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

Rogers Communications Inc. (RCI.B-T, RCI-N) delivered an “outstanding” first quarter, according to Canaccord Genuity analyst Aravinda Galappatthige, pointing to both its financial results and better-than-anticipated subscriber trends.

On Thursday after market close, Rogers announced it added 95,000 new mobile customers on contract, exceeding Mr. Galappatthige’s estimate of 53,700 and the consensus projection on the Street of 55,300.

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“Considering Freedom’s strong results, the market likely did not anticipate strength to this degree and thus it stands out as a highlight for the quarter. This was due to a combination of gross adds, which grew 10 per cent year over year, and a reduction in postpaid churn from 1.10 per cent to 1.08 per cent (versus our 1.20-per-cent estimate,” said Mr. Galappatthige, who was also impressed by the company’s cable television subscription results.

Quarterly EBITDA jumped a better-than-projected 11 per cent year over year, or 14 per cent under the company’s new IFRS 15 reporting, which Mr. Galappatthige attributed to strong increases in both its media and wireless divisions.

With the results, he raised his 2018 and 2019 earnings per share projections to $4.38 and $4.76, respectively, from $3.94 and $4.15.

“While the Street was generally expecting solid financial results from Rogers in 2018, corroborated by strong guidance, Q1 results, in our view, had several incremental implications,” he said. “First, adjusted EBITDA growth now looks likely to either hit or more likely surpass the higher end of the 5-7-per-cent guidance growth range, which suggests a comfortable sector leading result. Second, fears that had emerged following Freedom’s strong showing the GTA (reflected in Shaw’s FQ2/18 results) are likely to recede somewhat following the impressive postpaid net adds performance. Third, cable sub trends, which we were frankly concerned about, proved to be a lot better than feared. While we expect pressure throughout the year as Bell expands its Fibre broadband service across the GTA, and X1 unlikely to be a material factor through 2018, it appears to be less threatening than we expected pre-Q1.”

Maintaining a “buy” rating for Rogers shares, Mr. Galappatthige raised his target price to $69 from $66. The average target on the Street is currently $68.12, according to Bloomberg data.

Elsewhere, RBC Dominion Securities analyst Drew McReynolds raised his target by a loonie to $68, keeping a “sector perform” rating.

“Following strong relative performance in 2017, we see Rogers performing more in line with the group in 2018 as the company digests a meaningful year-over-year uptick in capex as well as increased competition from Shaw/Freedom Mobile in Western Canada and from FTTH [fiber to the home] in Toronto/Ontario,” said Mr. McReynolds. “Longer term, we believe Rogers is well positioned to deliver attractive returns to shareholders reflecting: (i) a strong asset mix; (ii) the deployment of X1; (iii) the resumption of dividend growth and opportunistic share repurchases; and (iv) customer service improvement initiatives, which could move the needle on churn. With Rogers back on the front foot in wireless, we do expect the current valuation discount to large-cap peers to now narrow (forward 12-month EV/EBITDA multiple of 7.0 times versus an average of 7.6 times for large cap peers).


Expecting a “muted” performance from its infrastructure division in the first quarter, Canaccord Genuity analyst Raveel Afzaal downgraded Mosaic Capital Corp. (M-X) to “hold” from “buy” ahead of the mid-May release of its financial results.

“We have revised down our EBITDA estimate for the division from $3.2-million to $1.5-million,” said Mr. Afzaal. “More specifically, we reduced forecasts for Ambassador Mechanical (HVAC services), which continues to face a tough macro environment in Manitoba due to the entrance of competitors from Alberta. Further, we have lowered our forecasts for Bassi (Ottawa based construction services) to better account for management’s commentary on the Q4/17 conference call pertaining to a softer Q1 outlook for the division and seasonality associated with this business.”

With that adjustment, his consolidated EBITDA estimate for the quarter now sits at $3.5-million, down from $5.2-million.

“We believe access to patient and non-dilutive capital remains a key barrier to entry for companies looking to grow through consolidation activities similar to Mosaic,” the analyst said. “However, the company was very successful in securing patient capital in the form of perpetual preferred securities in its infancy, which has helped minimize shareholder dilution. As a result, a modest improvement in EBITDA can result in a significant increase in our target price. The company is in active dialogue with 40 companies and has submitted expressions of interest to five companies. It remains capitalized to pursue new acquisitions (not factored into our estimates) with cash of $9.4-million, working capital of $66.4-million and $30.6-million in credit availability. Assuming a $20-million acquisition at its historical acquisition multiple of 5.0 times could increase our target price of $6.00 per share to $8.00 per share, all else equal.”

