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

Industrial Alliance Securities analyst Naji Baydoun came away from recent virtual investor meetings with Northland Power Inc. (NPI-T) with a greater appreciation of its growth outlook, prompting him to revisit its valuation and leading to an upgrade of its stock to “buy” from “hold.”

“NPI’s continued push into select offshore wind markets in Asia remains the primary driver of future growth,” he said. “The Company’s 2.6GW development pipeline includes projects in various stages of development, the most advanced of which are the Hai Long offshore wind projects in Taiwan. Our preliminary financial estimates for Hai Long indicate that these projects could be worth more than $10 per share to valuation ($2 of which is now included in our price target). Furthermore, we believe that NPI will be successful in its pursuit of additional onshore renewable projects in select markets, which would further supplement its offshore wind-heavy growth profile.”

Mr. Baydoun said the Toronto-based company remains committed to its current dividend, however it’s priority remains reinvesting for growth, given the “substantial” opportunities ahead.

“We do not bake in any dividend increases in our forecast, and we expect NPI’s payout to remain within a sustainable 50-70-per-cent FCF [free cash flow] payout range,” he said. “From a longer-term perspective, further dividend increases could represent a catalyst for NPI’s shares as dividend increases are not currently being priced into investor expectations.”

“The company’s recent push into offshore wind has driven substantial growth while helping NPI develop its expertise in a niche market (offshore wind project development). At this time, NPI remains primarily focused on offshore wind development opportunities in select high-potential markets.”

Mr. Baydoun sees Northland on track to reach its financial estimates, including EBITDA of $1.1-1.2-billion and FCF of $1.70-2.05 per share, and he continues to forecast “healthy” single-digit FCF per share growth through 2024.

“However, we see potential upside to our estimates from further growth initiatives that could materialize over the next 12-24 months,” the analyst said. “From a longer-term perspective, NPI expects to generate 60-per-cent growth in EBITDA by 2026 (vs. 2018 levels), which implies EBITDA of more than $1.4-billion by 2026; growth over the 2020-26 timeframe is expected to be primarily driven by the Hai Long offshore wind projects. NPI has not yet fully disclosed the financial details related to Hai Long, and we continue to exclude these projects from our long-term financial estimates. However, given the Company’s previous success in offshore wind development, we believe that investors are becoming increasingly confident in NPI’s ability to successfully deliver on the Hai Long projects.”

Also calling capital recycling as an “attractive” source of funds, believing “current macro-economic environment remains supportive of infrastructure asset valuations, and that NPI’s low-risk contracted power assets would attract an abundance of suitors,” Mr. Baydoun hiked his target for Northland shares to $51 from $37. The average on the Street is $40.73, according to Refinitiv data.

“Overall, we view NPI as the best investment vehicle for investors to gain exposure to the offshore wind investment theme; NPI offers investors an attractive mix of (1) stable cash flows from contracted power assets (more than 2GW net in operation, 10-year weighted average contract term), (2) healthy FCF/share growth (5-7 per cent per year, CAGR 2019-24, excluding the Taiwan offshore wind projects), (3) longer-term potential upside from organic development activity, and (4) an attractive dividend profile (3-per-cent yield, 50-70-per-cent FCF payout over 2019-24). Given the potential upside to our revised price target, we are upgrading NPI,” the analyst said.


Following the release of “solid” third-quarter financial results, Desjardins Securities analyst John Chu thinks the pressure on The Valens Co.'s (VLNS-T) sales and earnings “should be over.”

“We have increased confidence that sales have troughed and should start to accelerate, which in turn should help stop the downward trend in EBITDA,” he said. “Valens has noted early success with several of its partners' 2.0 products but also sees a slower gross margin ramp-up.”

On Wednesday after the bell, the Kelowna, B.C.-based manufacturer of cannabinoid-based products reported sales for the quarter of $18.1-million, matching Mr. Chu’s projection and in line with the consensus estimate on the Street ($18.4-million). Adjusted EBITDA of $1.4-million topped expectations ($1.4-million and $0.8-million, respectively).

