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

Raymond James’ Kurt Molnar added Paramount Resources Ltd. (POU-T) to the firm’s “Canadian Analyst Current Favourites” list, replacing NuVista Energy Ltd. (NVA-T).

“We expect Paramount to perform well in response to the June 14 announcement of the Resthaven/Jayay asset sale for total consideration of $340-million,” said Mr. Molnar. “Paramount was paid more than $64,000 per barrel of oil equivalent per day (Boed) for assets that were non-core and getting no incremental capex while the whole of POU was only discounting a valuation of $29,000 per Boed prior to the announcement. We believe Paramount is very well positioned to aggressively attack a reduction of their share count under their NCIB at the same time they put up an aggressive production growth profile. We would not be surprised to see further material non-core asset sales which could serve as further potential catalysts for the stock.”

Mr. Molnar has an “outperform” rating or Paramount shares with a $26 target, which he raised from $25 in a separate research note. The current average target on the Street is $21.19, according to Bloomberg data.

“Earlier this year the market reacted negatively to the news that Paramount needed to add incremental liquids handling capacity at its Karr core asset due to the fact that liquids ratios (most importantly condensate) were surprising to the upside both on IPs and rates of decline,” he said. “The market reacted negatively to this news due to its impact on average expected production in 2018 and due to concerns about debt growth, while the market largely ignored the positive implications of greater liquids when it came to the outlook in 2019 and beyond. At the time, we noted we expected that the market would react negatively to this news but that the opportunity in that would be captured by Paramount if it could/would sell incremental non-core assets that would allow for more aggressive share repurchase into the expected stock market weakness.”

The analyst has a “strong buy” rating and $13.50 target for shares of NuVista, which exceeds the consensus of $11.57.

“We are removing NuVista from the Analyst Current Favourite List at this time and switching to Paramount as recent catalysts have led to more support for its immediate term valuation,” he said.

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Industrial Alliance Securities analyst Neil Linsdell raised his rating for Aecon Group Inc. (ARE-T) as “the dust settles” on their blocked takeover by CCCC International Holding Ltd.

In the wake of a 9.5-per-cent drop in share price following the Canadian government’s May 23 announcement of its decision to block the $1.5-billion acquisition, Mr. Linsdell moved Aecon to “buy” from “hold.”

“Aecon continues to capture its fair share of large, complex projects, including the Site C generating station and spillways civil works project, the Finch West Light Rail Transit project, and the REM Montreal light rail transit project,” he said in a research note released late Thursday. “The overall outlook for 2018 remains positive with areas of strength in Aecon’s infrastructure and recurring revenue businesses expected to outweigh the impact of a weaker environment for new large commodity and oil related projects (in the Industrial segment). All segments continue to bud on opportunities that should enhance the level of backlog and support the goal of improving profitability.”

Mr. Lindsell raised his target price for Aecon shares to $18 from $17.50. The average target is now $18.80.

“Aecon has now refocused its attention towards continuing as a public company, and has restarted a comprehensive CEO search with John Beck remaining as interim until a successor has been selected,” he said. “While pitching the CCCI offer, the company highlighted how the proposed transaction would have enabled it to be better able to compete with the many large global construction companies actively working in Canada. Although we are confident in Aecon’s ability to continue to win contracts and growth without CCCI, we are also anxious to see new management in place and the presentation of a long-term growth plan.”

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Shares of Enerplus Corp. (ERF-N, ERF-T) have been relatively overlooked, according to SunTrust Robinson Humphrey analyst Neal Dingmann, who feels U.S. investors still see it as a royalty/dividend paying Canadian company.

Mr. Dingmann initiated coverage of Enerplus with a “buy” rating and US$18 target, exceeding the consensus of US$15.06.

On Wednesday, Tudor Pickering’s Aaron Swanson also gave it a “buy” rating with a target for the TSX-listed stock of $19, calling the Calgary-based company a compelling investment opportunity despite an recent rise in share price.

The firm sees Enerplus in a strong position to compete for capital among North American small and mid-cap peers.

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Dream Hard Asset Alternatives Trust (DRA.UN-T) possesses a “uniquely diversified portfolio providing exposure to [a] top quality residential development pipeline, said Echelon Wealth Partners analyst Frederic Blondeau.

