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

Brookfield Business Partners L.P. (BBU.UN-T, BBU-N) provides investors with “a publicly traded vehicle to gain exposure to private equity-type investing strategy and returns,” said iA Capital Markets analyst Elias Foscolos.

In a research report released Friday, he initiated coverage with a “buy” recommendation, pointing to its ownership of “brand name global companies with high-quality fundamentals and meaningful exposure to a global low-carbon transition.”

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“There are several reasons investors should consider investing in BBU,” said Mr. Foscolos. “First, BBU provides investors with exposure to private investments through a publicly listed vehicle. Second, BBU invests in a broad range of companies in different industries throughout the world. Third, the Partnership invests in companies that are strong market leaders in their category including Westinghouse, Clarios, and Sagen (formerly Genworth MI), Canada’s largest private mortgage insurer). Fourth, BBU is large and liquid. Lastly, BBU has a track record of achieving double-digit growth in Net Asset Value (NAV; iA estimates approximately 15 per cent per year.”

Mr. Foscolos emphasized the upside potential of Brookfield’s ownership of both Westinghouse Electric Co. and Clarios, which it is considering taking public later this year.

“Westinghouse and Clarios combined account for almost 50 per cent of our forward NAV valuation. Westinghouse is the leading provider of services to the global nuclear power industry, servicing ~two-thirds of the world’s fleet. Clarios is the leading manufacturer of advanced automotive battery technology, with one in three cars in the world powered by a Clarios battery. Both companies possess premium fundamentals, including market-leading positions in industries with high barriers to entry, relatively stable cash flows, and global diversification. While Westinghouse likely has more stable cash flows, we believe Clarios has better exposure to long-term growth trends (i.e., vehicle electrification). Since acquiring Westinghouse and Clarios in August 2018 and April 2019,respectively, BBU has been executing business development plans and growing EBITDA at both companies,” he said.

Seeing Brookfield trading a discount, Mr. Foscolos set a target of US$52 for its units. The average on the Street is US$46, according to Refinitiv data.

“BBU provides its own NAV estimate at annual investor day events,” he said. “The Partnership’s unit price has historically tended to trade relatively in line with the midpoint of the estimated NAV ... At BBU’s most recent investor day in 2020, the Partnership estimated its NAV at $40.00-44.00 per unit. However, we would note that global markets have since recovered by 20 per cent since that time, driven at least partially by an expected recovery in real GDP and corporate earnings. As such, we believe it is reasonable for us to estimate that BBU’s current unit price represents a discount to the current NAV.”

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A day after Lightspeed POS Inc. (LSPD-T) reported stronger-than-anticipated fourth-quarter 2021 financial results, sending its shares up over 15 per cent in Toronto, a group of equity analysts raised their financial expectations and target prices for the Montreal-based software company.

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Before the bell on Thursday, Lightspeed reported revenue of $82.4-million for the quarter, up from 127.1 per cent year-over-year and exceeding the Street’s expectation of $70.0-million. An Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) loss of $9.6-million also beat the consensus forecast of a $12.6-million loss.

“The Company gave revenue guidance well above consensus estimates for Q1/FY22 and FY2022,” said ATB Capital Markets’ Martin Toner. “Lightspeed also gave adjusted EBITDA loss guidance for FY2022 well below consensus estimates, which is doubly impressive, since higher revenue growth usually equates to higher losses for fast-growing software-as-a-service (SaaS) companies. We believe this is strong evidence that Lightspeed’s unique organic plus mergers and acquisitions (M&A) driven growth model is working, and a sign that the Company will eventually be highly profitable. We are raising our FY2022 revenue estimates, mostly driven by higher payments penetration in North America, and incorporating the attractive economics of Upserve payments, as disclosed this quarter.”

Mr. Toner raised his target to $140 from $130 with an “outperform” rating. The average target on the Street is $105.50.

Others making adjustments include:

* BTIG’S Mark Palmer to $115 from $104 with a “buy” rating.

“The 4Q21 report that Lightspeed POS (LSPD) released [Thursday] morning offered plenty of impressive takeaways that served to remind investors of the potency of its cloud-based point-of-sale platform for small- and medium-sized retailers and restaurants, helping to reignite interest in the stock after a few months of choppy trading,” said Mr. Palmer. “In as much as that choppiness had been the result of investors’ concerns about the viability of LSPD’s growth story, the company’s strong 4Q21 print and its even stronger FY22 financial guidance should have eased any qualms that had been weighing on its share price, in our view.”