“Products sales were 83 per cent of total revenue in 3Q, up from 55 per cent in 2Q,” said Mr. Chu. “With demand for tolling services remaining weak, management expects product sales to represent over 80 per cent of total sales for the next few quarters. The company is also seeing some early success with some of its partners' products, which account for four of the top 15–selling brands by dollar value on the OCS website. A crumble product already ranks fifth in OCS concentrate sales dollars despite launching only in late September 2020. Management noted that initial provincial orders were small but have since increased in both size and frequency.”

Mr. Chu expects overall sales “start to ramp up” as product launches accelerate and sees the potential for margin upside in the coming quarters.

“The upcoming outdoor harvest should compound an already oversupplied market and drive flower prices down further, which we believe should result in a margin boost to Valens once it goes through its raw material inventory (not for a few quarters),” he said. “The early success of its partners' products and the larger volumes ordered by the provinces should lead to large processing batch sizes and improving overall production efficiencies (recall that prior quarters were hampered by small batch sizes, which required downtime for switchovers and negatively impacted margins). The ramp-up of the Kelowna and GTA facility expansions should act as near-term margin drags until capacity utilization improves.”

Maintaining his sales forecast, Mr. Chu trimmed his EBITDA outlook based on the expectation for higher expenses.

With that change, he lowered his target for Valens shares to $4 from $4.75, keeping a “buy” rating. The average target is $4.42.

“We are mindful that product mix (eg concentrates generate higher margins than vape sales) and lower-priced biomass feedstock could drive margins higher, but we are taking a conservative approach at this time,” he said.

Elsewhere, ATB Capital Markets' David Kideckel reduced his target to $4 from $5.30 with an “outperform” rating. It remains his top pick in the sector.

Mr. Kideckel said: “As Valens transitions to product sales and focuses on CPG customers, we believe that Canadian LPs — many of which have built in-house extraction — may provide a better comparison set as opposed to extractors. In this instance, we believe that Valens is better positioned than most, if not all, of its peers due to its business model which is asset-light (no cultivation assets), flexible (large breadth of products), and manufacturing-focused (no branding or cultivation). We note that Valens has reported positive operating cash flows (excl. changes in working capital) over the last six quarters. Considering all these factors, we believe Valens is trading at an attractive valuation with an EV/Sales FY21 estimate of 2 times, in the lower range vs. peers.”


Scotia Capital analysts Justin Strong and Robert Hope expects investors to look past third-quarter results for Canadian Utilities & Energy Infrastructure companies and focus both on the outlook for 2021 and beyond as well as potential consequences of the U.S. election.

“Since mid-August, returns have been driven by valuation expansion of the renewable stocks and compression in the pipeline/midstream space,” they said in a report released Friday. “We expect these trends to persist in the near term. Renewable valuations are benefiting from funds flows that should continue, though how much additional runway remains is unclear. We think the pipeline/midstream compression is overdone and provides an attractive entry point for longer-term investors. Our preferred group is the utilities as we believe ESG-friendly growth outlooks (in part driven by renewables) are not properly reflected in valuation.”

The analysts say they’re largely above-consensus on their third-quarter estimates for utility and power companies “as the hot summer should buoy demand and results.”

“We prefer a defensive positioning going into the U.S. election given the potential volatility surrounding the event,” they said. "Of the utilities, we see significant room for valuation expansion with ALA. The eventual sale of Mountain Valley Pipeline (which is inching toward construction) would improve the balance sheet; after this we see investor focus turning to the attractive utility growth profile. ENB is our favourite pipeline/ midstream name as we expect the valuation discount versus TRP to narrow as progress is made on the Line 3 Replacement project. Of the renewables we prefer BLX due to its strong financial position, low payout and attractive growth pros

Mr. Strong raised his target for Boralex Inc. (BLX-T, “sector outperform”) to $44.50 from $38.75. The average target on the Street is $38.53.

He hiked his target for Northland Power Inc. (NPI-T, “sector outperform”) to $45 from $39, exceeding the $40.73 average.

He increased his target for Innergex Renewable Energy Inc. (INE-T, “sector perform”) to $25.25 from $23. The average is $24.

“We have increased the multiples by which we value the wind, hydro and solar segments of the [companies'] business based on what we view as an improving sentiment for these energy projects,” the analyst said.

Mr. Hope increased his target for TransAlta Renewables Inc. (RNW-T, “sector perform”) to $17.50 from $16.50, which is the current consensus.

