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

The fallout from “a packed regulatory slate” facing the Canadian telecom industry will likely “significantly improve visibility” for investors moving forward, according to Desjardins Securities analyst Jerome Dubreuil.

In a research report released Friday, he assumed the coverage of six companies within the sector, which he emphasized will be transformed by Rogers Communications Inc.’s (RCI.B-T) proposed acquisition of Shaw Communications Inc. (SJR.B-T), pointing to the “impact on future market dynamics, regulatory reviews, spectrum auctions and further M&A in the sector.”

“The major regulatory reviews currently underway have the potential to shape the industry for several years — a risk we believe is relatively well understood by the market,” he said. “These reviews are designed to assess whether it should be mandatory (and at what price) for wireless and wireline facilities-based network operators to provide access and capacity to operators that do not own networks. The CRTC’s decisions, which are expected to be published in 2021, are difficult to predict given the complex nature of the reviews. However, we believe the crucial role telecommunications networks have played amid the pandemic has likely improved the regulator’s view of the current framework—hence, reducing the likelihood of major changes.”

Despite the uncertainty brought on by the Rogers-Shaw deal and also pointing to the possible disruptions brought on by the acceleration of 5G and network convergence, the analyst sees the sector as “attractive” for investors.

“Overall, we estimate the sector is cheap at current levels for the following reasons. (1) We believe current sector valuations are not reflective of current low interest rates, which we believe favour capital-intensive companies with elevated yields, such as the telecom sector. (2) We believe the positioning of the sector vis-à-vis regulators has improved during the pandemic, which could lead to improved telecom valuations vs the rest of the market, in our view,” he said.

“While several regulatory reviews are ongoing, we believe regulators now have a more positive opinion of the companies in the sector following their accommodative response during the pandemic. We also believe regulators see the current framework more favourably as it produced highly resilient networks, which was evident in their stable performance despite the massive migration to work-from-home. (3) Canadian companies have maintained ownership of their wireless towers — highly strategic assets — which not all international peers have elected to do. Infrastructure assets (such as towers) are in great demand by money managers and, therefore, command very high valuations due to the stability of their cash generation; we believe the sector’s valuation does not fully reflect this. (4) In our view, access to quality broadband is now higher on the scale of staple products for households since the pandemic started, which we believe reduces the downside risk in the sector. Moreover, we believe surprises related to the pandemic are mostly in the rearview mirror, as only a small percentage of the industry’s revenue is still contingent on the full reopening of the economy (live sports and wireless roaming revenue). Most companies in the sector have provided guidance for 2021, which speaks to the relatively high visibility the telecom business provides in the current environment.”

Mr. Dubreuil assumed coverage of these companies in order of preference:

1. Telus Corp. (T-T) with a “buy” rating and $30 target. The average on the Street is $28.75, according to Refinitiv data.

“In our view, the recent increase in T’s valuation does not fully capture the additional value the company offers to shareholders through its large exposure to wireless and ownership of attractive growth platforms,” he said. “We believe the strong and forward-looking management team has positioned the company for long-term robust growth in connectivity, IT, health and agriculture, in addition to potential capex reductions.”

2. Quebecor Inc. (QBR.B-T) with a “buy” rating and $40 target. Average: $38.91.

“QBR is a strong operator with a long runway of wireless growth,” he said. “It is now the cheapest stock in the industry on an EV/EBITDA basis despite its track record of exceeding expectations and solid dividend growth prospects, which we believe could attract new investors. We believe RCI’s proposal to acquire SJR provides QBR with additional optionality with regard to an expansion into other provinces.”

3. Rogers Communications Inc. (RCI.B-T) with a “buy” rating and $74 target. Average: $68.92.

“RCI is among the cheapest stocks in the industry on an EV/FY2 EBITDA basis, despite its 2022 estimates likely being the most negatively affected by the temporary impact of the pandemic,” he said. “As we believe most of this impact will be temporary, this setup is attractive for share price outperformance, in our view. Moreover, we see strong FCF accretion potential from the proposed acquisition of SJR, which we believe will eventually be accepted by the regulators, with possible deal remedies. However, we do see risk in near-term results since the impact of the pandemic is likely more protracted than what was generally expected in January, the last time the Street significantly updated estimates.”

4. Shaw Communications Inc. (SJR.B-T) with a “buy” rating and $40.50 target. Average: $35.

“We believe the stock primarily trades on the probability that the takeout by RCI will be greenlighted by the regulators, which we see as quite likely given the limited regulatory risk on the wireline side of the deal and with the possibility that RCI divests SJR’s wireless assets,” he said.

