KeyStone’s Stock Talk Show Episode 265.
Great to chat with you again – you will be happy to hear that Mr. Aaron Dunn is back in action this week. I will kick off the festivities with a look at when Canadian and U.S. public companies or stocks are required to file their annual and quarterly financial statements. In our YSOT segment, Aaron will lead off with a look at Boardwalk REIT (BEI.UN:TSX) which currently owns and operates more than 200 multi-family residential properties located in Alberta (primarily), Quebec, Saskatchewan, and Ontario. The REIT has more than doubled since our original 2021 recommendation and Aaron let’s you know what is powering the strong move in a tough REIT environment. Brett answers a viewer question on little known Canadian financial services company Olympia Financial Group (OLY:TSX) – the viewer points out that it is totally unfollowed, profitable with a high dividend, well covered by income, but terrible liquidity – can you give me your take. Finally, Brennan answers a viewer question on Trigon Metals (TM:TSX-V), which the investors suggests could be a 30 bagger. Brennan reviews Trigon, a copper miner which holds
an 80% interest in its flagship project, the Kombat Mine Property, which consists of five mining licenses and two prospecting licenses located in Northern Namibia. He will let you know if the stock meets our criteria as a potential 10x stock.
Let’s get to the show – my cohost, Mr. Aaron Dunn is on assignment –the killer B’s, Brett, and Brennan will help rescue the show.
We are launching new Webinars upcoming – How to Find the next 10x stock – stay tuned for details on that this week.
I enjoyed watching the Olympics – I love competition – particularly best on best when Canada is involved, and that is typically what the Olympics is all about – so parts of it were great. On a weekly basis in our client and investors interactions we are inevitably asked when company ABC or XYZ is set to report their next quarterly results. Because stock prices are ultimately driven by their earnings, these annual and quarterly reporting dates are significant days on the calendar. Some companies press release an exact date so we are prepared in advance for the big day, but many will report without a set day – in those cases we are able to estimate a range from past filings or communication with management teams. But, we can also use the deadlines as “drop dead” dates for the report releases – I will go over those today.
Canadian public company financial statement filing info.
To maintain a public listing on a Canadian stock exchange (TSX, TSX-Venture, Canadian Securities Exchange (CSE) etc.), a company must file audited annual financial statements through the System for Electronic Document Analysis and Retrieval (SEDAR).
Listed companies must also file interim (quarterly or every 3 months) unaudited financial statements.
The audited annual financial statements must be prepared according to IFRS and a company’s board of directors must approve them.
In both cases, comparative figures from a company’s previous fiscal year for the applicable time periods are also required.
Annual statement filing deadlines.
Toronto Stock Exchange (TSX) listed companies are required to file audited annual financial statements within 90 days of their financial year end.
TSX Venture Exchange or Canadian Securities Exchange (CSE) listed companies are required to file audited financial statements within 120 days of their fiscal year end.
Interim (quarterly) statement filing deadlines.
Toronto Stock Exchange (TSX) listed companies are required file interim unaudited financial statements through SEDAR within 45 days of the end of the interim period.
TSX Venture Exchange or Canadian Securities Exchange (CSE) listed companies are required to file interim (quarterly) financial statements within 60 days of the end of the interim period.
U.S. public company financial statement filing info.
In the U.S., most public companies are required to file a Form 10-K with the Securities and Exchange Commission (SEC) within 90 days of their fiscal year end.
This annual report provides a comprehensive overview of a company’s business.
Most reporting companies in the U.S. also file a Form 10-Q on a quarterly basis.
This form includes unaudited financial statements and provides a continuing view of a company’s financial position during the year.
The 10-Q (quarterly statements) are required to be filed for each of the first three quarters of a company’s fiscal year and are due within 45 days of the close of the quarter.
YSOT OLYMPIA FINANCIAL GROUP OLY:TSX
1)
Olympia Financial Group symbol OLY on the TSX is a Canadian financial services company. The company breaks its operations into Investment account services, Private Health Services Plan, Currency and Global Payments, Exempt Edge Division, and Corporate and Shareholder Services. Investment Account Services which manages over $10 billion in assets provides services for registered accounts like TSFA’s and RRSPs and the like, with a focus on exempt market securities which are private company securities as well as arm’s length mortgages. The company receives interest on the cash portion of these accounts.
2)
The stock has performed well over the past year up 16% to $100 a share and $242 million market cap with a nice dividend yield of 7.20%.
3)
Diving into the Q1 Income Statement:
- Service revenue was up 3.5% to $12.3 million.
- Trust income which is derived from the combination of interest and trust size rose 17% to $13.5 million. With the interest component being the major driving factor.
- Resulting in total revenue growth of 9.4% to $25.8 million,
- Net income grew 9.8% to $5.7 million, effectively net income grew in line with total revenue growth as there were no massive shifts in operating expenses during the year.
- EPS grew to $2.39 with no change in share count over the past year.
4)
Shifting to the balance sheet it appears to be strong,
- $25.1 million in cash
- $3.6 million from a revolving credit facility
- And another $0.9 million in leases.
I will point out that the company does have a significant deferred revenue liability, but this relates to the annual registered plan services admin fees being received at the start of the year and that had occurred in previous years as well. So just a quirk of the operations which you should be aware of, this will also inflate the cash at the start of the year. We can see this in the last quarter when compared to the year-end cash increase of about $14 million. So the balance sheet by no means is weak but not as strong as it first appears.
5)
I want to focus on how important high interest rates are for Olympia. The company states its interest rate sensitivity for a 1% movement for the quarter would result in an increase of $2.04 million and a decrease in income of the same amount if interest rates fall by 1%.
