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

Though it maintained its leading Canadian recreational market share, Canaccord Genuity’s Matt Bottomley deemed Tilray Inc.’s (TLRY-Q, TLRY-T) first-quarter earnings report to be “rather flat.”

In the wake of the premarket release on Thursday, Mr. Bottomley was one of several equity analysts on the Street to reduce their target price for shares of the Nanaimo, B.C.-based company.

“Although the company reported solid sequential top-line growth, we remind investors that this quarter represented the first full period of contribution from both legacy Aphria and Tilray operations subsequent to Aphria’s reverse acquisition earlier in the year,” he said. “After normalizing for the timing of M&A closing, we note that consolidated FQ1/22 performance appears to be largely flat compared to the prior period on a pro forma basis.”

Tilray reported revenue for the quarter of US$168-million, up 18.1 per cent quarter-over-quarter and in line with Mr. Bottomley’s estimate. It was shy of the Street’s US$174-million projection.

“Net cannabis revenue (the primary value driver for the company, in our view) of US$70.4-million grew by more than 30 per cent quarter-over-quarter,” said Mr. Bottomley. “However, FQ4/21 included only 1 month of contribution from Tilray’s legacy cannabis business, which if adjusted for a full period, indicates that FQ1/22 results were likely flat to modestly higher on an apples-to-apples basis. Management noted lower purchasing frequencies from provincial buying agencies due to the COVID19 delta variant as a primary cause for the limited growth (which started to alleviate towards the end of the period).”

“Nonetheless, management continues to assert that it holds the overall #1 market share in Canada at 16 per cent, with a stated objective of increasing its share to 30 per cent by 2024.”

Adjusted EBITDA rose 7.6 per cent from the previous quarter to US$12.7-million, compared to Mr. Bottomley’s $13.8-million estimate, leading him to say: “Management believes the choppiness in accelerating its adj. EBITDA growth is transitory in nature as it continues to integrate and optimize the legacy Tilray ops into Aphria’s lower cost structure.”

Based on the results and industry headwinds, Mr. Bottomley cut his target for Tilray shares to US$12 from US$17, maintaining a “market perform” rating. The average on the Street is US$14.48.

“Following the quarter, we have made modest downward revisions to our near-term estimates,” he said. “More notably, we also increased our Cdn recreational discount rate by 2.0 per cent (to 10.5 per cent) to reflect continued challenges in the industry. Many LPs (including TLRY) have been stalled for growth as of late due to market saturation despite sales to end-users at the retail level continuing to progress.”

Other analysts making target adjustments include:

* CIBC’s John Zamparo to US$12 from US$14 with a “neutral” rating.

“Progress from the Tilray/Aphria merger is well ahead of plan on cost cuts, but revenue growth stalled this quarter amidst an increasingly competitive market, and FCF generation turned negative. Incremental news from today’s call was the acknowledgement that additional Canadian market share capture may require more M&A. We support this strategy, as we believe multiple targets exist and potential synergies are material,” said Mr. Zamparo.

* Piper Sandler’s Michael Lavery to US$13 from US$14 with a “neutral” rating.

* Stifel’s W. Andrew Carter to US$10 from US$11.50 with a “hold” rating.

* BoA Global Research’s Heather Balsky to US$15 from US$17.50 with a “buy” rating.


Ahead of the Oct. 13 release of its third-quarter earnings, Desjardins Securities analyst John Chu cut his forecast for The Valens Company (VLNS-T) based on “lingering headwinds that have not fully abated yet”.

He said “soft” results from peer Heritage Cannabis Holding Corp. (CANN-CN) and bellwether Canopy Growth Corp.’s (WEED-T) expectation for “weak” quarterly sales give him “pause” for Valens’ performance.

“We have therefore lowered our 3Q sales, margin and EBITDA forecasts. We continue to believe Valens is on the cusp of a strong rebound in sales on the back of new SKU launches and broader distribution, for which we hope to get more clarity in terms of the timeline when 3Q results are reported next week,” said Mr. Chu

The analyst trimmed his quarterly net sales and EBITDA forecast to $20-million and a loss of $5.9-million, respectively, from $25-million and a $4.7-million loss. The consensus projections are $24.8-million and a $4.4-million loss.

“Our sales outlook for the next couple of quarters may be aggressive as well depending on industry headwinds and commentary from Valens,” he said. “We plan to revisit our forecast for 4Q and beyond following the release of Valens’ 3Q results.”

