Stock Talk Podcast Episode 288 Show Notes

You are listening to KeyStone’s Stock Talk Show – Episode 288

Great to chat with you again this week. I am back from the Money Show in beautiful Las Vegas. In our YSOT segment, I will begin with a viewer question on Osisko Gold Royalties Ltd. (OR:TSX), an intermediate precious metal royalty company which holds a North American focused portfolio of over 185 royalties, streams and precious metal offtakes, including 20 producing assets. With the price of gold at record prices, the viewer asks if now is a good time to buy this gold royalty company. Aaron answers a viewer question on Advanced Micro Devices, Inc. (AMD:NASDAQ) is a leading semiconductor company specializing in the development of high performance computing, graphics, and visualization technologies for the consumer and enterprise markets. The stock is down 38% over the past year, Aaron let’s you know why and if it is an opportunity. In our final YSOT of the week, Brennan tackles a viewer question on Well Health Technologies (WELL:TSX), an omni-channel healthcare services, including primary care and allied health clinic operations. Well is up 62% over the past year – Brennan will let you know if the jump is justified. In our Star and Dog segment, Brett’s Star of the Week is Celsius Holdings (CELH:NASDAQ) is a global beverage company and maker of the energy drink Celsius, a zero-sugar alternative to traditional energy drinks. The share price shot up 35% last Friday and Brett will let you know why. His Dog of the Week is TFI International (TFII: TSX/NYSE), a North American leader in the transportation and logistics industry. The company operates across Canada, the US and Mexico. Serving Less-than-Truckload, Truckload and Logistic segments. TFI was down 30% over the past week after reporting lower than expected earnings.

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

Poll question:

YSOT Osisko Gold Royalties Ltd. (OR:TSX)

An intermediate precious metal royalty company which holds a North American focused portfolio of over 185 royalties, streams and precious metal offtakes, including 20 producing assets. Osisko’s portfolio is anchored by its cornerstone asset, a 3-5% net smelter return royalty on the Canadian Malartic Complex, one of Canada’s largest gold operations.

The shares have performed well over the past year up 39.79% –  having said that – shares have underperformed gold, which is up 45.35% over the past year. Gold here shown in blue and Osisko in yellow. 

Over the past 5-years – Osisko has performed well, up 140.71%.

This, as we can see here, substantially outpaced gold over that same time frame. Which was up just 89.19% over the past 5-years.

Finally – if we go back all time on Osisko – it has been listed since June 2014 in the $15-$16 range – the stock is up just 67% in nearly 11 years, which is not the greatest return.

2024 financial highlights.

• 80,740 gold equivalent ounces (GEOs) earned (94,323 GEOs in 2023).
• Record revenues from royalties and streams of $191.2 million ($183.2 million in 2023).
• Record cash flows generated by operating activities of $159.9 million ($138.4 million in 2023).
• Net earnings of $16.3 million, $0.09 per basic share (net loss of $37.4 million, $0.20 per basic share in 2023).
• Adjusted earnings of $97.3 million, $0.52 per basic share ($74.1 million, $0.40 per basic share in 2023).
• Net repayments of $49.7 million under the revolving credit facility.
• Cash balance of $59.1 million and debt outstanding of $93.9 million as at December 31, 2024.

 Decent balance sheet:

Cash balance of $59.1 million and debt outstanding of $93.9 million as at December 31, 2024.

Solid access to credit of up to $615 million with only $135 million drawn. 

 Growth Outlook.

• Osisko provided 2025 guidance of 80,000 to 88,000 GEOs with a cash margin of approximately 97%.
• The updated five-year outlook through 2029 reflects a reduced delivery range compared to prior projections due to the absence of Eagle Mine contributions. Growth will instead be fueled by expansions at Dalgaranga, Windfall, Hermosa, and Marimaca.
• Management highlighted the back-half weighting of 2025 GEO deliveries, with approximately 55% expected in Q3 and Q4.
• The company remarked that “the slope of GEO delivery growth in 2025 is expected to be less steep than previously anticipated,” due to adjustments at key assets such as Canadian Malartic and Mantos Blancos.

We can see here, the guidance for next year, the 2029 Outlook and the near and long-term expansion opportunities. 