5. BCE Inc. (BCE-T) with a “hold” rating and $61 target. Average: $60.03.

“While we believe BCE will continue to be a core holding for many funds, we believe it is too early to put an overweight tag on the stock,” he said. “We support the company’s strategy to accelerate its wireline network deployments, but its weaker medium-term FCF outlook (vs the past few years) and lack of near-term catalysts keep us on the sidelines at this point.”

6. Cogeco Communications Inc. (CCA-T) with a “hold” rating and $125 target. Average: $124.67.

“CCA’s management team is comprised of solid operators, as evidenced by the company’s industry-leading margins and FCF conversion of EBITDA,” he said. “However, the company now trades in line with its cableco peers despite its dependence on the regulators to launch a profitable wireless service and the increased competition for M&A in the U.S.”


The fundamentals for H2O Innovation Inc. (HEO-X) “remain compelling,” according to Canaccord Genuity analyst Yuri Lynk, who sees a recent pullback in share price as an “opportunity for investors.”

In the wake of sponsoring a virtual non-deal roadshow with the Quebec-based company, he raised his rating for its shares to “buy” from “hold.”

“As a water pure-play, H2O boasts a favourable long-term macro backdrop as the world’s water purification and wastewater treatment needs continue to grow,” said Mr. Lynk. “The company boasts strong underlying organic growth, improving FCF per share trends, and excellent financial flexibility.”

With its EBITDA margins continuing to improve, the analyst said management “sounded upbeat” about its outlook for all of its segments.

“Through strategic initiatives, including higher-margin sales and improving operating leverage, EBITDA margin reached 11 per cent LTM [last 12 months] through Q2/F2021, from 7 per cent in the comparable period of the previous year,” said Mr. Lynk. “Recall, the three-year strategic plan target is more than 11 per cent by F2023. The company also boasts attractive growth potential, planning to reach revenues of $175-250 million in FY2023, from $142 million LTM through organic growth and 2-4 acquisitions.”

“The company has a strong balance sheet and is in active discussions with 10 M&A targets. We estimate the company has a ~$42 million war chest composed of $28 million of additional debt capacity (Net-debt-to-EBITDA sits at 0.9 times, while management is comfortable going to 2.5-3.0 times) and $14 million dollars from 10 million in-the-money warrants. In addition, the company can often negotiate up to 30 per cent of the price paid over two to three years in earn outs. Thus, achieving the 2-4 acquisitions targeted by F2023 (1-3 remaining) is highly likely, in our view, and would imply further upside to our estimates.”

Mr. Lynk maintained a target for H2O shares of $3.25. The current average on the Street is $3.64.


Though its fourth-quarter results fell in line with his expectations and “showcase a reversion back to top-line growth after declining performance in the last two quarters,” Canaccord Genuity analyst Shaan Mir downgraded Sundial Growers Inc. (SNDL-Q) to “sell” from “hold” based on valuation concerns.

“In our view, focus should be on SNDL’s recent use of its ATM facility, registered direct offerings, and warrant exercises to amass a more than $700-million war chest (while eliminating $227-million of debt through FY/20) that now attractively positions the company to engage in inorganic strategic opportunities while funding growth in its base business,” he said.

After the bell on Wednesday, the Calgary-based company reported net revenue for the quarter of $13.9-million, up $1-million from the third quarter and narrowly higher than the analyst’s $13.6-million projection. Adjusted EBITDA of a loss of $5.6-million was down from a $4.4-million loss in the previous quarter and below Mr. Mir’s estimate of a $4.9-million deficit.

He sees Sundial’s “refocused” strategy beginning to show signs of “success,” noting: “Throughout 2020, SNDL reshaped its strategy to focus on the inhalables sub-category by divesting other non-core assets (e.g. Bridge Farm). Although we forecast inhalables to represent a declining proportion of industry sales over time, we believe the category will continue to represent more than 50 per cent of the market. As a result, Sundial’s largest immediate opportunity is in the domestic adult-use space, and we believe this refocus will be favourable for the company’s market share over time (2.7 per cent in FQ4/20).”

Mr. Mir raised his target for Sundial shares to 65 US cents from 40 US cents. The average on the Street is 76 US cents.

