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

Industrial Alliance Securities analyst Elias Foscolos downgraded his rating for Tidewater Midstream and Infrastructure Ltd. (TWM-T), citing the “likely scenario” that it will sell or pursue joint ventures on assets to pursue growth opportunities while reducing leverage.

Moving the stock to "buy" from "speculative buy," Mr. Foscolos said reaching its leverage target of 3.0-3.5 times while seeking growth is "challenging."

"Looking into 2020, we project an increase in TWM’s EBITDA which is coming through increased leverage," he said. "At quarter-end, TWM reported debt of $437-million, which is likely to remain elevated as the Company pursues growth through its Pipestone Gas Plant expansion (Pipestone 2) and its Pipestone liquids handling and battery acquisition. It seems clear to us that TWM will either have to pursue a joint venture (JV) partner for Pipestone 2 (which would involve selling Pipestone 1) or sell an interest in one of its core assets in order to move to its targeted debt to EBITDA range."

He added: "In the Q2/19 transcript, TWM expressed that its 'plan is not to raise equity at current levels and not add debt' and that 'joint venture private equity capital is where [the Company is] going to head.'TWM also stated that it 'could sell down a working interest in Pipestone Phase 1 at a premium, or [it] could look to roll Pipestone into a joint venture.' When we further factor in TWM’s CEO’s intention to purchase shares that was communicated in the Company’s July 23 news release, and the fact that he has not yet purchased any shares despite the share price weakness, we are convinced that a material asset transaction is imminent."

Though he remains bullish on the stock, Mr. Foscolos lowered his rating and trimmed his target to $1.80 from $1.95 after reducing his 2020 EBITDA estimate. The average target on the Street is $1.99.


AGF Management Ltd.'s (AGF-B-T) valuation is “more attractive” following the merger of two large British money managers, according to Desjardins Securities analyst Gary Ho.

On Thursday, Smith & Williamson Holdings Ltd., which is 33.6-per-cent owned by AGF, said early Thursday that it will join forces with Tilney Group Ltd.

“We view the transaction favourably for the following reasons: (1) it represents execution on monetization of a non-core asset, especially after 2017’s failed merger between S&W and Rathbone, (2) gross proceeds of $320-million are above our prior estimate and we increased our target price by $1 as a result, (3) it simplifies AGF’s sum-of-the-parts valuation argument—investors had struggled with the S&W valuation, and (4) it provides AGF with financial flexibility for buybacks and debt repayment, and to fund future growth which serves as a future catalyst for the stock," he said.

Mr. Ho said the company's third-quarter results, which are scheduled to be released on Sept. 25, will likely "take a back seat" to the announcement. He's projecting earnings per share of 15 cents, a penny more than the consensus estimate on the Street.

With a “buy” rating, Mr. Ho hiked his target by a loonie to $8.50. The average target is currently $7.21.

“We foresee a few near- or medium-term positive catalysts: (1) details around the use of proceeds from the S&W sale; (2) improving fund performance leading to 60 per cent of AUM [assets under management] above median over three years; (3) net retail flows improving relative to industry; (4) growth in fees/earnings from its Alt platform; and (5) all of these factors leading to better sentiment and valuation,” the analyst said.


RBC Dominion Securities analyst Paul Treiber expects BlackBerry Ltd.'s (BB-N, BB-T) second-quarter results will not “materially alter the bull-bear debate on the stock.”

“We anticipate Q2 results essentially in line with the Street, BlackBerry is likely to reiterate its FY20 guidance, and BlackBerry’s shares have already rallied 13 per cent off the August lows,” he said. “The primary focus for the quarter will be Cylance’s growth and its sustainability.”

Ahead of the release on Sept. 24 before the bell, Mr. Treiber is projecting non-GAAP revenue to rise 24 per cent year-over-year (or down 1 per cent organically) to US$265-million, versus the consensus of US$266-million. He expects adjusted earnings per share of nil, which exceeds the 1-US-cent loss anticipated by the Street.

“The investor debate on BlackBerry stems from the company’s future opportunity compared to its current momentum,” he said. "BTS appears the healthiest, given design win momentum, which may drive stronger growth. For other opportunities like ESS and Radar, limited near-term growth reduces long-term visibility. Cylance is encouraging, though it is early, and Cylance’s lower growth vs. some competitors creates uncertainty. "

Maintaining a “sector perform” rating and US$9 target (versus the US$10.34 consensus), Mr. Treiber said BlackBerry’s current valuation is discounted, however growth catalysts are needed.

“Despite the 13-per-cent rally in BlackBerry’s shares from the August lows (vs. S&P 500 up 6 per cent), BlackBerry is trading at just 3.3 times FTM EV/S [forward 12-month enterprise value to sales], below enterprise security peers at 4.1 times and near the low-end of its 2-year historical range (2.7-6.3 times),” said the analyst. “BlackBerry’s stock values Cylance at 3.9 times FTM EV/S, below peer Crowdstrike at 34 times FTM EV/S and the takeout of peer Carbon Black at 8.0 times FTM EV/S. In our view, stronger organic growth in several of BlackBerry’s core businesses (ESS, BTS, Cylance) is needed to justify higher valuation multiples. Possible catalysts for the stock include new design win announcements, IP licensing upside, upwards valuation re-rating of cybersecurity assets, and accelerating revenue growth at Cylance and BTS.”


