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

After Intact Financial Corp. (IFC-T) pre-announced after the close of markets on Thursday that its catastrophe (CAT) losses for the second quarter would be about $104-million after tax, or about 75 cents per share, Desjardins Financial lowered its second quarter operating earning estimates. It cut them to $1.24 per share from $1.61 per share.

“The CAT losses were driven by three storms involving ice, rain and wind in central Canada in April/May. Two-thirds of the losses were concentrated in personal property and most of the remainder was in the commercial lines. We had forecast $62.5-million pre-tax, or $46.5-million after-tax ($0.33/share), of CAT losses in 2Q18. The delta versus our estimate adds up to about $0.42/share,” said analyst Doug Young.

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“While we were not surprised by the higher CAT losses given the tougher weather conditions and management’s comments at the first quarter 2018 conference call, the impact was higher than we had anticipated,” he said.

“Our $100 target price and ‘sell’ rating are unchanged.” The median target price is $110, according to Zack’s Investment Research.

“Our investment thesis is unchanged. Our main concerns are: (1) headwinds in the Canadian personal auto market; (2) risks with the OB acquisition; and (3) valuation – IFC trades at 2.0x BV (book value) (ex. AOCI) (accumulated other comprehensive income). That said, IFC has a strong management team, low correlation with equity markets and a successful acquisition track record. We are maintaining our Sell rating,” he said.

CIBC kept its “neutral” rating on the stock and its $103 price target and cut its second quarter operating EPS estimate to $1.21 from $1.54. “Another quarter of below run rate earnings is not going to help the stock break out from the current sideways pattern,” said analyst Paul Holden.


PI Financial is initiating coverage on The Hydropothecary Corp. (HEXO-T) with a “buy” recommendation and a target price of $8.50.

HEXO is a licensed cultivator and seller of medical cannabis. Its is expanding capacity at its Gatineau, Que. facility to about 108,000 kg per year.

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“ HEXO’s supply agreement with the Société des alcools du Québec (SAQ) is the largest provincial supply agreement announced in the sector to date. We estimate the company’s backlog at about $900-million which provides the highest certainty on future cash flows from any LP currently in the industry,” said analyst Devin Schilling.

“Based on our selling price assumptions and HEXO’s projected capacity levels, we are forecasting sales to reach $94.3-million by FY19. We view our forecast as being very conservative as the SAQ agreement accounts for about 95 per cent of our FY19 volume forecast. Our sales forecast for FY20 is $209.5-million, a 122-per-cent increase over FY19 with the SAQ agreement now accounting for about 75 per cent of our FY20 volume forecast.”

“We believe HEXO represents good relative value in the cannabis sector. The company’s five-year supply agreement with the SAQ is larger than any of the provincial supply agreements announced to date, yet HEXO’s market cap is just a fraction of the industry heavyweights,” he said.

His target price of $8.50 “represents an EV [enterprise value]/EBITDA [earnings before interest, taxes, depreciation and amortization] of 21 times based on our FY20 estimates.”


After Brookfield Infrastructure Partners LP (BIP-UN-T; BIP-N) announced its deal with buy Enbridge Inc.’s (ENB-T) Canadian midstream business, Raymond James reaffirmed its “outperform” rating on the stock and his US$51 target price.

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“The asset purchases de facto replace the cash flows lost through the sale of the Transelec stake earlier this year, setting BIP up for accelerated growth in 2019. Based on this and the company’s broadly diversified FFO [funds from operations] profile, rock-solid balance sheet and healthy organic growth outlook, we continue to recommend the units as a core position in any infrastructure portfolio,” said analyst Frederic Bastien.

“BIP and its institutional partners will take over 19 natural gas processing plants with total operating capacity of 3.3 Bcf/d and 3,550 km of gathering pipelines for an enterprise value of $3.3-billion (or about 10 times forward EBITDA). Although we can’t exactly brand this transaction as deep value, it still fits comfortably within Brookfield’s target return thresholds. BIP expects its 30 per cent equity investment of $500-million to return an FFO yield of 13 per cent going in, and potentially rise pending positive LNG developments further out.”

“Late last month, AT&T became the third U.S. telecom giant to offload transfer data centre co-location operations and assets (to BIP in this case) in a deal worth $1.1-billion. Once the deal closes, expected by year-end, Brookfield will not only gain a well diversified portfolio of high-quality assets, but also retain AT&T as an anchor tenant,” the analyst wrote.