Valuations:

2024 P/CF: 22.8x

2025e P/CF: 21.3x

2025e Adj PE: 27.48

Peer: Franco Nevada 2025 Adj PE: 43.42x

We could say it trades at a discount, but I would consider Franco Nevada a higher quality larger business at present.

Conclusion:

In the royalty/streaming space, trading well below the ‘big 3’ companies (currently 1.5x NAV) despite high-quality North American-centric asset base.

Solid optionality in OR’s development-stage assets.

Quality of its flagship assets (e.g., Canadian Malartic and Mantos Blancos).

Given average growth – valuations currently appear fair.

We have higher leverage and less risk exposure to gold at better prices in coverage.

Well Health – From Gord

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Well Health Technologies (WELL:TSX)

Price: $6.15

Market Cap: $1.5 Billion

Company Description:

Well Health provides omni-channel healthcare services, including primary care and allied health clinic operations (gastrointestinal, mental disorders, specialized care, diagnostic services, and telehealth services). The company also operates an electronic medical records platform; billing and revenue cycle management solutions; and cybersecurity protection and patient data privacy solutions. As of the last quarter 94% of total revenue was from Patient Services revenue while 6% was from SaaS.

Slide #2

Just a little history to catch viewers up to speed on WELL. We have covered the stock on the podcast several times, including back in 2021 when it traded at $7.50 per share. Since then, we  have seen the stock pull-back to $2.56 in late 2022, but it had a strong 2023 which we then covered it again on the podcast in February 2024… And at that time, I basically concluded that revenue growth was quite strong given its aggressive cadence of acquisitions (funded through debt and equity) AND if the company can begin to achieve consistent accounting and adjusted profitability and use internally generated cash flow to bolster growth and pay down debt, there  could potentially be an “inflection point” in the business. But I said that is yet to be determined.”

Now today the stock trades just above $6.00… and let’s look at what’s been driving the stock higher and if that inflection point is starting to transpire.

Slide #3

Looking at some of the most recent updates:

• On February 19th, Well provided updates on two acquisitions completed by its Subsidiary WELLSTAR – including Microquest & Bluebird iT, with WellStar’s CEO commenting – “As WELLSTAR scales it operations and prepares to be spun out of WELL, as a separate public company that will be majority owned and controlled by WELL, we are delighted to announce the recent addition of Microquest – a leading EMR solution provider – and 51% ownership of Bluebird iT which supports over 700 clinics and hospitals across Canada.”
• And this really is on the heels of its news release on December 12th, 2024, rebranding Well Provider Solutions as WELLSTAR, subsequently indicating that WELLSTAR closed on a $50.4M equity placement which is expected to fund the company’s pre-spinout growth objectives. With WELLSTAR’s proforma revenue expected to be over $70 million in 2025 with EBITDA margins of approximately 20%. And the pre-financing Enterprise Value for WELLSTAR is approximately $285 million – with WELL expecting to spinout WELLSTAR before the end of 2025 and will provide investors exposure to a pure-play investment in healthcare technology SaaS.

Slide #4

A few more updates include:

• On December 2nd 2024, WELL announced that it completed the acquisition of the Canadian clinical assets from Jack Nathan Medical Corp including a network of 13 owned and operated clinics which generated revenue of over $9M in the past 12 months. and 59 licensee clinics that generate approximately $2.2M in high margin revenue. As a part of the deal Well has also entered various agreements with Walmart Canada that provide a framework to support the potential expansion of Well’s clinical network within Walmart Canada’s footprint of over 400 locations over time. AND I HAVE ACTUALLY COVERED JACK NATHAN ON THE PODCAST BEFORE – IT TRADES UNDER THE TICKER SYMBOL (JNH:TSX-V) BUT IT HAS REALLY STRUGGLED TO GENERATE ANY OPERATING PROFIT over the years… which likely makes sense why it is selling its Canadian clinics.
• And on November 7th, the company raised its annual revenue guidance which I will go into further later in my presentation here.

Slide #5

WELL’s revenue growth has been very strong driven by acquisitions and organic growth.

The most recent financial results were for Q3 2024 ended September 30th, 2024, revenue was up to $252 million, an increase of 23%. Patient services revenue were about 94% of total revenue while SaaS and Technology services was 6% of total revenue in the quarter. The growth was from about 23% organic growth and there was about 4% growth from acquisitions but was offset by divestitures.

