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Workers are seen at Yamana's Minera Florida mine in Chile.VICTOR RUIZ CABALLERO

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

Pengrowth Energy Corp. (PGF-T) is "getting over the hump," according to BMO Nesbitt Burns analyst Ray Kwan.

He initiated coverage of the Calgary-based company with a "market perform" rating.

"Since the onset of the commodity downturn, Pengrowth has been studious in addressing its debt issue: net aggregate debt has fallen by 19 per cent over the past year and is expected to be $1.59-billion by year-end 2016 (from $1.957-billion in 2015) via capex reductions, monetization of FX hedges, core/non-core asset sales, and the suspension of its dividend," said Mr. Kwan. "Still, the company faces various near-term challenges, including over $600-million of debt maturities in 2017 and a potential covenant breach over the next 12–18 months at current strip prices."

Without further asset sales, Mr. Kwan projects Pengrowth to breach its debt covenants in mid-2017. He said the company's alternative financing options include equity, sale of a Gross Overriding Royalty on production, a midstream sale, drilling funding and further terming of debt.

"We also suspect its lending syndicate will be fairly accommodating in the low commodity environment, potentially loosening the debt covenant restrictions for a short period, as the company looks for additional financing options," he said. "Given the company's leverage, we view Pengrowth as a highly speculative investment, but with significant optionality if the company is able to solve its debt problem combined with a more favourable crude backdrop."

Mr. Kwan set a price target of $2.25 for the stock. The analyst consensus price target is $1.86, according to Thomson Reuters.

"We believe the debt 'narrative' for Pengrowth is already priced into the shares and the company has meaningful leverage to the upside in a rising oil price environment," he said.


Canaccord Genuity analyst Tony Lesiak sees continued momentum in Yamana Gold Inc.'s (YRI-T, AUY-N) growth story.

"While the North American gold sector struggles to maintain production levels, Yamana currently boasts a 22-per-cent board-approved (RDM, Cerro Moro, C1 Santa Luz, Barnat) growth rate to 2019 with a number of medium- (Chapada expansion, Gualcamayo Deep Carbonates) to longer-term (Upper Beaver, Odyssey, Hammond Reef, Suyai, Monument Bay, Agua Rica, Jeronimo, La Pepa) growth opportunities in the pipeline," he said.

"Despite the much improved balance sheet and our forecasts for rising FCF [free cash flow], obviously not all these opportunities will be pursued, with Agua Rica, La Pepa and Jeronimo potentially monetized, in our opinion, to provide some funding relief. We also view YRI as the potential buyer of the other 50-per-cent of Upper Beaver from [Agnico Eagle Mines Ltd., AEM-T] as the asset is not currently of sufficient scale to co-develop and AEM already has a stacked development pipeline.

In a research report, Mr. Lesiak noted several development opportunities for the company, which he believes could add $3-billion to its net asset value (NAV).

"Yamana recently provided an exploration update which highlighted potential for mine-life extensions at Chapada, Gualcamayo, Jacobina and Minera Florida, all with improving (undiluted) grade profiles," he said. "The Chapada expansion option appears to be gaining further critical mass, with new higher-grade drill results from Sucupira, Chapada main and the newly discovered Formiga deposit (15km from Chapada). Yamana also recently hosted a technical session focused on its Canadian portfolio. The session highlighted YRI's enhanced technical capabilities across all disciplines, the strong working relationship with CMC partner Agnico Eagleand, moreover, the numerous development (Barnat, Odyssey, Upper Beaver, Hammond Reef and Monument Bay) and generative exploration and NAV enhancement opportunities, some of which we discuss in detail in this report. Collaborative efforts between Chapada and Malartic have already brought benefits with Chapada positioned for a near-term rebound after a difficult Q2/16."

He called Yamana's shares a "top performer" in 2016, outperforming its sector peers by 44 per cent in the year to date. Despite that jump, he noted it still trades at a 21-per-cent discount on a price-to-NAV basis and 31 per cent on a price-to-cash flow basis.

Maintaining a "buy" rating, he raised his target to $10.50 from $10. The analyst consensus price target is $8.23, according to Thomson Reuters.


Northern Blizzard Resources Inc. (NBZ-T) provides investors with a means to leverage higher heavy oil prices, according to BMO Nesbitt Burns analyst Ray Kwan.

However, Mr. Kwan said he expects the stock to underperform its peers unless it is able to offset its dilution via a dividend cut and halting its Stock Dividend Plan or by resuming growth.

He initiated coverage of the stock with an "underperform" rating.

"Northern Blizzard is nearly 94-95 per cent exposed to medium/heavy oil crude and its products are priced near the Western Canadian Select (WCS) benchmark," said Mr. Kwan. "The company also trades inexpensively, at 6.1x 2017 estimated EV/EBITDA (strip) versus peers at 9.5x, and provides investors with a greater-than 11-per-cent dividend yield. On the negative side, including the Stock Dividend Program (SDP), which is operating at a 75-per-cent participation rate, equity dilution is running at 8 per cent per annum at the current share price, pushing production per share in the negative territory (5-7 per cent in 2017/2018)."

