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Kinross acquired the Tasiast gold mine in Mauritania in 2010.

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

The management of St-Hubert Group can offer "significant" expertise in assisting the growth of Cara Operations Ltd.'s (CAO-T) other endeavours in Quebec, according to BMO Nesbitt Burns analyst Peter Sklar.

Following the Thursday announcement that Cara has acquired the Quebec-based rotisserie chicken chain for $537-million, Mr. Sklar upgraded his rating for Cara to "outperform" from "market perform," citing the strategic opportunities brought on by the deal.

"Cara expects to achieve $10-million of annual run-rate synergies within three years, primarily from procurement and cost reduction," he said. "In terms of financing, Cara indicated that while it has debt capacity, it may consider an equity issuance of $200-million 'depending on market conditions.' We have assumed that Cara issues $200-million of equity and we calculate the acquisition would positively impact earnings by 26 cents per share (15-per-cent accretion), assuming full-year contribution and pro forma the full $10-million of synergies."

Mr. Sklar feels combined businesses will provide "a more meaningful national roll-out" of its food retail business, citing the potential for selling its brands through grocery chains.

He raised his target price for the stock to $34 from $29. The analyst average target price is $35.39, according to Bloomberg.

"We believe this acquisition will lift the overall longer-term growth rate of Cara," he said.


Following the release of its economic study and expansion plan update for its Tasiast mine in Mauritania, Raymond James analyst Phil Russo upgraded Kinross Gold Corp. (KGC-N, K-T) to "outperform" from "market perform."

On Wednesday, the Toronto-based company announced it was set to proceed with the first stage of a two-part expansion of the facility.

"We view the outcomes of the Tasiast economic study favourably for a brownfields operation with the culmination of a de-risked, phased approach that delivers increased production, improved costs and positive economics, the optimal result for the asset," said Mr. Russo. "Our previous position was predicated on dual uncertainties at a sub-$1,100/ounce gold price environment, those being the outlook for Tasiast longer-term (and at a greater scale) since the mine bleeds cash at lower prices, and the timing in bridging the valuation divide on its Nevada acquisitions. With gold prices some $150–$200/oz higher since and Tasiast now moving forward, Nevada becomes less of a focus. Coupled with a stronger gold tape and recent equity issuance, the balance sheet is well-positioned to support both phases of Tasiast, whose impact to Kinross' overall profile is significant."

Mr. Russo said Tasiast will have a "significant impact" on the company's operating profile.

"The studies outlined production and cost outcomes of 409-777 koz annually with all-in sustaining costs (AISC) ranging from $760/ounce Phase 1 to $665/oz in Phase 2," the analyst said. "We now estimate a more manageable consolidated production decline for Kinross of 11 per cent from 2016 to 2020, a significant improvement from our previous estimate of a 27-per-cent decline."

"At $1,200/oz, Phase 1 outlined a net present value (NPV) of $635-million and an internal rate of return (IRR) of 20 per cent. The combined phases demonstrated an NPV of $885-million and 17-per-cent IRR. Including both phases into our model post release of the studies at our price deck of $1,275/oz, we see a combined NPV of $1.03-billion and an IRR of 20 per cent – above our previous carrying value for Tasiast of $523-million, which assumed no expansion, driving the increase to our target."

Mr. Russo bumped his target price for the stock to $5 (U.S.) from $4. Consensus is $3.97.


TD Securities analyst Aaron Bilkoski believes the business of Pengrowth Energy Corp. (PGF-T, PGH-N) is "fundamentally" overvalued given his commodity price outlook.

Though he said improving West Texas Intermediate (WTI) oil prices "very modestly help ease financial stress" and new investors "inspire" confidence, he downgraded his rating for the stock to "reduce" from "hold."

