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On today’s TSX Breakouts report, there are 52 stocks on the positive breakouts list (stocks with positive price momentum), and 38 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a security that is on the negative breakouts list - Chartwell Retirement Residences (CSH-UN-T). Quarter-to-date, the unit price has declined 7 per cent with the security nearing oversold territory. The unit price is now trading at the lower end of its historical trading band.

The average 12-month target price suggests that the unit price may rally 15 per cent over the next year (a potential 19 per cent total return including the yield). That being said, a recovery in the unit price may be a few quarters away, not occurring until investors see an improvement in supply and demand fundamentals in the market. The CEO anticipates operational results will strengthen in 2020. In the meantime, further weakness in the unit price may be limited and the security offers investors an attractive yield of over 4 per cent.

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A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The Trust

Ontario-based Chartwell has a portfolio of 201 senior residences (173 retirement homes and 28 long-term care facilities) in four provinces, of which 61 per cent of these locations are 100 per cent owned, 29 per cent are partially owned, and 10 per cent are managed properties.

The majority of Chartwell’s operations are independent, supportive living residences, representing 74 per cent, where meals, laundry, housekeeping and personal care services are provided. In terms of geographical breakdown, as of September 30, 54 per cent of Chartwell’s portfolio of suites were located in Ontario, 29 per cent were located in Quebec, 9 per cent in B.C., and 8 per cent in Alberta.

After the market closed on Nov. 7, the company reported its second-quarter financial results. FFO (funds from operations) per unit came in at 25 cents, a penny ahead of expectations. Same-property NOI (net operating income) grew by 1.7 per cent year-over-year.

Overall, same-property occupancy declined to 89.6 per cent, down from 89.8 per cent reported last quarter and 91 per cent reported during the same period last year. Same-property occupancy at retirement homes was 88.1 per cent, down from 88.4 per cent reported last quarter and 89.8 per cent reported last year. While same-property occupancy at the long-term care operations was strong at 98.8 per cent, up from 98.4 per cent reported during the third-quarter of 2018. The unit price declined by 24 cents, or 1.7 per cent, the following trading day.

The unit price is likely to remain depressed until investors see something that they have not seen for a while – an improvement in occupancy. Occupancy at retirement homes remains under pressure due to an oversupply in many markets.

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On the earnings call, when asked about the high and growing supply of retirement homes in the market, the president and chief executive officer Brent Binionssaid, “We do see a slowdown in expected starts or expected openings, more accurately, really by the back half of 2020. Construction costs and land costs keep rising, making it more difficult to do development in some markets and we ourselves have begun to look at some of our projects and sold some of the stuff down, and we see this happening kind of on a somewhat broader basis across the market. So our view is that supply will begin to moderate by the back half of 2020 as demand continues to grow.”

Fundamentals are anticipated to improve in the year ahead.

On last quarter’s earnings call held in August, the CEO said that they expect to achieve same-store NOI growth “closer to 2 per cent” for 2019. For the first nine months of 2019, same-property NOI growth stood at 1.7 per cent. Looking out to 2020, on last week’s earnings call, the CEO said, “Our expectation is that we should deliver 3 per cent to 4 per cent same-property NOI growth on a portfolio-wide basis."

Distribution policy

Chartwell pays its unitholders a monthly distribution of 5 cents per unit, or 60 cents per unit on a yearly basis. This equates to a current annualized yield of 4.2 per cent.

Management has increased the distribution annually since 2015. Prior to that, the distribution was held constant from 2009 until early 2015.

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Analysts’ recommendations

This small-cap security with a market capitalization of just under $3-billion is covered by eight analysts who have mixed recommendations. There are four buy recommendations, three neutral recommendations, and one ‘sell’ recommendation (from Casey Lea, the analyst at ISS-EVA).

The firms providing research coverage on the company are as follows in alphabetical order: BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, ISS-EVA, National Bank Financial, RBC Dominion Securities, Scotiabank, and TD Securities.

Revised recommendations

The month, two analysts trimmed their expectations.

Tal Woolley, an analyst at National Bank Financial, reduced his target price to $15.50 from $16. CIBC’s Chris Couprie lowered his target price to $15.25 from $16.

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Financial forecasts

The consensus FFO per unit estimate is 92 cents for 2019, rising to 98 cents for 2020. The Street is forecasting AFFO (adjusted funds from operations) per unit of 86 cents in 2019 and 92 cents in 2020.

Earnings expectations have moderated. For instance, three months ago, the consensus FFO per unit estimates were 94 cents for 2019 and $1.01 for 2020. The Street was forecasting AFFO per unit of 88 cents for 2019 and 95 cents for 2020.

Valuation

According to Bloomberg, Chartwell is trading at a price-to-FFO multiple of 14.4 times the 2020 consensus estimate, which is below the three-year historical average multiple of 14.9 times.

On a price-to-AFFO basis, Chartwell is trading at a multiple of 15.4 times the 2020 consensus estimate.

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The average one-year target price is $16.25, implying the unit price has nearly 15 per cent upside potential (a potential total return of over 19 per cent if you include the 4 per cent yield) over the next year. Individual target prices provided by seven firms are as follows in numerical order: $15.25 (the low on the Street is from CIBC’s Chris Couprie), $15.75, two at $16, $16.50, $17, and $17.25 (the high on the Street is from Canaccord’s Brendon Abrams).

Insider transaction history

Year-to-date, there have not been any trades in the public market reported by insiders.

Chart watch

Chartwell’s unit price has drifted down 7 per cent quarter-to-date, and is currently up just 3 per cent year-to-date.

