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

Stifel analyst Mike Rizvanovic sees an improving operation environment for Canadian banks, pointing to “a notable tailwind around rising rates and benign credit conditions supporting further PCL recoveries that are not fully baked into expectations.”

“Strong excess capital, which varies among the banks, is an added benefit we expect will be deployed into buybacks, with M&A remaining a potential catalyst,” he added. “While we don’t dismiss some notable headwinds in the near term (uncertain economic recovery; inflation risks) and longer term (open banking pressuring fee-based revenue), we believe the Big Six will deliver high-single digit EPS growth in F2023, following a relatively flat F2022 skewed by last year’s sizable PCL recoveries.”

In a research report released Friday, Mr. Rizvanovic, previously at BMO Nesbitt Burns, initiated coverage of the sector, seeing “modest” upside to current price-to-earnings-multiples and expressing a preference for “discounted names among the Big Six.”

He gave three stocks “buy” ratings. They are:

* Bank of Montreal (BMO-T) with a $170 target. The average on the Street is $161.03, according to Refinitiv data.

“We have a favorable view of BMO’s U.S. business and the added scale from the Bank of the West acquisition, which provides sizable synergy potential,” he said. “Other near-term catalysts for BMO include more capacity for PCL recoveries vs. peers and continued outperformance in Capital Markets. Despite what we believe is a superior medium-term growth outlook, BMO trades at a sizable relative discount of 11 per cent to the group (on consensus F2023 EPS), which we do not believe is justified, providing a favorable entry point for investors.”

* Bank of Nova Scotia (BNS-T) with a $104 target. Average: $96.08

“Our Buy rating is premised largely on a strong recovery in International Banking, as rising rates push up margins, lending volumes recover, and management executes on efficiency improvement following a recent restructuring,” he said. “The de-risking of the loan book in International is also favorable, reducing downside risk and PCL volatility. We also like BNS’ share gains in Canadian mortgage lending, which should drive cross-sell opportunities that management has noted are being captured at an increasing rate. We don’t believe the current 9-per-cent relative P/E discount reflects the bank’s upside potential.”

* National Bank of Canada (NA-T) with a $116 target. Average: $107.09.

“We believe NA is undervalued relative to its Big Six peers, with the bank’s current valuation not reflecting: 1) management’s track record of execution, as evidenced by a group-high growth rate for EPS and PTPP earnings over the past five-year period; 2) momentum in the Wealth business, which we believe can continue; 3) the USSF&I segment, with both Credigy and ABA Bank positioned for strong upside; and 4) further potential outsized gains in the commercial lending portfolio,” he said. “Given those tailwinds, we believe a re-rating of the shares is justified.”

Mr. Rizvanovic gave these stocks “hold” ratings:

* Canadian Imperial Bank of Commerce (CM-T) with a $172 target. Average: $167.88.

“We see a lot of positives for CM’s medium-term outlook, including: 1) continued momentum in U.S. Commercial & Wealth; 2) improving performance in Canadian personal lending; and 3) more potential PCL recoveries, which we don’t believe are reflected in consensus,” he said. “However, we rate the shares Hold and apply a slightly lower discount vs. peers than historical levels, given our moderate concerns around potentially elevated expenses and a less favorable excess capital position.”

* Canadian Western Bank (CWB-T) with a $41 target. Average: $42.91.

“Our Hold rating is driven by: 1) elevated expense growth that won’t subside until the latter part of F2022 at the earliest; 2) constraints on capital, with CWB needing to tap into its at-the-market program in order to fund incremental loan growth; and 3) less margin upside as rates rise,” he said. “Long term, we still like CWB for its strong track record of execution and further geographical diversification potential, but we see fewer near-term catalysts.”

* Laurentian Bank of Canada (LB-T) with a $46 target. Average: $46.50.

“Our Hold rating is largely predicated on the uncertainty around the bank’s new strategy and its ability to compete in the increasingly digitized world of Canadian banking,” he said. “The key areas that we believe will determine LB’s success in the coming years and potentially close the bank’s sizable current valuation discount include: 1) successfully growing branch-raised deposits; 2) making the partnership approach to digitization work for what most would consider to be critical infrastructure for a bank; and 3) seeing further traction as a niche commercial lender and hitting its roughly 8.5-per-cent growth target through F2024.”

* Royal Bank of Canada (RY-T) with a $149 target. Average: $145.58.

“While we view RY as a best-in-class franchise among the Canadian banks, we initiate with a Hold largely due to its valuation premium, which we don’t expect the bank to grow into by outpacing peers on EPS growth through F2023,” he said. “Therefore, we believe there are more compelling investment opportunities among the Big Six. We are also modestly concerned by RY’s loss of share in Canadian mortgage lending over the past several quarters, and, while we view the bank as a group leader on tech-related initiatives, we see no clear evidence that will lead to superior client acquisition or revenue growth.”