He initiated coverage of Toronto-based Dream, a mutual fund trust focused on hard asset alternative investments in real estate, real estate lending and infrastructure, with a “buy” rating.

“Dream Hard Asset Alternatives is a Trust that has dramatically evolved since its inception in 2014,” said Mr. Blondeau. “Between 2014 and 2017, management has been able to successfully reposition the trust’s portfolio through both extensive disposition and acquisition programs. DRA’s strategy was focused on recycling projects at low yields into projects with higher expected long-term growth and returns. Today, DRA’s proposition combines both yield and growth potential. We believe DRA represents a superior investment alternative for long-term investors, notably due to DRA’s portfolio

diversification through both income generating assets and a unique exposure to development projects. In addition, we believe the Trust’s relative valuation levels are compelling at the moment, taking into account the conservativeness of DRA’s balance sheet.”

The lone analyst current covering Dream, according to Bloomberg, Mr. Blondeau set a target of $8.25.

“Based on our forecast, bringing it from $8.8-million in 2017 to $17.8-million in 2018, we forecast moderate growth in FCF/unit between 2018 and 2019,” he said. “Currently, DRA’s Debt to Gross Asset Value (D/GAV) is 25.9 per cent. Our target price of $8.25/unit, combined with a dividend yield of 5.8 per cent, represents a potential 12-month total return of 24.6 per cent, which should be attractive to investors looking for a stable yield with growth.”

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Despite the release of “decent” second-quarter financial results on Thursday, Desjardins Securities analyst Benoit Poirier lowered his financial expectations and target price for Transat AT Inc. (TRZ-T) following a recent rise in fuel prices.

The Montreal-based company’s shares dipped 6.8 per cent on Thursday after it reported an adjusted loss of 12 cents per share for the quarter, beating Mr. Poirier’s estimate of a 30-cent loss and the consensus of 3 cents less. He attributed the result to the appreciation of the Canadian dollar.

Revenue of $902-million did miss the consensus expectation on the Street ($927-million) and Mr. Poirier’s projection ($941-million).

“For the transatlantic market (low season in winter), TRZ’s capacity is up 15 per cent year over year while the industry’s capacity is up 9 per cent,” the analyst said. “To date, 64 per cent of capacity has been sold. Currently, load factors are similar vs last year while pricing is slightly lower (down 1.0 per cent), as it has been difficult to pass recent fuel increases on to customers. According to management, higher fuel costs and currency effects will increase operating costs by 7.2 per cent if all else stays constant. Thus, TRZ expects weaker 2H FY18 results vs last year (adjusted EBITDA of C$122-million; we currently forecast $47-million). However, we note that price increases could offset some of this impact and provide some upside to our numbers (we forecast a minimal increase of 1.1 per cent in 2H vs 3.7 per cent last year).”

Mr. Poirier now projects an adjusted loss of 21 cents per share in 2018, falling from a 43-cent profit. His 2019 estimate is a 37-cent gain, down from 69 cents.

Maintaining a “buy” rating for its stock, his target fell to $15 from $18. Consensus is $12.56.

“Despite the weaker-than-expected outlook for 2H, we remain confident that TRZ’s hotel strategy will benefit shareholders over the long term,” he said. “In the meantime, we see the $440-million cash surplus (including Jonview) as downside protection. We still like the name in light of the strong upside potential to our target price (96 per cent).”

Meanwhile, CIBC World Markets’ Kevin Chiang lowered his target to $10 from $10.50, keeping a “neutral” rating.

Mr. Chiang said: “While TRZ benefits from a large cash position, its leisure travel operations remain under pressure while there is elevated near-term risk as the company embarks on its hotel strategy.”

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In other analyst actions:

TD Securities analyst Sean Steuart upgraded Innergex Renewable Energy Inc. (INE-T) to “buy” from “hold” with a target of $15.50. The average target is currently $16.

MORE TO COME

With files from Bloomberg News

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 27/03/24 4:00pm EDT.

SymbolName% changeLast
NVA-T
Nuvista Energy Ltd
+1.28%11.86
POU-T
Paramount Resources Ltd
+0.59%27.43
TRZ-T
Transat At Inc
-0.77%3.86
ERF-T
Enerplus Corp
+1.15%26.28
ERF-N
Enerplus Corp
+1.31%19.38
INE-T
Innergex Renewable Energy Inc
+4.12%8.08

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