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analysis

On today’s TSX Breakouts report, there are 46 stocks on the positive breakouts list (stocks with positive price momentum), and 29 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that is on the positive breakouts list. In recent weeks, there has been a flight to bonds, driving the U.S. 10-year Treasury yield down to the 1.5 per cent level from around 1.9 per cent at the start of the year. This company benefits from a low interest rate environment. Furthermore, with a proven management team, this company is delivering solid growth while the stock is trading at a reasonable valuation. The security highlighted below is Real Matters Inc. (REAL-T).

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

The company

Ontario-based Real Matters serves the mortgage lending and insurance markets through its four locations, three in the U.S. (Buffalo, New York; Denver, Colorado; and Middleton, Rhode Island) and its head office in Markham, Ontario.

The company is a leading independent provider of residential real estate appraisals and title and mortgage closing services. Last quarter, over 93 per cent of total revenue was derived from the U.S. with 65 per cent of total revenue from U.S. Appraisal and 28 per cent of total revenue from U.S. Title. Management estimates their market share for U.S. Appraisal to be around 10 per cent, and targets achieving a market share of between 15 per cent and 20 per cent by Sept. 30, 2021. For its U.S. Title segment, management’s objective is to have a market share of between 1 per cent and 3 per cent by Sept. 30, 2021.

Before the market opened on Jan. 30, the company reported better-than-expected first-quarter fiscal 2020 financial results (the company’s fiscal year end is Sept. 30). The share price rallied over 3 per cent that day on high volume with over 1.6-million shares traded.

Total consolidated revenue came in at $103.8-million (its financial results are denominated in U.S. dollars), of which $67.4-million was from U.S. Appraisal (up 70 per cent year-over-year) and $28.7-million came from U.S. Title (up 92 per cent year-over-year). Consolidated net revenue was $35.3-million, ahead of the consensus estimate of $33-million. (Net revenue is defined as adjusted EBITDA -earnings before interest, taxes, depreciation and amortization – plus operating expenses less stock-based compensation). Adjusted EBITDA was $8.8-million for U.S. Appraisal (EBITDA margin was 57 per cent), and $8.4-million from U.S. Title (EBITDA margin of 46 per cent). Adjusted earnings per share came in at 10 cents. The company ended with quarter with over $80-million in cash and cash equivalents on its balance sheet.

On the earnings conference call, chief executive officer Jason Smith remarked on the strong quarterly performance, “We were very pleased with our performance in Q1 [first-quarter] as our financial results continue to demonstrate how the platform scales at higher volumes and translates to adjusted EBITDA. While we've historically seen Q1 to be a lower volume quarter in U.S. Appraisal due to the seasonality of the purchase market, this year the sustained strength in the U.S. refinance origination market provided a healthy backdrop for our growth. We realized solid market share gains in both our U.S. Appraisal and Title segments.”

Returning capital to shareholders

The company does not pay its shareholders a dividend. However, management has been actively repurchasing shares as part of its normal course issuer bid (NCIB).

During the three months period that ended on Dec. 31, 2019, 0.6-million shares were repurchased. During the first month of calendar 2020, as at Jan. 29, 2020, 0.2-million shares were repurchased for cancellation.

On Jan. 30, management announced its plans to increase its NCIB to U.S. $46-million from U.S. $20-million, subject to the approval of the Toronto Stock Exchange.

Analysts’ recommendations

Since the company reported its first-quarter fiscal 2020 financial results, seven analysts have issued research reports, of which five analysts issued buy recommendations and two analysts issued neutral recommendations.

The firms providing recent research on the company are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, Cormark Securities, National Bank Financial, Raymond James, Scotiabank, and TD Securities.

Financial forecasts

All financial figures are expressed in U.S. dollars.

The Street is forecasting EBITDA of $49.7-million in fiscal 2020 and $55.4-million the following year. The consensus earnings per share estimates are 39 cents in fiscal 2020 and 45 cents in fiscal 2021.

Earnings forecasts have spiked higher. For instance, three months ago, the consensus EBITDA and earnings per share forecasts for fiscal 2020 were $29.9-million, and 25 cents, respectively.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 14.9 times the 2021 consensus estimate.

The average one-year target price is $16, suggesting the shares may realize a potential price return of 14 per cent over the next 12 months.

Revised recommendations

In Jan., six analysts revised their expectations – all higher.

· Robert Young, the analyst at Canaccord Genuity, increased his target price to $17 from $14.

· Cormark Securities analyst Gavin Fairweather lifted his target price to $16 from $13.50.

· Daniel Chan, the analyst at TD Securities, tweaked his target price higher to $16 from $15.50.

· Thanos Moschopoulos, the analyst at BMO Capital Markets raised his target price by $2 to $15.

· Scotiabank analyst Paul Steep hiked his target price to $15 from $14.

· Steven Li, the analyst at Raymond James, increased his target price by $3 to $16.

Insider transaction activity

The most recent trade reported by an insider occurred in Dec.

Between Dec. 19 and Dec. 23, Loren Cooke, executive vice-president and president of Solidifi, exercised his options, receiving 79,800 shares at a cost per share of $1.84, and sold 79,800 shares in the market at undisclosed prices, leaving 114 shares in this particular account. During these trading days, the stock traded at a low of $12.52 and a high of $13.18. Based on the lowest trading price of $12.52, net proceeds, not including trading fees, totaled over $850,000.