“We derive our valuation of US$51 using a target yield of 4 per cent on our 2019 CDPU [cash distribution per unit] forecast of $2.04. This is lower than the units’ five-year average of 4.2 per cent but justified in view of BIP’s utility-like features, above-average long-term growth outlook and strong management,” he said.

The median target price is US$47.


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Theratechnologies Inc. (TH-T) reported second quarter results “that were in line with consensus, but modestly below our expectations on a slower initial sales ramp for Trogarzo,” an antiretroviral for patients with multidrug resistant HIV-1, said Canaccord Genuity analyst Neil Maruoka.

However, he boosted his price target to US$14.50 from C$13 and kept his “speculative buy” rating. The median price target is $14.25, according to Zack’s Investment Research.

“Given that Trogarzowas only launched in the U.S. at the end of April, we are not concerned about the slight miss on the print. Revenue for the quarter was $12.3-million, compared to our estimate of $15.9-million and consensus at $12.7-million. Demonstrating the strength of Thera’s base business, sales of Egrifta grew 11.2 per cent year over year but 16.7 per cent on a constant currency basis, driven by volume and pricing increases.”

“Adjusted EBITDA came in at ($1.1-million) in the second quarter, below our estimate of $1.5-million but in line with the Street at ($1.1-million). We expect as the company continues to ramp up its sales force for Trogarzo in the U.S., we will likely also see a positive impact on Egrifta sales in coming quarters. We believe that second quarter results are less relevant as investor attention remains focused on the commercialization of Trogarzo. Although the Trogarzo launch remains in its infancy, we believe reimbursement is strong (with 48 per cent of lives covered in the U.S.) and no rejected prescriptions thus far. With an estimated U.S. market opportunity of potentially more than $1-billion, we believe Trogarzo completes Theratechnologies’ transition to an HIV-focused specialty pharma company. We recommend investors accumulate on (profit-taking) dips as U.S. Trogarzo sales continue to ramp,” the analyst said.

“We value Theratechnologies using a DCF [discounted cash flow] analysis of the U.S. market opportunity for Egrifta and an explicit risk-weighted NPV [net present value] for Trogarzo in the U.S. and E.U. While the effect of our estimate revisions above is neutral to our valuation, we have also lowered the discount rate in our Trogarzo NPV (from 17 per cent to 15 per cent) to reflect growing visibility of the strong potential for this drug. As a result, we are raising our target price to US$14.50 (from C$13); our revised target represents a 20.6 per cent annualized return and continues to support our “speculative buy” rating. “


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Canaccord Genuity analyst Kevin MacKenzie has cut his price target on Barkerville Gold Mines Ltd. (BGM-X) to reflect recent results.

“We have updated our model of Barkerville Gold to reflect the results of the recently released Cariboo Gold technical report, current management guidance, and the company’s current financial position/market valuation. We lower our target to $1.25 from $1.50 to reflect the changes,” he said.

The published global resource for the Cariboo Gold project “of 3.75 million oz beat ourestimate of 3.16Moz, with the reported grade of 5.60g/t Au, slightly below that of our projected 5.75g/t Au. In reviewing the technical report, we note that that the resource estimate utilized an iterative three-pass capping structure, with increasingly lower caps with expanding search parameters. Overall, we expect infill drilling will contribute to a higher overall grade profile, this as a greater percentage of the resource will be captured by higher cap search parameters,” he said.

“We have updated our valuation of Barkerville to reflect: (1) the company’s Q1/18 financial position, (2) CG’s Q2/18 updated commodity/FX [foreign exchange] pricing assumptions, and (3) the results of the Cariboo Gold resource update and current management guidance. Through these adjustments, we derive an updated NAV [net asset value] of $1.23 per share (previously $1.47/sh) and a rounded target price of $1.25/sh (previously $1.50/sh). Our revised valuation is primarily the result of additional equity dilution pertaining to Barkerville’s current market valuation ($0.51/sh, previously $0.85/sh). We maintain our ‘speculative buy’ rating.”


In other analyst research:

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Canopy Growth Corp. (WEED-T) : Eight Capital raised its price target to $50 from $40.

Centerra Gold (CG-T): National Bank of Canada cut its rating to sector perform from outperform and cut its target price to $8.50 from $10.50.

CI Financial Corp. (CIX-T): TD Securities cut its price target to $25 from $27.

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