Keith Carpenter, MBA, CFA | Canaccord Genuity Corp. (Canada) | KCarpenter@canaccordgenuity.com | 1.416.869.7325
Vitali Savitski | Canaccord Genuity Corp. (Canada) | VSavitski@canaccordgenuity.com | 1.416.869.7354
Raising Target Price
Q3 results are in line - 2015 is the inflection point; TP
to C$3.75 (from C$3.50), BUY
Investment recommendation
We believe Input Capital has reached an inflection point with the deployment of
C$17M in the last quarter, which was predominantly deployed in December. Given the
historical ramping of capital deployment towards spring planting, we have confidence
of a substantial increase in that capital deployment over the next several months,
and the April update should highlight that view. The improvement in the company’s
multiple over the past month speaks to this positive development. Add in the average
20% IRR management continues to realize in their contract signings, a strong canola
export market supporting pricing at our long term assumption, and the substantial cash
flow generation this model displays, we recommend investors initiate positions in this
company or add to existing positions.
Q3/F15 results are in line
Input Capital reported adjusted Q2/F2015 EPS of C$0.00 versus our estimate of US
$0.00 and consensus of C$0.01 while CFPS was reported at C$0.04, versus our forecast
of C$0.03 and consensus of C$0.04.
We expect the next catalyst to occur in early April with the release of their FQ4
capital deployment figures
INP deployed C$43M in total over the previous two years. Given they deployed a further
C$17M in a historically quiet period in FQ3, our expectation for a C$25M capital
deployment quarter in FQ4/15 should be comfortably attained. We then estimate
a C$20M deployment in FQ1/16 (April-June quarter). Over the past two years, INP
has deployed C$12M in that quarter, but given their expanded sales team, expanded
marketing effort and stronger prospect pipeline, we fully expect the company to swing
above the C$12M average of the past two years.
Cash flow per share growth is significant
In the current F15 (which ends in March), we estimate CFPS of C$0.13, C$0.25 in F16,
C$0.37 in F17, C$0.52 in F18, C$0.69 in F19 and C$1.08 in F20. We have assumed a
long term canola price of C$450 (net of basis) - prices are just shy of that level today.
Multiple expansion
We estimate the company to deploy significant amounts of capital in the coming
quarters, and as a result, we expect an increase in the company’s multiple. There are no
agriculture streamers to compare the company to but if we look at the precious metal
streamers, they trade in a range of 14x-31x in 2015 and 12x-30x in 2016. As INP’s fiscal
year end is March, their F2016 is closest to calendar year 2015 and similarly the F17
is closest to CY16. INP currently trades at 10.2x consensus F16 and 7.4x consensus
F17. INP’s multiple has been improving and we believe the inflection point arrived with
the announcement of a significant cash deployment update in January. We believe this
multiple will continue to improve through 2015 and will move into the lower double digits.
