KeyStone’s Stock Talk Podcast Episode 114
This week in our Your Stock, Our Take segment we take a look at a unique green power producer, Boralex Inc. (BLX:TSX). The company develops, builds and operates renewable energy power facilities in Canada, France, the United Kingdom and the United States. We recently reviewed the stock for our upcoming Renewable Power Report and a listener asks us our take on the business. Our Star of the Week is XPEL Inc. (XPEL:NASDAQ), a stock which KeyStone clients are very familiar with as it has been a strong buy recommendation in our Canadian Small-Cap or Growth Stock and US Growth Stock coverage for just under 3-years. XPEL, which provides protective films and coatings, including automotive paint protection film, surface protection film, automotive and commercial/residential window films, and ceramic coatings, has seen its share price jump 79% this month, 373% in the last year and 1,920% since we recommended it at $1.42 less than 3-years ago. XPEL reported better-than-expected second quarter results which boosted the stock. Congrats to all clients who owned the stock. Finally, our Dog of the Week is Canadian based financial technology, or fintech, company. Mogo Inc. (MOGO:TSX). Mogo’s stock price is down about 18% over the past 5 trading days, after it announced mixed quarterly results this past week. Shares are off about 32% over the past year.
This week, despite the inevitable hit to our ratings, we welcome back Mr. Aaron Dunn from his Partridge Family style tour around BC!
Talking Point – Stock Tips in the Financial Media.
I wanted to address something. We do a couple of weekly chat sessions for two decades now with our paid clients. We take questions on current recommendations or any other stocks clients may have heard about or hold.
Inevitably we get questions on stocks clients have heard about on financial programs such as BNN in Canada for example.
One of the things we try to practice in media appearances, “If you do not know about a company, best to not comment on it!”
The problem is, we see the opposite occur far too often. An example, an analyst was on, commenting on ETFs and Green Investing and was asked about Polaris Infra….a company we have in active coverage. One that has performed well this year.
First off, Polaris is by no means a perfect company. It holds higher than average geopolitical risk and is just really starting its path to growth its green power project portfolio long-term.
But when asked his take on Polaris, the analyst, first gets the simple market cap significantly wrong, then quotes the dividend yield at over 8% when it is 5.3…significantly wrong, then he says they are paying out most of their profits to shareholders (payout ratio is actually low – in fact, it is approximately 20% of trailing 12-month operating cash flow – very low), then he talks about Polaris having no diversification this was originally the case as the company had one project in Nicaragua, but they now have operating projects in Peru and recently announced diversification into Panama. The long-term plan is all about diversification.
If you do not know about a company, best to not comment on it!
Our advice, just because you see someone moving their lips on BNN or another financial program, don’t assume they know what they are talking about. And, most certainly, do not end your due diligence on an investment based on a quote heard on one of these programs!
XPEL Inc. (XPEL:NASDAQ)
Current Price: $28.66
Market Cap: $ 789.44 Million
What does the company do?
Founded in 1997 and incorporated in 2003, XPEL has grown from an automotive
product design software company to a global provider of protective films and coatings, including automotive paint protection film, surface protection film, and auto- motive and commercial/residential window films and ceramic coatings, as well as a provider of complementary proprietary software.
XPEL has been one of the true portfolio changing stocks from our research in recent years following on past game changers such as the Boyd Group, Enghouse, Janna Systems, and WFI Waterfurnace – all producing gains of 2,000% or higher.
$25,000 invested in XPEL, less than 3-years ago, would be worth $505,000 today – half a million. Adding one stock like this can really change your financial future.
Star Performance: Like I said in the intro, its share price has jumped 79% this month, 373% in the last year and 1,920% since we recommended it at $1.42 less than 3-years ago.
XPEL posted a shockingly strong Q2. Revenue grew 19% to $35.8 million which marked the second highest quarter in the company’s history. Net income grew 32.1%. All of this in the midst of a global pandemic.
From a valuation perspective XPEL is not cheap, trading with a trailing (last 12
months) PE of 51 and an EV/EBITDA of 37.7. There are some questions as to how much pent up demand coming out of the shutdown boosted the end of Q2 and into Q3 where management is forecasting growth over Q3 last year once again – we monitor this. We continue to like the business from a long-term perspective and believe management execute very well. Again, congratulations to all clients who own the stock and the over 1,900% gains in XPEL’s shares since our recommendation at $1.42 make XPEL not just our Star of the Week but of the year…so far!
Your Stock Our Take
Leonard via Email
Boralex was brought up in the forum recently which I’ve been watching, and it looks favourable to me. Do you recommend it as a “buy”? What do you think of the company?