“While we account for factors known today in our valuation, there is potential for Sundial to deploy its large cash reserves into accretive opportunities and grow into its valuation over the longer term,” he said. “However, given current market conditions, and the opportunity present in the company’s operation today, we believe Sundial should trade at a US$1-billion market cap. Therefore, relative to its share price, we believe a downgrade is warranted (purely on valuation) and look forward to future updates on the deployment of capital.”.

Elsewhere, ATB Capital Markets analyst David Kideckel bumped up his target to 50 US cents from 45 US cents with an “underperform” recommendation.

“Sundial’s improved balance sheet and net cash balance give the Company flexibility to pursue opportunities that include not only investing in its own operations but also in M&A or equity/debt investments in other cannabis companies in Canada and internationally,” he said. “We believe that Sundial’s recent activities indicate that the Company is transitioning from a pure-play LP to a cannabis investment vehicle. However, given the headwinds in the Canadian cannabis market and our lack of visibility over the potential value creation from Sundial’s investing activities, we maintain our cautious stance on the stock. Should the Company provide greater visibility into its ‘outside-the-box’ mechanisms to drive shareholder value, this would be accretive to our investment thesis.”

Cowen and Co. analyst Vivien Azer hiked her target to US$1.50 from 30 US cents with a “market perform” recommendation


Following the release of in-line second-quarter 2021 financial results, Hexo Corp. (HEXO-T) maintained a strong market position in Canada as it “continues to make fundamental improvements after booking sizable impairments at the end of fiscal 2020,” said Canaccord Genuity analyst Derek Dley.

Before the bell, the Ottawa-based cannabis company reported revenue of $32.9-million, up 11.5 per cent from the previous quarter and ahead of the analyst’s $31.2-million projection. It also reported positive EBITDA for the first time of $0.2-million, matching Mr. Dley’s forecast.

“As a result, the company has maintained its #1 market position in Quebec and what looks to be the fourth-largest adult-use market share nationally in Canada,” he said. “During the quarter, management noted that its growth was supported by overall higher adult-use penetration as well as 11-per-cent sequential growth in its beverage products, where the company holds the #1 market share (43 per cent) in the category. Further, while this is part of its separate Truss JV with Molson/Coors, HEXO has launched its ‘powered by HEXO’ CBD beverage line in Colorado.

“Although aggregate retail numbers in Canada remain strong (at a current run-rate of $3.3–C$3.5-billion) and grew 19 per cent quarter-over-quarter throughout CY2020, we believe the highly competitive landscape for producers has resulted in an oversupply of infrastructure and inventory while dispensary locations are still in the process of ramping up to critical mass. As a result, we are not surprised to see even the leaders in the space underperform the above retail growth metrics with meaningful profitability still likely several quarters away.”

Keeping a “hold” rating for Hexo shares, Mr. Dley raised his target to $9.50 from $8. The average is currently $7.73.

“After a turbulent end to FY20 marred with material write-offs and dilutive financings, we believe the second quarter of FY21 represented another step in the right direction as HEXO continues to turn the corner,” he said. “With a clean and well-funded balance sheet, we believe HEXO is making strides to better right-size its operations with current market conditions.”

Elsewhere, Desjardins Securities’ John Chu raised his target to $8 from $5.40 with a “hold” rating, while CIBC’s John Zamparo cut his target to $13 from $13.50, maintaining an “outperformer” recommendation.

“It is refreshing to see a company hit its positive EBITDA timeline and that HEXO continues to progress in replicating its success outside Quebec. We expect HEXO to maintain momentum with near-term upside from a potential CPG partnership in edibles,” said Mr. Chu.

Separately, following its US$158-million acquisition of Massachusetts-based Cultivate, Mr. Dley raised his target for Cresco Labs Inc. (CL-CN) to $22 from $20.50, keeping a “speculative buy” rating. The average on the Street is $22.22.

“In our view, Cresco is well positioned to capitalize on the increasing acceptance of cannabis within its core states, boasts a best-in-class management team, and offers investors a differentiated cannabis opportunity through its focus on both wholesale and retail,” he said.


A group of equity analysts on the Street adjusted their target prices for shares of Alimentation Couche-Tard Inc. (ATD.B-T) following the release of its quarterly results.

Those making changes included:

* BMO Nesbitt Burns’ Peter Sklar to $44 from $42 with a “market perform” rating. The average on the Street is $48.04.

* National Bank Financial’s Vishal Shreehar to $47 from $49 with an “outperform” rating.

* Raymond James’ Bobby Griffin to $50 from $53 with a “strong buy” rating.