The company’s accounting earnings were negative in the quarter primarily due to a change in fair value of investments which were a loss of $77M… which  if we adjust out the company produced a gain of about $1.3 or about $0.005 (half a penny). This compares to a loss of ($0.03) for the same period last year. SO GOING FORWARD HERE ALL OF THE ADJ. EPS I HIGHLIGHT ARE MY OWN CALCULATIONS – I AM NOT USING the company’s reported Adj. EPS.

I will also note that the strong net income reported in Q2 2024 should also be adjusted to the downside, meaning the $0.43 per share is inflated, as again there was a fair value adjustment but this time it was a gain of $116M, which  if we adjust out the company actually only generated $649 thousand or $0.003 per share in the quarter..

In Q1 2024 again there was some things that were inflating earnings, which include an increase in fair value of $14M and a gain on disposal of assets of $11M, so  if we adjust these out the company actually lost ($5.6M) in the quarter or a loss of ($0.02) per share.

The same can also be said for Q4 2023 as again there was some things that were inflating earnings, which it was actually closer to a loss of ($0.03) per share rather than a gain of $0.12.

Adj. EBITDA in the quarter was up 16% to $32.7M

Looking at the balance sheet as of September 30, 2024, WELL had $66 million in cash and debt and leases were $396 million, providing a net debt & leases position of approximately $330 million and a net debt to EBITDA multiple of 2.7 times. Which compares to a year ago of $359 million in net debt and a net debt-to-EBITDA multiple of 3.3 times. So debt is coming down… but is still quite elevated.

Slide #6

Quickly looking at the valuations the company has negative trailing adjusted earnings.. its EV/EBITDA multiple is approximately 15 times and trades at about 12x trailing CFO.

Slide #7

Looking at the company’s FY2024 guidance:

• Annual revenue is projected to be $985-$995M 🡪 (27% growth over 2023)
• Adj. EBITDA is projected to be in the upper half of its $125-$130M range (12% growth over 2023)
• Adj. FCF is expected to be $55M for the year.

So if we use these forward guidance figures, we are looking at a Price-to-FCF multiple of 27x and a forward EV/EBITDA of about 14x.

Slide #8

And I keep referencing this every time I cover WELL, but the reason for the company’s ability to continue to make acquisitions on top of its hefty debt load is that the company continues to issue shares quite aggressively as shown in the chart in my slideshow – with the company now up to 250 million shares outstanding. I must remind our listeners that an acquisition growth strategy funded through issuing shares can be successful, but it is a much harder path to growing cash flow per share than simply recycling excess cash flow into acquisitions.

Slide #9

•  WELL continues to show great revenue growth over the past few years, with revenue of just $32.8 million in 2019, now guiding to over $980 million for FY2024.
•  The company’s astonishing growth has been driven by acquisitions funded through share issuances and debt. It is good to see that the company is producing cash flow which will help the company pay down its debt (which is on the high side currently w/ a Net Debt to EBITDA of 2.7x) and hopefully this cash flow begins to reduce its reliance on issuing shares.
•  The company is planning to Spinoff WELLSTAR in late 2025 which is expected to be worth a pre-financing enterprise value of $285M and produces revenue of $70M and EBITDA margins above 20%. WELL will remain majority owner of WELLSTAR.
•  The forward valuation multiples of 27x FCF and 14x Adj. EBITDA are not cheap in my opinion. Especially considering the balance sheet.
•  All-in-all, the company still has work to further progress into consistent accounting earnings, more significant FCF, reduce its debt load, and reduce its cadence of issuing shares. I love that the company is guiding toward positive FCF in the year but I am not confident enough to say that the business is at an inflection point especially if they want to maintain their aggressive cadence of acquisitions. I think that the direction of the business is trending positively and there may be some speculative upside (despite the stock being pricey on a valuation basis), but I personally would not invest in the company at this time given its elevated debt load and heightened share count. It is certainly a name which we will continue to follow closely though.

DISCLOSURE.

Star of the Week Celcius Holdings

1)

Celsius Holdings, symbol CELH on the NASDAQ is a global beverage company and maker of the energy drink Celsius, a zero-sugar alternative to traditional energy drinks. Celsius is the #3 energy drink in the U.S. with 11.8% of market share in 2024.

