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

Analysts so far appear to be taking the CRTC decision to force major telecom carriers to sell access to their networks in stride.

After a lengthy review, Canada’s telecom regulator announced late Thursday it will force the Big Three national wireless carriers and SaskTel to give access to their cellular networks to regional competitors who commit to building their own network infrastructure.

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The Canadian Radio-television and Telecommunications Commission came to its decision after determining that the three national carriers – BCE Inc.’s Bell Canada, Rogers Communications Inc. and Telus Corp. – together exercise market power in the wireless industry in all provinces except Saskatchewan, where Sasktel has sole market power.

Initial reactions from Bay Street suggest the decision won’t be overly damaging for the major telecom carriers. No changes to ratings or price targets have been spotted as of early morning Friday.

“Overall, we believe the limited number of companies potentially eligible for MVNO (mobile virtual network operator) access, as well as the mechanism set for determining MVNO rates, should largely protect the incumbents’ wireless return on invested capital,” Desjardins Securities analysts said in a note this morning. “Cogeco Communications and Shaw Communications appear to be initial winners of the decision. However, we highlight that a Cogeco Communications wireless venture would come with significant operational risk under the new regulatory framework.”

“We estimate the decision on MVNO sits in the middle of the range of potential outcomes and is similar to our previous expectations. We do see headline risk for incumbents following the decision, but we believe important details in the CRTC’s decision limit the potential profitability downside. Importantly, the CRTC is not directly mandating wholesale rates at this point, which we believe is a positive for larger carriers,” Desjardins Securities analyst Jerome  Dubreuil added.

While some uncertainty remains with regard to the potential impact of the new regulatory framework, we believe today’s decision reduces the importance of a significant overhang on the industry. As the CRTC appears to continue to favour facilities-based competition, we believe visibility on the future profitability of the sector is now improved.”

He broke down the key implications for each telecom as follows:

“BCE-T, RCI-B-T and T-T: We expect incumbents will now face slightly improved competition as mandated MVNO access and seamless network handoffs are likely to improve the experience of smaller companies’ customers. The decision is similar to our expectations on the MVNO front.

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CCA-T: While we believe it is probable that CCA will be eligible for MVNO access, wording in the CRTC’s decision leaves some ambiguity on the matter. We believe it could be tempting for CCA to invest significantly in a wireless network. However, we note that CCA would be a fifth wireless player in the markets we believe are attractive for the company (unless it acquires some of SJR’s wireless assets), thereby limiting long-term profitability prospects.

QBR-B-T. We believe the most immediate impact on the company is the increased competition for set-aside spectrum in Québec as the probability that CCA bids on these assets is now greater.

SJR-B-T. We believe the odds that the company’s acquisition by RCI will close are slightly higher following the CRTC’s announcement. Indeed, the new regulatory framework likely makes SJR’s wireless assets more attractive for potential buyers.”

BMO analyst Tim Casey said the decision was largely as expected.

“The long-awaited Wireless Review is notionally neutral to the sector,” Mr. Casey said in a note. “The ruling effectively keeps out truly disruptive players and preserves facilities-based competition in Canada. The decision also contains expectations, rather than obligations, for low-priced plans for low data users. The prioritization of regional operators confirms expectations that remedies will be required for the Rogers+Shaw transaction.”


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Credit Suisse analyst Andrew M. Kuske upgraded Innergex Renewable Energy Inc. (INE-T) to “outperform” from “neutral” but trimmed his price target by $2 to C$30.

He expects some near-term “noise” for the stock - partly due to the adverse weather conditions in Texas earlier this year - but in the longer term believes Innergex is well positioned to grow its asset base. Recent weakness in its share price also means there’s an opportunity now for investors to buy the stock at attractive risk-reward levels relative to other renewable names, he said.

“For the year-to-date, most major renewable power stocks delivered accelerated upward moves that were followed by a notable pullbacks. Innergex Renewable Energy Inc. was no exception to that performance dynamic – albeit further exacerbated by negative exposure to the Texas weather event in February. That event creates an element of uncertainty heading into the Q1 results season – especially with past guidance of a potential negative EBITDA impact of C$45m-C$60m that was later upsized to C$80m with the Q4 results. Revisiting the stock performance and net asset value valuation, we upgrade INE ... as we look beyond some near-term noise and focus on the longer-term,” Mr. Kuske said in a note.


CIBC analyst Hamir Patel upgraded Cascades Inc. (CAS-T) to “outperformer” from “neutral” while maintaining an C$18 price target. The move was tied to promising signs for its product pricing at a time when its stock price has seen considerable weakness.

“With recently released U.S. containerboard statistics for Q1/21 coming in better than expected, we now see high likelihood that the industry’s ongoing US$60/ton spring kraftliner price hike will be fully reflected in the April benchmark when it is published on Friday evening. Trade contacts indicate producers have taken a much firmer stance with invoicing the full US$60/ton increase to customers this month,” Mr. Patel said in a note.

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“With CAS’ share price having fallen about 20% since Pulp & Paper Week published the March containerboard pricing benchmarks on March 19, the company is trading at an even greater discount to its U.S. peer group (4.5x 2022E EV/EBITDA vs. peers at 8.6x),” he added.


Raymond James analyst Rahul Sarugaser upgraded The Valens Company (VLNS-X) to “market perform” from “underperform” while bumping up his price target by 50 cents to C$2.50.

The action followed the manufacturer of cannabinoid-based products releasing stronger-than-expected revenues for its first quarter that ended Feb. 28.

“We applaud VLNS’ 1Q21 revenue beat, and anticipate strong revenue growth going forward,” Mr. Sarugaser said in a note. “We balance this strong revenue outlook, however, with a margin profile that we believe may be limited, particularly as we expect VLNS’ white-label and custom manufacturing to be a relatively low margin business.”

“For now, we remain cautiously optimistic, estimating gross margins growing from ~25% presently to ~35% long term,” he added.

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Desjardins Securities analyst John Chu was also sounding upbeat about the company in the wake of the earnings report, reiterating a “buy” rating and $3.75 price target.

“We are encouraged that Valens was able to post a solid 1Q despite industry headwinds which caused many of its peers to recently post lower-than-expected revenue. And with several upcoming sales drivers, we have increased comfort that Valens should continue to generate strong sales growth going forward despite ongoing industry headwinds. Valens continues to be well-positioned in the cannabis 2.0 market and should remain a standout in both uncertain and more normalized market conditions,” Mr. Chu said in a note.


In other analyst actions:

B2Gold Corp. (BTO-T): TD Securities cuts target price to C$9.50 from C$11 and downgrades rating to “buy” from “action list buy.”

Dream Impact Trust (MPCT-U-T): TD Securities initiates coverage with “buy” rating and C$7.50 price target.

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Kirkland Lake Gold Ltd. (KL-T): TD Securities cuts target price to C$72 from C$77 but upgrades rating to “action list buy” from “buy.”

Minera Alamos Inc. (MAI-X): National Bank of Canada starts coverage with “outperform” rating and price target of C$1.15.

More to come

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