* CFRA’s Arun Sundaram to $46 from $49


Calling it “an Azure pure-play with payments upside,” Canaccord Genuity analyst Robert Young initiated coverage of Quisitive Technology Solutions Inc. (QUIS-X) with a “buy” rating.

“Quisitive is a Microsoft-only cloud solutions and consulting expert and is among the top 1 per cent of Microsoft’s cloud partner ecosystem,” he said. “The broader migration from legacy systems to the cloud is a secular trend that we believe Quisitive is poised to benefit from. Management estimates organic growth of 15 per cent and gross margins of 40 per cent or more in the medium term, which we view positively. Quisitive also provides exposure to software disruption of payments through LedgerPay, which is an Azurebased payments processing and data insights platform. With a bank sponsorship expected, an approved Microsoft co-sell status that leverages Microsoft’s sales network, and ample dry powder to acquire an ISO with scale, we believe LedgerPay is well positioned to scale exiting 2021. Quisitive provides a two-fold benefit from growing cloud and payments solutions industries.”

Mr. Young set a $2.30 target for shares of the Toronto-based firm. The current average target on the Street is $1.35.

“In our view, the company benefits from strong secular tailwinds from cloud migration accelerated by COVID-19,” he said. “Quisitive has aligned its interests with Microsoft, a strong horse in the cloud race. Microsoft’s Azure platform has seen strong growth as enterprises of all sizes and from all verticals and geographies turn to a trusted and familiar partner. We believe that Quisitive is well positioned to continue to distinguish itself as an important partner. Furthermore, the company is led by a seasoned management team with deep expertise in the Microsoft product ecosystem and particularly benefits from CEO Michael Reinhart’s strong ties with Microsoft’s management. Insiders including management and directors own 24 per cent of diluted shares outstanding, which we believe indicates strong alignment with shareholders.”


Paradigm Capital analyst Lauren McConnell sees several reasons why Gold Standard Ventures Corp. (GSV-T) is “positioned to outperform over the next year or the two.”

In a research report released Friday, she initiated coverage of the Vancouver-based company with a “speculative buy” rating, calling its 100-per-cent-owned South Railroad project in Nevada “straight forward and simple.”

“We believe Gold Standard Ventures is unique, as there are few undeveloped deposits capable of producing 100Koz per year for a low start-up cost, low project execution risk and attractive upside, and the supply decreases exponentially when a filter limits the search to “safe jurisdictions”. We believe the proposed development is an intelligent market friendly (low capex, low risk, low cost) option with a robust IRR, within a good jurisdiction (Nevada), and a valuation that offers attractive upside to investors as well as potential acquirers owing to the exploration upside that we see. In addition, we view the project as very much within the capabilities of the company to finance and build.

“The company is likely to pursue a strategy of acquiring other Development-stage heap-leach projects, taking advantage of today’s market where Development-stage assets are trading well below replacement cost. For example, our Takeover Twenty group of developers is currently trading at less than $72/oz of mineable resource, less than one-half of what we believe the replacement cost would be if a fleet of geologists was sent out into the field to make equivalent discoveries. Not to mention that it would take the geology team 3–5 years to develop its projects to the same stage as our typical Takeover Twenty project. In addition, the IRR to the acquirer (estimates the return from future cash flows that an acquirer might expect if it offered a 30-per-cent premium to the current share price) has increased to 15 per cent, and historically has been in the 5–6-per-cent range.”

She set a $1.50 target for Gold Standard shares. The current average is $1.78.


In other analyst actions:

* TD Securities analyst Graham Ryding cut Fiera Capital Corp. (FSZ-T) to “hold” from “buy” with an $11 target, down from $13 and below the $12.36 average.

* Scotia Capital analyst Trevor Turnbull downgraded Centerra Gold Inc. (CG-T) to “sector perform” from “sector outperform” with a $22 target, which exceeds the consensus by $3.

“Centerra announced the re-emergence of 2018 Kyrgyz tax claims that the company believes are exaggerated or without merit,” he said. “A large part of the claims were initially made, but then withdrawn or terminated in 2018. The company also notes that the majority of the claims are not applicable under the 2009 restated project agreements governing the Kumtor mine.

“In our opinion, this is a negative development due to the unorthodox nature of the claims (i.e., annulment of the previous 2018 decision to dismiss these claims so that they could be revived). We feel Kumtor has a strong legal case. However, we are concerned that the government’s approach could lead to a lengthy period of uncertainty at best, and a protracted and potentially escalating series of claims at worst. For example, in 2016, the government issued fines and made spurious environmental claims against Kumtor that led to mutual lawsuits and its funds being frozen. Eventually, an agreement was reached, but investors lost confidence in the rule of law and Centerra’s shares underperformed the peer group and largely did not participate in the 2016 gold rally.”