2)

The share price shot up last Friday trading upwards of 35% higher during the day but settling at just under 30% increase by market close. The stock is now trading at $32.13 and a $7.49 billion market capitalization.

3)

So, why did Celcius shoot up on Friday? It reported its Q4 2024 earnings, but nothing astounding. For the year 3% revenue growth up to $1.36 billion, and retail sales did grow by 22% with the difference being made up by PepsiCo optimizing their distribution to lower their inventory held on hand but that means lower sales recognition during this period despite retail sales growth. Gross profit increased by 7% $680 million a 50.2% margin, marketing rose to 25.9% of revenue from 20.0% as the company had additional activity, G&A rose to 12.8% of revenue from 7.8% due to litigation costs and other one-time costs.  Resulting in a decline in net income of 36% to $145 million. Overall not a blowout quarter, so why did it rise so dramatically?
4)

Celcius announced the acquisition of Alani Nu for $1.8 billion in cash and stock, just for a size comparison, Celcius was trading at roughly a $5 billion market cap before the acquisition. So a significant acquisition by size. The company paid less than 3 times 2024 sales, or approximately 12 times adjusted EBITDA. The company prior to the acquisition was in a net cash position but this will put Celcius into a net debt position, at a leverage of roughly 1.0 times EBITDA.

Alani Nu was the 4th largest energy drink in the  US for 2024 with 3.6% of the market share. The

acquisition is expected to be accretive to cash EPS in 2025, adding additional top-line growth and having $50 million in cost synergies.

5)

On the product positioning side, Alani Nu has an interesting target demographic of being young and female-focused. Compared to Celcius’s gender-neutral and fitness-enthusiast target. So different target markets. As well on the distribution side, the company sees opportunities to meaningfully grow Alani Nu’s distribution by applying Celcius channels and marketing strategies. So different target markets but overlapping synergies.

6)

While Celcius is the Star of the Week, I will mention the stock over the past year until last week was not performing well being down roughly 50% in the year. Truly making it a star of the week not a star of the year.

Dog of the Week TFI International

1)

TFI International, symbol TFII on the TSX and NYSE is a North American leader in the

transportation and logistics industry. The company operates across Canada, the US and Mexico. Serving Less-than-Truckload, Truckload and Logistic segments.

2)

The stock has fallen 30% over the past week to $127.56 or $10.77 billion market cap Canadian. This is a sharp decline after years of consistent share price appreciation. So what changed this week?

3)

The company reported its Q4 2024 earnings, For Q4 revenue before the fuel surcharge was up 9.1% to $1.83 billion due to acquisitions done in 2024. But operating income was down 19.2% to 160 million, and adjusted EBITDA was down 1.7% to $315 million, adjusted net income was down 30.7% to $102 million or $1.19 per diluted share.

Overall generally weak earnings.

4)

So what was the underlying reason for the weakness? Margins for all of the segments were down significantly, with the aggregate operating margin down to 8.8% from 11.8% even though the absolute figures for Truckload increased due to the acquisitions. Margins compressed due to low volumes, volumes fell but shipment weight remained roughly the same. For the U.S. less than a truckload shipment count fell 6%.

Notably, the company highlighted weakness in the small and medium-sized customers, which have higher margins than corporate and 3rd party logistic accounts. Lower demand has been across the market not just TFI. Freight volumes internationally have been weak, it is a cyclical market and you are seeing both a weaker pricing environment and lower volumes. Making it a tough environment for any company in the industry to operate in.

Within the company the company called out Tforce, a company they acquired in 2021, being a significant drag on the company, with a poor operating ratio of 97%.

5)

The company is trying to make moves despite the awful environment to operate in. The company may look to conduct further acquisitions which it has continuously done over the decade but now in a weak market, it needs to balance its debt which is at 2.1 times EBITDA. The company is looking to reduce debt during 2025 by $500 million which may open up further room to be opportunistic in a down market. But it is very difficult to tell at this time due to the downward trend of the industry. Ryan has previously stated in a YSOT the company may be interested during a 10-20% pullback, but the weakening demand does require a discount, which is the question if this is enough. I’ll echo what the CEO said on the conference call multiple times the outlook is “foggy”, so I would expect higher volatility in the stock price over the next year as company and market news occurs.
But for now, it is our Dog of the Week!