* Toronto-Dominion Bank (TD-T) with a $109 target. Average: $107.91.

“While TD sits in an enviable position with respect to both its higher rate sensitivity and group-high excess capital, we believe a Hold rating is warranted by: 1) meaningful potential downside to fee-based revenue; 2) poor execution in Canadian P&C Banking vs. peers, resulting in nine consecutive quarters of market share losses in mortgage lending. With the bank already trading at an elevated premium, we see less relative upside for its shares over the medium term, although we believe an accretive M&A transaction remains a potential catalyst for the stock,” he said.


Scotia Capital analyst Meny Grauman remains “very bullish” on Canadian bank stocks “based on three factors: the Fed, Fundamentals and Flows.”

In research note previewing first-quarter earnings season for the sector titled The Three ‘Fs’ of Bank Investing, he explained “The Fed: First and foremost we start with the macro environment that continues to be favorable for banks. Above-trend GDP growth, a benign credit environment, a still strong domestic mortgage market, and the clear prospect of rising rates are all positives for the shares. ... Fundamentals: The banks may be trading at the high end of their historical trading range based on forward consensus P/E multiples, but we continue to believe that earnings estimates have room to move higher both this year and next year ... Flows: Finally, we highlight the impact of fund flows, which in our view is another factor keeping the rally in Canadian bank stocks going and keeping a floor under valuations. As investors increasingly anticipate rising rates on both sides of the border we are seeing a clear shift from growth stocks, especially technology stocks, into value stocks like banks.”

Believing the recent selloff in his shares has “gone too far,” Mr. Grauman upgraded National Bank of Canada (NA-T) to “sector outperform” from “sector perform” and increased his target for its shares to $117 from $112. The average on the Street is $107.09.

“After a steady diet of beats NA delivered a rare miss in Q4 as core EPS and PTPP earnings came in 1 per cent and 7 per cent below Street expectations,” he said. “The issue was not that the bank’s year-end results were bad, it’s just that they are not as good as they once were. After growing by 15 per cent year-over-year in Q3, NA saw PTPP growth slow to 8 per cent in Q4, and noted that this was likely to dip even lower in Q1/F2022. For the year as a whole, management is guiding to mid-single-digit PTPP growth in F2022, which is below the 12-per-cent growth the bank saw in F2021 and even the 9 per cent it saw in F2020. That said, while we were concerned about the shares heading into year-end reporting because of an expected deceleration in performance and the overhang from the bank’s CEO transition, that dynamic proved to be even more dramatic than we had expected. With the shares underperforming the group by 1,134 basis points since last earnings season and the shares going from trading at a premium to the group to a discount in less than a year, the risk/reward balance has rapidly shifted back to the ‘buy’ column for National Bank.”

He also made these target changes:

  • Bank of Montreal (BMO-T, “sector perform”) to $165 from $162. Average: $161.03.
  • Canadian Imperial Bank of Commerce (CM-T, “sector outperform”) to $182 from $166. Average: $167.88.
  • Canadian Western Bank (CWB-T, “sector outperform”) to $48 from $45. Average: $42.91.
  • Equitable Group Inc. (EQB-T, “sector outperform”) to $103 from $95. Average: $89.75.
  • Laurentian Bank of Canada (LB-T, “sector perform”) to $51 from $48. Average: $46.50.
  • Royal Bank of Canada (RY-T, “sector outperform”) to $162 from $146. Average: $145.58.
  • Toronto-Dominion Bank (TD-T, “sector perform”) to $117 from $105. Average: $107.91.

“Our Top Pick in the space remains RY, despite the fact that it continues to trade at a wide premium to the group,” said Mr. Grauman. “We believe that flows will continue to support this premium, as will rising market volatility due to monetary tightening. From an operational point of view, RY has a significant amount of upside to rising rates across its key business lines, and we believe that investors are still underestimating its ability to manage expenses. We also continue to like CM, which has been a perennial favorite of ours and despite closing the year with peer-leading revenue growth is now back to trading at the widest discount to the group. The bank is guiding to some challenging expense performance to start out the year, but management has been very open about this, and we note that expense performance in 2021 was better than expected. To this list we add NA, which we upgrade back to SO. Recall that we only downgraded this name before Q4 reporting, but the re-rating here has happened much faster than we expected and is now overdone in our view.”