* Paradigm Capital analyst Daniel Rosenberg initiated coverage of Wishpond Technologies Ltd. (WISH-X) with a “buy” rating and $2.60 target. The average is $3.50.

“Wishpond is a SaaS provider of marketing technology,” he said. “The company supports small business owners who may not have the knowledge, resources or time to run a marketing program. Wishpond’s ability to deliver value to an under-served segment of businesses has led to strong growth and retention numbers. The company is growing rapidly at 30 per cent per year with industry-leading retention. Notable to us is that Wishpond provides this functionality and a full-service offering without compromising profitability. We see a meaningful opportunity for Wishpond to exploit this gap in the market as smaller businesses do not have a wholistic solution available at a very attractive price point.”

* Canaccord Genuity analyst Tania Gonsalves increased her HLS Therapeutics Inc. (HLS-T) target to $33 from $30.50 with a “buy” rating. The current average is $32.38.

“We reiterate our BUY rating and continue to believe our 9.5-per-cent peak market penetration estimate for Vascepa is conservative for three reasons: (1) for comparison, statins have achieved penetration of 40-50 per cent; (2) HLS has priced Vascepa attractively; and (3) Vascepa exhibits few safety issues apart from modest increased risk of bleeding and atrial fibrillation/flutter,” she said. “Together, we see no reason why Vascepa’s market penetration can’t approach that of statins.”

* RBC Dominion Securities analyst Keith Mackey raised his target for Step Energy Services Ltd. (STEP-T) to $1.75 from $1.50 with a “sector perform” rating. The average is $1.62.

* RBC’s Andrew Wong increased his Ag Growth International Inc. (AFN-T) target to $55 from $40 with an “outperform” rating. The average is $51.86.

* Raymond James analyst Stephen Boland cut his target for Dye & Durham Ltd. (DND-T) to $58 from $63 with an “outperform” rating. The average is $57.

* Scotia Capital analyst Phil Hardie increased his Power Corporation of Canada (POW-T) target to $38.50 from $38 with a “buy” rating, while CIBC World Markets’ Nik Priebe raised his target to $38 from $37 with an “outperformer” recommendation and Doug Young of Desjardins Securities moved his target to $37 from $24 with a “buy” rating. The average is $36.64.

“We are encouraged by the actions to simplify the corporate structure and improve communication, and we view valuation as attractive,” said Mr. Young.

* Mr. Priebe lowered his Fiera Capital Corp. (FSZ-T) target to $12 from $12.50 with a “neutral” rating, while National Bank Financial analyst Jaeme Gloyn raised his target to $12 from $11.50 with a “sector perform” recommendation. Desjardins Securities’ Gary Ho trimmed his target to $13 from $13.50 with a “buy” rating. The average is $12.78.

“4Q20 results were noisy and slightly below expectations,” said Mr. Ho. “The coming quarters will be a transitional period when management displays a more refined focus on its global distribution model and realigns operations. These efforts and the 2020 reorg should bear fruit in 2H21. We are encouraged by FSZ’s continued fund outperformance, deleveraging efforts and ramp-up in share buybacks. We reduced our estimates following the CNR disposition.”

* ATB Capital Markets analyst Kenric Tyghe increased his Trulieve Cannabis Corp. (TRUL-CN) to $78 from $73 with an “outperform” rating. The current average is $70.08.

* H.C. Wainwright analyst Heiko Ihle lowered his target for shares of Largo Resources Ltd. (LGO-T) to $25 from $28 with a “buy” rating. The average is $19.13.

* Morgan Stanley analyst Stephen Byrd raised his target for Algonquin Power & Utilities Corp. (AQN-N, AQN-T) to US$17 from US$16.50 with an “equal-weight” rating. The average is US$17.50.

* National Bank Financial analyst Richard Tse raised his target for Altus Group Ltd. (AIF-T) to $70 from $60 with an “outperform” rating. The average is $61.60.

* TD Securities analyst David Kwan lowered his Well Health Technologies Corp. (WELL-T) target by a loonie to $10, which is below the $11.78 average. He kept a “buy” rating.

* TD’s Daryl Young raised his Westshore Terminals Investment Corp. (WTE-T) target to $21 from $20, reiterating a “hold” rating. The average is $21.80.

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