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

Canaccord Genuity analyst Mike Mueller initiated coverage of five oil and gas exploration and production (E&P) companies on Friday.

Believing it has established itself as “the preeminent, pure-play Montney name following efforts to concentrate its asset base,” he gave ARC Resources Ltd. (ARX-T) a “buy” recommendation.

“With the phased growth projected from Attachie in 2025/2028 and its pure play Montney asset base, we believe ARX offers investors exceptional exposure to the onset of incremental LNG export capacity coming online in North America through the balance of the decade,” he said.

Mr. Mueller thinks Arc’s diversified commodity mix and sales points “offer flexibility”, adding: “While ARX is the country’s third largest natural gas producer, and gas makes up the bulk of its total production at 62 per cent (Q1/23), the company is the largest producer of condensate in Canada. With TMX set to come online in Q1/24, regional demand for condensate is expected to grow from a point where local demand already outstrips intra-basin supply. On the natural gas front, ARX is targeting up to 25 per cent of its production to be sold into markets where it receives international (i.e., LNG) pricing (in Q1/23, JKM prices were nearly 6x NYMEX HH). We expect the company to continue adding to the supply agreements it has already penned as its production base grows.”

Emphasizing investors can expect both dividends and buybacks to “remain central to ARX’s business while it maintains a healthy balance sheet,” he set a target of $22.50 per share. The average target on the Street is $23.15, according to Refinitiv data.

Mr. Mueller also initiated coverage of these companies:

* Baytex Energy Corp. (BTE-T) with a “buy” rating and $6 target. The average is $7.15.

“While the company’s leverage (D/CF, TTM) of 1.8 times (2023) and 1.2 times (2024) exceeds its peer group averages of 1.2 times and 0.8 times, respectively, we believe the company’s torque to oil prices offers upside while having comfort in the fact that over 65 per cent of its debt is termed out to 2027/2030,” he said. “Although its recent $2.9-billion acquisition of Ranger Oil diluted its overall asset base, it did increase its operated acreage in the Eagle Ford from 0 per cent to 70 per cent, which should increase its flexibility to deploy capital across its asset base and respond to prevailing commodity prices, in our view.”

* Crescent Point Energy Corp. (CPG-T) with a “buy” rating and $12.50 target. The average is $13.61.

“We believe the company’s streamlined asset base, now focused in the Duvernay and Montney, has put it in a position of strength for the size of its production base (more than160,000 boe/d) and to facilitate the market’s general inclination towards a return of capital model,” he said.

* Tourmaline Oil Corp. (TOU-T) with a “buy” rating and $75 target. The average is $80.07.

“With the company’s strong track record of distributing excess FCF to shareholders via special dividends (incremental to its base dividend) and self-funded organic growth of 6 per cent (compound annual growth rate) through 2028, TOU offers investors the best of both worlds. In our view, TOU is one of the top vehicles to gain exposure to an improving macro backdrop for North American natural gas development with the onset of incremental LNG export capacity (of which TOU already benefits from),” he said.

* Vermilion Energy Inc. (VET-T) with a “buy” rating and $24.50 target. The average is $25.46.

“We believe the company’s international exposure provides investors with a unique vehicle to participate in European natural gas and Brent crude prices, which sets the company apart from its domestic peers,” he said. “However, we recognize that the numerous geographies the company operates in bring increased risk from a policy standpoint, which could hamper cash flows (as was the case with the windfall taxes in 2022). We believe significant upside remains given volatility in the European natural gas market and believe Vermilion stands alone in its positioning to benefit from this.”


Ahead of second-quarter earnings season for the precious metals sector, analysts at National Bank remain constructive on the spot gold price in 2023, but they warn investors are “still potentially facing a near-term volatile period.”

“In our opinion, over the coming months, we could see the spot gold price swing wildly (+/- one or more percent) around key U.S. economic data points with the U.S. Fed’s latest dot plot calling for two additional rate hikes before the end of the year as inflation remains well above the target level and the labour market remains robust,” they said. “Generally, we believe that in this gold price scenario, the best gold companies to invest in continue to be those with near-term production growth that is well funded and relatively lower-risk, and companies with a strong balance sheet and a good catalyst calendar. Based on our 2023 Outlook report, we believe that 2023 could prove a good year to be overweight gold equities.”

