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Wave of downgrades, price target cuts engulfs AGF

Blake Goldring, CEO of AGF Management

Yvonne Berg/The Globe and Mail

Market Blog's roundup of some of today's key analyst actions

It was an ugly third-quarter for AGF Management Ltd. And it got uglier Thursday as analysts slashed their ratings and targets for the beleaguered fund company.

It was bad enough that AGF missed consensus earnings estimates of 19 cents a share for its core investment business, and reported that investors had yanked $2.4-billion in assets from the company. But it then stunned analysts with fourth-quarter guidance that there were $1.5-billion in net redemptions in the pipeline from institutional investors.

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Analysts were expecting net outflows in emerging market portfolios run by its former star manager Patricia Perez-Coutts, who left to join rival Westwood Holdings Inc. They weren't prepared for investors to flee quantitative portfolios run by AGF's Highstreet Asset Management subsidiary.

BMO Nesbitt Burns analyst John Reucassel, the only Bay Street analyst who has an "underperform" -- effectively a sell rating -- on AGF, cut his one-year target to $9.50 a share from $10.50. "Near-term fundamentals remain weak for AGF as flows remain in net redemptions, and costs (as well as asset mix) keep pressure on margins," he wrote.

Canaccord Genuity analyst Scott Chan downgraded AGF to a "hold" from a "buy" rating, and chopped his one-year target to $11.50 a share from $14. He expects more redemptions in AGF Emerging Markets, the mutual fund formerly run by Ms. Perez-Coutts. National Bank Securities analyst Shubha Khan also cut his target to $11.50 a share from $12. "AGF is currently navigating through a period of heightened risk," he warned. "Erosion of institutional investors continues to weigh heavily on the stock."

CIBC World Markets analyst Paul Holden, who reduced his 12 to 18-month target on AGF to $12.50 a share from $13, noted that AGF lost 5 per cent of its assets in the quarter from redemptions. "We need to see that cut to something closer to 1.5 per cent before we can get more positive on the name," he wrote. "There is no easy fix and time is working against management given the pace of asset erosion."

It's not all doom and gloom. AGF, which received $422-million from selling its trust subsidiary to Laurentian Bank last month, is still able to pay its quarterly dividend of 27 cent a share. And the asset manager has pledged to keep buying back its shares. That should provide some support for its battered stock.

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Raymond James analyst Ben Cherniavsky downgraded Heroux-Devtek Inc. to "market perform" from "outperform" due to recent share price appreciation. The stock has almost doubled year-to-date, partly because of its decision to sell its aerostructures and industrials businesses to Precision Castparts. "With some lingering uncertainty about how much of the $7.50 (per share) of cash raised from this transaction will ultimately be distributed to shareholders, we feel a more neutral stance on the stock at this level is appropriate," he said.

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Downside: Mr. Cherniavsky reiterated a price target of $13.50.

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With a fuel supply that exceeds blending obligations in the U.S. for 2012, fundamentals in the biodiesel market have deteriorated, noted National Bank Financial analyst Rupert M. Merer. He expects this to have a negative impact on Biox Corp.'s earnings and revenues in coming quarters, and downgraded the biodiesel producer to "sector perform" from "outperform."

Downside: Mr. Merer cut his price target to $1.15 from $1.35.

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National Bank Financial analyst Heather Kirk initiated coverage of Partners Real Estate Investment Trust with a "sector perform" rating. "We believe the REIT is well positioned to take advantage of strong capital markets and lever its real estate expertise to grow Partners into a large Canadian retail REIT," she commented. But the stock has already gained 18 per cent year to date.

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Upside: Ms. Kirk set a target price of $8.80.

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With an attractive balance of fundamentals and capital allocation to shareholders, Time Warner Cable Inc. "remains an appealing PayTV vehicle for investors," commented Canaccord Genuity analyst Thomas Eagan. "Since TWC is a pure-play cable operator, its results are somewhat more predictable than its peers and could benefit more directly from a turn-around in the housing market," he said.

Upside: Mr. Eagan raised his price target to $114 from $96 (U.S.).

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

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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