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

The margin outlook continues to dim at Richelieu Hardware Ltd. (RCH-T), says National Bank Financial analyst Zachary Evershed, who downgraded the stock to “sector perform” from “outperform” in the wake of the company’s latest quarterly results. He also cut his price target to C$45.50 from C$47.60.

Richelieu’s fourth-quarter earnings, reported on Thursday, were below both National Bank’s and the Street’s expectations.

EBITDA margins contracted 380 basis points year over year to 13% resulting in $58.8 million in EBITDA, below the Street’s $59.9 million consensus expectation. Earnings per share came in at $0.51, just shy of both National Bank’s $0.54 estimate and consensus of $0.53.

“Pressure on gross margins was felt again this quarter, though the drag from higher-cost product should subside in coming quarters as the company finishes working through excess pandemic-related inventory,” Mr. Evershed said in a note to clients. “Further down the Profit and Loss statement, management revised EBITDA margin guidance downwards again to 12-13% for fiscal year 2024, on the assumption of flat-to slightly negative volumes weighing on operating leverage in the first half of the year, with a bounce back in the second half of the year. As such, we lower our EBITDA margin assumption for FY24 to 12.6% (was 13.2%), in line with management forecasts.”

The analyst noted that Richelieu is holding an additional $25 million of excess inventory purchased primarily from Asian suppliers at prices higher than warranted by the current operating environment. “This should weigh on gross margins as the company continues destocking over the next several quarters, though we note Q1 should remain fairly flat q/q as the company must stock up ahead of Chinese New Year.”

“Looking ahead, we see the new residential construction market as a bright spot in a potentially easing interest rate environment, which should boost an already inflecting market for single-family homes. Contrastingly, we are increasingly cautious on the renovation front, however, as projections call for muted R&R demand, and we weigh the two competing narratives claiming to drive R&R demand,” the analyst said.

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Raymond James analyst Jeremy McCrea downgraded Birchcliff Energy Ltd. (BIR-T) following the company’s updated five-year plan this week and 50 per cent reduction to its dividend. His rating went to “market perform” from “outperform”, with a reduced target of C$9, from C$11.50.

With weaker natural gas prices, and the company being forced to add debt to pay for spending and the dividend, Mr. McCrea said investor interest in the name is going to be limited.

“Investors have seen plenty of volatility with BIR shares over the past few years. Nevertheless, the company has continued to profitably invest in its core Montney position at Pouce Coupe, establishing infrastructure and a well delineated region that would be much more costly to recreate today. While BIR benefited from its previous unhedged production strategy, the current natural gas outlook is not nearly as favorable, with the company adding debt to cover both the dividend and capex plans in 2023. Given the uncertainty in commodity prices today, the announcement of a 50% dividend cut shouldn’t be surprising, however sentiment with the company taking additional prudent steps in scaling back spending (and growth) in their 5-year outlook could weigh on the stock,” the analyst said in a note.

“We’ll admit circumstances can change rapidly and with the company signaling early success with a change to drill and completion designs, we could however see higher growth return earlier. Overall, with plenty of moving parts, we suspect investors are likely to adopt a wait-and-see approach,” he added.

In its five-year outlook, Birchcliff expects to see growth of 16 per cent in its production, with 2028 estimated output of 87,500 barrels of oil equivalent per day. Previously, the level was expected to be reached in 2025. Capital expenditure plans were significantly cut back.

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Desjardins Securities analyst Gary Ho has issued a bullish outlook on Ag Growth International Inc. (AFN-T), suggesting that the stock could rise considerably above his current target price under a best-case scenario thanks to growth in the firm’s international segment.

The analyst said Ag Growth’s International segment accounts for about 33 per cent of its revenue today but has the potential to contribute up to 45 per cent in the near to medium term.

“AFN is in geographies that are critical food pillars globally, yet are under-invested in ag infrastructure. Product transfers should reap tangible benefits in 2024. Despite near-term softness in Brazil and Australia Farm due to dry conditions, we remain very bullish,” he said.

While his price target remains for now at C$82, he sees a “blue-sky”, or best-case, scenario where the stock exceeds that target by between C$18 and C$36.

“South America, APAC and EMEA account for about one-third of last twelve months of revenue, and we believe they could outpace North America to represent about 40–45% of the mix over the coming years, driven by local ag infrastructure buildout, product transfers and organic investments—first in India, followed by Brazil, starting as early as 2H24,” Mr. Ho said in a note.

He has a “buy” rating on the stock

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Canaccord Genuity analyst Doug Taylor raised his target price on Blackline Safety Corp (BLN-T) to C$5 from C$4 while maintaining a “speculative buy” rating, citing a reduced risk profile.

“This reflects the improvement in cash burn metrics despite the breakeven threshold being set back to H2/24, and anticipation for continued strong organic growth,” he said in a note. “Blackline’s product leadership within the connected safety market is unchallenged, in our view, and should support many years of market share gains. As the company executes against its objectives of profitability and “rule-of-40″-like performance, we believe there is further upside, beyond our new target price, as emphasis is increasingly put on the top-line growth profile and large market opportunity vs. OPEX and balance sheet.”

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Canaccord Genuity analyst Matthew Lee raised his price target on Propel Holdings Inc (PRL-T) to C$18 from C$12 while maintaining a “buy” rating.

The revised price target came after Canaccord analysts hosted marketing meetings with the management team of Propel, including CEO Clive Kinross, CFO Sheldon Saidakovsky, and senior director Devon Ghelani.

“Our key takeaways from the meetings were 1) consumer demand for alternative lending platforms continues to be robust, 2) thoughtful management of the loan book has helped to stymy credit losses, and 3) the firm does not see the need for additional capital to support growth in the near to medium term,” Mr. Lee said.

“Post our meetings, we have opted to adjust our estimates modestly to account for better-than-expected F24 loan book growth. On valuation, we have increased our P/E multiple upwards to 7x (from 6x) to account for the improving valuations of the peer group and improved visibility on PCL [provision for credit losses] and loan growth for both F24 and F25. Our 7x multiple is in line with the larger peer group, which accounts for PRL’s smaller size but superior growth. Additionally, we have rolled forward our net asset value from F24 to F25.”

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In other analyst actions:

AGF Management Ltd (AGF-B-T): CIBC raises target price to C$9 from C$8.25

Journey Energy Inc (JOY-T): Stifel cuts target price to C$5.75 from C$7

Mullen Group Ltd (MTL-T): CIBC raises target price to C$16.50 from C$16

Blackstone Inc (BX-N): Citigroup cuts to “neutral” from “buy” and raises target price to US$124 from US$116

IBM (IBM-N): Evercore ISI raises to “outperform” from “in line” and raises target price to US$200 from US$165

Editor’s note: An earlier version contained an incorrect figure on Birchcliff's production outlook.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/05/24 10:36am EDT.

SymbolName% changeLast
RCH-T
Richelieu Hardware Ltd
-2.1%38.64
BIR-T
Birchcliff Energy Ltd
+1.68%6.04
AGF-B-T
AGF Management Ltd Cl B NV
-0.69%8.58
BLN-T
Blackline Safety Corp
+0.25%4
JOY-T
Journey Energy Inc
+0.28%3.57
MTL-T
Mullen Group Ltd
-0.91%13
PRL-T
Propel Holdings Inc
+0.18%22.14
BX-N
Blackstone Inc
-1.47%121.82
IBM-N
International Business Machines
-0.23%170.5
AFN-T
Ag Growth International Inc
+0.02%46.13

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