After “solid” results in the fourth quarter of its 2021 fiscal year, National Bank Financial analyst Vishal Shreedhar expects Canadian Tire Corporation Ltd. (CTC.A-T) to continue to execute at a pre-pandemic level.

“CTC’s shares remain discounted given investor concerns regarding slowing post-pandemic growth. Though we anticipate moderating growth, we expect performance to remain above 2019 levels,” he said in a research note. “On a quarter-to-date basis (Q1/22), management noted healthy consumer demand in retail and in financial services (focus is on growing receivables/credit card holders).”

Mr. Shreedhar was one of several equity analysts on the Street to raise their target prices for shares of the retailer on Friday, a day after its earnings release, which sent it up 2.3 per cent in Toronto.

Canadian Tire’s revenue jumps in busy holiday season as e-commerce sales continue to grow

Canadian Tire reported adjusted earnings per share of $8.42, 2 cents higher than the same period a year ago and easily beating the $6.70 estimate of both the analyst and the Street. Consolidated revenue rose to $5.138-billion from $4.875-million a year ago, also topping Mr. Shreedhar’s projection ($4.851-billion) as same-store sales growth exceeded expectations across all of its banners.

Emphasizing continued growth in e-commerce and its Triangle loyalty programs and seeing its supply chain “well managed,” he raised his target to $231 from $221, keeping an “outperform” rating. The average on the Street is $232.70.

Other analysts making target adjustments include:

* Canaccord Genuity’s Luke Hannan to $222 from $218 with a “hold” rating.

“The company’s investment in broadening its Triangle Rewards program has been paying off,” said Mr. Hannan. “Average basket size for members is roughly 30 per cent higher than nonmembers, with more than half of members engaging Canadian Tire across its multiple banners. Members of the 2021 cohort skew younger, leading to millennials becoming a larger portion of Canadian Tire’s customer base. We expect the company will continue to leverage insights gained from its rewards program to drive customer re-engagement, driving higher customer lifetime values from members that otherwise may have only engaged with Canadian Tire brands seldomly in the past.”

* Scotia’s Patricia Baker to $270 from $250 with a “sector outperform” rating.

“Beat was driven by exceptional sales trends across banners and excellent margin management,” she said. “Q4 and F21, go a long way to showcasing retail prowess at CTC and underscore the importance of the company’s positioning, product assortment, marketing and Triangle Rewards program in permitting CTC to garner incremental market share in Canada across a broad range of highly relevant categories. The results are owed to multi-year efforts to improve the offer, the omni-channel experience, operational efficiencies, margin management and store performance. CTC is a standout in its demonstrated agility in navigating the global supply chain disruptions ensuring solid inventory levels to support sales, an obvious success factor in the results. One highlight in Q4 was a Retail ROIC of 13.6 per cent up from 10 last year. We see the shares trading at a compelling valuation discounting only 10 times P/E multiple on F22 and see the company’s strategic thrust, strong execution and improving market position as deserving of a higher valuation. We anticipate the upcoming March 10th investor day should prove a positive catalyst for the shares.”

* RBC’s Irene Nattel to $260 from $255 with an “outperform” rating.

“Momentum at CTC remains strong, underpinned by external macro elements and execution excellence around sourcing, merchandising, assortment and owned brands portfolio, omni-channel capabilities, and leveraging of the Triangle Rewards loyalty program. Messaging at upcoming investor event on March 10, notably around financial objectives, ability to sustain medium-term revenue growth/share as pandemic-related demand normalizes and rates begin to rise could be a key catalyst for share price performance/multiple expansion,” said Ms. Nattel.

* TD’s Brian Morrison to $250 from $240 with a “buy” rating.

“The most important takeaway from the Q4/21 results, in our view, is a growing degree of optimism by investors that there is the potential for growth over our forecast horizon within the Retail segment, despite being a benefactor from the pandemic.” he said. “We believe this has merit as the Q4/21 results illustrated the key drivers in the Retail segment are performing exceptionally well and appear to be gaining share of wallet across each banner. This drove a material outperformance from the Retail segment this quarter despite lapping a strong comparable period. Overall, this is a positive release, with Retail strength more than offsetting justifiable weakness within the Financial Services segment.”

* CIBC World Markets’ Mark Petrie to $244 from $234 with an “outperformer” rating.

* TD Securities’ Brian Morrison to $250 from $240 with a “buy” rating.


Conversely, after a “slightly light” performance to end the 2021 fiscal year, Mr. Shreedhar lowered his target for MTY Food Group Inc. (MTY-T), expecting its first quarter to be hurt by the return of COVID-19-related restrictions.

However, he does see the fast food operator’s recovery remaining “intact despite near-term headwinds.”

