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

After Thursday’s release of second-quarter financial results that “significantly” beat expectations, iA Capital Markets’ Matthew Weekes sees the improved full-year guidance for Mullen Group Ltd. (MTL-T) as “conservative,” seeing momentum across its business segments.

Mr. Weekes was one of several equity analysts on the Street to raise revenue and margin assumptions for the Okotoks, Alta.-based logistics provider following the earnings report, which sent its shares soaring by 11.8 per cent on the day.

“MTL’s Q2/22 results were far above expectations, with tailwinds across the business,” he said. “MTL experienced strong demand and was able to more than offset inflationary pressures through fuel surcharge and rate increases, generating internal growth in logistics. S&IS segment revenues and margins significantly increased, driven in part by recovering oilfield activity where we believe we will see continued tailwinds.”

Mullen reported revenue for the quarter of $522-million, up 67 per cent year-over-year and above the estimates of both Mr. Weekes ($463-million) and the Street ($455-million). He said the result displayed “strong” performance across its segments due to fuel surcharge revenues, incremental revenue from acquisitions, and internal growth.

Adjusted earnings per share of 47 cents also blew past the analyst’s forecast of 23 cents.

“MTL noted that freight volumes remained strong in the LTL segment as consumer spending remains intact, while freight demand in L&W continued to improve,” he added. “Pricing increases contributed to internal growth, along with a degree of fuel surcharge arbitrage enabled by the relative fuel efficiency of MTL’s fleet. The S&IS segment, which includes oilfield-related activities, experienced a significant rebound of 51 per cent year-over-year , as high commodity prices led to a recovery in demand andpricingincreasesin these business units. Operating margins were above expectations across the board, as rate increases were more than able to offset inflationary pressures.”

In response to the results, Mullen raised its full-year revenue guidance to $2-billion from $1.6-$1.7-billion and operating income before depreciation and amortization of $300-million from $260-million.

“Incorporating the Q2 results and considering tailwinds for oilfield activity, typical seasonality in the business, and expectations for continued pricing stickiness and margin strength going forward, we believe $300-million is likely on the conservative side,” said Mr. Weekes.

“We are increasing our forecasts for 2022 above MTL’s revised guidance. We are assuming essentially flat OIBDA growth from 2022 to 2023 as we consider MTL’s commentary that acquisitions and capacity additions will likely be limited in the near term, while we believe potentially slower economic growth could bring more balance to freight markets and temper pricing leverage as time goes on.”

With the higher estimates, Mr. Weekes bumped up his target for Mullen shares to $17.50 from $15.50, keeping a “buy” recommendation. The average target on the Street is $16.45.

Elsewhere, Raymond James analyst Andrew Bradford upgraded Mullen to “strong buy” from “outperform” with an $18 target, rising from $14.50.

“Even with the move in the equity on the 2Q beat, Mullen is still priced at sub 6.5 times 2022 estimated EBITDA and just 6.0 times 2023 EBITDA,” he said. “On an earnings basis, MTL is priced at just 9.8 times 2022 and 10.3 times 2023. These are historically low multiples in both accounts — Mullen has not averaged below 7.0 times EV/EBITDA or 12 times EPS in any year over the last decade plus.

“The market is clearly pricing in a sharp reduction in EBITDA and earnings while Mullen’s updated guidance and 2Q results suggest at most a flattening of results in the second half of 2022. Combined with a tailwind from its exposure to the Canadian oilfield and asset divestment, Mullen should generate strong free cash flow 2H22, improve the balance sheet, and remain active on its share buyback program. This fortuitous fact pattern should ultimately attract buyers back into the equity and normalize the valuation.”

Other analysts making changes include:

* BMO’s John Gibson to $18 from $16 with an “outperform” rating

“Is It Sustainable? In our opinion, yes. MTL’s LTL business remains stable, while pricing increases are sticking,” he said. “A lack of drivers and trucks on the road is creating a positive pricing environment for Mullen (and counteracting continued supply chain issues), while the company’s efficient fleet is working in its favor in this higher diesel price environment. The company is also seeing a sizable pick-up in its oil and gas focused businesses, which we expect should last several years. If Mullen can produce a similar quarter in Q3 relative to Q2/22, its increased guidance of $300 million in EBITDA should once again be proven conservative.”