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* CIBC World Markets’ Todd Coupland to $135 from $130 with an “outperformer” rating.

“Lightspeed’s FQ4/21 marked another strong quarter for the company as its retail (and more recently, hospitality) customers emerge from lockdowns in certain regions. FQ4 results beat consensus and exceeded the company’s revenue guidance. The beat is attributed to rising Payments adoption and sequential growth in both ARPU and organic customer locations. Our view is that the company is well positioned for the long term, and that its shares should be purchased,” said Mr. Coupland.

* Raymond James’ Steven Li to $105 from $114 with an “outperform” rating.

* Scotia Capital’s Paul Steep to US$81 from US$76 with a “sector perform” rating.

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In the wake of “impressive” fourth-quarter results, Desjardins Securities analyst Benoit Poirier reaffirmed his “Top Pick” rating for Heroux-Devtek Inc. (HRX-T) , seeing the potential for the implementation of its normal course issuer bid to help correct ”an unjustified valuation disconnect.”

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“Despite the significant disruption caused by the pandemic, management continues to position the business to thrive on the other side of the crisis, with new contract wins (Dassault Falcon 10X and actuation contract with Boeing) and the rationalization of the cost structure while also solidifying the balance sheet due to its impressive FCF generation,” he said. “We have been vocal about what we believe is HRX’s unjustified valuation discount versus its U.S. peers and view the NCIB as an excellent tool to address this.”

Though he sees 2022 as a “year of continual improvements ahead of the recovery” in fiscal 2023, Mr. Poirier believes the Montreal-based manufacturer is likely to continue its strong FCF generation.

“After a year of pandemic-related disruptions, HRX intends to leverage the progress made with its restructuring efforts to prepare the Civil business for the recovery in FY23,” he said. “HRX expects consolidated revenue to remain fairly stable in FY22, as strength in Defence is offset by some weakness on the Civil side. From a profitability standpoint, management foresees adjusted EBITDA margin in the 15–16-per-cent range throughout the year, with further upside as volume recovers.

“We forecast FCF of $50-million in FY22, down from $66-million in FY21 due to the absence of significant working capital release related to the pandemic, albeit still above the $30-million reported in FY20. This should position the company to be active with its newly implemented NCIB while maintaining balance sheet flexibility to opportunistically seize attractive M&A opportunities.”

Seeing the potential for $1.50 per share in value creation if it completes its entire NCIB of 2.4 million over the next four quarters, Mr. Poirier hiked his target for Heroux-Devtek shares to $25 from $22. The average on the Street is $21.67.

Elsewhere, TD Securities analyst Tim James upgraded the stock to “buy” from “hold” with a $22 target, up from $19.

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Others making target adjustments include:

* Scotia Capital’s Konark Gupta to $22.50 from $22 with a “sector outperform” rating.

“We remain bullish on HRX after the company reported a tenth consecutive quarterly beat (once again driven by Defence and margins),” said Mr. Gupta. “Management sounded optimistic on the call as Civil has largely stabilized ahead of broader industry recovery and Defence continues to grow. Margins have started to show strength even as wage subsidy is fading down, driven by restructuring efforts (more to come). Balance sheet continues to strengthen with solid FCF generation, enabling HRX to announce the first NCIB (up to 10% of public float) in a long time. In addition, management continues to look for accretive M&A opportunities. We are modestly increasing our estimates and introducing fiscal 2024 estimates, continuing to expect full recovery in company fundamentals by F2023.”

* Laurentian Bank Securities’ Nishita Mehta to $21.50 from $20 with a “buy” rating.

“With growth in the Defence segment and cost reduction, HRX continues to report an earnings-beat, quarter after quarter,” she said. “Q4/F21 Adj EBITDA was ahead by 5 per cent and EPS was in line with LBS estimates, albeit a revenue miss by 1 per cent. Our outlook for HRX remains positive with growth prospects in the Defence segment from contract wins and higher backlog, driven by a commitment to increase 2022 Defence Budget by most of the major defence spending nations. Considering the contract wins from Boeing for actuation components for several commercial aircrafts, and the recent one from Dassault’s for its Falcon 10X landing gear system, as well as once the economy opens, we expect the Commercial demand to rebound.”