His target for Mosaic shares, which he emphasized have “significant torque,” is now $6, down from $7. The average among analysts covering the stock is $7.13.

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“We expect significant improvement in the EBITDA run-rate (from anticipated Q1/18 level) in Q2 and Q3 which are the seasonally strongest quarters for the Infrastructure division,” said Mr. Afzaal. “Hence, we believe better-than-expected Q2 results (expected in August), new acquisitions and securing additional capital in a non-dilutive manner (which the company has demonstrated in the past) are potential catalysts which could drive upside to our current target price. We believe management is strongly incentivized to deliver on these potential catalysts with insiders owning 40 per cent of the shares outstanding.”

“Despite the reduction to our forecasts, we estimate a healthy 61-per-cent payout ratio for 2018. Hence, investors earn an attractive dividend yield as we await for the potential valuation catalysts mentioned above.”


Parkland Fuel Corp. (PKI-T) is “a well-oiled machine that continues to fire on all cylinders,” said Desjardins Securities analyst David Newman.

He initiated coverage of the Calgary-based with a “buy” rating.

“Already an industry heavyweight in fuel marketing and distribution, the company should be able to tap into a full barrel of opportunities, such as: (1) a healthy macro backdrop, driving fuel demand; (2) organic growth, including new and retrofit gas stations, greater pump-to-convenience store conversion (aided by the rollout of its On the Run convenience store brand, private-label offerings and loyalty programs), as well as new commercial cardlock and branch locations; (3) a rising crack spread and refining margins at its recently acquired refinery in Burnaby, BC; (4) its balanced barrel approach to procurement, ensuring its leadership position as the low-cost provider of hydrocarbons; and (5) future consolidation opportunities in a fragmented market following a string of successful acquisitions, including strong expected synergies,” said Mr. Newman. “PKI is fuelled up and ready to rack ‘n’ roll with a long road ahead.”

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Emphasizing its “proven” acquisition track record, Mr. Newman noted Parkland’s recent accretive deals for CST Brands Inc. and Chevron Canada Ltd.’s downstream fuel business has tripled the size of its business and added a “lucrative” refinery in Burnaby, B.C.

“The company is well-positioned to be the industry consolidator in a fragmented market, given its leading market positions, size/scale, balanced barrel approach to procurement (ie procure all types of refined products), experience across all channels and strong track record of successfully integrating acquisitions,” he said. “PKI has established a solid reputation for buying quality assets and extracting synergies, typically in the range of 20 per cent of EBITDA. While the company has paid in the range of 5.0–7.0 times trailing-12-month (last 12-month) EBITDA on average, CST was completed at 8.9 times LTM EBITDA before synergies and CCL at 7.4 times. Factoring in subsequent synergies, the multiple paid was reduced by 1.0–2.0 points on average. In all cases, PKI’s stock was trading at a premium to the multiple paid at the time the deal was announced.”

He added: “PKI should generate healthy organic growth as it leverages its portfolio of fuel (eg Ultramar and Chevron) and c-store brands, develops new sites, rolls out the redesigned On the Run c-store brand and converts gas pump sales into greater cstore sales, aided by its private-label program, loyalty plan and partnerships. Its growing national network of commercial cardlock sites and branches should drive new diesel and propane business, backstopped by its Pipeline Commercial brand.”

Mr. Newman set a target price of $36 for Parkland shares. The average on the Street is currently $35.58.


Nutrien Ltd. (NTR-N, NTR-T) is likely to see “mixed” first-quarter results after a slow start to spring activity in North American and faced with the impact on potash volumes from “challenging” rail logistics, said RBC Dominion Securities analyst Andrew Wong.

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In a research note ahead of the May 7 release of its financial results, Mr. Wong said he’s projecting earnings before interest, taxes, depreciation and amortization (EBITDA) of US$567-million for the Saskatoon-based company, created by the merger of Agrium Inc. and Potash Corp. of Saskatchewan Inc., versus the Street’s expectation of US$617-million.

“Potash prices were better due to tight S&D and nitrogen prices benefited from seasonal strength,” he said. “However, poor weather likely delayed U.S. spring field work and limited Retail sales, while challenging rail logistics in Western Canada may have negatively impacted international potash sales volumes.”