“Management indicated that its focus continues to shift back to longer-term growth; sales are back to pre-pandemic levels for many of the brands and progressing in the right direction for others,” he said. “MTY saw solid recovery, particularly in casual dining, with revenues up by 36 per cent year-over-year. By location, malls and office tower restaurants had significant improvement, with revenues up by 41 per cent and 58 per cent respectively.

“Renewed government restrictions (Omicron) in Q1/F22 will likely hamper momentum, particularly in ON and QC. That said, we think Omicron-related impacts will be transient. Looking ahead (beyond Q1/F22), we continue to anticipate solid recovery, particularly in casual dining; tapering momentum at Papa Murphy’s is expected to serve as a partial negative offset in the interim.”

Shares of the Montreal-based company, which operates a large group of brands including Thai Express and Country Style, fell 2.5 per cent on Thursday following its premarket earnings release. It reported revenue of $146-million, up from $127-million during the same period a year ago but above below Mr. Shreedhar’s $153-million estimate. Adjusted EBITDA of $42.8-million rose from $35.2-million but missed both the analyst’s $43.2-million estimate and the consensus projection of $46.6-million.

“Management indicated labour challenges across its network as well as supply chain disruptions,” he said. “We anticipate that these pressures will continue, although we consider them to be manageable to a large extent. To offset inflationary pressures, MTY continues to implement price increases. Given that MTY is a franchisor, we consider inflation to be favourable if it is accepted by consumers.

“Management indicated that it has seen an increase in M&A deal flow. That said, management suggested that it will continue to take a disciplined approach to M&A (likely mid-sized deals). Balance sheet leverage is accommodative with net debt to EBITDA of 2.2 times.”

Keeping an “outperform” rating, Mr. Shreedhar cut his target for MTY shares to $70 from $75. The average is $69.06.

Others making changes include:

* Scotia Capital’s George Doumet to $60 from $71 with a “sector perform” rating.

“While we were expecting tougher comps in the US, the extent of the headwind (California restrictions & Papa Murphy’s) was more pronounced than expected. Margins were softer vis-a-vis street expectations driven mainly by weaker margins at the retail operation, which saw strong growth driven by expanded distribution. Looking ahead, and similar to this quarter, we expect the recovery to remain (geographically) uneven,” he said.

* Raymond James’ Michael Glen to $68 from $73 with a “market perform” rating.

“While we are maintaining our Market Perform rating on MTY shares exiting the 4Q financial results, we would acknowledge that the valuation, which is currently approaching 9 times forward EBITDA, is starting to reflect a more compelling entry point on the stock,” said Mr. Glen. “That said, there remain some important items on the horizon that we believe stand to impact MTY’s operating EBITDA and cash flow over coming quarters, most notably labour shortages and escalating inflation (i.e. via wage and food inflation). While we understand that these factors more directly impact the individual franchisee vs MTY as the franchisor, we see the health of the relationship as ultimately a critical factor for MTY to grow its store count organically.”

* CIBC’s John Zamparo to $76 from $84 with an “outperformer” rating.

* TD’s Derek Lessard to $62 from $70 with a “hold” rating.

* RBC’s Sabahat Khan to $66 from $62 with a “sector perform” rating.


Citing “reduced return expectations” after its 2022 guidance missed his forecast, Canaccord Genuity analyst John Bereznicki lowered Superior Plus Corp. (SPB-T) to “hold” from “buy.”

After the bell on Thursday, Superior Plus reported fourth-quarter 2021 results that fell largely in line with the analyst’s estimates. Revenue rose 47 per cent year-over-year to $824.9-million, while adjusted earnings before interest, taxes, depreciation and amortization slid 1 per cent to $142.2-million.

“These results reflected warm U.S, weather and a reduced CEWS contribution, which kept fourth-quarter EBITDA just below the prior-year figure of $144.1 million,” said Mr. Bereznicki. “Superior deployed net capital of $59.6-million in Q4/21 to exit the quarter with in-line net debt of $1.6-billion.”

With the results, Superior issued 2022 EBITDA guidance of $410- to $450-million, which fell below both the analyst’s $470-million estimate and the consensus forecast of $479-million.

“This guidance assumes a Q2/21 Kamps closing and no contribution from future acquisitions (in line with our modelling although we believe higher-end Street estimates likely assume prospective acquisitions), said Mr. Bereznicki. “Superior intends to deploy additional acquisition capital of $200 to $300-million this year and is increasing its targeted leverage range to 3.5 times to 4.0 times EBITDA as it executes on its five-year growth plan.:

After lowering his 2022 and 2023 earnings projections to account for the release, he cut his rating for its shares and his target to $14.50 from $16.50. The average on the Street is $15.67.