Mr. Chu maintained a “buy” rating and $4.25 target, matching the consensus on the Street, for shares of Kelowna-based company.

Elsewhere, Raymond James analyst Rahul Sarugaser cut his target to $2.50 from $3 with a “market perform” rating.

“For U.S. CBD revenue under Green Roads we have cut back our short-term revenue estimates significantly, but leave long-term market share capture (5 per cent of U.S. CBD market) unchanged,” he said. “Despite revising Canadian revenue estimates upward, the net result is a material cut to our overall revenue estimates.”


RBC Dominion Securities analyst Luke Davis sees Athabasca Oil Corp.’s (ATH-T) “long-awaited debt refinancing constructively as it will allow the company to refocus on the base business.”

On Thursday, the Calgary-based company announced a private placement of US$350-million in senior secured second lien notes at 9.75 per cent, maturing in 2026.

“In our view, the refinancing was the single largest overhang on the stock,” said Mr. Davis. “The resolution will allow management to refocus on core operations. We currently model a $205 million capital program in 2022, driving production volumes of 36,500 barrels of oil equivalent per day (6-per-cent growth). At our current outlook, we expect the company will carry roughly $292/$153-million in net debt at year-end 2021/22, mapping to a D/CF ratio of 1.6 times/0.4 times vs peers at 1.6 times/0.6 times.”

Expecting investors to “now shift focus to increased clarity on future development plans and capital allocation priorities,” he raised his target for Athabasca shares to $1.25 from $1 with a “sector perform” rating. The average is $1.13.

“In our view, Athabasca shares should continue to trade at a discount to the peer group, driven by the capital-intensive nature of the business, though we expect the spread could narrow with clarity on future development plans,” he said.


HighGold Mining Inc.’s (HIGH-X) flagship Johnson Tract Gold Project in south-central Alaska is “the kind of deposit mining engineers dream about,” according to Stifel Stephen Soock.

In a research report released Friday, he initiated coverage of the Vancouver-based company with a “buy” recommendation, seeing JT Main expanding “with every drill hole.”

“The unique combination of coincident VMS and epithermal style mineralization come together to form a bulk tonnage, high grade resource, already hosting 806,000 ounces at 9.23 grams per ton gold equivalent (g/t AuEq),” said Mr. Soock. “The company has continued to drill since the 2020 inaugural resource, extending the footprint by 300 metres along plunge and hitting grades like 19.4 g/t AuEq over 4.3-metre well beyond the resource envelope. We think HighGold has already drilled off an additional 291koz AuEq and see runway for another 332koz to be defined with further drilling. Infill drilling is likely to increase the grade of the overall deposit, and the Footwall Copper zone near the root of the system is just starting to be defined.”

“A more ‘mineable’ orebody we have rarely seen. The deposit sits in the mountain above the valley floor, providing low cost adit access underground for a mine that will not require dewatering. The highest grade portions of the deposit are situated near the base allowing for a quick payback period on initial capital. The broad zones of mineralization and opportunity for gravity material flow will allow for low mining unit costs. Both the footwall and deposit are competent rock, with the latter being silicified as part of the mineralization process. The nearby valley floor has plenty of room for processing facilities and surface infrastructure, with nearby tidewater access to get concentrate to smelters. We see 136koz AuEq per year at $791 per ounce AISC [all-in sustaining costs] producing FCF of $114 metres per year from a future mine.”

Also touting the potential from its “massive land position in the Timmins gold camp containing historic ultrahigh grade mines,” he set a target of $3.15 per share. The average is $3.23.


In other analyst actions:

* Following a progress update on its Media Luna project in Mexico, Scotia Capital analyst Trevor Turnbull raised his target for shares of Torex Gold Resources Inc. (TXG-T) to $26 from $25 with a “sector outperform” rating. The average is $26.06.

“The first production is expected in Q1/24 with several quarters of ramp-up to follow,” he said. “The three access points are all underway with the main Guajes tunnel advanced 600m and the two portals on the south side of the river initiated. The company also announced its Q3 gold production of 111.2 koz (119.0 koz sales). Production was directly in line with sales, 8-per-cent better-than-expected. The costs were not disclosed ahead of financial reporting November 3.

“In our opinion, the update is a net positive with production expected six months sooner than we modeled before.”

* In response to an update to its Thacker Pass project, several analysts raised their Lithium Americas Corp. (LAC-N, LAC-T) targets. They include: Piper Sandler’s Gregory Tuttle to US$22 from US$20 with a “neutral” rating and BMO Nesbitt Burns’ Joel Jackson to $22 (Canadian) from $20 with a “market perform” rating. The average is US$25.84.