"Since publishing our last note (Feb. 26), Pengrowth shares have rallied by [approximately] 70 per cent," said Mr. Bilkoski. "This strong share price performance can, in part, be explained by the 17-per-cent improvement in the price of WTI and the disclosure that a prominent Canadian investor (Seymour Schulich) has recently accumulated nearly a 15-per-cent stake in the company. However, by year-end 2017, we forecast that production will decline 25 per cent versus Q4/15. Moreover, as hedges roll off, we forecast that cash flow will decline 50 per cent in 2017 (versus 2016 estimate) in spite of our forecast of improving crude oil prices."

Noting the company is "actively" marketing assets in an attempt to reduce debt, Mr. Bilkoski said "strong" sales metrics could provide a positive catalyst for the stock. However, he said there is a "glut" of conventional assets currently on the market and "creative mid-stream divestitures often come with the burden of increased cash costs in the form of take-or-pay commitments."

"Recall that earlier, Pengrowth had marketed an asset package with production from the greater Garrington/Olds area — but it did not receive a satisfactory bid," the analyst said. "Similarly, the 14,000 barrels of oil equivalent per day (BOE/d) Swan Hills package marketed in early-2016 was not able to generate sufficient bid prices to justify a sale.

"We believe that the recently announced infrastructure-only package is more likely to transact. In our opinion, the market for mid-stream assets (with take-or-pay commitments) remains strong and there is far less product for buyers to choose from. However, without additional details of the composition of the marketed package, it would be inappropriate for us to comment on potential valuation. From our experience, mid-stream transactions with take-or-pay commitments are roughly equivalent to an alternative financing arrangement at a rate of 10 to 15 per cent."

He maintained a price target of 90 cents. The analyst consensus price target is $1.30, according to Thomson Reuters.


The first-quarter drilling activity for PrairieSky Royalty Ltd. (PSK-T) appears to be "better than you think," said Raymond James analyst Jeremy McCrea, who predicted results could increase compared to the same period in 2015.

"Given commodity price weakness and the number of capex budget cuts that we have seen at the beginning of the year, there was a growing concern from investors around PSK's ability to maintain production (through its ability to attract new capital, shut-in of non-economic production, or sliding scale royalties)," the analyst said. "With commodity prices showing relative strength (and a couple operators indicating capex increases to take advantage of low costs), we decided to take a deeper look at activity on PSK's land. Against industry trends, spudding data shows that for the first two months of 1Q16, PSK actually saw an increase in spudding activity over 1Q15 (controlling for the acquisition of CNRL's land). As such, we suspect PSK may be able to surprise to the upside with its 1Q16 results (or at least dispel fears given the 26 million shares that are currently short the stock)."

He added: "The source of the increase is exclusively from the Viking group. PSK has already seen Viking activity increase by 20 per cent 1Q16/1Q15 and 36 per cent 1Q16/4Q15. After talking to management, it appears that the increase in drilling activity is a result of a number of third-party operators looking to access 'prime' Canadian Natural Resources Ltd. (CNRL) freehold lands, which CNRL had previously limited access to in order to keep this inventory for itself. With PSK operating this land as of Dec. 16, 2015, (post the CNRL acquisition), PSK noted that it has seen a number of expressions of interest of which will likely show up over the coming year."

Maintaining his "outperform" rating, Mr. McCrea raised his target price to $26 from $23.50 after increasing his drilling projections based on "higher than expected increased third party interest toward CNRL's freehold land."

The analyst consensus is $24.78.


The announcement of a substantial issuer bid from Callidus Capital Corp. (CBL-T)  following weaker-than-expected fourth-quarter 2015 results provides investors an "opportune exit point," said Dundee Securities analyst Maxim Sytchev.

He downgraded his rating for the Toronto-based company to "neutral" from "buy."

On Thursday, Callidus reported quarterly revenue of $48.5-million, in line with the projections of both Mr. Sytchev and the Street, but earnings per share of 15 cents fell significantly below both the analyst's estimate of 40 cents and the consensus of 43 cents.

