Inside the Market’s roundup of some of today’s key analyst actions
After Transat A.T. Inc. (TRZ-T) reported better-than-expected quarterly results, suggesting that demand for travel remains strong even as economic activity deteriorates, Benoit Poirier of Desjardins Securities raised his target price on the stock to $5 from $4 – but maintained a “hold” recommendation.
“Transat is starting to approach a turning point, but we prefer to wait for additional signs of execution given its elevated indebtedness and fuel/foreign exchange volatility,” Mr. Poirier said in a note.
The travel company reported revenue of $870-million, which was slightly below the average analyst’s expectation for revenue of $902-million.
However, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, after factoring in unusual items) of $56.1-million beat expectations. And though it reported a loss of 21 cents per share, analysts had been expecting a steeper loss of 67 cents per share.
Transat also delivered bullish comments on travel bookings and a weaker fuel price, which should mean that the company will deliver financial results near the top-end of its new guidance, according to Mr. Poirier.
Still, he has reasons for remaining cautious on the stock, largely related to concerns over the company’s debt-reduction strategy at a time when economic clouds are moving in.
“We believe it will likely take more time to get leverage down to the stated optimal level given the cyclicality of the airline industry and the leasing business model used by Transat,” Mr. Poirier said.
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D2L Inc. (DTOL-T), the cloud-based provider of learnings tools under the Brightspace brand, delivered adjusted EBITDA of $2.8-million in its most recent quarterly results – well ahead of the average expectation for just $0.1-million among analysts.
It also reported that annual recurring revenue, a key metric for growth, increased 10 per cent, winning an upgrade from Doug Taylor, an analyst at Canaccord Genuity.
Mr. Taylor raised his target price on the stock to $11 from $10, and maintained a “buy” recommendation.
“Maintaining this top-line trajectory while marching profitability higher towards its unchanged medium-term targets and the resulting strong free cash flow generation supports our ‘buy’ thesis,” the analyst said in a note.
He said that the stock trades at a cheaper valuation relative to peers, based on EV/EBITDA (or enterprise value to earnings before interest, taxes, depreciation and amortization – an approach that compares a company’s total value to one measure of profit). D2L’s EV/EBITDA is 10.4, which Mr. Taylor said is inexpensive on an absolute basis and a steep discount to peers.
The analyst expects that the stock can command a higher valuation. He estimates that the stock will trade at 13-times estimated EBITDA, up from a previous target valuation of 11-times EBITDA – a boost that underpins his higher target price on the stock.
Maxim Matushansky, an analyst at RBC Dominion Securities, maintained an “outperform” recommendation on D2L and a price target of $13, arguing that the current share price does not reflect the company’s growth and profitability prospects.
He raised his 2024 estimate for adjusted EBITDA to $7.2-million from $4.3-million previously.
“D2L delivered a solid quarter that was a top-line and EBITDA beat, while crossing over into profitability and raising EBITDA guidance,” he said in a note.
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Eldorado Gold Corp. (ELD-T) closed a deal this week that raised $135-million in a bought-deal offering of 10.4-million common shares at $13 each this week – in addition to announcing a $81.5-million strategic investment through a private placement by the European Bank for Reconstruction and Development.
Brian Quast, an analyst at BMO Capital Markets, resumed coverage of the gold producer with an “outperform” recommendation, but he trimmed his target price on the stock to $17 from $18 previously, due to the additional equity.
“Proceeds from the bought deal will be used to fund various growth initiatives while proceeds from the private placement will be focused on funding Skouries” – a gold and copper project located in Greece – “and contributing to Eldorado’s 20 per cent equity funding commitment for the project,” Mr. Quast said in a note.
He added: “With the closing of the €680M Skouries financing package on April 5, combined with these two new equity deals, the company has now accumulated significant liquidity.”
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Nik Priebe, an analyst at CIBC World Markets, has upgraded his recommendation on Onex Corp. (ONEX-T) to “outperformer” and raised his price target on the stock to $88 from $70 previously, arguing that the stock is past the point of peak pessimism.
“Onex’s share price implies that the privately marked investments are being valued at $0.24 on the dollar. In this context, we foresee greater upside potential than downside risk,” Mr. Priebe said in a note.
He added: “Furthermore, management has made a clear commitment to explore options and take decisive action to address the market perception of Onex and accelerate value-creation plans.”
The private equity firm has been struggling to attract investor interest over the past 18 months, amid rising interest rates and volatility equity markets. The share price has slumped 32 per cent since the end of 2021, when early signs of soaring inflation began to appear, setting up an environment of rising interest rates and borrowing costs.
Yet, insiders are buying. Mr. Priebe noted that Anthony Munk, the vice-chair on Onex, bought $5.8-million worth of shares recently, marking the most active insider-buying by the executive in at least five years.
There is more behind the analyst’s upgrade. Onex is reviewing its strategic plans, and said investors will hear details about any shift during the company’s Investor Day in the fall.
“Given the severity and persistence of the discount to net asset value, we believe that management will be inclined to consider a full range of options and provide a more detailed roadmap at the event,” Mr. Priebe said.
As well, Mr. Priebe believes that several difficult years for Onex, when it underperformed the S&P/TSX Composite Index by a wide margin, have put the shares at a point of peak pessimism, meaning that they could be at the low point in terms of both sentiment and valuation.
This performance gap, he said, has been driven by five factors: the shares that were probably priced for perfection in 2017; a few select private equity investments, including Save-a-Lot and Survitec, were written-down to zero in the pre-pandemic period; the global pandemic emerged in early 2020 after Onex acquired WestJet; its Gluskin Sheff investment hasn’t lived up to expectations; and lastly, inflationary pressures and higher borrowing costs have had a disproportionate impact on private-equity companies.
In 2017, he said, Onex shares traded at a premium of 35 per cent to net asset value (a measure of Onex’s liquidation value). Now, the shares trade at a 50 per cent discount.
“There are a handful of theories that explain the severity of the discount,” including the perceived opaqueness of the company, “but we believe the magnitude is larger than can be reasonably justified,” Mr. Priebe said.
He thinks the company can narrow the discount by monetizing some of its directly held investments and use the proceeds to buy back shares.
“In our view, intentionally monetizing direct investments with the intention to use proceeds to take advantage of a deeply discounted market value is an easy way to engineer NAV/share accretion and create instant value for shareholders,” Mr. Priebe said.
David Berman