Inside the Market’s roundup of some of today’s key analyst actions
Desjardins Securities analyst Benoit Poirier raised his financial projections for BRP Inc. (DOO-T) in response to the release of retail sales numbers that displayed stronger-than-expected market demand and the announcement of a new production facility in Mexico to meet increased demand for side-by-side vehicles.
Mr. Poirier said the move to spend $185-million on a facility in Mexico, which is targeted to be operational in the fall of 2021, is a “strong commitment” by the Quebec-based company to gain market share within the SSV market.
“The investment will enable BRP to reach a market share of 30 per cent for SSVs versus 20 per cent currently, providing $1.0-billion of incremental revenue in the long term (based on our estimates),” he said.
To reflect “stronger-than-expected” retail demand and “the opportunity to replenish dealership inventory,” Mr. Poirier increased his 2021 and 2022 revenue estimates to $5.1-billion and $5.5-billion, respectively, from $4.7-billion and $5.3-billion. His EBITDA projections rose to $654-million and $727-million from $549-million and $699-million.
Maintaining a “buy” rating, he increased his target for BRP shares to $64 from $57. The average on the Street is $57.50.
“Overall, we are pleased with the strong retail numbers and view BRP’s investment as a strong commitment that management is focused on increasing its SSV market share, a key lever for value creation,” the analyst said. “We continue to like the name and remain confident that BRP’s long-term growth opportunities should create further value for shareholders.”
FirstService Corp.‘s (FSV-Q, FSV-T) acquisition of a controlling interest in Rolyn Companies Inc. is one of its “more meaningful deals over the past few years,” said RBC Dominion Securities Matt Logan.
On Thursday before the bell, Toronto-based FirstService announced its subsidiary Global Restoration Holdings has acquired the commercial and large loss restoration services provider in the Mid-Atlantic region of the United States. Terms of the transaction were not disclosed, however, Mr. Logan estimates an estimated value of roughly $60–70-million.
“In our view, the transaction complements FSV’s Global Restoration business with the ability to provide a full range of disaster recovery, restoration, remediation, and decontamination services, including COVID-19,” he said. “The investment equates to 4 per cent of our 2021 estimated EBITDA and over 60 per cent of our $95-million forecast acquisition volume over the next 18 months.”
“Thematically, the acquisition expands Global Restoration’s footprint into the Mid-Atlantic region and strengthens it in the Southeast. It also deepens the Company’s expertise in healthcare and other commercial verticals, including hospitality, government, and education. Notably, the transaction was in FSV’s deal pipeline prior to the onset of the COVID-19 pandemic. Given the specialized nature of healthcare restoration services (e.g., infection control, mold and environmental remediation, specialty reconstruction), Rolyn operates with slightly higher margins, and in more defensive end markets vis-à-vis Global Restoration. Over time, we see FSV leveraging Rolyn’s expertise and building out similar healthcare service offerings across its platform.”
Mr. Logan maintained a “sector perform” rating and US$95 target for FirstService shares. The average on the Street is US$95.25.
Elsewhere, Raymond James analyst Frederic Bastien raised his target to US$115 from US$100, keeping an “outperform” rating.
Mr. Bastien said: “FirstService wasted no time deploying part of the equity raised from Durable Capital earlier this spring. The firm announced the acquisition of the Rolyn Companies, a commercial and large loss restoration services provider with an annual revenue run-rate of about $75-million. To us, this switch from defense to offense is further evidence management has better visibility on the direction of the business in a post-COVID world. Amid an uptick in leads and new contract wins recently, we are confident FirstService can stay nimble, capitalize on revenue opportunities and cement its leadership of North America’s highly fragmented property services market. Based on this improved outlook and the Fed’s pledge to keep rates low, we are raising our FSV target.”
CIBC World Markets’ Sumayya Syed raised her target to US$110 from US$93 with an “outperformer” rating (unchanged).
Ms. Syed said: “The addition of Rolyn Companies furthers FirstService’s large loss and commercial restoration footprint by adding the U.S. mid-Atlantic region. Rolyn’s expertise in the healthcare, education and government sectors also adds to FirstService’s commercial restoration account relationships. Since acquiring Global Restoration last year, FirstService has continued to expand its commercial restoration platform through tuck-under acquisitions in a highly fragmented market, and we view this transaction as strategically aligned with the company’s focus on essential property services that are uncorrelated with the economic cycle.”
Raymond James analyst Michael Glen thinks Goodfood Market Corp. (FOOD-T) will provide investors with a “definite look” at what its path to positive EBITDA will look like when it releases its third-quarter results on Wednesday.
“Recall that with the reported 3Q subscriber count of 272,000 provided earlier in June, Goodfood also provided qualitative commentary surrounding: 1. Significantly higher order rates and basket size from existing members; 2. some gross margin pressure related to operational challenges/higher costs (food and labour related); and, 3. offsets to the gross margin pressure coming from lower marketing spend,” he said.
For the quarter, Mr. Glen is projecting an adjusted EBITDA loss of $0.6-million, exceeded the consensus on the Street of a $1.25-million loss.
“Outside of the numbers, we believe investors will be heavily focused on any commentary regarding how subscriber and customer behaviour has trended so far in 4Q (historically FOOD’s seasonally weakest period),” he said. “Additionally, we will be very focused on commentary regarding the marketing/advertising spend and how management will look to allocate such spend in future periods. Pre-COVID, marketing expense represented the largest component of SG&A at 55-65 per cent of the overall figure (i.e., $41.5-$48.0-million of LTM at 2Q). As such, any adjustments to the overall strategy on the Marketing spend/budget could have important implications for that path to profitability.”
Keeping an “outperform” rating, Mr. Glen increased his target for Good Food shares to $5.90 from $5.40. The average is $5.59.
“Despite what we consider to be very strong structural tailwinds (i.e., a real online grocery business with dedicated fulfillment centres), solid balance sheet (FOOD finished 2Q20 with cash and equivalents just under $70-million), and ongoing investment initiatives to support significant future growth (i.e., recent Vancouver facility opening and new facility announced for Toronto), Goodfood stock continues to lag its global peers. Looking at share price performance through 1H20, while FOOD stock was up a respectable 59 per cent, HelloFresh (HFG-XE) was 117 per cent, Marley Spoon (MMM-AU) 585 per cent, Blue Apron 311 per cent,” the analyst said.
After integrated Semafo Inc.‘s assets into his operating assumptions, Haywood Securities analyst Geordie Mark raised his target price for Endeavour Mining Corp. (EDV-T) following the completion of the merger of the companies on July 1.
“With the transaction now complete, Endeavour is formally positioned to become the largest West-African domiciled gold producer and is anticipated to boast a production profile that resides within the top 15 producers globally,” he said. “The combined entity is expected to benefit from a stronger cash flow profile supported through a larger and more diverse low-cost production base comprised of 6 producing assets (reducing operations and value risk), access to greater liquidity sources through a larger balance sheet, a more attractive capital markets profile and stronger liquidity, which overall, we expect to warrant a premium within the West African producer space.”
“With the new asset portfolio, augmented balance sheet and prevailing gold price, the initiation of a maiden dividend over the near term could be possible.”
With a “buy” rating, his target for Endeavour rose to $44 from $34. The average on the Street is $39.41.
“In our view, EDV’s shares continue to offer shareholder value in a higher gold price environment given the now larger and more diverse asset base, organic growth catalysts (upcoming resource updates from Kari Area at Houndé and Le Plaque at Ity) and improving fundamentals through near-term delivery of FCF supported by Ity CIL, Houndé, Mana and Boungo,” said Mr. Mark.