profits even in a bad market… but given their elevated debt levels and high interest rate, along with the anticipation to further expand capacity with the Plant 3 production scenario which will cost initial CAPEX of US$53M – at this time, it is tough to fathom how they will fund such a venture without going to the market to raise equity and dilute current shareholders.

In August management indicated that the agricultural market is showing early signs of recovery.

But with tough comparables due to a tumble in the price of potash, reduced demand from farmers, all while having a levered balance sheet and appearing to be behind on all fronts of achieving the low-end of their guidance – it is not a stock we would recommend at this time and continue to monitor.

YSOT Equinox Gold Corp


Formed in 2017, Equinox Gold Corp. symbol  EQX on the TSX and the NYSE is a growth-focused gold producer with seven operating mines and a clear plan to increase production by advancing a pipeline of growth projects. The company has operating and development projects in the US, Mexico and Brazil, with a development project in Canada, and is expected to produce 590,000 ounces of gold in 2023.

The stock is up 21.15% year to date trading at $5.93 a share with a market cap of $1.86 billion Canadian. But is down roughly 65% since its 2020 high of just under $17.


For the last quarter Q2 2023, Equinox produced, 138 thousand ounces of gold sold at $1,962 per ounce compared to 121 thousand ounces and $1,856 in Q2 2022. Resulting in Revenue of $271.6 million compared to $224.6 million last year. Adjusted EBITDA increased to $70.9 million, from $24 million. Adjusted net loss per share was $0.02 compared to a loss of $0.16 last year with the core adjustments being related to hedging derivatives.


Looking at the balance sheet, Equinox holds cash of $174 million with loans and borrowings of $835 million, resulting in a net debt position of $661 million at the end of the quarter. The resulting leverage is a net debt to adjusted EBITDA ratio of 2.9 times which is high leverage for a gold miner. As well after the quarter ended, the company issued $172.5 million of convertible debt to switch its floating rate credit line into longer-term debt at a lower interest rate for the time being as well as prepare the company for its maturing April 2024 notes. Of course, being convertible debt it could potentially dilute the stock if the stock trades above the conversion price of US$6.30.


The 2023 guidance expects production from its seven mines of 555 thousand to 625 thousand ounces of gold, at cash costs of $1355- 1460 per ounce and all-in-sustaining costs or AISC of $1575 to 1695. For the first half of the year Equinox was on the low end for both the cash costs and sustaining costs, but compared to other producers Equinox’s gold production costs are high. Meaning in the case of gold pulling back materially for a sustained period Equinox would be one of the first producers needing to cut production. The company has some protection as it has hedged approximately ~25% of its production with downside protection at 1912 per ounce which is roughly where gold is trading at currently.


The company does have a notable growth project,  Equinox’s Greenstone mine which is on schedule and is expected to finish construction in early 2024. The mine is expected to produce 400 thousand ounces of gold a year of which 60% or 240 thousand ounces is attributable to Equinox.  The mine is estimated to have an AISC of $850 per ounce over the life of the mine which is significantly lower than its other operations. Equinox did have a remaining spend of approximately $170 million remaining at the end of the quarter.


Our Take,

Debt is an obvious concern. When you couple the volatility of commodity pricing with leverage a lower commodity price can obliterate a company and any production growth becomes meaningless fast as share dilution is normally the step taken. Also, the mines with higher production costs at some of its mines like Castle Mountain have the risk of production cuts which compounds the difficulty of paying interest in a reduced gold price environment. Investors need to remember gold miners are already operationally leveraged and then adding significant financial leverage compounds risk.

Yes, the growth from GreenStone with lower costs is good but benefits from the mine won’t be realized until later in 2024 if not 2025 as production needs to ramp. As well, GreenStone will lower average costs may be lower but the higher-cost mines will remain high. The post-Greenstone AISC is still in the range of $1400 per ounce, still not on the cheap end.

Overall, the risk outweighs the reward, if in 2025 GreenStone is fully operational producing cash flow and actively lowering leverage it may be worth another look but for now it just is not appealing.


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