* RBC Dominion Securities’ Walter Spracklin to $17 from $15 with an “outperform” rating.

“MTL posted a Q2 result that came in significantly above expectations,” said Mr. Spracklin. “ Guidance was also raised meaningfully, well ahead of our and consensus estimates coming into the quarter. Overall, we are very positive on the print, and point to an attractive value opportunity with a mid-teen FCF yield on our 2023 estimate. While mgmt pointed to a slowdown in M&A reflecting macro uncertainty, we expect cash generation to provide good optionality into 2023. We continue to see value in MTL at these levels.”

* CIBC World Markets’ Kevin Chiang to $15.50 from $14 with a “neutral” rating.

* TD Securities’ Tim James to $17 from $14 with a “buy” rating.


Canaccord Genuity analyst Aravinda Galappatthige thinks strength in wireless fundamentals is likely to be “the headline” coming from the second-quarter results and the remainder of 2022 for Canadian telecommunications companies.

“We believe that Q2 results would further corroborate the sustainability of the recovery in wireless we have been observing in recent periods with both sub adds and pricing likely to be strong,” he said. “In fact, just for the three incumbents, we are forecasting ARPU growth of 2.5-per-cent and 11-per-cent growth in net adds. This is being facilitated by notably lower net adds at Shaw, a fairly docile promotional environment which allowed positive price adjustments, improving uptake of premium plans (including 5G) and the ongoing recovery in international roaming revenues.”

Mr. Galappatthige called the outlook for the companies’ wireline business “a bit more mixed.”

“BCE and TELUS have been dominating industry net adds (particularly internet) for a sustained period of time, and while we are not forecasting a further swing toward the Telcos in Q2 (given they accounted for 65 per cent of net adds in Q2/21), we do expect that dominance to largely be sustained,” he said. “This is due to: (a) the ongoing acceleration in their fibre deployment and (b) comparatively (vs cablecos) lower mix of high speed (100 Mbps speed) subs in the Telco sub-base. On the other hand, we do expect wireline returns to be moderated by B2B and Enterprise in particular, as supply chain issues and lagged return to work conditions impact revenues.”

After “modest” updates to his financial projections, Mr. Galappatthige made a pair of target price adjustments:

  • BCE Inc. (BCE-T, “hold”) to $66 from $70. The average on the Street is $69.
  • Rogers Communications Inc. (RCI.B-T, “buy”) to $68 from $69. Average: $76.07.

He maintained a $30 target for Quebecor Inc. (QBR.B-T, “buy”) shares and $34 target for Telus Corp. (T-T, “buy”). The averages are $34.33 and $33.96, respectively.

“We continue to see TELUS as our preferred pick within the sector. TELUS’ valuation, whilst not necessarily cheap for a Telco, we believe is well justified owing to its defensive traits and a genuine growth element from its fast-growing business segments (i.e., TI, TH, and AgTech), not to mention the positive backdrop for incumbent wireless,” he said. “We also believe that investors should look to be opportunistic with Rogers and Quebecor and look for entry points, notwithstanding some of the uncertainty that lies ahead, given relatively inexpensive valuations. While BCE has been delivering a consistently strong performance in wireless as well as residential, we maintain our HOLD rating on the stock given: (a) its reasonable valuation (8.3 times 2023 estimated EBITDA), (b) its bond proxy status in a higher-rate environment, and (c) near-term B2B headwinds with its peer-high exposure there.”


Credit Suisse’s analyst Andrew Kuske lowered his target for several stocks in his diverse coverage universe.