In a research report released Friday, the analysts tweaked their price deck for all metals and foreign exchange rates to incorporate second-quarter averages. The most notable change was an increase to the firm’s long-term copper price to US$3.65 per pound from US$3.50 previously.

With that update, analysts made a series of target price adjustments for stocks in their coverage universe.

For senior and intermediate producers, their changes are:

* Agnico Eagle Mines Ltd. (AEM-T, “outperform”) to $92 from $98. The average on the Street is $90.10.

* Aura Minerals Inc. (ORA-T, “outperform”) to $15 from $16. Average: $15.53.

* Barrick Gold Corp. (ABX-T, “sector perform”) to $29 from $31. Average: $22.96.

* Endeavour Gold Corp. (EDV-T, “outperform”) to $54 from $56.60. Average: $42.90.

* Kinross Gold Corp. (K-T, “outperform”) to $9.75 from $10. Average: $8.54.

* Lundin Gold Inc. (LUG-T, “sector perform”) to $21 from $20.50. Average: $20.60.

* Torex Gold Resources Inc. (TXG-T, “sector perform”) to $25 from $25.50. Average: $25.43.

The firm’s top picks are currently:


Endeavour Gold Corp. (EDV-T) with an “outperform” rating and $54 target. The average on the Street is $42.90.

Analyst Don DeMarco: “Top pick, supported by stable production base, diversified portfolio, brownfield opportunities, resource accretion target, pipeline depth and discounted valuation.”

Kinross Gold Corp. (K-T) with an “outperform” rating and $9.75 target. Average: $8.54.

Analyst Mike Parkin: “Kinross trades at a significant discount to senior peers on a P/NAV and EV/EBITDA, which we continue to believe is unwarranted, especially given Kinross’ successful exit from Russia last year as well as the sale of the Chirano mine in West Africa, which we view as a key supporting factor in an expected re-rating of the company’s valuation (especially on a P/NAV basis) on an improved overall geopolitical risk profile. Additionally, Kinross maintains significant opportunities for growth within its North American portfolio, which will help improve its geopolitical risk profile.”

Newmont Corp. (NGT-T) with an “outperform” rating and $93 target. Average: $78.13.

Mr. Parkin: “We continue to view Newmont as a Top Pick as we like the outlook for the company. Newmont has underperformed the S&P/TSX Global Gold Index by approximately 14 per cent year-to-date, which we believe is mostly due to the news surrounding the bid for Newcrest Mining (NCM: TSX, Not Rated). Since the initial bid was made public in early February, Newmont is down 7.3 per cent versus the Global Gold Index, which is up 2.8 per cent since the first bid. The company continues to work towards closing the deal in 4Q23 and recently announced Canadian Competition Bureau clearance for the acquisition. In our view, Newmont screens well in the senior producers, with the revised proposal for Newcrest now known to the market (and paying a fair value in our view), finishing 2022 in line on production guidance (and around the top end of AISC guidance), growing reserves 4 per cent year-over-year and trading near a LTM [last 12 month] trough multiple on a FY1 EV/EBITDA basis and below the LTM average P/NAV multiple.”


Aya Gold & Silver Inc. (AYA-T) with an “outperform” rating and $13.75 target. Average: $14.

Mr. DeMarco: “Top pick, supported by NAV expansion from production growth at the Zgounder mine, in-mine and regional resource accretion, pipeline prospects including Boumadine, discounted valuation vs silver producers and the only pure-play silver producer on the TSX.”

OceanaGold Corp. (OGC-T) with an “outperform” rating and $4.25 target. Average: $4.10.

Mr. Parkin: “We continue to believe OceanaGold is performing well operationally and is set to deliver significant growth in 2024 primarily through the ramp up of the Haile underground mine. We recently visited the mine during 1Q23 and came away encouraged by what we saw. The strong production growth coming next year drives, by our estimates, a significant increase in EBITDA year-over-year (up 27 per cent), and based on the current share price, shows the potential for OceanaGold’s share price to move significantly higher if LTM FY1 EV/EBITDA trading multiplies are maintained. We also like the company for the numerous best-practice improvement initiatives being rolled out at the Haile gold mine by the new leadership team.”