The security is nearing oversold territory with a RSI (relative strength index) reading of 32. Generally, a RSI level of 30 or lower reflects on oversold condition.

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Since early-2016, the unit price has been locked in a trading band, hovering largely between $14 and $16. The unit price is currently near the lower end of this trading range.

Looking at key technical resistance and support levels, the stock has an initial ceiling of resistance around $15, close to its 50-day moving average (at $14.72) and near its 200-day moving average (at $14.92). After that, there is overhead resistance around $16. Should the unit price continue to retreat, there is strong technical support around $14. Failing that, there is support around $13, near its closing price of $13.28 reached on Dec. 24, 2018.

This small-cap security has reasonable liquidity. The three-month historical daily average trading volume is approximately 640,000 units.

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Positive BreakoutsNov. 8 close
AAV-TAdvantage Oil & Gas Ltd $2.47
AC-TAir Canada $48.63
AD-TAlaris Royalty Corp $21.43
ATZ-TAritzia Inc. $19.50
ACQ-TAutoCanada Inc $10.05
BMO-TBank of Montreal $100.68
BNS-TBank of Nova Scotia $76.50
BHC-TBausch Health Companies Inc. $34.67
GBT-TBMTC Group Inc $12.26
BBD-B-TBombardier Inc $2.02
BAM-A-TBrookfield Asset Management Inc $74.59
CNR-TCanadian National Railway Co $125.10
CTC-A-TCanadian Tire Corp Ltd $153.61
GIB-A-TCGI Group Inc $106.16
CIX-TCI Financial Corp $20.84
ENB-TEnbridge Inc $49.55
EIF-TExchange Income Corp $42.10
EXF-TEXFO Inc $5.73
FSZ-TFiera Capital Corp $11.17
FC-TFirm Capital Mortgage Investment Corp $14.42
GDI-TGDI Integrated Facility Services Inc. $31.13
GEI-TGibson Energy Inc $24.74
HRX-THeroux-Devtek Inc $18.47
HSE-THusky Energy Inc $10.54
IBG-TIBI Group Inc. $5.22
KXS-TKinaxis Inc $98.56
KPT-TKP Tissue Inc $9.85
LNR-TLinamar Corp $46.03
LUN-TLundin Mining Corp $7.55
MG-TMagna International Inc $74.74
MFC-TManulife Financial Corp $26.13
MAXR-TMaxar Technologies Ltd. $15.59
NA-TNational Bank of Canada $69.39
OTEX-TOpen Text Corp $54.97
PKI-TParkland Fuel Corp $46.96
POW-TPower Corp of Canada $32.08
PWF-TPower Financial Corp $32.48
QBR-B-TQuebecor Inc $31.74
RPI-UN-TRichards Packaging Income Fund $44.87
RUS-TRussel Metals Inc $22.52
SIS-TSavaria Corp. $13.92
STN-TStantec Inc $34.46
SVI-TStorageVault Canada Inc. $3.53
SLF-TSun Life Financial Inc $61.19
SOY-TSunOpta Inc. $3.42
T-TTELUS Corp $49.87
TIH-TToromont Industries Ltd $70.80
RNW-TTransAlta Renewables Inc $14.52
TMQ-TTrilogy Metals Inc. $2.99
TSU-TTrisura Group Ltd. $34.55
TC-TTucows Inc. $78.31
VCM-TVecima Networks Inc $9.79
Negative Breakouts
AIF-TAltus Group Ltd $34.16
AR-TArgonaut Gold Inc $1.66
AX-UN-TArtis Real Estate Investment Trust $11.58
AKG-TAsanko Gold Inc $1.08
BLU-TBELLUS Health Inc. $8.19
BPF-UN-TBoston Pizza Royalties Income Fund $14.77
CSH-UN-TChartwell Retirement Residences $14.14
CHP-UN-TChoice Properties REIT $13.38
CSW/A-TCorby Spirit and Wine Ltd $15.75
DRT-TDIRTT Environmental Solutions $4.22
DPM-TDundee Precious Metals Inc $4.10
EMA-TEmera Inc $52.62
FCR-TFirst Capital Realty Inc $21.45
FTS-TFortis Inc $52.72
GMP-TGMP Capital Inc $2.13
GBR-TGreat Bear Resources Ltd. $5.87
HR-UN-TH&R Real Estate Investment Trust $21.98
H-THydro One Ltd. $23.63
IPL-TInter Pipeline Ltd $21.70
K-TKinross Gold Corp $5.52
LGO-TLargo Resources Ltd. $1.24
LNF-TLeon's Furniture Ltd. $14.76
LUC-TLucara Diamond Corp $0.88
DR-TMedical Facilities Corp $4.99
MRG-UN-TMorguard North American Residential REIT $18.80
NGT-TNewmont Goldcorp Corp. $48.39
OSK-TOsisko Mining Inc. $2.62
PSI-TPason Systems Inc $13.80
PIF-TPolaris Infrastructure Inc. $12.76
RECP-TRecipe Unlimited Corp. $22.41
RME-TRocky Mountain Dealerships Inc $6.33
SBB-TSabina Gold & Silver Corp $1.55
SMF-TSEMAFO Inc $3.16
SW-TSierra Wireless Inc $11.21
SOX-TStuart Olson Inc $1.59
TMR-TTMAC Resources Inc. $3.37
X-TTMX Group Ltd $110.00
TOT-TTotal Energy Services Inc $5.60

Source: Bloomberg

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