Iamgold’s Yatela mine in Mali
Inside the Market's roundup of some of today's key analyst actions. This file will be updated often during the trading day so check back for new details.
Capstone Infrastructure Corp.'s (CSE-T) agreement to sell itself to Icon Infrastructure Corp. for $480-million, or $4.90 per share, represents "good value" for the shares, said Desjardins Securities analyst Bill Cabel.
Noting the deal, announced Wednesday, represents a 44-per-cent premium on the last closing price for the stock and a 15-per-cent premium on his previous target price, Mr. Cabel moved his rating for the stock to "tender" from "buy."
"Based on our estimates, the offer implies a takeout at 11.2 times enterprise value to EBITDA; we believe this is an attractive multiple for the asset portfolio and compares well with the peer average of 11 times," said the analyst. "The offer price exceeds a level where most companies in our coverage (eg. Algonquin Power & Utilities Corp., AQN-T) could make the acquisition meaningfully accretive, which suggests good discipline by those companies."
Mr. Cabel raised his target price for the stock to $4.90 from $4.25. The analyst average target price is $4.37, according to Bloomberg.
"In our view, this offer represents an attractive takeout price," he said. "We believe that all potential and interested buyers were aware of the thorough sale process, and that a superior offer is unlikely. We believe holders should tender to the offer, take the strong return and redeploy proceeds into other attractive options in our coverage (eg. AQN, Boralex Inc., Northland Power Inc.)."
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In a research note on Canadian asset managers, Canaccord Genuity analyst Scott Chan lowered his target multiples to reflect market headwinds and lower sales traction following a year in which the stocks "significantly underperformed" benchmarks.
Mr. Chan noted the sector's stocks were down 17 per cent in 2015, compared to an approximately 8-per-cent fall for the S&P/TSX Composite Index. Thus far in 2016, his coverage universe has fallen another 17 per cent "as market sentiment within the segment remains weak."
"We believe valuations are unlikely to re-rate medium term due to a number of headwinds: (1) market downturn; (2) lower mutual fund flows; (3) margin pressure (management fee declines, higher costs); (4) regulatory environment; and (5) downward revisions leading to below average 2016 EPS growth," he said.
"As a result, we are lowering our target multiples across the board to reflect the current market environment. We believe the group should currently trade at a discount to its historical average due to the above mentioned headwinds. In certain cases, we were using premium target multiples."
His changes were:
- AGF Management Ltd. (AGF.B-T, sell) to $4.25 from $4.50. Consensus: $5.50.
- Aston Hill Financial Inc. (AHF-T, buy) to 60 cents from 75 cents. Consensus: 62 cents.
- CI Financial Corp. (CIX-T, buy) to $33.50 from $37. Consensus: $35.68.
- Fiera Capital Corp. (FSZ-T, buy) to $14 from $16.50. Consensus: $15.17.
- Guardian Capital Group Ltd. (GCG.A-T, hold) to $18.50 from $19. Consensus: $19.75.
- Gluskin Sheff + Associates Inc. (GS-T, buy) to $22.50 from $26. Consensus: $24.19.
- IGM Financial Inc. (IGM-T, buy) to $39 from $41. Consensus: $42.31.
- Sprott Inc. (SII-T, hold) to $2 from $2.20. Consensus: $2.46.
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There is cause for optimism at Iamgold Corp. (IAG-N, IMG-T), according to Raymond James analyst Phil Russo.
Following the release of the company's life-of-mine update, Mr. Russo upgraded the stock to "market perform" from "underperform."
"The LOM update across its producing assets were generally positive to net asset value versus our previous estimates as the optimization results saw shorter reserve lives and improved cash flow profiles," he said. "As a consequence, our projected fully-loaded all-in costs came down [about] 8 per cent, and while still above spot prices, the update better positions IAMGOLD to weather depressed commodity markets for longer."
Mr. Russo said the Toronto-based company's revised mine plans allow it to maintain an annual production plan of approximately 800,000 ounces until "at least" 2020, which he called "a notable improvement over our previous production profile, which declined over time." He added that his cash estimates have declined by about $55 (U.S.) per ounce from his previous estimates, a 7-per-cent reduction overall.
He called the LOM updates per mine "generally positive"; however, he said the "question remains execution."
"LOM updates at both Rosebel and Essakane generally outlined lower costs but with shorter mine lives, with Rosebel, in particular, swinging from a negative NAV to notably positive as its cost profile is lowered by 15 per cent to 25 per cent versus the previous LOM," the analyst said.
Mr. Russo raised his cash flow per share estimates for 2015 and 2016 to 41 cents and 25 cents from 36 cents and 18 cents, respectively.
He maintained a price target for the stock of $1.50 (U.S.). The analyst average is $1.55.
Meanwhile, Canaccord Genuity analyst Tony Lesiak raised his rating to "hold" from "sell" and bumped his target to $1.54 from $1.51.
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Though he called BRP Inc. (DOO-T) "the best house in a slower growth neighbourhood," BMO Nesbitt Burns analyst Gerrick Johnson lowered his estimates and target for the Ski-Doo maker.