Citi analyst P.J. Juvekar expects Nutrien Ltd. (NTR-N, NTR-T) to see the benefits of strength in fertilizer pricing continuing in 2022 and projects upside in potash volumes.

Shares of Saskatoon-based Nutrien, which is the world’s biggest fertilizer company, rose 2.9 per cent on Thursday in response to an upbeat profit forecast for the year.

Benefitting from robust global demand, it is forecasting annual adjusted earnings per share between US$10.20 and US$11.80, above the consensus forecast of US$9.46 per share. It expects to sell 13.7 million to 14.3 million tons of potash this year, up from its record 13.6 million last year.

Nutrien bumps up potash production as rival copes with Belarus sanctions

“Our three key takeaways from the call: (1) The company anticipates constructive ag fundamentals, entering 2022 with significantly higher NPK prices,” said Mr. Juvekar. “NTR expects overall higher prices in 2022, e.g., the midpoint of Potash segment guidance implies prices up $200 per ton year-over-year based on similar cost profile. Retail EBITDA was indicated down 9 per cent year-over-year at midpoint due to higher costs and some demand pulled forward from 1Q22 in to 4Q21. (2) NTR again highlighted 4 million tons of additional flexible potash capacity, some of which could be brought online if the situation in Belarus persists. The company is likely to be conservative to avoid having to backtrack production increases. (3) On 2022 capital allocation, NTR plans to invest $1-billion in growth projects, including targeted Retail growth in the Brazilian market and Nitrogen brownfield expansions for environmentally efficient capacity (0.5 million tons). NTR plans to allocate $2-billion to share repurchases in 2022.

With its volume guidance and “continued strong” nitrogen, phosphorus, and potassium (NPK) prices, the analyst raised his financial expectations through 2024, leading him to increase his target for Nutrien shares to US$89 from US$84 with a “buy” recommendation. The average target is US$85.49.

“Our Buy rating on the shares reflects: 1) Segment diversification by fertilizer, and large exposure to the historically stable nitrogen fertilizer industry. 2) Retail segment, which provides additional earnings stability against the more cyclical fertilizer segments. The Retail segment continues to be an area of growth for NTR, especially its online platform. 3) Emphasis on shareholder return through both dividends and share repurchases. Management has proven itself to be effective capital decision makers, and has successfully executed and integrated M&A as well,” said Mr. Juvekar.

Others making target changes include:

* Scotia’s Ben Isaacson to US$90 from US$80 with a “sector outperform” rating.

“Investors should accumulate NTR here, as the risk/reward tradeoff has become asymmetrical to the upside. The potash situation in Belarus is bleak, at least for now, with Belaruskali declaring force majeure, and pricing set to go higher to pare back demand. NTR will not only benefit from these higher prices, but from volume leverage too. We haven’t seen many times where potash leverage for NTR is better than that of MOS. This is attracting much more U.S. (and international) interest in NTR than we usually see in bull cycles. To be blunt, Nutrien is now in the driver’s seat for how high potash prices go this year, while Belaruskali will determine how low they go,” he said.

* BMO’s Joel Jackson to US$90 from US$85 with an “outperform” rating.

“While Retail tuck-in opportunities seem to be slowing and commodity prices will likely moderate eventually, NTR offers balanced crop input exposure between potash and nitrogen with a generally stable retail dynamic, as well as strong optionality should BPC potash supply issues persist for a prolonged period. Plus windfall free cash generation is attractive with NTR committed to a strong buyback and dividend,” said Mr. Jackson.

* CIBC World Markets’ Jacob Bout to US$89 from US$86 with an “outperformer” rating.

* Berenberg’s Adrien Tamagno to US$90 from US$83 with a “buy” rating.

* Barclays’ Duffy Fischer to US$92 from US$84 with an “overweight” rating.

* Mizuho’s Christopher Parkinson to US$94 from US$87 with a “neutral” rating.


Expecting challenging industry conditions to persist, BMO Nesbitt Burns analyst Jonathan Lamers lowered his rating for Boyd Group Services Inc. (BYD-T) to “market perform” from “outperform” on Friday.

“We reduced our estimates given continued challenges for the collision repair industry reflected in recent supplier reporting,” he said. “Our reduced estimates are notably below consensus for Q4 and 2022. Also, acquisitions could remain slow for several quarters while Boyd is focused on righting its base business, which could take several quarters. While the industry challenges continue and acquisition activity remains slower, our view is Boyd’s stock will trade within a lower valuation range.”

Mr. Lamers made the move after the release of fourth-quarter results from LKQ Corp. (LKQ-Q), its parts supplier, which he said was “the latest in a series of recent negative industry read-through.”

