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Blake Goldring, CEO of AGF Management (Yvonne Berg For The Globe and Mail)
Blake Goldring, CEO of AGF Management (Yvonne Berg For The Globe and Mail)

AGF’s only buy rating gone with RBC downgrade Add to ...

Inside the Market’s roundup of some of today’s key analyst actions. This post will be updated with more analyst commentary during the trading day.

RBC Dominion Securities Inc. analyst Geoffrey Kwan downgraded shares of AGF Management Ltd., saying the asset manager’s institutional business appears to be still experiencing net outflows.

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“The institutional business does not appear to be turning around as we had hoped,” but no dividend cut is expected because the company still has a healthy balance sheet, Mr. Kwan said Tuesday in a research report.

Mr. Kwan, the last analyst who still had an effective “buy” on AGF stock, has now reduced his rating to “sector perform.” There now nine hold and two sell ratings, according to Bloomberg data.

Toronto-based AGF, whose mutual funds have suffered from net redemptions for several years, was dealt a blow a year ago when Patricia Perez-Coutts – its star emerging markets manager – jumped ship to join the Canadian unit of rival Westwood Holdings Inc. She managed retail and institutional money.

“For significant share price appreciation from current levels, we believe there would need to be early signs of improving net redemptions at either the institutional or retail businesses or materially stronger equity markets,” he said, referring to the fact that AGF has a higher exposure to stocks among in its assets versus its peers.

When AGF reported its first-quarter results for the period ending Feb. 28, it had $19.3-billion in institutional and high-net-worth assets. At the end of April, those assets stood at $18.2-billion, while the S&P/TSX Composite Total Return Index shed only 1.8 per cent. That indicates that “AGF’s institutional business appears to be experiencing continued net redemptions,” he said.

In the first quarter, AGF reported that net outflows for its retail funds rose to $722-million from $680-million a year earlier. This period includes the key registered retirement savings plan [RRSP] season when mutual fund sales are usually the most buoyant.

Despite what appears to be weakening fundamentals, AGF’s have shares generated a year-to-date return of almost 30 per cent versus a 2.5-per-cent gain for the S&P/TSX Composite Index and 19.2-per-cent climb for the S&P/TSX Diversified Financials Index, he noted.

The strong performance for AGF shares this year “partly reflected AGF’s significant valuation discount to peers, an attractive 8.9 per cent dividend yield and better industry conditions,” Mr. Kwan said.

Target: The analyst reduced his target on AGF’s B share by $1 a share to $12. The average Street target is $11.10 a share, according to Bloomberg data.

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Perseus Mining Ltd. is on track to achieve near-term operating targets, but “longer term we expect Edikan [gold mine in Ghana] to face a more challenging outlook than the mine’s historical performance,” said Dundee Securities analyst Josh Wolfson.

Target: The analyst, who maintains a “buy” rating, cut his one-year target by $1 to $1.50 a share. The average Street target is $2.29 a share.

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RBC Dominion Securities analyst Dan Rollins downgraded junior miner Aurcana Corp. to “underperform” because of its “tight balance sheet” and the falling silver price. “We are cautious regarding Aurcana’s ability to meet its capital commitments and obligations through internally generated cash flow,” he said.

Target: He cuts his target by $1.70 a share to $3.50 a share. The average Street target is $5.91 a share.

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Euro Pacific Canada analyst Luisa Moreno cut her target on Orbite Aluminae Inc., saying she expects the clean-chemical processing company to raise funds through an equity issue that could mean share-price dilution. “At the current cash-burn rate, the company will need to raise additional funds within the next 12 months” or postpone the commissioning of its high-purity alumina plant, she said.

Target: The analyst, who maintains a “speculative buy” rating, reduced her target by $1.60 a share to $4.60. The average Street target is $3.17 a share.

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Conns Inc., which sells everything from home appliances to consumer electronics and furniture, is expected to generate average annual revenue growth of 21 per cent over the next five years with the help of its in-house financing program, said Canaccord Genuity analyst Laura Champine.

Target : The analyst, who maintains a “buy” rating, raised her target by $10 (U.S.) a share to $63. The average Street target is $50.88 a share.

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