“Brookfield Renewable has one of the largest portfolios of renewable generation assets," he said. "We have seen its valuation expand as investors look for a large, liquid and growth-oriented renewable investment. Longer term we believe its global scale and low cost of capital position it well to capture additional renewable opportunities. For this reason we increase our target P/FFO multiple to 22 times from 19 times, which drives our target price increase.”


National Bank Financial analyst Dan Payne made a trio of rating changes on Friday.

He lowered Pipestone Energy Inc. (PIPE-X) to “sector perform” from “outperform” with an 85-cent target. The average on the Street is 92 cents.

He also downgraded Storm Resources Ltd. (SRX-T) to “sector perform” from “outperform” with a $3 target, up from $2.50 and above the $2.84 average.

Conversely, he upgraded Paramount Resources Ltd. (POU-T) to “sector perform” from “underperform” to $3 from $1.75. The average is $2.52.


CIBC World Markets analyst Stephanie Price raised her target prices for a group of Canadian tech companies on Friday.

“Heading into Q3, we highlight four names as being best positioned: 1) KXS, where demand for its supply chain planning solutions has translated into a solid backlog; 2) DCBO, which is benefiting from demand for e-learning, including recent contract wins (AWS, Walmart); 3) FSV, where we expect a record year of storm activity to drive restoration revenue; and 4) MSI, with its pandemic-related focus on employee wellness and engagement," said Ms. Price. "Software names under coverage posted an average return of 11 per cent in Q3 versus the TSX’s 4-per-cent return. Our business services names performed better than software for the first time this year, up 17 per cent. Most names under coverage saw positive quarterly returns, with Maxar up 39 per cent as the business continues to stabilize, and Docebo up 37 per cent amid continued demand for e-learning.”

Her changes include:

  • Open Text Corp. (OTEX-Q/OTEX-T, “outperformer”) to US$57 from US$56.50. The average on the Street is US$52.05.
  • Kinaxis Inc. (KXS-T, “outperformer”) to $288 from $230. Average: $236.26.
  • Information Services Corp. (ISV-T, “neutral”) to $20.50 from $20. Average: $20.25.
  • Docebo Inc. (DCBO-T, “outperformer”) to $69 from $60. Average: $61.43.
  • Descartes Systems Group Inc. (DSGX-Q/DSG-T, “neutral”) to US$63.50 from US$57. Average: US$60
  • Constellation Software Group Inc. (CSU-T, “outperformer”) to $1,865 from $1750. Average: $1,795.31.
  • Colliers International Group Inc. (CIGI-Q/CIGI-T, “outperformer”) to US$85 from US$75. Average: US$77.20.
  • Altus Group Inc. (AIF-T, “neutral”) to $47.50 from $43.50. Average: $50.83.


Thunderbird Entertainment Inc.'s (TBRD-X) “strong” fourth-quarter reinforces its “growth credentials,” according to Canaccord Genuity analyst Aravinda Galappatthige.

On Thursday, the Vancouver-based entertainment company reported quarterly revenues of $21.9-million, up 63 per cent year-over-year and above the analyst’s $17-million estimate. Adjusted EBITDA of $2.9-million jumped from $1-million a year ago and also topped the $1.3-million forecast.

“In our view, the Q3 and Q4 results highlight the solid underlying funnel of production opportunities at TBRD, particularly in kids,” the analyst said. “Management highlighted that through Q4 the company was in production for 19 shows commissioned by Netflix, NBCUniversal, PBS, WGBH, Corus, CBC, etc., of which 14 were animated. Notably, the company has a number of shows with Netflix currently including Last Kids on Earth (season II launched April 17), Hello Ninja (season II streamed April 24, season III July 10, 2020) and Kim’s Convenience. In the meantime, the factual division continues to be very strong with four series and one documentary in production during Q4. The flagship show Highway Thru Hell is in season 9 and now has two spin out shows.”

Keeping a “buy” rating, Mr. Galappatthige raised his target to $3.25 from $2.50. The average on the Street is $2.79.