Believing it’s becoming “more special,” RBC Dominion Securities analyst Mark Mahaney raised his rating for Etsy Inc. (ETSY-Q) to “outperform” from “sector perform,” citing three initiatives announced in the last three months that could have “mid-to-long-term positive impact” on its business and upside to Street’s fiscal 2020 and 2021 estimates.

“Based on third party data sources, management commentary in recent weeks, and discussions with company management, we derive our estimates on incremental GMS and Revenue impacts from the three recent announcements. i) Free Shipping Initiative: Based on our assumptions around increase in Average Order Value (AOV) & purchase frequency, we estimate that a 1.5-3.5-per-cent increase in purchase frequency – from 1.65 in 2018 – and a 6.5-8.0-per-cent increase in AOV – from $60 in 2018 – would generate an 8-12-per-cent increase in total GMS – or $300-$465-million and a 6-9-per-cent increase in revenue or $40-$55-million. ii) Etsy Ads: Management raised FY’19 Revenue guide by $12-million, and we assume that 80 per cent of the increase was due to Etsy Ads (or $10-million), which we annualize to estimate $20-$30-million in incremental revenue. iii) Reverb Acquisition: According to the company’s recent 8K filing, Reverb’s 2018 Revenue was $36-million, which we believe grows to $45-$50-million implying $700-800-million in GMS, annualized for FY’19. We estimate the total GMS and Revenue opportunity across these three initiatives to be $1.0–$1.3-billion and $105–$135-million, respectively, and we believe there is upside to Street’s 2020 and 2021 estimates," the analyst said.

Mr. Mahaney raised his target for Etsy shares to US$68 from US$63, exceeding the consensus on the Street of US$76.64.

“Etsy shares are down 13 per cent vs. S&P, which is up 2 per cent, since the company’s Q2 EPS call on Aug. 1,” he said. “Despite the pullback, we see fundamental thesis as largely unchanged for ETSY. The pullback, in addition to five Growth Curve Initiatives (GCIs)— Free Shipping Initiative, Etsy Ads, Reverb acquisition, product initiatives, and international markets—and generally positive intra-quarter data points, give us conviction that there is upside to Street’s FY ’20 & ’21 estimates. For context, RBC estimates are 1-4 per cent higher than Street’s for FY ’20 & ’21. While there may be some near-term risk in quarterly results in H2:19, we view risk-reward as attractive.”


Raymond James analyst Johann Rodrigues lowered his financial estimates for BSR Real Estate Investment Trust (HOM-U-T) with the closing of a US$40-million bought deal and $15-million private placement.

The proceeds are being used toward the US$104-million acquisition of a pair of apartment communities in Austin, Tex.

Pointing to the fact that the equity raise was issued at a 13-per-cent discount to his net asset value projection, he lowered his NAV to $12 from $12.50. His adjusted funds from operations per unit projection for fiscal 2020 by a penny to 72 US cents.

With an “outperform” rating, his target dipped to US$11.50 from US$12.25. The consensus target is US$12.06.

“While the IRRs on this deal should be accretive over the longer-term, issuing at a 6.5-per-cent implied cap rate (and double-digit discount to NAV) to buy at a going-in 5 per cent (at best - the official cap rate was not disclosed but market cap rates are 4.75 per cent for like-property) is immediately dilutive (2 per cent) to both FFO and NAV," said Mr. Rodrigues. "Although this acquisition does mark the stark step away from the REIT’s historical strategy of buying B- assets in the markets they’ve spent their lives investing in, Austin is one of the strongest multi-family markets in the country, which adds significant quality to a legacy portfolio that’s already been culled of its bottom 10 per cent. BSR won’t grow like the Ontario apartment REITs but it also still trades at a hefty (11 per cent) NAV discount.”


In other analyst actions:

Paradigm Capital analyst Kevin Krishnaratne initiated coverage of Universal mCloud Corp. (MCLD-X) with a “buy” rating and 75-cent target.

Mr. Krishnaratne said: “Universal mCloud is a uniquely positioned SaaS company in the Internet of Things (IoT) sector, leveraging patented technology related to the management and optimization of energy assets, such as HVAC units and wind turbines. We think mCloud is well aligned with global energy management trends that are driving businesses to adopt technologies to lower electricity costs, extend the life of energy equipment, maximize energy production, and increase the intelligence of legacy energy systems. mCloud’s competitive data and analytics edge, coupled with management’s energy industry experience, should help it add new clients to an already impressive base, while we see pricing power and new asset connections leading to outsized revenue growth versus other SaaS peers.”

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