Boralex Inc. (BLX:TSX)
Current Price: $33.09
Market Cap: $3.2 Billion
Yield: ~ 2%
What does the company do?
Boralex develops, builds and operates renewable energy power facilities in Canada, France, the United Kingdom and the United States.
As of August 6, 2020, its asset base of net installed capacity comprised 2,055 MW. Projects under construction or ready to build represented an additional 61 MW, to be commissioned by the end of 2022, while the pipeline of secured projects amounted to 228 MW.
Boralex’s share price performance has been strong, increasing approximately 107% since the beginning of 2019 – all driven by solid financial performance.
Recent Financial Results: (Q2 2020)
- Revenue was up 2.03%, to $151 million, compared to the same period last year.
- Combined EBITDA increased 3.9% to $107 million.
- Earnings Per Share (EPS) came in at a loss of ($0.05) compared to a loss of
($0.15) for Q2 of 2019.
As some of you might be aware KeyStone has been working to finalize and release our 2020 Canadian Green/Renewable Energy report – and within the report we actually compared 12 Canadian listed renewable energy producers, EV/EBITDA multiple and Net Debt-to-EBITDA ratio to uncover the best value in the sector.
Looking at Boralex, the company’s balance sheet is highly levered, with a net debt-to-EBITDA multiple of ~6x placing it in 10th place out of the 12 companies.
On a relative valuation basis, the company is trading with a trailing EV/EBITDA valuation multiple of 12.2x, placing it in 7th place, which is a bit of an improvement for how its balance sheet rated comparably. And I would say the company is reasonably priced based on its growth trajectory, which we touch on in the full report.
I believe that Boralex is a decent option for a renewable power producer, they have a slight dividend yield and are highly diversified across the world. But to answer Leonard’s question, no we do not have Boralex as a buy recommendation. They have exhibited solid growth in the past (which could possibly be expected to continue into the future), they trade at a reasonable valuation multiple but do maintain quite a bit of debt compared to their peers.
With this said, we do like a few other companies in the space which ranked at the top of the list on both a financial position and valuation basis and if you want insight into those companies and a breakdown of how each of the 12 energy producers stack up to peers, make sure to get a copy of our upcoming report.
Mogo Inc. (MOGO: TSX)
Current Price: $2.30
Market Cap: $66.5 Million
What does the company do?
Mogo Inc is a Canadian based financial technology, or fintech, company. Mogo offers a finance app that provides a number of solutions for managing and monitoring financial health. These solutions include a digital spending account with Mogo Visa* Platinum Prepaid Card featuring automatic carbon offsetting, free monthly credit score monitoring, ID fraud protection and personal loans.
Mogo’s stock price is down about 18% over the past 5 trading days and about 32% over the past year.
The company released its Q2 financial results on August 11th.
At face value, the results look mixed with lower revenue but higher operating income.
- Total revenue was $10.6 million, which was down 29% year-over-year, but was still slightly above the company’s previously guidance.
- The company reported that its core revenue was down 6% year-over-year.
- Mogo did report its first quarter of positive operating income in the company’s history, which was $1.9 million, versus a loss of ($1.6) million in Q2 2019.
- Cash flow from operations was $8.2 million in the quarter compared to a loss of $5.6 million in Q2 of last year.
- The company also reported that Members increased 20% year over year to 1,040,000 at quarter end, placing Mogo among the largest fintech companies in Canada by total members.
Why did the share price drop with the Q2 results?
Even though the company did report positive cash flow and operating income, revenue was still down significantly.
One thing that investors need to understand about Mogo is that it is somewhat comprised of 2 different businesses. There is the financial technology, or fintech side, and this is how the company markets itself to investors. But Mogo is also a consumer finance, or lending company, with the majority of its revenue coming from interest income. These are really two different businesses and I think it may confuse investors and result in the company being categorized more with consumer finance than technology.
We like how Mogo looks to be transitioning into profitability and at this point we can start to do more in depth research on the company. We did chat with the CEO one or two years ago and the plan at the time was to transition out of the lending businesses and become a pure fintech play.
Successful fintech companies should garner higher valuations than pure finance companies but we also have to be cognizant of the risks associated with fintech apps, such as competition and the ability to replicate the solutions that Mogo provides.
In conclusion, Mogo is on our watch list. We aren’t ready to issue a buy recommendation on the company but if they can maintain profitability and subscription growth, and also transition into in a more pure-play, fintech model, then it would be something that we would seriously consider in the future.