Sandstorm Gold Ltd. (SSL-T) with an “outperform” rating and $9.50 target. Average: $10.43.

Analyst Shane Nagle: “We highlight Sandstrom Gold as our top pick in the royalty space given the company’s growth outlook post the acquisitions of Nomad and BaseCore. SSL continues to trade at a discounted 1.09 times NAV, compared to junior royalty and streaming peers (TFPM and OR) at 1.24 times. While the company will have to digest recent acquisitions, deleveraging can occur quickly in the current price environment as in doing so is expected to achieve a more normalized multiple in the market. We continue to anticipate consolidation within the royalty sector and the more diversified and expanded portfolio is attractive for potential consolidation.”

Analysts removed Osisko Gold Royalties Ltd. (OR-T) and K92 Mining Inc. (KR-T) from the list.


In a report previewing quarterly earnings season, CIBC World Markets analysts Robert Catellier and Mark Jarvi made a series of target price reductions to energy infrastructure and utility sector stocks in their coverage universe on Friday.

“We have modified estimates for the Midstreamers under coverage to reflect lower commodity prices and some modest impacts from the wildfires,” they said. “Lingering macro concerns (economic outlook and rising interest rates) have pressured trading multiples for the Midstreamers, which are trading well below long-term averages. The risk of an economic downturn favours those companies with low-risk business models that support strong dividend profiles and has us favouring Pipelines like ENB and TRP. Weak gas prices have us also watching producer activity for signs of a slowdown. For the renewable names, weaker resource conditions and a continued softening of power prices are likely to weigh on Q2 results/sentiment (we are 7% below consensus, on average), while pervasive concerns over funding/return erosion are hurting valuations and could lead to M&A. Conversely, CPX/TA should have decent quarters with Alberta power prices/volatility up through Q2 leading to possible annual guidance increases. For Utilities, we expect Q2 results to be muted, given mild weather across regions—valuations remain at long-term averages, and we see no obvious catalyst to drive these stocks higher in coming quarters, absent a change in the macro backdrop.”

His changes include:

* Algonquin Power & Utilities Corp. (AQN-T, “neutral”) to $9.25 from $10. The average is $9.38.

* Atco Ltd. (ACO.X-T, “outperformer”) to $51 from $53. Average: $49.75.

* Boralex Inc. (BLX-T, “outperformer”) to $45 from $47. Average: $46.88.

* Canadian Utilities Corp. (CU-T, “neutral”) to $38 from $40. Average: $39.56.

* Capital Power Corp. (CPX-T, “neutral”) to $49 from $50. Average: $50.85.

* Emera Inc. (EMA-T, “neutral”) to $58 from $60. Average: $59.93.

* Fortis Inc. (FTS-T, “neutral”) to $59 from $61. Average: $60.64.

* Hydro One Ltd. (H-T, “neutral”) to $40 from $41. Average: $39.42.

* Innergex Renewable Energy Inc. (INE-T, “neutral”) to $16 from $16.50. Average: $17.77.

* Northland Power Inc. (NPI-T, “outperformer”) to $36 from $37. Average: $39.90.

* TransAlta Corp. (TA-T, “outperformer”) to $17.50 from $17. Average: $16.25.


BMO Nesbitt Burns analyst John Gibson said Mullen Group Ltd. (MTL-T) overcame industry headwinds to post “strong” second-quarter results, “driven by sequential margin improvements in each of its core operating segments.”

The Alberta-based trucking and logistics firm reported revenue of $494.3-million, which was flat sequentially. However, adjusted EBITDA of $83.4-million topped both Mr. Gibson’s $77.2-million estimate and consensus forecast of $78.0-million.

“The beat on our numbers was driven by sequential margin improvements across each of its core reporting segments,” the analyst said. “The stand out in the quarter came from Logistics & Warehousing, which reported segment margins of 21 per cent, up nearly 300 basis points quarter-over-quarter and 150 basis points year-over-year.”