“We continue to expect several positive developments over the next 12-18 months including significant synergies from the AGU/POT merger ($500-million over 2-year period), selling the SQM and APOT [Arab Potash Co Plc ] equity stakes ($4-billion cash after taxes and fees), capital return to shareholders ($1.5-billion buyback, expected dividend increase 2H/18), and further investment in Retail (primarily U.S. and Brazil). We also think Nutrien shares have strong support on the downside, due to steady FCF backed by stable Retail business and diversified wholesale business with low-cost assets. We forecast $1.5-billion/$2.0-billion/$2.2-billio FCF in 2018/19/20 vs. company dividend payments of $1.0B. In a downside scenario with prices -10 per cent vs. our base case, we think Nutrien would still generate $1.0-billion/$1.4-billion/$1.6-billion in 2018/19/20.”

Mr. Wong lowered his 2018 and 2019 EBITDA projections to US$3.46-billion and $3.93-billion, respectively, from $3.48-billion and $4.08-billion.

With those changes, he dropped his target for Nutrien shares to US$55 from US$58, which is below the consensus target of US$56.83.

He kept an “outperform” rating.

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Shares of Eldorado Gold Corp. (EGO-N, ELD-T) are unlikely to keep pace with peers, according to RBC Dominion Securities analyst Dan Rollins, pointing to a “challenging” free cash flow outlook and “inherent” financing, development and jurisdictional risks.

“While the political situation in Greece has shown signs of improvement as of late, and Eldorado shares do offer a long-term value opportunity, we believe the current discount to NAV will be prolonged given significant capital spend over the next 3 to 5 years and potential value ceded to finance the development of Lamaque, construction of mill at Kisladag, and complete Skouries,” he said.

Mr. Rollins believes Vancouver-based Eldorado’s “significant” capital program will likely require external funding, projecting US$200-million, or US$350-million without any asset sales, is needed to cover off its requirements. Those priorities include the development of its Lamaque project in Quebec (with a guided upfront cost of US $99-million), the construction of a mill at its Kisladag mine in Turkey (US$490-million) and further progress at its Skouries mine in Greece (US$689-million).

“Our forecast assumes Eldorado fully draws the remaining $250-million on its current credit facility (which is then extended 5 years to 2025) and raises $150-million through the sale of Tocantinzinho and Certej, in line with our combined value for the projects,” the analyst said.

“Overall, Eldorado’s actual funding requirement will depend on a number of factors including ability to refinance $600 million of long-term debt in its entirety prior to expiry in December 2020, permitting and development time-lines for Skouries, ability to surface value through assets, and underlying metal prices over the next few years.”

With those concerns, Mr. Rollins expects the company’s valuation discount to persist, noting: “Overall, we expect many investors will question the need to wait through a prolonged period of negative free cash flow when considering the development, financing and jurisdictional risks. At a flat gold price of $1,300 per ounce, we forecast Eldorado will generate an average operating free cash flow margin of negative 44 per cent through 2020 versus its intermediate peers with an average free cash flow margin of positive 6 per cent. In our view, the challenging free cash flow outlook in conjunction with elevated risks is a key reason why Eldorado trades at a discount to peers on long-term NAV (0.52 times versus 0.95 times). For these same reasons, we anticipate the discount is likely to persist until Eldorado’s free cash flow potential is closer at hand and underlying risks abate.”

Keeping an “underperform” rating for its stock, Mr. Rollins lowered his target price to US$1.25 from US$1.50. The average is US$1.45.

“We believe the current investment case for Eldorado is further challenged by a number of risks including development (potential for permitting delays, time-line slippage, cost overruns and ramp-up challenges), financing (forecast funding shortfall and ability secure/refinance debt), and jurisdictional risk, noting potential improvement in Greece following recent positive arbitration ruling,” he said.


A day after its shares dropped 15.6 per cent in reaction on lower-than-expected financial results, Bank of America Merrill Lynch analyst Lisa Lewandowski gave Philip Morris International Inc. (PM-N) its first sell-equivalent rating, moving it to “underperform” from “neutral” due to a “more cautious view on the timing and expense for the development/commercialization of IQOS into a meaningful sales and profit contributor.”

Ms. Lewandowski feels the growth of its IQOS system, which is a smoke-free product, in Japan will require increased spending amid rising competition.

She lowered her target for Philip Morris shares to US$88 from US$113. The average on the Street is now US$108.18.

Elsewhere, Goldman Sachs analyst Judy Hong removed the stock from the firm’s “Conviction Buy List” amid “increased uncertainty in IQOS trajectory.”

Maintaining a “buy” rating, her target fell to US$102 from US$126.