"Since BRP reported better-than-expected third-quarter sales and earnings and lifted 2016 guidance on Dec. 11, the shares have declined by more than 30 per cent, coming under pressure owing to concerns over a lack of snow, Polaris's recent pre-announcement, and a nasty global stock market downturn that has punished discretionary stocks," said Mr. Johnson. "With BRP shares now trading at a price-to-earnings [ratio] of less than 7 times 2018 fiscal year EPS estimates, or less than 5 times EV/EBITDA, the market appears to be anticipating steep reductions in earnings estimates."
He added: "We think many of these concerns are overblown. We point out that snow conditions change from year to year, and the snowmobile segment has never been considered one of BRP's key growth drivers. Polaris, meanwhile, has many of its own company-specific issues, while BRP is more diversified with stronger areas of growth, like personal watercraft. However, additional caution is warranted given recent macro events, including steep declines in global stock markets and higher levels of economic uncertainty. If investors are of the mindset that the global economy is headed for a severe downturn, this is not the right stock to own. For those who have a more optimistic viewpoint, as we do, we think this is one of the top stocks in our group to buy at the moment."
The analyst lowered his EPS estimates for 2017 and 2018 to $1.95 and $2.20 from $2.15 and $2.50, respectively, noting, "We believe investors will be willing to apply to shares of BRP owing to recent macro events."
Maintaining a rating of "outperform" for the stock, his price target fell to $27 from $35. Consensus is $29.05.
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BMO Nesbitt Burns analyst Randy Ollenberger adjusted his financial estimates and target for Paramount Resources Ltd. (POU-T) in reaction to the company's operational update and fourth-quarter production volumes.
Paramount said it averaged 45,000 barrels of oil equivalent per day, compared to Mr. Ollenberger's estimate of 50,239 boe.d. The company also said sales volumes were affected by pipeline outages
Mr. Ollenberger lowered his 2015 cash flow estimate to 88 cents from 90 cents while raising his 2016 projection to $1.44 from $1.40. He estimates average production of 58,129 in 2016 and 75,506 in 2017.
Leaving his "market perform" rating unchanged, the analyst lowered his price target to $5 from $7 "due to the company's elevated debt levels." Consensus is $11.34.
"Paramount is taking steps to reduce its cost structure and continues to evaluate a potential sale of midstream assets, including its Musreau Plant," he said. "However, we remain cautious on the shares given the company's elevated debt load in the currently weak commodity price environment. Paramount trades at 10.5 times 2016 estimated enterprise value/EBITDA compared to the gas weighted peer group of 9.9 times. Our target price implies a 2016E EV/EBITDA multiple of 11.4x."
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In other analyst actions:
Avangrid Inc (AGR-N) was raised to "outperform" from "neutral" at Macquarie by equity analyst Andrew Weisel. The 12-month target price is $48 (U.S.) per share.
Progressive Waste Solutions Ltd (BIN-N) was raised to "outperform" from "sector perform" at RBC Capital by equity analyst Derek Spronck. The 12-month target price is $33 (U.S.) per share.
Fitbit Inc (FIT-N) was raised to "outperform" from "market perform" at Raymond James by equity analyst Tavis Mccourt. The 12-month target price is $25 (U.S.) per share.
Randgold Resources Ltd (GOLD-N) was raised to "buy" from "hold" at HSBC by equity analyst Patrick Chidley. The target price is $72.30 (U.S.) per share.
Hill-Rom Holdings Inc (HRC-N) was raised to "overweight" from "sector weight" at KeyBanc by equity analyst Matthew Mishan. The target price is $59 (U.S.) per share.
Kraft Heinz Co (KHC-Q) was raised to "positive" from "neutral" at Susquehanna by equity analyst Pablo Zuanic. The 12-month target price is $98 (U.S.) per share.
Newmont Mining Corp (NEM-N) was raised to "buy" from "hold" at HSBC by equity analyst Patrick Chidley. The target price is $21.10 (U.S.) per share.
Newfield Exploration Co (NFX-N) was rated new "outperform" at Imperial Capital by equity analyst Kim Pacanovsky. The 12-month target price is $27 (U.S.) per share.
Northern Trust Corp (NTRS-Q) was raised to "outperform" from "sector perform" at RBC Capital by equity analyst Gerard Cassidy. The 12-month target price is $75 (U.S.) per share.
SunPower Corp (SPWR-Q) was raised to "buy" from "neutral" at Janney Montgomery by equity analyst Michael Gaugler. The 12-month target price is $28 (U.S.) per share.
Square Inc (SQ-N) was rated new "market perform" at William Blair by equity analyst Robert Napoli.
Sensata Technologies Holding NV (ST-N) was downgraded to "market perform" from "outperform" at Wells Fargo by equity analyst Richard Kwas.
Transcontinental Inc (TCL.A-T) was raised to "outperform" from "sector perform" at National Bank by equity analyst Adam Shine. The 12-month target price is $22.50 (Canadian) per share.
VCA Inc (WOOF-Q) was raised to "outperform" from "market perform" at William Blair by equity analyst Ryan Daniels.
Xilinx Inc (XLNX-Q) was raised to "outperform" from "market perform" at BMO Capital Markets by equity analyst Ambrish Srivastava. The target price is $57 (U.S.) per share.
With files from Bloomberg News
David Leeder