Mr. Kwan emphasized the company's link to crude oil prices, noting any downturn, like the one seen in 2015 and 2016, would have a significant impact on cash flow and bring "further" strain to its balance sheet "if the pace of development is not moderated and/or dividends are reduced."

"Northern Blizzard uses WTI oil contracts to protect against movements in oil prices and WCS differential contracts to protect the realized price movements against changes in heavy oil diffs," he said. "Note that approximately 63 per cent of Northern Blizzard's gross production is hedged at $80/bbl (Canadian) WTI for 2016 and 51 per cent at $69/bbl WTI for 2017."

He added: "Northern Blizzard's corporate production of greater-than19,000boe/d is 94-95 per cent exposed to mostly medium/heavy oil grade crude. If crude oil prices were to increase from strip prices today of $51 (U.S.)/bbl for 2017 to $65/bbl, assuming a WCS differential of $15/bbl, we would expect Northern Blizzard's funds flow to increase approximately 20 per cent. Alternatively, for every $1.00 (Canadian)/bbl increase in WCS crude, Northern Blizzard's cash flow could increase 5 per cent. Note that Northern Blizzard has hedged 51 per cent of its gross production at $69 (Canadian)/bbl WTI, limiting the company's cash flow upside potential, at higher crude prices."

He set a price target of $4 per share. The analyst consensus is $5.08.


Canaccord Genuity analyst Kimberly Hedlin raised her target price for Parex Resources Inc. (PXT-T) in reaction to an operational update released on Thursday.

Parex said it plans to "accelerate" its drilling program, expecting to spud and/or test 16 wells by the end of 2016.

Ms. Hedlin raised her adjusted and diluted earnings per share projections for 2016 and 2017 to $1.38 and $2.61, respectively, from $1.30 and $2.58. Her net asset value per share estimates rose to $14.50 and $15.10 from $14 and $14.7.

She raised her target for the stock to $20 from $17. Consensus is $17.59.

"We believe our target reflects a reasonable risked value for the upcoming drilling program, along with a reasonable trading multiple when compared to our Domestic E&Ps; currently Parex trades at a 2017 estimated EV/DACF [enterprise value to debt-adjusted cash flow] multiple of 5.8 times which is below the junior/intermediate average of 7.4x. We estimate that PXT is trading at 1.5x its adjusted 2016 estimated 2P NAV, versus the domestic average of 1.6x. With a number of material potential catalysts on the horizon and significant torque to higher oil prices, we maintain our buy recommendation on Parex."

At the same time, Credit Suisse analyst David Phung raised his target to $19.50 from $16 with an "outperform" rating.

"We believe Parex's business has never been operationally stronger and execution has been remarkably smooth, while upside potential appears clear," he said, adding: "We believe Parex remains the strongest company in our international E&P coverage space."


In other analyst actions:

Deutsche Bank's Jorge Beristain upgraded Franco Nevada Corp. (FNV-N, FVN-T) to "hold" from "sell" and raised his target to $74 (U.S.) from $62. The consensus is $69.82.

He said: "Royalty/streaming companies are sensitive to interest rates, and we believe they will remain lower-for-longer globally, combined with Franco-Nevada's proven low cost of equity, we are now applying 4.5 per cent (previously 5.5 per cent) as a Weighted Average Cost of Capital (WACC). This is lower than Silver Wheaton (5 per cent) to recognize Franco-Nevada's greater diversity of assets and commodities, and royalty/stream split. We like Franco-Nevada's business model but believe the equity is fairly priced on NAV and is trading on 27 times enterprise valyue to 2017E estimated EBITDA."

Elsewhere, Dundee analyst Brian Kristjansen cut Crescent Point Energy Corp. (CPG-T) to "neutral" from "buy" and raised his target to $24.50 (Canadian) from $22.75. The average is $26.25.

Macquarie analyst David J. Konrad downgraded JPMorgan Chase & Co. (JPM-N) to "neutral" from "outperform" and lowered his target to $70 (U.S.) from $72. The average is $70.63 (U.S.).

Wells Fargo & Co. (WFC-N) was cut to "sell" from "hold" by analyst Richard X Bove. He lowered his target to $44 (U.S.) from $51, compared to the average of $53.15. at Rafferty.

Secure Energy Services Inc. (SES-T) was rated new "buy" by Cormark Securities analyst Jason Zhang. He set a 12-month target price of $11.50 (Canadian) per share. The average is $11.31.

Tamarack Valley Energy Ltd. (TVE-T) was rated new "buy" at Cormark Securities by analyst Amir Arif with a target price of $5.75. The average is $5.02.

Wunderlich analyst Jason A Wangler raised Chesapeake Energy Corp. (CHK-N) to "buy" from "hold" with a target increase to $10 (U.S.) from $6. Consensus is $5.29.

Alembic Global Advisors analyst Matt J. Summerville downgraded AO Smith Corp. (AOS-N) to "neutral" from "overweight" and raised his target to $93 (U.S.) from $85. The average is $98.10.

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