“Low margins could continue for several quarters,” he said. “Boyd’s gross margin in Q3 was the lowest since 2009, with labour margins pressured by insurer rate adjustments lagging unusually rapid wage inflation, and parts margins pressured by shortages of traditional low-cost parts. On Boyd’s Q3 call in November, the company noted it was having productive discussions with its insurance partners; however, it could be several quarters for insurer rate adjustments and labor margins to return to historical levels.

“Collision repair industry limited by continued labor and parts shortages. Repair shop backlogs reportedly lengthened in Q4 from Q3 by approximately five days due to shortages of technicians and parts, and despite slower vehicle repair claims in Q4 versus Q3. There is no visibility to resolution of these issues and it could take several quarters. Parts supplier LKQ’s results highlighted the supply of traditional aftermarket parts has not improved, with low parts fill rates to the collision repair customers in the quarter. Also, large MSO competitor Service King reportedly initiated discussions with creditors around a potential Chapter 11 filing recently following reported liquidity issues in November and December, noting Service King has had much higher balance sheet leverage versus Boyd Group.”

Ahead of the March 23 release of its own results, Mr. Lamers cut his target for Boyd shares to $185 from $264. The average is $232.62.


After revealing a plan to transform its stake in the Hod Maden project in Turkey into a flagship gold stream through the creation of a junior developer, RBC Dominion Securities analyst Josh Wolfson upgraded Sandstorm Gold Ltd. (SAND-N, SSL-T) to “sector perform” from “underperform.”

Before the bell on Thursday, the Vancouver-based company announced a deal to convert its 30-per-cent in Hod Maden into a new copper entity through a complex reverse takeover with Royalty North Partners Ltd. (RNP-X).

“SAND will RTO its Hod Maden 30-per-cent operating interest, its 25-per-cent equity interest in Entree Resources, and $10-million in cash,” said Mr. Wolfson. “In exchange, it will receive a 20-per-cent Hod Maden gold stream, a $95-million debenture, and a 34-per-cent equity interest in Horizon Copper. An intangible benefit from the transaction SAND highlights is that Horizon Copper would enable the company to gain a strategic partner, where the two parties could collaborate on sourcing base metal assets financed via precious metals stream output.

“Historically, SAND’s 30-per-cent operating interest in Hod Maden was a significant overhang to its valuation, now somewhat resolved. Under this structure, SAND was exposed to capital/operating cost risks, while the valuation of development assets (0.6 times ) is a sizable discount to SAND’s core royalty business (1.5 times). This transaction eliminates SAND’s direct operating exposure to the asset and cleans up its financial outlook. However, counterparty risk is elevated and minor changes to concentration risk are realized (to 31-per-cent exposure now from 37 per cent prior).”

Mr. Wolfson estimates the transaction yields net asset value (NAV) downside of 14 per cent at spot pricing, however he thinks “fair market value for SAND is a net positive.”

“On an asset level basis, we calculate the transaction reduces SAND’s NAV for its interests by 30 per cent, while the fair market value of these interests would typically increase by 10 per cent, contingent upon gold price assumptions and specific market multiples, while excluding new counterparty risks,” he said.

“In our view, risks for Horizon Copper at the outset are elevated, while equity financings and acquisitions could improve this. Horizon Copper will maintain $33-million in cash upon RTO closing, a requirement to fund its Hod Maden initial capital requirement of $93-million, and a debenture liability of $95-million. It will also maintain a 20-per-cent stream liability payable to SAND upon production commencement, and will receive cash flow from Hod Maden as dividends under the discretion of its 70-per-cent majority partner.”

He raised his target for Sandstorm shares to US$7 from US$6.50, below the US$9.77 average.

Elsewhere, Raymond James’ Brian MacArthur upgraded Sandstorm to “outperform” from “market perform” with a US$9.50 target, rising from US$9.

“We believe Sandstorm offers investors exposure to precious metals prices while mitigating downside risk, given limited exposure to operating and capital costs. At the same time, upside optionality exists through exploration potential. Additionally, Sandstorm has a strong balance sheet, as well as longer-term royalty/streaming portfolio growth,” he said.

Meanwhile, National Bank Financial’s Shane Nagle raised his target to $10 from $9.50 with an “outperform” rating, while BMO’s Rene Cartier cut his target to US$8.50 from US$9 with a “market perform” rating.

“With conversion of its interest in Hod Maden to a stream, development/capital inflation risk is greatly reduced, and we expected a re-rate towards normalized multiples relative to peers as the asset achieves certain development milestones in the coming quarters,” he said.