* Seeing it offer investors “a straight-forward business model that leverages AI and a strategic acquisition methodology to support its growth,” Paradigm Capital analyst Corey Hammill initiated coverage of Calgary-based Zedcor Inc. (ZDC-X) with a “buy” rating and 50-cent target.

“Innovation in technology has allowed for the disruption of countless industries across the world in the past two decades, and the security and surveillance industry is no exception,” he said. “Zedcor (ZDC) is a provider of specialized, technology-focused surveillance solutions in Western Canada with imminent plans to expand nationally, and eventually into the United States. Zedcor has a fleet of 200+ mobile security towers and sensors that are equipped with numerous features that leverage artificial intelligence (AI) technologies and are supported by live monitoring services to ensure the highest level of security at any location. Its business plan calls for a doubling of security towers in its fleet by the end of 2022, which should drive a material increase in recurring revenue by 2023. Because the company has recently shifted its business model, the expected rapid growth does not appear to be priced into the share price, with ZDC trading at just 4 times 2023 estimated EBITDA.”

* CIBC World Markets analyst John Zamparo increased his Alcanna Inc. (CLIQ-T) target to $8.75 from $7.50 with a “neutral” rating. The average is $10.83.

“Sundial’s proposed acquisition of Alcanna comes as somewhat of a surprise, but the business is a strategic fit with SNDL’s existing retail platform— particularly in cannabis—and acquisitive nature. The deal offers only an 8 -per-cent premium vs. [Thursday’s] close, but a much larger 33-per-cent premium relative to September 1, when the letter of intent was signed. Alcanna would, in our opinion, benefit from the inclusion of some cash (rather than all-stock in a notoriously volatile industry) or price protection, but this likely would’ve come with a more modest offer. We believe this deal represents appropriate value for CLIQ investors,” he said.

* BMO Nesbitt Burns analyst Stephen MacLeod raised his Colliers International Group Inc. (CIGI-Q, CIGI-T) target to US$153 from US$148, keeping an “outperform” rating. The average is US$147.

“We view the acquisitions of Bergmann and Antirion positively, as they enhance Colliers’s existing presence in key growth segments (CED and IM), have above-average growth characteristics, and enhance Colliers’s recurring revenue profile, a key strategic initiative (50-per-cent LTM revenues are recurring; LT target is 65-70 per cent plus),” he said..

“We see a long runway for earnings growth, and believe Colliers remains well positioned to participate in pandemic recovery given its solid competitive position, diversification, liquidity, technology investments, and entrepreneurial culture.”

* BMO’s Devin Dodge cut his Russel Metals Inc. (RUS-T) target to $33 from $35 with an “outperform” rating. The average is US$37.43.

“We believe there is growing evidence that steel prices are nearing a peak and declining prices have historically been a challenging backdrop for the stock,” he said. “While our forecast is aligned with a gradual softening that could extend the string of outsized profits into 2022, the risk of an accelerated price decline from the current lofty levels keeps us on the sidelines.

“However, the yield is attractive and the company has resources available to pursue M&A opportunities so RUS could appeal to more patient, income-oriented investors.”

* National Bank Financial analyst Zachary Evershed raised his Neighbourly Pharmacy Inc. (NBLY-T) target to $33.50 from $32, keeping a “sector perform” rating. The average is $33.13.

* Mr. Evershed bumped up his Richelieu Hardware Ltd. (RCH-T) target to $48 from $44.50 with a “sector perform” recommendation, while TD Securities’ Meaghen Annett increased her target to $50 from $47 with a “hold” rating. The average is $46.67.

“RCH delivered attractive top-line growth year-over-year n Q3/F21. This was driven by continued strength from manufacturers, offset in part by the decline in sales to retailers (as anticipated). We once again underestimated the operating leverage in the business and the EBITDA margin outperformed our forecast. The year-over-yea improvement in margin was primarily driven by fixed-cost leverage, complemented by gross-margin improvement and continued cost-control, said Ms. Annett.

“We continue to see challenges to the continuation of strong growth in housing/renovation activity in North America over our forecast horizon. This should in turn limit multiple expansion.”

* J.P. Morgan analyst Brian Ossenbeck raised his target for TFI International Inc. (TFII-N, TFII-T) to US$130 from US$127, keepng an “overweight” rating. The average is US$118.16.

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