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Pizza Hut (Hand-out/CNW Group)
Pizza Hut (Hand-out/CNW Group)

Eye on Equities

Hope for Scott's REIT after Priszm bankruptcy filing Add to ...

Investors in Scott's Real Estate Investment Trust aren't reacting kindly to the news that its biggest tenant, Priszm Income Fund , has filed for bankruptcy protection.

Units of the REIT fell nearly 6 per cent Thursday.

But Desjardins Securities Inc. analyst Jeff Roberts is taking a somewhat optimistic view after today's action by Priszm, better known as the franchisee for more than 400 KFC, Taco Bell and Pizza Hut restaurants in Canada.

He notes that Priszm said the filing will facilitate the previously announced sale of 231 restaurants in Ontario and British Columbia - 70 of which are owned by the REIT. It is also reviewing expressions of interest for the balance of its restaurants.

"We are hopeful that the potential sales will occur and that Scott's will end up with stronger tenants and more secure revenue," Mr. Roberts said in a note.

Priszm plans to continue to operate its restaurants and pay rent to Scott's while the bankruptcy restructuring plays out.

Late Thursday, Scott's REIT issued a statement that - not so surprisingly - also takes a positive view. "The (bankruptcy) filing facilitating the sale of Priszm's KFC and Taco Bell restaurants creates an opportunity for Scott's REIT to further diversify our tenant base and strengthen our property portfolio across Canada," chief financial officer Evelyn Sutherland said in the statement.

She noted that Priszm currently represents about 50 per cent of its tenant base.

Upside: Mr. Roberts continues to rate the units of Scott's REIT as a "hold-above average risk" with a $7.60 target price.

AGF Management Ltd. is seeing better-than-expected organic retail growth in assets under management. At the same time, its acquisition of Acuity Funds Ltd. is "tracking ahead of our expectations" and the full benefits of cost synergies and additions to AGF's bottom line should come next year, said Canaccord Genuity analyst Scott Chan.

Upside: Mr. Chan raised his target price by $2.50 to $20.50 but maintained a "hold" recommendation.

Agnico-Eagle Mines Ltd. has cut its production guidance at the Meadowbank gold mine in the Canadian Arctic after a fire at the site's kitchen this month. Agnico-Eagle reduced its work force and now expects 50,000 ounces less output for the year at the mine with cash costs rising by $100 per ounce.

Downside: RBC Dominion Securities Inc. analyst Michael Curran cut his price target by $3 to $88 (U.S.) but maintained an "outperform" rating.

Regardless of the outcome of its proposed takeover of rival drug company Cephalon Inc. , Valeant Pharmaceuticals Inc.'s is poised for large acquisitions in the next 12 to 24 months, said TD Newcrest analyst Lennox Gibbs. He bases his comments on Valeant CEO Mike Pearson's vision of aggressively pursuing scale. If Cephalon is acquired, "there is a reasonable chance" that it will become a complementary, accretive acquisition for Valeant, he added.

Upside: Mr. Gibbs upgraded Valeant to a "buy" from "hold" and raised his price target by $16 to $60 (U.S.).

Industrial equipment distributor Strongco Corp. reported earnings per share of 14 cents in the fourth-quarter, swinging from a loss a year earlier and beating expectations, noted Raymond James Ltd. analyst Ben Cherniavsky. Given that momentum is continuing to grow in key end markets, as well as other factors, "we encourage investors seeking exposure to a small-cap, turnaround growth story trading below fair value (less than 1.0x book) to invest in Strongco shares accordingly," he said.

Upside: Mr. Cherniavsky raised his target price by $1 to $6.

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