"The miss on EPS was due to an increase in provisions related to a company called Gray Aqua ($22.7-million)," he said. "CBL has indicated that it has taken steps to improve/enhance its underwriting process which includes limiting loans made on collateral with long/uncertain time before liquidity, strengthening detail and timeliness of underwriting reporting, focusing on working capital financing, better compliance monitoring, new compensation structures for originators, etc.; the company will also look to receive increased comp (i.e. equity linked comp) in these circumstances."

The unexpected provision also contributed to declines in gross yield and return on equity.

With the results, Callidus announced an SIB of up to $50-million at $14 per share.

"In light of the SIB announcement, the stock moved up 30 per cent," said Mr. Sytchev. "While CBL continues to grow its loan book (doubling every 2 to 3 years) and is committed to surfacing value for shareholders, we remain mindful of valuation while not pinning the fundamental thesis on privatization alone."

The analyst lowered his target price to $14.50 from $19. The analyst average is $15.85.

Elsewhere, the stock was downgraded to "market perform" from "buy" by Cormark Securities analyst Jeff Fenwick with a 12-month target price of $13.75 per share (down from $14.50).


In other analyst actions:

ARC Resources Ltd. (ARX-T) was downgraded to "hold" from "buy" at TD Securities by equity analyst Travis Wood. The 12-month target price is $19 (Canadian) per share.

Canadian Natural Resources Ltd. (CNQ-T) was downgraded to "hold" from "buy" at TD Securities by equity analyst Menno Hulshof. The 12-month target price is $37 (Canadian) per share.

Capital One Financial Corp. (COF-N) was raised to "overweight" from "neutral" at JPMorgan by equity analyst Richard Shane. The 9-month target price is $83 (U.S.) per share.

WW Grainger Inc. (GWW-N) was downgraded to "hold" from "buy" at Stifel by equity analyst Robert Mccarthy.

Welltower Inc. (HCN-N) was downgraded to "sector perform" from "outperform" at RBC Capital by equity analyst Michael Carroll. The 12-month target price is $70 (U.S.) per share.

Interfor Corp. (IFP-T) was downgraded to "buy" from "action list buy" at TD Securities by equity analyst Sean Steuart. The 12-month target price is $17 (Canadian) per share.

Logan International Inc. (LII-T) was downgraded to "sector underperform" from "sector perform" at Peters & Co. by equity analyst Jeff Fetterly. The 12-month target price is 50 cents (Canadian) per share.

Netflix Inc. (NFLX-Q) was raised to "overweight" from "neutral" at Atlantic Equities by equity analyst Hamilton Faber. The 12-month target price is $130 (U.S.) per share.

OrganiGram Holdings Inc. (OGI-X) was raised to "buy" from "neutral" at Dundee by equity analyst Aaron Salz. The 12-month target price is $1 (Canadian) per share.

Parker-Hannifin Corp. (PH-N) was rated new "equal-weight" at Barclays by equity analyst Scott Davis. The target price is $116 (U.S.) per share.

Paramount Resources Ltd. (POU-T) was downgraded to "reduce" from "hold" at TD Securities by equity analyst Travis Wood. The 12-month target price is $4.50 (Canadian) per share.

Resolute Forest Products Inc. (RFP-N) was downgraded to "reduce" from "hold" at TD Securities by equity analyst Sean Steuart. The 12-month target price is $4.75 (U.S.) per share.

Saputo Inc. (SAP-T) was downgraded to "hold" from "buy" at TD Securities by equity analyst Michael Van Aelst. The 12-month target price is $42 (Canadian) per share.

Teck Resources Ltd. (TCK.B-T) was raised to "buy" from "hold" at TD Securities by equity analyst Greg Barnes. The 12-month target price is $12.50 (Canadian) per share.

TEGNA Inc. (TGNA-N) was downgraded to "underweight" from "equal-weight" at Barclays by equity analyst Kannan Venkateshwar. The target price is $21 (U.S.) per share.

Teranga Gold Corp. (TGZ-T) was raised to "buy" from "market perform" at Cormark Securities by equity analyst Kyle Mcphee. The 12-month target price is $1 (Canadian) per share.

With files from Bloomberg News