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

In response to rapid recent appreciation, Raymond James analyst Brian MacArthur raised his uranium price forecast on Friday, seeing an enticing environment for investors moving forward.

In a report released Friday, he increased his 2021 projection to US$36.54 per pound from US$34.93 with his 2022 and long-term estimates moving to US$55 and US$60, respectively, from US$48 and US$55, citing “favourable fundamentals.”

“Spot uranium prices have increased to US$49.88/lb up over 30 per cent in the last 2 weeks,” said Mr. MacArthur. “Price moves in the spot market like this are not unexpected given the nature of the spot market and in our view, have been supported by recent creation of the Sprott Physical Uranium Trust, an entity designed to provide investors with direct exposure to uranium. Sprott is also planning to pursue a listing in the U.S. which could increase the profile of the Sprott Physical Uranium Trust with U.S. and international investors, potentially resulting in an increase both in trading liquidity and in access to capital. In addition, we believe the longer term uranium price outlook is favourable given uncovered utility demand post-2023 and reduced supply.

“We acknowledge that there is curtailed production that can return to the market at some price, but we believe this requires long-term contracts, and we also note these restarts take time and capital. In the meantime, given supply curtailments, we note producers are also now potential buyers in the spot market to cover some contracts thereby creating additional demand. Finally, we would highlight nuclear has near zero greenhouse gas emissions in the energy generation phase and therefore could be a major contributor to climate mitigation objectives while providing reliable base load electricity. Many governments are now recognizing this potential which could provide additional investor support for uranium.”

With those price deck changes, Mr. MacArthur raised his target prices for uranium stocks in his coverage universe just three days after his last increase. His changes include:

* Cameco Corp. (CCO-T, “outperform”) to $34 from $29. The average target on the Street is $27.43, according to Refinitiv data.

“We believe Cameco provides investors with lower-risk exposure to the uranium market given its diversification of uranium sources,” he said. “These sources are supported by a portfolio of long-term contracts that provide some downside protection in periods of depressed spot uranium prices, while maintaining optionality to higher uranium prices. In addition, the company has multiple operations curtailed that can be brought back should uranium prices increase. Although the 2021tax court decision applies only to the 2003, 2005, and 2006 tax years, we view it as a positive for CCO given we believe it will be relevant in determining the outcome for other years and reduces risk related to the CRA dispute.”

* Denison Mines Corp. (DML-T, “outperform”) to $2.40 from $2.10. Average: $2.40.

“DML holds a controlling interest in the Wheeler River project, including the Phoenix deposit, which is one of the highest-grade deposits in the world. DML also offers a diversified revenue stream from tolling and DES, while exploration and development activities at Wheeler progress. We believe Denison offers investors good exposure to uranium through a number of assets,” he said.

* NexGen Energy Ltd. (NXE-T, “outperform”) to $8.50 from $7.50. Average: $7.69

“NexGen offers exposure to one of the world’s largest undeveloped uranium deposits (Arrow)located in Saskatchewan. NexGen is well financed in the near-term to continue to develop Arrow. Given the high quality of the Arrow deposit, we maintain our Outperform rating,” he said.


Scotia Capital analyst Konark Gupta said he has “high confidence” that Canadian Pacific Railway Ltd. (CP-T) will receive all necessary approval to complete its merger with Kansas City Southern (KSU-N) following Thursday’s investor call.

“However, the transaction has yet to fully de-risk and we need a bit more visibility on CP’s targeted synergies even though management highlighted conservatism,” he added. “As a result, we are baking in only 75 per cent of our estimated present value of KSU accretion in our revised valuation.”

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Keeping a “sector outperform” rating for CP shares, he increased his target to $110 from $108. The average on the Street is $103.74.

“We maintain our Sector Outperform rating as CP’s longer-term growth outlook, especially with KSU, far outweighs near-term traffic underperformance relative to expectations. With full KSU accretion by 2025, we see potential upside in the shares to $135 by the end of 2024 for a 3-year annualized return of 16 per cent (before dividends),” he said.

Elsewhere, RBC Dominion Securities analyst Walter Spracklin upgraded Canadian National Railway Co. (CNR-T) to “outperform” from “sector perform” and hiked his target to $168 from $139. The current average is $152.80.


GDI Integrated Facility Services Inc.’s (GDI-T) acquisitions of Enginuity LLC and Fuller Industries LLC are “perfectly aligned” with its strategic objectives, according to Desjardins Securities analyst Frederic Tremblay.

Before the bell on Thursday, the Lasalle, Que.-based company announced its operating subsidiaries recently completed deals for both companies, which combined to generate annual revenue of US$60-million over the past 12 months.

“We have been pleased with GDI’s execution in technical services in Canada since it entered the space in 2015 and we view Enginuity as the second solid step to replicate this success in the U.S. (following the acquisition of New York–based BPAC earlier this year). Meanwhile, Fuller brings a first U.S. cleaning chemicals/products manufacturing plant with capacity to support future growth.”

Mr. Tremblay does not expect the acquisitions to materially affect its leverage ratio, and thinks that, along with “healthy” cash flow generation, will enable GDI to continue to seek out M&A targets.