In other analyst actions:

* CIBC World Markets analyst Sumayya Syed raised her Choice Properties Real Estate Investment Trust (CHP.UN-T) target to $15.75 from $15.50, below the $16.03 average, with a “neutral” rating.

* Ms. Syed cut his Summit Industrial Income Real Estate Investment Trust (SMU.UN-T) target to $24 from $24.50. The average is $25.23, while Desjardins’ Michael Markidis raised his target by $1 to $25 with a “buy” rating.

* With the release of in-line fourth-quarter results and pointing to a reported agreement with Brookfield Asset Management to bid on U.K.-based regional aircraft lessor Falko Regional Aircraft, National Bank’s Cameron Doerksen raised his Chorus Aviation Inc. (CHR-T) target to $4.65 from $4.30 with a “sector perform” rating. Others making changes include: CIBC’s Kevin Chiang to $6 from $5.50 with an “outperformer” rating; BMO’s Fadi Chamoun to $5.50 from $5.25 with an “outperform” rating and Canaccord Genuity’s Matthew Lee to $6 from $5.75 with a “buy” rating. The average is $5.46.

“We are encouraged by the positive trends for Chorus Aviation, especially on the improving outlook for the leasing segment. Potential M&A could also offer upside for the stock. However, we do not find the stock’s current valuation overly compelling,” said Mr. Doerksen.

* Scotia’s Himanshu Gupta raised his target for Dream Industrial Real Estate Investment Trust (DIR.UN-T) to $19.50 from $19 with a “sector outperform” rating. The average is $19.58.

“With strong Q4 results and 2022 guidance from DIR, we regard DIR as one of our top picks for 2022,” he said.

* Raymond James’ Michael Glen initiated coverage of Eguana Technologies Inc. (EGT-X) with an “outperform” rating and target of 75 cents per share. The average is 85 cents.

“We believe there is some very considerable optionality to consider with Eguana given we remain at the early stages of the growth curve. If we start to see Eguana’s revenue growth accelerate meaningfully ahead of our forecast, we would anticipate multiple expansion to take hold,” he said.

* Though he said its “strong earnings trends continue,” Scotia Capital’s Phil Hardie cut his target for shares of goeasy Ltd. (GSY-T) to $200, below the $230 average, from $207 with a “sector perform” rating.

“We have a positive view on goeasy, and believe that the stock has much to offer to small to mid-cap growth-oriented investors,” he said. “Our primary holdback has been valuation, however, the stock has sold off in recent months with its relative premium to its peers narrowing and looking increasingly interesting. That said, a shift in investor risk appetite continues to put pressure on multiples for smaller cap stocks. We have trimmed our target price and multiple but believe investors should keep goeasy on the radar with further weakness potentially creating an attractive entry point.”

* RBC Dominion Securities’ Geoffrey Kwan raised his Home Capital Group Inc. (HCG-T) target to $56 from $54, keeping an “outperform” rating, while Raymond James’ Stephen Boland hiked his target to $53 from $48, keeping a “market perform” recommendation. The average is $52.71.

“While Q4/21 results were good (very strong originations and loan growth, EPS ahead of our forecast albeit slightly below consensus), we think the key focus was HCG’s target of more than 20-per-cent loan growth and that it expects a decline in NIM yields in 2022. This is different from what we expected for 2022 (stronger loan growth with stabler NIM yields). However, the bottom line is we think this different path still leads to the same place (hence our report title): our view that once its CET1 ratio is optimized at the end of 2022, HCG can generate a mid-teen ROE and with the shares trading at 1.0 times P/BV, we view the shares as undervalued,” said Mr. Kwan.

* CIBC’s Paul Holden raised his IA Financial Corp. (IAG-T) target to $88 from $84 with an “outperformer” rating. Others making changes include: Scotia’s Meny Grauman to $92 from $90 with a “sector outperform” rating; Canaccord’s Scott Chan to $91 from $89.50 with a “buy” rating and Desjardins Securities’ Doug Young to $88 from $85 with a “buy” rating. The average is $91.89.

“IAG reported a Q4 core EPS miss that did fall within their guidance range,” said Mr. Chan. “Overall, solid growth trends continue and was mainly impacted by elevated expenses and a higher tax rate. More importantly, IAG provided: (1) 2022 guidance metrics that were generally ahead of consensus; and (2) expects near-neutral to favourable impact on several important core operational metrics on 2023 IFRS 17 transition (await further updates throughout the year).”

* TD Securities analyst Aaron Bilkoski raised his Kelt Exploration Ltd. (KEL-T) target to $7 from $6.50, remaining below the $7.24 average, with a “buy” rating.