“On its conference call, management reiterated that consumer demand remains strong, although inventory management has caused the biggest impact to financial results in 1H/23. Pending consumer demand holds, we believe a fairly significant restocking of inventories could occur towards year-end 2023 or early-2024. If/when this occurs, Mullen’s financial performance holds significant torque, particularly as pricing moves higher. We aren’t seeing this quite yet, although the tipping point is coming into view. Additionally, we expect the company could see some modest short-term impacts from the ongoing Vancouver port dispute.”

Mr. Gibson thinks Mullen will likely exceed its full-year 2023 guidance of $2-billion in revenue and $300-million in EBITDA, which was reiterated on Thursday.

“The company holds underappreciated torque in its earnings when conditions (particularly pricing) improve, although we believe we are still a few quarters out from this,” he said.

Reiterating a “market perform” rating, he raised his target to $16 from $15.50. The average is $17.02.

“MTL’s business remains one of the more stable platforms in our coverage universe, although its conservative outlook into 2023 causes us to maintain a more neutral tone on the shares,” he concluded.

Other analysts making changes include:

* Raymond James’ Andrew Bradford to $18 from $17 with a “strong buy” rating.

“We expect the market was knee-jerk reacting to phraseology from the outlook and conference call, like ‘freight recession’, ‘reduced demand’, or ‘pricing pressure’,” he said. “Mullen was emphatic that consumer demand has held up well, though commercial inventories have been drawing down to meet this demand. Investors might be justifiably concerned about consumer resolve as higher mortgage rates and rents chew into discretionary spending capacity. Lastly, it’s an open question as to how the market will ultimately react to Mullen’s recent acquisition pivot toward energy and mining.

“From our viewpoint, we expect the inventory de-stocking cycle will have run its course before long, which could notionally offset risks around consumer demand as Mullen begins refilling inventories. This is driving our flattish EBITDA outlook over the next several quarters. Importantly and perhaps tellingly, MTL didn’t affect any adjustments to its 2023 business plan, which was predicated on generating $300-million EBITDA in 2023 (which isn’t to be confused with official EBITDA guidance). Mullen’s 1H23 results annualized to $322-million, though we are expecting some derivative impacts in 3Q23 from the Port of Vancouver strikes.”

* Scotia’s Konark Gupta to $19 from $18.50 with a “sector outperform” rating.

“MTL reported its first EBITDA decline in nine quarters, although it was better than our recently raised expectation,” he said. “While freight recession continues, MTL’s recent tuck-ins, solid cost control and diversified business (particularly exposure to western Canada) provided a nice offset. Management noted early signs of stability in freight volumes, barring the ongoing B.C. port disruptions in Q3, as consumers are adjusting to higher interest rates and businesses are rebalancing inventories. As we expected, MTL reaffirmed $300-million EBITDA target for 2023, which management still considers as conservative but sounded more confident, in our view. The company also remains committed to creating value through accretive acquisitions, focusing particularly on the LTL and S&I segments (plus opportunistically L&W) with a greater bias toward mining/energy end-markets, while shying away from asset-based opportunities in the U.S.”

* RBC’s Walter Spracklin to $15 from $14 with a “sector perform” rating.

“MTL posted a better than expected Q2 result - and we were therefore surprised by the sharply negative reaction on the open - and even after having recovered to flat on the day we remain somewhat perplexed,” said Mr. Spracklin. “Management also noted that acquisition multiples are moving lower - which we believe could drive a pickup in activity and act as a key catalyst for the shares. While we see value in the shares at current levels (13-per-cent FCF yield on our 2023 estimate), we continue to expect an uncertain macro environment to weigh on sentiment and therefore maintain SP.”

* TD Securities’ Tim James to $18.50 from $17 with a “hold” rating.

