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

After “solid” second-quarter results for Canadian mining royalty companies, featuring a third consecutive quarter of record gold equivalent ounces (GEOs), Canaccord Genuity analyst Carey MacRury sees further growth ahead.

“On our estimates, all of the royalty companies posted in-line or better-than-expected results, including record quarterly revenue from FNV, WPM, RGLD, OR and SSL,” he said. “The quarter also included another dividend bump from WPM based on its payout formula, a 40-per-cent dividend bump from Altius Minerals, and a 10-per-cent bump for Osisko Gold Royalties.”

“We forecast total GEOs for the royalty companies under coverage of 2.0 million ounces in 2021, up 21 per cent vs. 2020, which was COVID19-impacted but still up 16 per cent relative to 2019. We forecast total GEOs growing to 2.16 Moz in 2022 (up 25 per cent vs. 2019) with most companies expected to have more than 20-per-cent GEO growth, including a near-tripling of GEOs expected from ELE, up 25 per cent for OR, up 23 per cent for WPM and up 21 per cent from FNV. We also expect strong growth for Nomad Royalty from its inaugural year in 2020. We expect growth ultimately to exceed our forecast as we do not assume any future acquisitions. We note this growth is in sharp contrast to most of the senior gold miners, which have largely flat production profiles.”

In a research note released Friday, Mr. MacRury emphasized royalty companies offer investors exposure to precious metals without the cost inflation risk facing producers from rising oil and steel prices as well as a weaker greenback.

“While most producers expect modest inflationary pressures (2-5 per cent) and largely maintained cost guidance, we believe cost inflation fears are weighing on investors’ minds given the rampant inflation seen in the last cycle, particularly now with the price strength across most commodities,” he said. “Royalties as a group have outperformed, down 7 per cent on average vs. the miners down 24 per cent. FNV has been the best performer, up 17 per cent year-to-date.”

He made a series of adjustments to stocks in his coverage universe. His changes were:

  • Altius Minerals Corp. (ALS-T, “buy”) to $21 from $22. The average on the Street is $20.86.
  • Elemental Royalties Corp. (ELE-X, “buy”) to $2.25 from $2.50. Average: $2.43.
  • Maverix Metals Inc. (MMX-T, “buy”) to $8.50 from $8.75. Average: $8.43.
  • Osisko Gold Royalties Ltd. (OR-T, “buy”) to $24 from $25. Average: $22.97.
  • Sandstorm Gold Ltd. (SSL-T, “hold”) to $10 from $11. Average: $12.44.

“Our top picks in the royalty space are Osisko Gold Royalties (OR-T) and Nomad Royalty Co. (NSR-T). Among the larger-cap royalties, our top pick is Wheaton Precious Metals (WPM-T),” he said.


ATB Capital Markets analyst Patrick O’Rourke sees Spartan Delta Corp.’s (SDE-X) $743-million acquisition of Velvet Energy Ltd. as “positive,” despite outsized share price depreciation since the deal was announced on July 28.

The Calgary-based company is down 24.8 per cent during that span, versus a 10.8-per-cent drop in the S&P TSX Capped Energy Index.

Mr. O’Rourke said the deal adds “critical mass and operational expertise in the Montney, while utilizing a financial structure for the acquisitions that leans capital structure that previously projected to have $131-million in net positive working capital at year-end 2022, to $363-million in net debt with the acquisition (ATB estimated 2022 D/CF 1.0 times), leading to considerably near term per share accretion in both production (2022 estimated PPS up 31 per cent) and cash flow (2022 estimated CFPS up 101 per cent).

With that view, he raised his rating for Spartan Delta shares to “outperform” from “speculative buy” on Friday.

“Our ‘speculative’ risk rating was previously predicated on three key factors, which we now see as at least mostly addressed,” said Mr. O’Rourke. “First, we continue to watch for production results from SDE’s own drilling programs on the acquired assets; this will be addressed as SDE begins its initial Montney pad development, de-risking execution – some execution risk will always remain when deploying capital to the drill-bit, however, given the depth of well data on the recently acquired Montney assets and a very conservative modelling of both productivity and economics on our part we are comfortable at this risk for the time-being. Second, we anticipate market liquidity to improve considerably going forward following a recent equity issuance as well as the increase in critical mass/relevancy that the Velvet acquisition brings. Finally, the goal of 100 mboe/d has necessitated meaningful M&A, however as the production base shifts to grow more meaningfully organically, and the Company moves forward after the Velvet acquisition, the potential risks from M&A diminish.”

His target rose to $7 from $6.50. The average target on the Street is $8.62.


Seeing it offer a potential return of 135 per cent as well as “unique exposure to a resilient knowledge-based healthtech and clinical research business,” Desjardins Securities analyst David Newman initiated coverage of Think Research Corp. (THNK-X).

