KeyStone’s Stock Talk Podcast Episode 145

This week, Ryan starts by taking a look at a shift from growth to value and cyclical and how one can structure a portfolio ahead of these shifts.

Our Star of the Week is no stranger to KeyStone Clients Dynacor Gold Mines (DNG:TSX), having been a Focus Buy recommendation for the past several years. On Monday, the company, which purchases ore from small-scale miners (artisanal miners) across Peru, processes it and sells the gold, reported record financial results. The unique dividend-paying gold miller has a great balance sheet and its stock has jumped over 50% this year. Congratulations to all clients who own the business – the company appears poised for a record 2021.

Finally, in our Your Stock Our Take Section we answer two listener questions. The first on ADF Group Inc. (DRX:TSX), which engages in the design and engineering of connections, fabrication, industrial coating, and the installation of steel structures, as well as miscellaneous and architectural metalwork in the U.S. and Canada. The stock appears to trade at low valuations and could be facing the tailwinds from what is expected to be a strong infrastructure spending cycle, but it is the right company to participate in this potential boom?

Our second question comes in on AutoCanada Inc. (ACQ: TSX) which owns automotive dealerships in Canada. The company sells 19 brands through dealerships including Chrysler, Dodge, Jeep, Ram, Audi, Volkswagen, BMW and Nissan. The stock has booked tremendous gains since the March lows in 2020 – we let you know if it is justifiable and potentially sustainable.

Quick note:

Over the past couple of months, we have witnessed somewhat of a shift from strict tech and growth stocks to value and cyclical stocks. Whether it will be a sustained shift, is unknown. Let me give you a couple of quick thoughts.

Timing an investment sentiment shift like this is next to impossible. But you can set up a portfolio that insulates you for these types of shifts and allow you to perform relatively well regardless of the sentiment of the day.

Over the past several years – and certainly, since the COVID pandemic lows – growth-oriented tech names, have performed very well. However, year to date, the DOW – considered more value-oriented, is up 13.5% and has significantly outperformed the growth tech-laden NASDAQ, which is up just 3.9% in 2021. Those with strict concentrated tech or growth portfolios have likely underperformed.

To balance a portfolio, this is why we constantly stress clients hold 15-25 stocks from a wider variety of industries. In fact, that is why we make it a practice to structure our recommended portfolios in this manner. Where some tech names have pulled back, gold, for example, recently hit its highest price in over 4 months. Broadly speaking, as gold prices have risen over the past 3-5 years, a great deal of capital has been raised in the sector and we thought it prudent to have some indirect exposure to it in our portfolios. The two names we have recommended this year, posted record quarterly numbers this week and the stocks have shot higher.

The first company, which has been a Focus BUY for several years, Dynacor Gold Mines (DNG: TSX) – is up 50% year-to-date and has been paying us a 4-5% dividend. The company just produces record quarterly numbers this morning and is on pace for a record year in 2021.

The other company is a driller in the sector and relatively new to coverage, so we will leave that name to clients. But it also recently instituted a dividend, has a cash-rich balance sheet, reported an absolute blowout quarter last week, and is positioned to have a record year. It still trades at only 6 times cash flow.

My larger point is that it is important to select quality companies from a variety of different sectors as stocks do not move higher in a straight line and over the course of a given year or decade, sentiment can shift on sectors and investment strategy – be it growth versus value etc.

I would also like to stress that diversification is good to a point. We pick 15-25 stocks for a reason. Hold much more than 20 stocks from a variety of industries and you will receive no real benefit from diversification. In fact, you will start to have a portfolio that is difficult to manage and will inhibit your ability to best the market.


Star of the Week!

Dynacor Gold Mines (DNG:TSX)

Price: $2.70

Market Cap: $104.56 Million

Dividend: 2.34%

Star: Dynacor is up 15% this month and 50% this year, not including the strong dividend.

What Does Dynacor Do?

Simple Model: the company purchases ore from small-scale miners (artisanal miners) across Peru, processes it at its Veta Dorada mill, and sells the extracted gold and silver on the market. As a result, the profitability of this business depends on two factors:

  • A margin between the price of ore purchased and the market price of gold – the higher the margin the better.
  • Throughput (the amount of ore processed) – the higher throughput the better.

I will add that a higher gold price encourages more mining which makes the company more profitable.

Driving the Stock: Dynacor Reports Quarterly Record Sales of $40.9 Million and a Net Income of $2.1 Million (US$0.05 Per Share) (CA$0.06) in Q1-2021 Ahead of Annual Guidance.

In March, Dynacor initiated the expansion project of its Veta Dorada processing plant which will increase the throughput level from its actual 345 tpd to 430 tpd, an increase of 25.0% (nameplate capacity is actually only 300tpd at present – so the increase based on this is 43%) . The expansion is scheduled to be completed on time and on budget. 

All of this with a great balance sheet: Cash on hand of $17.2 million on March 31, 2021, up from to $11.9 million at year-end 2020. No debt.


Ore processing

For 2021, Dynacor issued financial and capital expenditure guidance, forecasting $150.0 million in sales (which would represent a 47% year over year increase) and a net income of $6.9 million (US$0.18 per share). As at March 31, 2021, Dynacor is slightly ahead of its 2021 financial guidance.

The great results and strong share price move, make Dynacor our Star of the Week!