“We believe that Mullen’s Q2/23 results and our expectations for 2023 will compare very favourably with other North American trucking peers,” said Mr. James. “Consensus estimates for a group of diversified LTL and TL peers imply an average year-over-year revenue decline of almost 20 per cent in Q2/23 vs. MTL’s reported 5-per-cent decline, and average OR expansion of 350 bps vs. MTL’s reported increase of 170 bps. Current sector valuations suggest some upside to our current Mullen target multiples. However, we question how sustainable sector multiples are, given historical precedents, and therefore we believe it is prudent to wait and see if the historically high sector valuations are sustainable before considering raising our Mullen target multiples. We believe that Mullen’s exposure to resource industries and the Canadian LTL market, combined with its strong balance sheet, provide it with an ability to outperform during a challenging industry backdrop. Although we view Mullen’s approach to dealing with challenging industry conditions as prudent, we believe negative sentiment related to weak industry metrics and economic uncertainty through 2023 could limit the short-term share-price potential. For investors with a 12-month investment horizon, we believe Mullen’s attractive dividend yield, strong balance sheet, and strong management team justify continuing to own the shares.”

* CIBC World Markets’ Kevin Chiang to $16.50 from $16 with a “neutral” rating.

* Cormark Securities’ David Ocampo to $19.25 from $17.75 with a “buy” rating.


Canaccord Genuity’s Aravinda Galappatthige expects a “resilient” second quarter from BCE Inc. (BCE-T), featuring low-single-digit growth in revenue and EBITDA.

“Wireless should continue to post strong, albeit moderating results, while wireline should be in the positive territory,” he said. “Media, on the other hand, is expected to remain challenged, impacted by soft ad revenue environment and higher programming costs. We continue to maintain HOLD on Bell owing to 1) challenged B2B trends near term (B2B accounts for 40 per cent of the wireline segment), 2) media headwinds (particularly on the advertising front) given the uncertain macro conditions, and 3) Bell’s ‘bond-proxy’ status in a volatile interest rate environment.”

Ahead of the company’s Aug. 3 earnings release, Mr. Galappatthige is projecting revenue growth of 3.1 per cent to $6.043-billion, narrowly above the Street’s $6.035-billion forecast. He expects adjusted EBITDA to grow 2.3 per cent to $2.469-billion, in line with the consensus of $2.648-billion.

“The topline growth is driven by a continued solid performance in wireless and a rebound in wireline equipment revenues, while the EBITDA growth, in our view, will primarily come from wireless, partially offset by a decline in Media,” he said. “We have an adj EPS at $0.81 vs. $0.87 last year and compared to consensus of $0.80. We expect FCF of $1.063-billion (Street at $1.305-billion).”

Maintaining his “hold” recommendation for BCE shares, Mr. Galappatthige trimmed his target to $61 from $63, citing moderating wireless fundamentals. The average on the Street is $64.93.


In other analyst actions:

* Citing operational headwinds and a risk to its guidance, CIBC World Markets’ Anita Soni downgraded Newmont Corp. (NEM-N, NGT-T) to “neutral” from “outperformer” and lowered her target to US$50 from US$54 after its quarterly results came in weaker-than-anticipated. The average target on the Street is US$56.08.

“When we upgraded the stock to Outperformer, it was on the back of our positive outlook on gold prices and U.S. investor interest, both of which would benefit NEM as the largest and only S&P 500-listed gold producer,” she said. “While we remain positive on the commodity outlook, the operational miss this quarter creates additional headwinds for the stock as the company works through a strike and the acquisition of Newcrest. Given these headwinds, we do not expect Newmont to outperform peers until these issues are addressed. With an 18-per-cent return to target, the risk currently outweighs the tailwinds from our commodity view.”

* Following Thursday’s release of its second-quarter royalty revenue results, Canaccord Genuity’s Carey MacRury lowered his Altius Minerals Corp. (ALS-T) target to $25.50 from $27, while Laurentian Bank Securities’ Jacques Wortman cut his target to $24.75 from $25.25 with a “buy” rating. The average is $25.22.

“Altius reported record Q2/23 revenue of $18.7 million, which came in slightly under our forecast of $21.0 million and below the $24.2 million realized last quarter,” said Mr. MacRury. “The lower revenue q/q reflected lower realized potash prices, a lower quarterly dividend from Labrador Iron Ore Royalty Corp. (LIF-TSX | Not Rated), and lower thermal coal revenue.”

Follow David Leeder on Twitter: @daveleederOpens in a new window

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