The Toronto digital health care company went public in December.

“Our positive view is predicated on: (1) THNK’s cloud-based platform, which supports evidence-based, data-driven solutions, clinical standardization and the dissemination of medical knowledge across the continuum of care; (2) a predictable model with more than 70-per-cent SaaS-based recurring/reoccurring revenue and a focus on B2B/B2G; and (3) significant global organic growth and M&A opportunities,” he said.

Mr. Newman said Think Global’s competitive advantages come from a trio of factors: its vertically integrated business model, which “enables it to gather evidence through the patient journey across healthcare verticals and augment the digital flywheel of medical knowledge tools;” its “strong enterprise and government relationships (more than 80 per cent of revenue), with 3–5-year contracts and greater than 70-per-cent higher-margin private pay; and a growing global presence as its expands beyond Canada.

“Through successful partnerships and acquisitions, THNK continues to fill in white space in the continuum of care,” the analyst said. “In addition to leveraging other advanced technology and channel relationships, the company has also specifically targeted acquisitions to bolster its current portfolio. It views itself as an integrator as opposed to an aggregator, implying the full integration of assets to ensure the realization of cost (shared services) and revenue synergies, plus a seamless continuum of care. THNK has grown its pro forma revenue run rate from $23-million in FY20 (including a one-quarter stub period as THNK changed its year-end to December 31 from September 30), to $82-million currently.”

Touting its “blue chip thinking,” Mr. Newman set a target of $5 per share, which is 6 cents below the consensus.

“We see significant growth ahead for THNK as it executes its strategy of building a unique hybrid healthcare delivery platform through acquisitions and strong organic growth in a large addressable market undergoing significant disruption on the back of the COVID-19 pandemic,” he said. “THNK’s SaaS-driven platform is made up of its growing upstream Clinical Knowledge business and downstream Clinical Services, including technology-enabled primary care clinics and allied health service providers, all interconnected with its Clinical Connectivity assets. The company’s initial foray into Clinical Research, with the announced acquisition of BioPharma, should complete the knowledge and evidence flywheel. Furthermore, THNK will become the only publicly traded CRO in Canada, providing investors with unique exposure to the clinical research sector. Its full suite of digital products and solutions across the continuum of care and higher skew toward reoccurring and SaaS-based recurring revenue (more than 70 per cent of total revenue), as well as higher proportion of enterprise (B2B) and government (B2G) revenue (more than 80 per cent total revenue), should ultimately support a valuation in line with peers, despite its smaller market capitalization, limited trading history, liquidity constraints and/or perceived risk.”


In other analyst actions:

* JP Morgan analyst Jeremy Tonet downgraded TC Energy Corp. (TRP-T) to “neutral” from “overweight” with a $68 target, down from $70 and below the $69.60 average.

* Mr. Tonet raised his targets for these stocks: AltaGas Ltd. (ALA-T, “neutral”) to $28 from $26; Gibson Energy Inc. (GEI-T, “overweight”) to $27 from $25 and Enbridge Inc. (ENB-T, “overweight”) to $57 from $54. The averages on the Street are $28.91, $25 and $54.11, respectively.

* RBC Dominion Securities analyst Pammi Bir lowered WPT Industrial Real Estate Investment Trust (WIR.U-T, WIR.UN-T) to “sector perform” from “outperform” with a US$22 target, matching the current average on the Street, from US$18.50.

* TD Securities analyst Tim James upgraded AirBoss of America Corp. (BOS-T) to “buy” from “hold” with a $47 target, up from $46 but below the $52.83 average.

* Credit Suisse analyst Andrew Kuske raised his Hydro One Ltd. (H-T) target by $1 to $33, keeping a “neutral” rating. The average target is $32.93.

“We hosted Hydro One Limited (H) in a series of management meetings with clients across a broad (virtual) global geography,” he said. “Given the recently reported results and the filing of the Joint Rate Application (JRAP), these topics with a skew to the regulatory process were of greatest interest .... From our perspective, the JRAP provides the foundation for regulatory clarity on the capex expenditures (assuming approval) for a prolonged period of time. Obviously, that dynamic is critical for a rate regulated utility business and other factors look to be firmly in place for the foreseeable future (keeping in mind a formulaic ROE reset next year). As a result, Hydro One looks well positioned in Ontario for a renewed and positive regulatory relationship (from an already strong position) that keeps the stock’s debate focused on valuation versus regulatory and political noise as experienced in the past.”

* Stifel analyst Michael Hoffman bumped up his GFL Environmental Inc. (GFL-T) to $54 from $52 with a “buy” rating. The average is $44.14.

* Scotia Capital analyst Trevor Turnbull bumped up his Nomad Royalty Co. Ltd. (NSR-T) target to $18.50 from $16.50, keeping a “sector outperform” rating. The average is $17.45.

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