* Raymond James’ Bryan Fast to $18.50 from $17.50 with an “outperform” rating.

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In a research report wrapping up first-quarter earning season, Canaccord Genuity analyst John Bereznicki made series of target changes to oilfield services providers in his coverage universe on Friday.

“Despite improving oilfield fundamentals, sector trading multiples remain depressed by historic standards,” he said. “When external equity and debt capital was readily available, operators could outspend cashflow and create bullish tailwinds for the oilfield sector. With this no longer the case, we believe investor OFS growth expectations have fallen significantly and trading multiples have compressed accordingly. In our view, this has also reduced the market capitalization of the oilfield sector, making it less relevant to institutional holders. We believe this has two investment implications: i) future OFS share price appreciation is more likely to be driven by upward revisions in investor cashflow expectations than multiple expansion; and ii) the oilfield sector needs more consolidation to support investor relevance.”

His adjustments were:

  • Mullen Group Ltd. (MTL-T, “hold”) to $14 from $13.50. The average is $13.75.
  • Ensign Energy Services Ltd. (ESI-T, “hold”) to $1.40 from $1.75. Average is $1.63.
  • Precision Drilling Corp. (PD-T, “hold”) to $40 from $38. Average: $41.33.

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Following the release of first-quarter results that displayed a widening EBITDA loss, Canaccord Genuity analyst Doug Taylor lowered his rating for Carebook Technologies Inc. (CRBK-X) to “hold” from “speculative buy,” seeing a limited return to his reduced target.

On Thursday, the Vancouver-based digital health and virtual care solutions provider reported revenue of $0.9-million, exceeding Mr. Taylor’s $0.7-million estimate, however its adjusted EBITDA loss of $1.4-million was higher than anticipated (a loss of $0.6-million).

“Revenue was once again attributed entirely to its pharmacy customer contract, while the EBITDA miss was largely driven by the ongoing opex ramp above our expectations as Carebook continues to invest in anticipation of future business,” the analyst.

“While its first acquisition (InfoTech) closed post-Q1 and should add incrementally, we are still waiting on firmer evidence of market acceptance of Carebook’s offerings. The balance sheet does not leave significant flexibility for further delays in the revenue ramp, and the recent debt financing still requires a concurrent equity injection ($11-million) which needs to be addressed. Until we have clarity on these items, the stock remains challenging to recommend. We have removed Novus Health from our model until a definitive agreement is signed and the related financing solidifies.”

After cutting his revenue and earnings expectations through 2022, Mr. Taylor cut his target to $1.30 from $2. The average on the Street is $1.65.

“The reduction reflects our push-out in organic growth and the removal of Novus from our growth forecast, along with the ongoing elevated balance sheet risk,” he said.

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Imperial Helium Corp. (IHC-X) is “taking advantage of an industry coming to the center stage,” according to Auctus Advisors analyst Stephane Foucaud.

He initiated coverage of the Toronto-based company, which is set to begin trading on the TSX Venture Exchange on Friday, with a $1 per share target price.

The analyst sees “significant upside” in the company’s Steveville asset in Southern Alberta, touting its “high value and near term production.”

“Helium has unique properties that make it critical to high growth sectors such as medical, technology and space,” said Mr. Foucaud. “The helium industry has historically been an oligopoly with opaque pricing resulting in outsized margins but limited access to funding. The rapid dwindling of the world largest helium inventory (publicly available) in the U.S. and the fast rise of price indicators have drawn some companies to helium E&P ahead of a democratization of the industry. So far the focus of this small group of players has mostly been around exploration/appraisal. Imperial offers a much lower risk proposition. The company aims to identify and acquire discounted natural gas discoveries with high helium content that can be quickly developed.”

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In other analyst actions:

* Citing “strong” exploration potential, Haywood Securities analyst Pierre Vaillancourt initiated coverage of Red Pine Exploration Inc. (RPX-X) with a “buy” recommendation and $1.40 target.