For energy infrastructure stocks, his changes included:

  • AltaGas Ltd. (ALA-T, “outperform”) to $32.50 from $35. The average is $34.52.
  • Enbridge Inc. (ENB-T, “neutral”) to $58 from $62. Average: $59.83.
  • Gibson Energy Inc. (GEI-T, “neutral”) to $25 from $27. Average: $25.93.
  • Keyera Corp. (KEY-T, “outperform”) to $38 from $40.50. Average: $36.29.
  • Pembina Pipeline Corp. (PPL-T, “outperform”) to $56 from $60. Average: $52.67.
  • TC Energy Corp. (TRP-T, “neutral”) to $74.50 from $80. Average: $71.45.

“In essence, the Canadian Infrastructure universe is largely divided into three sub-sectors and we continue to view the Power/Renewable Power group as being the most interesting, in part, given growth dynamics, valuation and thematic appeal,” he said. “The Energy Infrastructure sub-sector, in our view, requires more tactical positioning partly the result of the large cap and regional divide. Commodity price movements combined with a degree of volume changes provide opportunities for significant margin expansion that, in a few cases, do not look to be priced fully into the stocks. In this context, our most direct focus is on Keyera Corp (KEY) and Pembina Pipelines Corporation (PPL), but also highlight the hybrid AltaGas Ltd. (ALA) and Brookfield Infrastructure Partners LP (BIP) – albeit both of these names are Utility GICS and with very different exposures than the core Energy Infrastructure sub-sector. For those with a smaller cap focus and hybrid exposure, we like the business dynamics associated with Tidewater Midstream and Infrastructure Ltd. (TWM).”

Mr. Kuske’s changes to utilities were:

  • Algonquin Power & Utilities Corp. (AQN-N, AQN-T, “neutral”) to US$14.50 from US$16. Average: US$16.50.
  • Atco Ltd. (ACO.X-T, “neutral”) to $48 from $49. Average: $49.21.
  • Canadian Utilities Ltd. (CU-T, “neutral”) to $40 from $41. Average: $39.22.
  • Emera Inc. (EMA-T, “neutral”) to $63 from $66. Average: $65.15.
  • Fortis Inc. (FTS-T, “neutral”) to $62 from $66. Average: $61.46.
  • Hydro One Ltd. (H-T, “neutral”) to $34.50 from $36. Average: $36.14.

“Stocks: In the Canadian Infrastructure coverage universe, we continue to view the regulated Utility sub-sector as being less attractive versus the Energy Infrastructure and Power/Renewable Power sub-sectors,” he said. “We make that conclusion, in part, given volume and margin dynamics favouring Energy Infrastructure along with portions of the more market exposed power producers. Moreover, the overall growth prospects of the renewable power sub-sector tend to offer a very compelling risk-reward relationship, in our view. ... We believe there are pockets of value amidst the shifting interest rate expectations environment. Yet, the growth rates, valuations and the selected regulatory features of specific company frameworks do not appear as attractive in the core regulated utility universe. There are no ratings changes ... but a series of earnings revisions and target price changes. We remain selective in this sub sector and favour Brookfield Infrastructure Partners LP (BIP) that is more diversified infrastructure exposure on a global basis.”


Haywood Securities analyst Pierre Vaillancourt downgraded a group of miners on Friday.

They include:

  • Adventus Mining Corp. (ADZN-X) to “hold” from “buy” with a 60-cent target, down from $1.50. The average is $1.49.
  • Canada Nickel Company Inc. (CNC-X) to “hold” from “buy” with a $2.50 target, falling from $5. Average: $4.51.
  • Copper Mountain Mining Corp. (CMMC-T) to “hold” from “buy” with a $2 target, down from $5. Average: $3.85.
  • Fireweed Metals Corp. (FWZ-X) to “hold” from “buy” with a 75-cent target, down from $1.50. Average: $1.45.
  • Lundin Mining Corp. (LUN-T) to “hold” from “buy” with a $9 target, down from $15. Average: $11.67.