Your Stock Our Take


Andrew via Facebook & Braden via Twitter


ADF Group Inc. (DRX: TSX)

Current Price: $1.39

Market Cap: $45.4 Million

Dividend Yield: 2.9% 

What does the company do?

ADF Group engages in the design and engineering of connections, fabrication, industrial coating, and the installation of steel structures, as well as miscellaneous and architectural metalwork in the U.S. and Canada.

The company’s products and services are intended for the five principal segments of the non-residential construction industry, which include:

  • Office towers and high-rises
  • Commercial and recreational buildings
  • Airport facilities
  • Industrial complexes
  • Transport infrastructures.

Key Points from Andrew & Braden:

  • Braden said: In the face of the upcoming infrastructure bill in the U.S. It could be a company that benefits. He also noted their attractive fundamentals which we will look at shortly.
  • Andrew said: Revenue growth has been flat Y-o-Y, but CFO is the strongest metric with a strong growth rate.

Financial Results (Fiscal 2021) ended January 31, 2021

  • Revenue for the year was $172.6 million, a decrease of 4% from the 2020 fiscal year.
  • EBITDA was $16.3 million, an increase of 213% from Fiscal 2020.
  • Net Income for the year was $6.9 million, compared to a loss of $2.1 million for the same period last year.
  • FFO was $10.2 million, an increase of 112% from the same period last year.
  • ADF has a healthy balance sheet with net debt (and leases) of $7.8 million on January 31, 2021, and a Net Debt-to-EBITDA multiple of 0.5 times.
  • EV/EBITDA multiple of ~3.5x which appears attractive.

Management Guidance

During the fiscal year, the company increased its order backlog to $436.2 million, compared with a backlog of $328.7 million as of January 31, 2020. Most contracts are expected to be progressively completed by the end of the fiscal year ending January 31, 2023.

After the last financial results, the CEO stated, “Despite the pandemic’s impacts and its effects, not only on the economy in general but also on the way we operate, we have been able to continue to grow our order backlog and greatly improve our cash position. Despite the pressure on the prices of the projects currently in the backlog that could reduce margins in coming quarters, we welcome the recent announcements regarding investments in infrastructure projects that should reduce this pressure.”


I like the Macro thought behind an investment in ADF with Biden’s U.S. infrastructure bill. Plus, the company’s fundamentals are reasonably attractive with an EV/EBITDA multiple of ~3.5x, it has a nice yield, a healthy balance sheet with a manageable debt load and an increasing backlog. But one concern I have is like Andrew mentioned, revenue has been lumpy and flat over the past 4 years, and it is very difficult to get a gauge on future growth as management has increased backlog but is expecting pressure on margins in the coming quarters.

Therefore, it is tough to say whether it is an attractive investment and would be nice to talk to management directly to get an indication of revenue and EBITDA growth expected in the 2022 fiscal year. Because if we are paying 3.5x EV/EBITDA for 20% rev & 20% earnings growth, I think it could be of value right now. But if earnings are expected to remain flat or decline with only a bit of revenue growth, it could possibly be a value trap.

It is an interesting stock right now and there might be an opportunity, but with the uncertainty surrounding the future growth rate and lumpy track record, I find it difficult to determine whether it truly is a buying opportunity. Now I am not saying that there will not be growth going forward, but what I am saying is I am not confident enough in the runway for growth to determine whether it is indeed a buying opportunity – and this is something that I would need to conduct more research on to conclude whether the stock does offer Growth at a Reasonable


Your Stock, Our Take


AutoCanada Inc. (ACQ: TSX)

Current Price: $45.00

Market Cap: $1.2 Billion

What does the company do?

AutoCanada owns automotive dealerships in Canada. The company sells 19 brands through xx dealerships including Chrysler, Dodge, Jeep, Ram, Audi, Volkswagen, BMW, and Nissan.

Key Points:

I’ve followed this company for a while and going back more than 5 years ago it was a real star. The stock has spent most of the last 5 years in the penalty box but just recently has really come back to life.

Autos are another pandemic success industry and AutoCanada’s stock up from around $14 immediately before the pandemic began in 2020 to nearly $45 today. This is the highest share price the stock has seen since 2014.

Recent Financial Performance

  • Strong financial performance has been driving the share price explosion.
  • 2020 was a good year with 8% growth revenue and $0.87 in earnings per share compared to a loss in the previous year.
  • That strength has extended into the first quarter of 2021 as well.
  • The company recently reported Q1 results. Revenue increased 37% to $970 million, the company’s highest revenue quarter in its history.
  • Earnings per share were $0.77 compared to a loss of $1.70 per share last year.
  • AutoCanada has made several acquisitions of new dealerships over the last year as well as reduced interest expense through refinancing.
  • Analysts are expecting earnings of $2.84 per share in 2021 and $3.17 in 2022; based on the current momentum in financial performance, these analyst estimates look reasonable.


I think that AutoCanada is an interesting story. It really has come back from the dead over the last year. Overall, I think it’s a good business. Based on analyst 2022 estimates, the valuation is about 14 times earnings. Growth going forward would largely be the result of the acquisition of additional dealerships and any structural enhancements they can make to improve margins.

I will say that this is a very consumer-driven business. We have seen the company, and its shareholders, go through several years of difficult financial performance. The company had to reduce and then completely discontinue its dividend. The valuation, based on analyst estimates, is not unreasonable given current market valuations for a growth stock, but neither is it especially cheap, even the volatility we have seen in financial performance. Investors looking to take a position should consider these risks.

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