“Based on the solid pipeline TBRD has in terms of demand both on the service and proprietary side, as well as the momentum we have been seeing in H2/20, we feel quite confident in projecting mid-teens EBITDA growth in F21/22,” he said. “Even beyond, as we consider the expanding role TBRD is achieving with major SVOD players (and other new platforms), the potential build up of the partnership model (e.g. Hello Ninja) where TBRD has rev share rights to service contracts, as well as the upside from merchandising with the initial products from Last Kids hitting the shelves (mainly digital shelves), we see the prospect of a sustained period of high growth.”


Russel Metals Inc. (RUS-T) is “ever-evolving to remain ahead of peers,” said Laurentian Bank Securities analyst Mona Nazir.

In a research report released Friday, she initiated coverage of the stock with a “buy” rating, saying it’s “value-add service offering drives higher price point per transaction and margin expansion” and touting both its “growth in a disciplined manner” through acquisitions and a “superior” dividend yield to its competitors.

“Russel’s 8-per-cent yield is significantly ahead of its peer group average of 1.2 per cent,” said Ms. Nazir. “The 38-cents per share quarterly dividend has remained in place and unchanged since August, 2014, despite ebbs and flows in FCF and debt levels, particularly during a low steel price environment and weakness in 2015. While its current trailing payout ratio is north of 100 per cent, due to energy weakness and the COVID pandemic, we believe that management’s refocusing efforts should yield results.”

“Russel’s geographic footprint, segment mix and broad base customer diversification ultimately limits downside risk. Each business segment, Metals Service Centers, Energy Products and Steel Distributors, has its own distinct customer base and business cycle. Russel’s customers end market industries include but are not limited to construction, machinery and equipment manufacturing, shipbuilding, mining and oil and gas. Operations and financial performance is not dependent on any single customer, as the company’s largest account equated to less than 3 per cent of total revenues in 2019.”

Ms. Nazir set a target price of $22 per share. The average on the Street is $20.58.


In other analyst actions:

* Believing its “above-market revenue growth justifies its premium multiple,” BMO Nesbitt Burns analyst James Fotheringham initiated coverage of Nuvei Corp. (NVEI-U-T) with a “market perform” rating and US$46 target.

“NVEI appears well-positioned for the ongoing shift in global payment preferences: from paper to digital, and from offline to online,” he said. “Shares are up more than 50 per cent since the IPO; our $46 target implies 16-per-cent further upside.”

“We also believe above-market growth is sustainable, given NVEI’s online focus, M&A opportunities to expand into higher-growth areas, exposure to high-growth gaming verticals, smaller scale, SMB exposure, and fully-integrated services and distribution capabilities.”

CIBC World Markets' Todd Coupland initiated coverage of Nuvei with an “outperformer” rating and US$58 ($76 Canadian) target.

“We believe Nuvei’s shares should be purchased. Nuvei, and its integrated payments solution, is a leader in a growth market. The company’s flexible, scalable, and global solutions are positioned to benefit from powerful trends in the payments industry,” he said.

* TD Securities analyst Cherilyn Radbourne raised her target for Ritchie Bros. Auctioneers Inc. (RBA-N/RBA-T, “hold”) to US$65 from US$56. The average is US$58.57.

* JP Morgan analyst Chris Turnure increased his target for Fortis Inc. (FTS-T, “neutral”) to $57 from $54 and Emera Inc. (EMA-T, “neutral”) to $58 from $57. The average targets are $59 and $61.14, respectively.

* National Bank' John Sclodnick initiated coverage of Pure Gold Mining Inc. (PGM-X) with a “sector perform” rating and $2.50 price target. The average is $1.99.

* In the wake of the resignation of Kyrgyzstan president Kubatbek Boronov on Thursday, Raymond James analyst Brian MacArthur cut his target for Centerra Gold Inc. (CG-T) to $19.50 from $23 with an “outperform” rating. The average is $20.40.

“While operations at its Kumtor mine continue uninterrupted (note the Kumtor mine is located in a remote mountainous location 430 kilometres by road to the southeast of Bishkek which appears to be the centre of the unrest) and historically the mine has continued to operate in times of uncertainty, given we believe there is greater political uncertainty now that the President has resigned, we are reducing the multiples used in out target price derivation,” he said. “We have also updated our 2020 estimate to reflect updated commodity prices and production forecasts.”

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