Looking at the prime rate over time which is what they borrow at +25bps, you can see we are at a 20-year high, and if say we drop 3% roughly to pre-pandemic levels. The company will lose $6 million in net income, which if you recall is more than the $5.7 million in net income in the last quarter. So quite a bit of interest rate risk, given the recent moves by the Bank of Canada to cut rates, with the expectation of continued cuts.
6)
Now looking at the dividend.
The company pays a $0.60 monthly dividend or $7.20 annually, resulting in a yield of 7.2%.
The raised its dividend substantially in 2023, from $0.27 at the end of 2022 to the now $0.60, over doubling it.
The resulting quarterly payout ratio is 75%, quite high after raising its dividends.
7)
Shifting to a quick valuation the company trades at 10 times earnings, and also 10 times cash flow operating cash flow. Given the recent growth that would seem undervalued but like I noted before and want to emphasize it was primarily due to interest rates rising over the past couple of years, and now the reversing trend is starting.
8)
Wrapping things up,
If the steady state of high interest rates driving the earnings continued the company would likely be undervalued, but that is likely not the case. The company benefitted handsomely from higher interest rates driving returns, but that hasn’t grown its services revenue at anywhere the same rate, during the same last couple of years admin expenses have also increased at a higher rate than service revenue, so if we see a reversal of interest rates Olympias net Income could very well be in a worse place than what it was before the pandemic, if the service revenue does not grow in near future. Further, the company does have a significant payout ratio during the last couple of quarters at the $0.60 monthly dividend, so if EPS contracts the dividend could potentially be at risk of getting cut.
Really to summarize the bull case for Olympia needs to be higher for longer interest rates supporting the 7% dividend and allowing the service revenue to grow, and the bear case is a dividend cut lowering return which would likely cause the market to reprice the company resulting in capital losses.
This isn’t a trade-off I find appealing given the current macroeconomic conditions and would pass on Olympia for now.
Trigon Metals (TM:TSX-V)
Current Price: $0.85
Market Cap: $38.0 Million
Dividend Yield: NA
Description:
Trigon is a copper miner which holds an 80% interest in its flagship project, the Kombat Mine Property, which consists of five mining licenses and two prospecting licenses located in Northern Namibia.
Slide 2
Something to quickly note is the company did do a 1/5 share consolidation in May 2024, bringing the company’s outstanding share balance down from about 218 million shares to about 44 million today.
Slide 3
Now, the Kombat mine originally opened in 1961 and between 1962-2007 produced 12.5 million tonnes of ore but closed due to low copper prices and underground flooding.
But with renewed interest, Trigon has placed a current expected life of mine of approximately 15+ years on the Kombat property with a new strategy.
Slide 4
And looking at the mining strategy…
Trigon’s strategy with the mine has been restarting the open pit in May 2023, with the second phase being the re-opening of the Asis West underground mine, which has been ramping up since February 2024 🡪 which starts with the Asis West Shaft complex and thereafter moving on to the Asis Far West Shaft into 2025.
The company plans to expand the mill’s throughput from 30,000 tonnes per month to 60,000 tonnes per month in order to have the capacity ready to increase throughput for additional material from the underground operations.
But I will note, in the company’s MD&A they noted that they anticipate raising further capital to fund its development of Asis West and the proposed mill expansion. They also note in the MD&A that they expect to continue to incur losses in the near term as it ramps up its mining operations and that there can be no assurance that the company will generate any profitability.
Slide 5
If we look at the company’s copper production guidance into 2025, they are projecting to do about 12.5M pounds of copper production with a C1 cash cost of $3.15-$2.80 per pound. And looking forward to 2026 they are looking at scaling copper production upward to over 30 million pounds and then up to 69 million pounds in 2027.
One thing to understand about C1 cash cost, is that while they are guiding it to be from $3.15-$2.80 per pound in 2025, which in theory gives them some leeway with the volatile price of copper as it trades in the $4.00 range… it is important to understand that the C1 cost metric does not include costs like capital costs (for buying, maintaining, or upgrading equipment and buildings), corporate overhead costs, or any other costs not directly related to production. So whether the company will begin to generate net income is still a little unclear to me….. and I would really like to see a few quarters in 2025 to see what kind of progress they are actually making on the bottom line.
Slide 6
Now moving to the most recent financial results for FY 2024, Keep in mind their results are in USD $$$:
- Revenues were $9.6 million for the year, but the company posted a Gross Loss of $1.1 million….. which is before any other operating expenses….
- And on the bottom line, the company posted a net loss from continuing operations of about $1.5 million for the year…. But the company had a $10.7 million dollar accretion adjustment to its sprott royalty following the release of its updated feasibility study, so if we remove that artificial gain, the net loss for the year would be closer to $10M.
- Cash Flow from operations was a loss of about $3.3 million…
- And looking at the balance sheet – as at March 31st, 2024, Trigon had cash of $1.4 million with no debt…. But leases of $5.1 million which is primarily for equipment financing. And I’ll also note that the company has negative working capital $8.8 million… which again is somewhat of a concern as the business needs capital to expand.
Slide 7
To conclude on Trigon, I think the growth story here is intriguing, management has a plan to increase copper production significantly over the next few years… but I don’t think that it’s a free lunch to 30 bagger land by any means and personally, I think that risk remains VERY HIGH… and I don’t really think its “de-risked” as Stephen says.
In theory, if the price of copper remains elevated and management can execute on their guidance and produce bottom line profitability, there is certainly a speculative case to be made for the stock. But again, the company is relying on a volatile commodity, and there remains significant execution and operational risk from management on whether they will be able to
