Inside the Market

Analysts tune in for Sirius XM dividend

The Globe and Mail

Inside the Market's roundup of some of today's key analyst actions

Canaccord Genuity analyst Aravinda Galappatthige raised his target price Tuesday on Canadian Satellite Radio Holdings Inc. after it joined the growing ranks of dividend payers.

On Monday, the parent of Sirius XM Canada Inc. initiated a higher-than-expected quarterly dividend and a special cash payout. It will pay a quarterly dividend of 0.0825 cents a share [annual dividend of 33 cents] for its Class A subordinate voting shares.

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“This is certainly a surprise for us,” Mr. Galappatthige, who raised his one-year target to $6.30 a share from $5.60. “We were expecting a dividend closer to 20 cents a share, representing an implied 50 per cent payout.”

The new quarterly dividend translates into a payout ratio of 80 per cent for the current year given an estimate of 41 cents in free cash flow for 2013, the analyst said in a report. “We believe the primary motivation for the fairly high payout ratio is the cash balance.”

The company, which last year merged the Sirius and XM services in Canada to cut costs, also announced a quarterly dividend of 0.0275 cents per Class B voting share. And there is a special dividend of 0.0825 cents per share for the Class A holders, and 0.0275 cents per share for Class B stock.

Canadian Satellite Radio finished fiscal 2012 with $51-million in cash, but there are few meaningful acquisition opportunities and it cannot pay off senior notes until 2014 without incurring a penalty, he said. Including the dividends, he forecasts the cash balance growing to $60.7-million at the end of fiscal 2013 and $83-million in fiscal 2014.

TD Securities analyst Vince Valentini, who maintained his target at $6.50 a share, said the dividend moves could be a precursor to a secondary equity issue by one or more of the main shareholders. This would be a welcome development “as we believe that the float needs to be increased to attract a larger pool of investors,” he wrote in a report. “This story keeps getting better, in our view, and we do not believe it is too late for small-cap investors to climb on this bus – or should we say rocket.”

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The oil and gas exploration company Raging River Exploration Inc. “continues to exceed expectations, setting the stage for a strong 2013,” said BMO Nesbitt Burns analyst Jim Byrne. “We believe Raging River should trade at a premium to its peers given continued strong operational performance, the company’s high growth rate, top-tier balance sheet and management’s track record.”

Upside: The analyst, who maintains an “outperform” rating, raised his one-year target by 25 cents to $3.50 a share.

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A gold-copper deposit in Guyana owned by junior miner Sandspring Resources Ltd. will ultimately prove economic, but “given the current market conditions, we do not expect Sandspring to be able to fund full development in the short term,” said RBC Dominion Securities analyst Michael Curran.

Downside: The analyst, who maintains an “outperform” rating with speculative risk, cut his one-year target by 50 cents to $1.00 a share.

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The recent pullback in ARC Resources Ltd. stock should provide oil and gas producer investors with a better buying opportunity, said TD Securities analyst Roger Serin. “We believe that the company remains on track to pay its dividend, while providing long-term production growth and maintaining a strong balance sheet.”

Upside: He raised his rating to a “buy,” and raised his one-year target price by $1.00 a share to $27.

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Real estate consultancy Altus Group Ltd. has spent the past year on improving operations and reducing debt after the 2011 acquisition of Argus Software, said CIBC World Markets analyst Stephanie Price. “We believe the 60-cent-a-share dividend is safe, and forecast a 58 per cent payout in 2013.”

Upside: The analyst, who maintains a “sector performer” rating, raised her 12-to-18-month target by 25 cents to $9 a share.

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