“While we recognize there remains significant work ahead to build a critical resource, we believe there is excellent potential along strike and down plunge to develop the Wawa Gold project as an underground gold mine. We look for upcoming drill results on the project to demonstrate potential for a major deposit and provide upside to the stock

* Paradigm Capital analyst Lauren McConnell initiated coverage of Artemis Gold Inc. (ARTG-X) with a “speculative buy” rating and $13 target, topping the $11.21 average.

“Artemis is a junior exploration/development company focused on advancing its 100-per-cent-owned Blackwater gold project located in central British Columbia into production,” she said. “There are few undeveloped deposits capable of producing more than 400Koz per year with a +20-year mine life and excellent infrastructure, and the supply decreases exponentially when a filter limits the search to ‘safe jurisdiction.’ We believe the phased development plan is an intelligent option with a robust IRR (35 per cent at $1,541/oz gold), attractive AISC estimated LoM at $616/oz and upside through exploration potential. Of note was not only the project’s leverage to higher prices (42-per-cent IRR at $1,800/oz), but also its sound economics in a lower-commodity-price-environment (27-per-cent IRR at $1,300/oz). We believe Blackwater offers a strategically appealing gold project for investors, giving them the choice between several corporate buyers or to move up the value chain by proceeding into development. For corporate buyers, it is important for a project to have critical mass, low jurisdiction risk, costs that are at or below the global average, a high return on capital, exploration potential and flexibility in terms of production scenarios. Blackwater checks all of those boxes and more.”

* National Bank Financial analyst Maxim Sytchev raised his target for ATS Automation Tooling Systems Inc. (ATA-T) to $38, matching the current average, from $33, maintaining an “outperform” rating, while Scotia Capital’s Mark Neville hiked his target to $44 from $35.50 with a “sector outperform” recommendation and Stifel’s Justin Keywood moved his target to $42 from $38 with a “buy” rating.

“ATS is clearly demonstrating a path to higher value, as evident in Q4 results and in the past several years with good operators to execute,” said Mr. Keywood. “However, valuation remains depressed, perhaps in-part related to legacy investor views from a prior more cyclical business but 75 per cent of sales are now tied to resilient, higher valued verticals, including healthcare, Nuclear and food automation. There remains pent-up torque in ATS’ EV segment and a large, new contract was won in the quarter for EV battery assembly, but details were scarce due to competitive reasons. Overall, we see several organic tailwinds contributing for ATS as an M&A program starts to gather steam and see the depressed valuation as ratcheting up higher.”

* JP Morgan analyst John Royall increased his Parkland Corp. (PKI-T) target by $1 to $52 with an “overweight” rating. The average is $49.08.

* Scotia Capital’s Paul Steep cut his Computer Modelling Group Ltd. (CMG-T) target to $6 from $6.50 with a “sector perform” rating, while Acumen Capital’s Nick Corcoran reduced his target to $6.75 from $7.50 with a “speculative buy” rating. The average is $6.64.

“We continue to see CMG as a strong software firm given the mission-critical nature of its solutions, with potential share price upside as it begins to actively sell CoFlow and enter an adjacent software market,” said Mr. Steep. “Key factors we are watching for in revisiting our thesis on CMG include: traction in achieving go-to-market success with CoFlow; and evidence of ongoing improvements of the firm’s annuity/maintenance base related to a stabilization in commodity prices.”

* BMO Nesbitt Burns analyst Joanne Chen raised her American Hotel Income Properties REIT (HOT.UN-T) target to US$3.75 from US$3 with a “market perform” rating, while Scotia’s Mario Saric raised his target to $5 (Canadian) from $4.50 with a “sector perform” recommendation. The average target is US$3.78.

“With the full reopening of many U.S. states and the significant progress the country has made on the vaccinations front, we believe the recovery is well under way. We expect AHIP will benefit from the significant pent-up demand for vacations over the near term, with further tailwinds down the road when corporate travel resumes to a more normal level. As such, we have revised our price target to $3.75. However, we believe most of the recovery has been priced into the current share price, particularly given AHIP’s still elevated leverage,” said Ms. Chen.

* BMO’s Ryan Thompson increased his Silvercorp Metals Inc. (SVM-T) to $7.75 from $7.50 with a “market perform” rating. The average is $9.44.

“Silvercorp has a strong balance sheet and track record of delivering solid margins. We rate the stock Market Perform because we think the shares are fairly valued at current levels,” he said.

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