While it continues to face significant headwinds from cost input inflation, National Bank Financial analyst Vishal Shreedhar expects to see continue sales momentum from Premium Brands Holdings Corp. (PBH-T) when it reports second-quarter results on Aug. 5, predicting “solid” gains in foodservice as COVID-19 restrictions eased.

“Furthermore, we believe that price increases and organic volume growth will support sales,” he said in a note released Friday. “Heightened inflationary costs will drive price increases further; however, we suspect that PBH will not be fully caught up with inflation, resulting in some margin pressure.”

Mr. Shreedhar is forecasting quarterly EBITDA of $132-million, up 17 per cent year-over-year and above the consensus estimate on the Street of $128-million. He said the gains reelect “solid organic growth, pricing increases, contribution from acquisitions, and a lower SG&A rate.”

“We expect continued cost input inflation in Q2/22,” he added. “While our review of beef/pork commodity prices suggested decreasing year-over-year trends in Q2/22, we believe that the premium cuts that PBH purchased have deviated from these indices and experienced inflation year-over-year. Our view is that PBH will continue to mitigate inflationary pressure through price increases, although there will be a lag (as seen in prior quarters), creating pressure on margins. We anticipate that the growth cadence will improve through the year, as price increases fully take effect, and PBH potentially closes on new acquisitions.”

With the results, Mr. Shreedhar anticipates the focus of investors is likely to be on “evolving” consumer behaviour, noting: “Recall last quarter that management indicated solid quarter-to-date sales trends; we estimate that early Q2/22 sales (first 4 weeks) were up by more than 20 per cent year-over-year. We anticipate continued solid sales performance through the quarter, supported by price increases and organic volume growth. That said, we also acknowledge potential signs of tapering consumer demand, in light of pervasive inflation and reduced featuring.”

After minor reductions to his 2022 and 2023 forecasts, Mr. Shreedhar cut his target for Premium Brands shares by $1 to $136, keeping an “outperform” rating. The average on the Street is $137.78.


Calling it an “under the radar mobile game developer poised for meaningful revenue growth,” H.C. Wainwright analyst Scott Buck initiated coverage of Vancouver-based East Side Games Group Inc. (EAGR-T) with a “buy” rating on Friday.

“The company develops and distributes a series of free-to-play mobile games attracting approximately 1.8 million active users each month, that it monetizes through both in-game purchases and advertising,” he said. “The company has positioned itself to meaningfully grow its mobile game portfolio though a combination of in-house game development and partnerships with third-party game studios, using the company’s proprietary Game Kit platform. As the number of new game releases increase from ten a year in 2022 to as many as 50 a year by 2025, we expect meaningful revenue growth driving operating leverage and positive, and growing, adjusted EBITDA. As East Side demonstrates its ability to execute on this profitable growth strategy, we believe new investor interest should move EAGR shares towards our $4.50 price target.”

Seeing its valuation as “attractive given meaningful revenue growth opportunity and improving profitability profile,” Mr. Buck’s $4.50 target for East Side shares falls below the $6.06 average on the Street.

“Our C$4.50 price target represents approximately 165-per-cent upside from recent trading levels,” he said. “Our targeted 2.0 times EV/revenue multiple is a meaningful discount to gaming peers, which currently trade at closer to 2.9 times 2023 Street revenue estimates. While we expect this valuation discount to dissipate over time, the company’s smaller size and lower level of financial resources justify this valuation discount today.”


National Bank Financial’s Jaeme Gloyn made “modest tweaks” to his second-quarter forecast for TMX Group Ltd. (X-T) ahead of the July 28 earnings release.

The analyst is now estimating core earnings per share of $1.70, down from $1.72 and 3 cents below the Street’s projection due to lower Equities and MX Derivatives trading revenue. His adjusted EBITDA forecast rose to $161.2-million from $160.3-million based on higher Capital Formation and BOX Derivatives trading revenues, but also missing the consensus expectation of $163-million.

Maintaining a “sector perform” recommendation for TMX shares, Mr. Gloyn cut his target to $138 from $141. The average on the Street is $149.71.