“Twitter is here to stay,” said MKM analyst Rob Sanderson, upgrading the social media company’s stock (TWTR-N) based on rebounding user growth and its competitive position despite a “lengthy period of sub-par execution. ”

Moving it to “buy” from “neutral,” Mr. Sanderson has a US$40 target, which exceeds the average on the Street of US$27.98.


Credit Suisse analyst Stephen Ju said “we are buyers into the discomfort” surrounding U.S. consumer internet companies around regulatory headlines and fears.

“As we are of the belief that any regulatory activity if it were to arrive in the US, would serve to safeguard the interests of the consumer, we struggle to see how any of the operators are causing any harm given the offering of free software and services coupled with the convenience of price discovery, selection, and rapid shipping on the e-commerce side,” said Mr. Ju in a research note setting up earnings season.

“GDPR [General Data Protection Regulation] is an unambiguous positive for those operators with everyday use case services Whether it is search, maps, email, newsfeed, or any other product, those companies that offer services that have become indispensable and offer high utility will have a higher likelihood of being able to secure the consumer’s consent to use their data. We hence view this new regulation as one that will potentially make advertisers (who are not as well-positioned to receive consumer approval) more reliant on the larger Internet services operators. ”

Mr. Ju raised his target price for many stocks in his coverage universe, including: Inc. (AMZN-Q, “outperform”) to US$1,800 from US$1,750. Average: US$1,710.21.

Mr. Ju said: “E-commerce growth for the next two decades will hinge on harder-to-handle nonhomogeneous product verticals, and Amazon is one of the best positioned to capture the next wave of retail dollars coming online from offline given its product innovation/iteration track record. Apparel and groceries remain large pools of dollars still left to come online, and Prime Wardrobe and the linkup between WFM content and Prime Now distribution will serve as the spearheads to address those opportunities.” Inc. (EBAY-Q, “outperform”) to US$60 from US$51. Average: US$49.66.

Mr. Ju: “While GMV [gross merchandise volume] acceleration has been an undeniable positive for EBAY shares, monetization/take rate improvements ultimately exert a greater impact on revenue and free cash flow. To this end as we look to the next five years of eBay’s growth, we draw parallels with its global marketplaces platform peers in the form of Alibaba as well as MercadoLibre as we focus on its newly-announced Payments as well as the potential for its advertising businesses.” Inc. (FB-Q, “outperform”) to US$230 from US$240. Average: US$215.63.

Mr. Ju: “As we take a step back from the recent controversy, we do not believe our long term thesis has really changed and we remain buyers of FB shares and into the discomfort on the following points: 1) it will be able to drive long term revenue growth without a material lift in ad loads – near-term drivers include Instagram, Premium Video, and DPA, 2) Street models continue to underestimate the long-term monetization potential of upcoming new products, 3) optionality and upward bias to estimates, which do not contemplate contributions from multiple other products including Messenger and WhatsApp.”

Alphabet Inc. (GOOGL-Q, “outperform”) to US$1,350 from US$1,400. Average: US$1270.68

Mr. Ju: “Despite the near-term potential upside to estimates, given the longer-term opportunity that the stock continues to present, it remains our favorite name in the sector - our investment thesis remains the following: 1) ongoing monetization improvements in Search through product updates, 2) larger-than-expected contribution from Google’s larger non-Search businesses, namely YouTube, Play and Cloud, 3) optionality for value creation from new monetization initiatives such as Maps as well as the eventual commercialization of Google’s Other Bets (Waymo, Life Sciences).”


In other analyst actions:

OTR Global LLC downgraded Apple Inc. (AAPL-Q) to “mixed” from “positive.”

RBC Dominion Securities analyst Nelson Ng downgraded Superior Plus Corp. (SPB-T) to “sector perform” from “outperform,” citing share price appreciation and a lack of near-term catalysts. His target remains $14, which is the current consensus.

RBC’s Drew McReynolds raised Transcontinental Inc. (TCL.A-T) to “outperform” from “Sector perform” and raised his target to $30 (from $29). The average is $30.40.

Echelon Wealth Partners analyst Douglas Loe initiated coverage of Antibe Therapeutics Inc. (ATE-X), a Toronto-based pharmaceuticals company focused on inflammation-reducing drugs, with a “speculative buy” rating and target price of $1.40 per share.

Scotia Capital analyst Michael Doumet reinstated coverage of AutoCanada Inc. (ACQ-T) with a “sector perform” rating and $27.50 target. The average target is $28.71.

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