“Kelt offers investors significant organic growth exposure, a proven management team with a long track record of exploratory success, almost no financial leverage, and FCF potential,” he said.

* Mr. Bilkoski raised his Peyto Exploration & Development Corp. (PEY-T) target to $14.50 from $14, maintaining a “buy” rating. The average is $13.91.

“Peyto’s balance sheet has been fully repaired and it offers modest growth from a portfolio of comparably quick-payout wells with high returns. Meanwhile, it offers a relatively attractive cash dividend yield (6 per cent) with a TD-estimated incremental $1.34 per share of unallocated FCF in 2023 for future value creation initiatives,” the analyst said.

* Scotia’s Tanya Jakusconek reduced her Kinross Gold Corp. (KGC-N, K-T) target to US$9 from US410 with a “sector outperform” rating, while TD’s Greg Barnes cut his target to US$8.50 from US$10 with a “buy” recommendation. The average is US$8.71.

“We believe that Kinross has one of the more compelling production growth profiles among the larger gold producers,” said Mr. Barnes. “The company has a strong organic project pipeline, combined with project optionality after the addition of the Dixie project and the potential ability to move Dixie forward in the pipeline while delaying Lobo Marte. Kinross will generate strong FCF over the next several years (based on our price deck) and management has committed to its $320-million annual dividend and share buyback program.

“But investors are concerned (justifiably or not) about potential sanctions/ other measures that could affect Kinross and its Russian operations/projects (Kupol/Dvoinoye and Udinsk) if Russia does invade Ukraine. That being said, Kinross’ Russian operations are effectively self-contained and self-funding with cash flow from Kupol being reinvested in Udinsk. Kinross has the option to sell its gold production from Kupol in Russia (to cover ruble costs) or outside the country; only 10% of supplies for Kupol are sourced outside Russia/China currently (with the intention to reduce that) and Kupol currently has a full year of supplies on site.”

* CIBC’s Dean Wilkinson increased his target for Killam Apartment Real Estate Investment Trust (KMP.UN-T) to $26 from $25.50, keeping an “outperformer” rating, while Desjardins’ Michael Markidis cut his target to $26 from $26.50 with a “buy” rating. The average is $25.85.

“KMP’s 4Q21 results were a touch light of expectations. The demand side of the equation remains robust; however, management is sounding a cautious tone with respect to the potential near-term impact of expense inflation on profitability. This, combined with the modestly dilutive impact of the recent equity offering, has been reflected in our revised FFOPU estimates,” said Mr. Markidis.

* Mr. Wilkinson bumped up his target for Morguard North American Residential Real Estate Investment Trust (MRG.UN-T) to $23 from $22 with an “outperformer” rating. The average is $21.40.

* CIBC’s Bryce Adams raised his Lundin Mining Corp. (LUN-T) target to $13, exceeding the $12.45 average, from $11 with a “neutral” rating.

* Seeing “more upside” as its “predictable performance continues,” National Bank’s Maxim Sytchev increased his target for North American Construction Group Ltd. (NOA-T) to $30 from $27 with an “outperform” rating. Elsewhere, CIBC raised its target to $23 from $22 with a “neutral” rating, while Canaccord’s Yuri Lynk moved his target to $29 from $28 with a “buy” rating. The average is $25.50.

“Management continues to execute, and with midpoint of FCF generation in 2022, we could be looking at FCF yield of 11 per cent on Enterprise Value,” said Mr. Sytchev. “While some are still trying to figure out if certain portions of the market should be trading at 20 times revenue or 15 times, we have a deep value name that despite being less reliant on oil, is obviously benefiting from much stronger oil sands’ coffers.”

* Ahead of next week’s earnings release, Scotia’s Jeff Fan cut his Quebecor Inc. (QBR.B-T) target to $34 from $36, keeping a “sector outperform” rating. The average is $37.55.

“We anticipate the market will be torn by the potential upside from the company staying in Quebec against the weaker results,” he said. “Our conclusion is that the net impact is still positive due to the magnitude of the national expansion discount already in the share price. On the one hand, the results being weaker than expected will likely raise questions regarding execution and management changes throughout 2021. On the other hand, this likely reduces QBR’s ability or desire to explore a national wireless expansion. If QBR does not expand, we believe it will be a relief for the market.”

“We maintained our SO rating because we think QBR management will end up doing the right thing by not expanding wireless outside Quebec, which should result in an immediate revaluation of the shares by approximately 15 per cent before factoring in any potential gains from the sale of 3500 MHz spectrum licences outside Quebec.”

* CIBC’s Hamir Patel raised his Western Forest Products Inc. (WEF-T) target to $2 from $2.25 with a “neutral” rating. The average is $2.75.

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