On Nov. 29, chief technology officer Ryan Smith exercised his options, receiving 60,000 shares at a cost per share of $1.692, and sold 200,509 shares at an undisclosed price. That day, shares traded at a low of $12.90, high of $13.75 and closed at $13.60.

This list features recent insider transaction activity; it does not convey total ownership information as an insider may hold numerous accounts.

Chart watch

Year-to-date, the share price has rallied nearly 14 per cent, making it one of the top performing stocks in the S&P/TSX consumer discretionary sector index.

On Monday, the share price closed at a record high of $14 on very high volume with nearly 2-million shares trading hands. This is well above the three-month historical daily average trading volume of approximately 838,000 shares.

Looking at key technical resistance and support levels, the share price is currently sitting at a ceiling of resistance (around $14). Should the stock price break and hold above $14, the next level of resistance is around $16. Looking at the downside, there is strong technical support around $12.

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 indices that have a minimum market capitalization of $200-million.

Technical analysis does not replace fundamental analysis, but can help identify companies worth having a closer look at.​

Positive BreakoutsFeb. 3 close
ABT-TAbsolute Software Corp $9.80
AQN-TAlgonquin Power & Utilities Corp $20.47
APS-TAptose Biosciences Inc $9.45
ATZ-TAritzia Inc. $25.46
ACO-X-TAtco Ltd $52.11
ACQ-TAutoCanada Inc $13.80
BAM-A-TBrookfield Asset Management Inc $82.36
BEP-U-TBrookfield Renewable Energy Partners LP $65.53
DOO-TBRP Inc $68.69
CGY-TCalian Group Ltd. $43.50
CU-TCanadian Utilities Ltd $41.26
CPX-TCapital Power Corp $36.59
CJT-TCargojet Inc $118.19
CDAY-TCeridian HCM Holding Inc. $100.04
CIX-TCI Financial Corp $23.59
CIGI-TColliers International Group Inc $110.13
CUF-U-TCominar Real Estate Investment Trust $14.81
BCB-TCott Corp $20.51
D-U-TDream Office Real Estate Investment Trust $32.90
ECN-TECN Capital Corp. $5.86
ENB-TEnbridge Inc $54.59
ENGH-TEnghouse Systems Ltd $53.50
GRT-U-TGranite Real Estate Investment Trust $72.47
GWO-TGreat-West Lifeco Inc $34.59
H-THydro One Ltd. $27.32
ISV-TInformation Services Corp. $16.59
INE-TInnergex Renewable Energy Inc $18.91
IFC-TIntact Financial Corp $144.45
IIP-U-TInterRent REIT $16.91
KXS-TKinaxis Inc $114.27
MTA-TMetalla Royalty & Streaming Limited $8.50
TPX-B-TMolson Coors Canada Inc. $77.10
NFI-TNew Flyer Industries Inc $32.03
NGT-TNewmont Corp. $60.51
NPI-TNorthland Power Inc $29.96
PPL-TPembina Pipeline Corp $50.89
PBH-TPremium Brands Holdings Corp $97.75
REAL-TReal Matters $14.00
SMU-U-TSummit Industrial Income REIT $13.11
TRI-TThomson Reuters Corp $107.30
X-TTMX Group Ltd $124.27
TA-TTransAlta Corp $9.95
RNW-TTransAlta Renewables Inc $16.92
TWC-TTWC Enterprises Ltd. $13.77
UNS-TUni-Select Inc $12.79
WCN-TWaste Connections Inc. $130.96
Negative Breakouts
AIM-TAimia Inc $3.30
ASR-TAlacer Gold Corp $5.89
ALS-TAltius Minerals Corp $10.53
BIR-TBirchcliff Energy Ltd $1.71
CHE-U-TChemtrade Logistics Income Fund $9.10
CHR-TChorus Aviation Inc $7.73
CJR-B-TCorus Entertainment Inc $5.00
CPG-TCrescent Point Energy Corp $4.22
DRT-TDIRTT Environmental Solutions $3.40
ERF-TEnerplus Corp $6.67
EXE-TExtendicare Inc $8.20
FTT-TFinning International Inc $22.86
FR-TFirst Majestic Silver Corp $13.04
FN-TFirst National Financial Corp $38.05
HBM-THudBay Minerals Inc $3.92
IMO-TImperial Oil Ltd $30.67
IPCO-TInternational Petroleum Corp. of Sweden $4.67
LAS-A-TLassonde Industries Inc $137.36
LUN-TLundin Mining Corp $6.93
MX-TMethanex Corp $41.81
NEPT-TNeptune Wellness Solutions Inc. $3.01
RFP-TResolute Forest Products Inc. $4.22
VII-TSeven Generations Energy Ltd $6.54
SJR-B-TShaw Communications Inc $25.84
SCL-TShawCor Ltd $10.40
TOY-TSpin Master Corp. $31.47
SU-TSuncor Energy Inc $40.03
SPB-TSuperior Plus Corp $11.51
WTE-TWestshore Terminals Investment Corp $16.00

Source: Bloomberg

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