Maintaining a “buy” rating for its shares, he increased his target by $1 to $67. The average on the Street is


While Axis Auto Finance Inc.’s (AXIS-X) loan growth is improving as COVID-related dealership restrictions ease, Canaccord Genuity analyst Scott Chan sees “certain headwinds in the near term relating to consumer confidence and the higher prices in the used car market.”

“We are starting to see these trends of pent-up demand across North America as economies progressively reopen,” he said. “Considering that dealerships were shut down or heavily restricted for most of F2021, we forecast a 20-per-cent increase in Axis loans for F2022 (vs. 9.3 per cent in F2021). Furthermore, Axis plans on transforming their existing equipment finance vertical (through 100-per-cent-owned subsidiary Pivotal Capital Corp.) from a broker model to holding these loans on balance sheet. The firm has recently secured two funding facilities of $45-million, collectively. We have currently not incorporated this into our model, but that should provide upside to our volumes forecast going forward.”

On Thursday, the Mississauga-based company reported fourth-quarter adjusted net income of $1.5-million, topping Mr. Chan’s $1.2-million estimate due largely to a higher loan portfolio. Provisions for credit losses of $2.5-million, exceeding his $2.2-million estimate but fell from $2.7-million in the last quarter.

“Adjusted earnings were up 5 per cent quarter-over-quarter resulting from better top-line growth and lower PCLs, partially offset by higher operating expenses,” the analyst said. “Interest revenue increased 1 per cent quarter-over-quarter, mainly due to increased finance receivables along with larger Westlake sourced profit share revenues. As well, fees and servicing income increased 23 per cent quarter-over-quarter The latter is expected to fluctuate based upon customer collection rates and delinquencies. Operating expenses of $4-million rose 3 per cent quarter-over-quarter, mainly relating to stockbased compensation and professional fees, partially offset by lower G&A. As economies normalize, we expect to see operating expenses slightly increase into fiscal 2022 but for Axis to still deliver positive operating leverage.”

After increasing his 2022 revenue projection, Mr. Chan, currently the lone analyst on the Street covering the company, raised his target for Axis shares to 70 cents from 60 cents, reiterating a “speculative buy” recommendation.

“Axis’s main priorities are to: (1) continue growing its nonprime auto client base, supported by technology and the Westlake partnership; (2) build out equipment finance business through its own balance sheet (complemented by broker model); (3) increase its footprint in the Quebec and BC market (e.g. adding scale to support more dealers); (4) mitigate near-term potential risks arising from the pandemic and maintain robust credit underwriting parameters; and (5) acquire accretive near-prime auto-loan portfolio should opportunities arise,” he said.


Ahead of its Investor Day event on Sept. 21, iA Capital Markets’ Elias Foscolos reiterated his bullish stance on Brookfield Business Partners L.P. (BBU.UN-T, BBU-N), pointing to “its strong diversification, track record of extracting value from investments, and [net asset value] growth upside from existing businesses and new investments.”

At the event, the equity analyst expects a “material upward” NAV re-rating “which would price BBU’s units at a discount, as well as commentary on factors that could help refine our outlook, including recently announced acquisitions, business improvement plans, and trends in existing operations.” He did warn that it may not reach his NAV estimate, expecting the company to “continue to take a conservative stance on certain portfolio companies.”

“At BBU’s 2020 Investor Day, the Partnership had estimated its NAV between $40.00-44.00/unit,” said Mr. Foscolos. “While BBU does not include the NPV of corporate costs and management/performance fees in its NAV, we believe the NAV presented at last year’s Investor Day was conservative in regards to Westinghouse and Clarios. While BBU’s portfolio is largely defensive, certain businesses, namely Multiplex, GrafTech, and Cardone, were revised downward in BBU’s 2020 NAV to account for lower demand brought on by COVID-19. Economic conditions underpinning these businesses have since improved, and we believe other businesses have increased in value as well. Additionally, BBU has recycled capital into various new investments since its last Investor Day.

“After trading essentially in line with NAV from 2016-2018, BBU’s units have traded at a notable discount to NAV in recent years. While BBU’s units have recovered strongly since 2020 Investor Day, we would note that the recovery started from a steep 30-per-cent discount to the Partnership’s estimated NAV. Currently, we see the units trading at an 15-per-cent discount to our estimated NAV of $50.00 per unit, which includes corporate costs and management/performance fees. For comparability, we have shown the progression of NAV over time to our current estimate excluding corporate costs and fees, which is $59.00 per unit.”

Mr. Foscolos did emphasize Brookfield continues to execute on its capital recycling strategy over the past 12 months, noting it is " generating funds from continued sales of GrafTech (EAF-N, Not Rated) shares and other public securities, and investing in the privatization of Sagen, as well as interests in new companies, several of which have not yet closed. BBU has a strong track record of extracting value from its investments, and we believe recently completed and announced acquisitions will provide future NAV growth, along with additional layers of diversification.”

He maintained a “buy” rating and US$52 target. The average on the Street is US$54.30.


In other analyst actions:

* Cormark Securities initiated coverage of Uni-Select Inc. (UNS-T) with a “buy” rating and $26.50 target, exceeding the $20.90 average on the Street.

* National Bank Financial analyst Rupert Merer raised his target for Nanoxplore Inc. (GRA-T) to $8 from $5 with an “outperform” rating. The average is $8.38.

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