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Shoppers at the Dollarama store in Toronto. (Deborah Baic/The Globe and Mail)
Shoppers at the Dollarama store in Toronto. (Deborah Baic/The Globe and Mail)

Another Dollarama dividend hike coming: analyst Add to ...

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

Expect a further dividend hike shortly at Dollarama Inc., says Industrial Alliance Securities analyst Neil Linsdell, who forecasts another strong quarter of earnings from the retailer when results are released on Friday.

The Street is expecting Dollarama to report earnings before interest, taxes, depreciation and amortization of $118.6-million in its fiscal third quarter, up 21.4 per cent from a year ago, with earnings per share rising to $1.01 from 84 cents.

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That solid growth points to more cash coming to shareholders, suggests Mr. Linsdell.

“With industry leading gross margins of over 37 per cent, net income of over $170-million and free cash flow of over $120-million last year, the balance sheet has improved dramatically since the company went public in 2009, with net debt improving from $440-million to $231-million in Q3, despite the company spending $100-million on its share buyback,” he said in a research note. “This allowed the company to institute a 9 cent a quarter dividend in June 2011, with an increase to 11 cents/qtr in April 2012.

“We believe that we could see another dividend increase early in 2013.”

Target: Mr. Linsdell maintained a $67 price target and a “buy” recommendation. The average price target among analysts is $69.82, according to Bloomberg data.

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The market environment was largely positive for Canadian life insurers in the first quarter, with both equity markets and government yields rising.

But despite a positive outlook for first-quarter earnings, the decline in global equity valuations and government yields at the start of the second quarter – unless they reverse – may limit upside in the performance of insurance companies such as Manulife Financial Corp., said Barclays analyst John Aiken.

Target: Mr. Aiken maintained a $15 price target and “overweight” rating on Manulife. The Street average is $15.73.

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A partially owned subsidiary of SNC-Lavalin Group Inc. has been awarded a two-year contract to perform engineering services for Yanbu Aramco Sinopec Refinery, a joint venture between Saudi Aramco and China’s Sinopec, for undisclosed terms.

“Although we do not expect this contract to have a material impact on the company’s results or share price, the announcement demonstrates the traction SNC has achieved in its relationship with Saudi Aramco and should remind investors of the company’s promising prospects in Saudi Arabia,” said Desjardins Securities analyst Pierre Lacroix. “Indeed, we understand that SNC is currently bidding for contracts related to the construction and expansion of other refineries within the country.”

Target: Mr. Lacroix maintained a $52 price target and “buy” rating. The average target on the Street is $47.79.

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Oppenheimer & Co. analyst Jason Helfstein trimmed his forecasts on Facebook Inc., believing that the increasingly rapid transition to mobile use could bring lower prices for advertising and tougher monetization for the social network.

He now sees first-quarter revenues of $1.5-billion, down from $1.6-billion, and expects earnings per share of 14 cents - down a penny from his previous prediction.

He added that consensus estimates on Facebook have been declining since December 2012, and they could start to trend upwards once the first-quarter results are out of the way.

Target: Mr. Helfstein cut his price target by $1 to $32 and reiterated an “outperform” rating. The average analyst target is $33.44.

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Premier Royalty Inc. is “an-and-coming competitor in the royalty space that holds a quality portfolio, including several cornerstone assets that are currently cash flowing,” said CIBC World Markets analyst Jeff Killeen.

He recommends the company as a “quality investment” in the sector that receives cash royalties from producing gold projects, especially given its plans to continue to grow through acquisitions.

Target: Mr. Killeen initiated coverage with a “sector performer” rating and $2.20 price target. The average price target of the three analysts who cover the stock is $2.

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @ eyeonequities

Follow on Twitter: @eyeonequities

 
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