“While we maintain a favourable view of TMX’s long-term growth outlook, strong track record of strategic execution (e.g., diversify business mix, invest in tech/data, grow derivatives and drive cost control) and defensive attributes (e.g., more than 50 per cent recurring revenue, diversified/counter-cyclical revenue drivers, strong balance sheet and solid FCF generation), we preserve our Sector Perform rating in light of a lower total return to our target price relative to other companies in our coverage universe,” he said.

Elsewhere, Scotia Capital’s Phil Hardie moved his target to $150 from $152, reiterating a “sector perform” rating.

“TMX stock has held in relatively well through 2022, with the stock price largely unchanged from the start of the year and outperforming the S&P/TSX Financial Services Index, which is down 13 per cent year-to-date,” said Mr. Hardie. “This is despite the stock trading down roughly 8 per cet from the recent high in early June. We attribute the stock’s relative resilience to investor confidence in its ability to prosper across a range of market conditions following the transformation of its business over the past few years.

“We think a key investor issue holding back multiple expansion relates to uncertainty in the mid-term outlook for capital markets activity and what the “new normal” is likely to look like for trading and financing following the recent rebound in activity and potential shifts in market structure. TMX likely faces a tougher year-over-year comparable and potentially a reduced benefit of operating leverage over the near term as it continues to invest in new growth initiatives and faces a bit of higher cost inflation across its largely fixed expense base.”


In other analyst actions:

* After DRI Healthcare Trust (DHT.UN-T) announced Thursday the acquisition of a royalty interest in the global sales of pegcetacoplan for the treatment of paroxysmal nocturnal hemoglobinuria for $24.5-million, Canaccord Genuity’s Tania Armstrong-Whitworth raised her target for its shares to $15 from $14.50, which is the current consensus. She reiterated a “buy” rating.

* Scotia Capital’s Himanshu Gupta cut his Granite REIT (GRT.UN-T) target to $97 from $110 with a “sector outperform” rating. The average is $103.50.

“We recognize that Growth is not working right now as Sector AFFO multiple spread is getting reset to historical averages,” he said.”Once Growth starts working back – most likely in the fall – GRT should be on the fore-front of recovery due to a combination of above-average growth + low multiple + low leverage.”

* JP Morgan’s Ryan Brinkman lowered his target for shares of Magna International Inc. (MGA-N, MG-T) to US$80 from US$83, keeping an “overweight” recommendation. The average is US$81.24.

* CIBC World Markets’ Jacob Bout lowered his target for Nutrien Ltd. (NTR-N, NTR-T) to US$112 from US$127 with an “outperformer” rating. The average is US$111.49.

* In advance of its Aug. 5 second-quarter earnings release, Canaccord Genuity’s Luke Hannan raised his Uni-Select Inc. (UNS-T) target to $39 from $35, maintaining a “buy” rating. The current average is $36.42.

“In our view, (1) the acceleration of the aging of the car park brought about by the pandemic; (2) a structurally higher margin profile following the completion of several cost optimization programs; and (3) a balance sheet supportive of both small- and large-scale M&A suggest UNS is well positioned to realize meaningful EBITDA growth over the course of our forecast period,” he said.

* Following in-line second-quarter results, BMO Nesbitt Burns analyst Stephen MacLeod raised his target for Winpak Ltd. (WPK-T) to $52 from $46 with a “market perform” rating, while Scotia Capital’s Mark Neville bumped his target to $57 from $54, above the $51 average, with a “sector outperform” rating.

“Volume growth recovered after the supply chain-related Q1 pause, and the outlook is constructive (new capacity additions, business wins, backlog of lidding demand); we forecast 2022 mid-single-digit volume growth,” said Mr. MacLeod. “Resin price relief and selling price increases should lead to stable H2 gross margins (69-per-cent revenues indexed, 90- to 120-day lag), but we expect margin to remain below historical levels. The stock has been resilient year-to-date (up 26 per cent) against a tough market backdrop, and we think should continue to behave defensively.”

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