A roundup of some of the North American equities making moves in both directions today
On the rise
Shares of SNC-Lavalin Group Inc. (SNC-T) was up 7 per cent on Tuesday after it announced that chief executive Neil Bruce is retiring from the company and returning to his family in the United Kingdom.
Ian Edwards, the company’s chief operating officer, has been named interim chief executive effective today.
In a research note, National Bank Financial analyst Maxim Sytchev said: “We applaud company’s review of strategic emphasis that appears to prioritize consistency and cash flows ... focusing on consulting/nuclear makes sense. If the company itself cannot get there, a privatization should also be strongly considered. We believe many shareholders will agree with our take on what makes sense from a directional perspective (i.e., which businesses are ‘good’). We hope that the Board and the management team come to the same conclusion. We rate SNC shares Outperform ($47.00 target price; using a by-segment SOTP [sum-of-the-parts] methodology in addition to $13.17/sh in hard assets.”
Desjardins Securities’ Benoit Poirier said: “Overall, we believe the appointment of a new CEO was somewhat expected considering SNC’s operational and financial performance since the beginning of the year. Investors could very well view the transition favourably; however, we note that there are still operational and legal issues that could impact financial results in 2Q and beyond. We would wait for additional details with 2Q19 results (scheduled for August 1) before revisiting our thesis on the name.”
The recreational vehicle marker said the purchase price of the SIB will be not exceed $52 per share and less than $44. It will proceed through a combination of a “modified dutch auction” and a proportionate tender.
Desjardins Securities analyst Benoit Poirier said: “Bottom line, we believe the additional details on the share price range demonstrate the attractiveness of BRP’s stock. In our view, the substantial issuer bid should enable the company to benefit from the disconnect between its valuation (currently trading at a 5.1-per-cent FCF yield and 7.1 times EV/FY1 EBITDA vs 9.5 times at PII) and fundamentals while maintaining a solid balance sheet. Based on our calculation and in light of the specified price range, the Dutch auction could add between $2.00/share and $3.00/share to our target price, assuming a 17 times P/E multiple and assuming management deploys the full $300-million.”
Canfor Corp. (CFP-T) jumped 7.4 per cent following a Monday evening announcement it will be curtailing operations at all of is British Columbia sawmills, except WynnWood, “due to very poor lumber markets and the high cost of fiber, which are making the operating conditions in B.C. uneconomic.”
Canfor said the majority of mills will be curtailed for two weeks "or the equivalent, with extended curtailments of four weeks at Houston and Plateau, and six weeks at Mackenzie." It said the curtailments are scheduled to run from June 17 through July 26.
The curtailments will reduce Canfor’s production output by approximately 200 million board feet. Following the previously announced closure of Vavenby in July, Canfor said that it will have 12 sawmills in Canada, with total annual capacity of approximately 3.55 billion board feet.
In a research note, Raymond James analyst Daryl Swetlishoff said: “As Canfor is the largest lumber producer in BC, we expect this along with the recent permanent closure of the Vaven by sawmill, sends a strong message of the current state of the lumber market, particularly in BC where high log costs and low lumber prices plague the market. Year-to-date we estimate over 700 million board feet (mln bf) of BC production (6 per cent of B.C. Production) has been temporarily curtailed, while a further 800 mln bf of capacity (7 per cent of production) has been announced to be permanently curtailed. While this is meaningful we expect further permanent capacity reductions will be necessary to balance BC lumber capacity with long-term log supply. We see potential for further curtailments as winter log decks are depleted and the July 1 $45/mfbm stumpage hikes hit the market.”
Tso3 Inc. (TOS-T), a Quebec-based manufacturer of heat-sensitive medical devices, jumped 24.1 per cent after revealing it has signed a preferred supplier agreement with Capstone Health Alliance, a group purchasing alliance representing close to 300 acute care facilities in 24 states across the United States.
Under the terms of the agreement, TSO3 will be listed as a one of two low temperature sterilizer manufacturers contracted with Capstone to supply members with sterilizers, consumables and service at preferred prices for the duration of the contract which extends until 2021.
Desjardins Securities analyst Frederic Tremblay said: “Our initial take is positive, and we have mentioned in the past that agreements with group purchasing organizations (GPOs) should be a catalyst for the stock. In our opinion, signing a first agreement with a large regional GPO since changing the commercialization strategy in August 2018 is an important step for a company of TSO3’s size because it adds credibility and validation to the technology and the value proposition. TSO3’s internal sales team will still need to educate potential customers, but the fact that TSO3 is a supplier on contract with Capstone should simplify the overall sales process. Consistent with typical GPO agreements, we expect that pricing for TSO3’s sterilizers will include a discount to the traditional price of US$125,000 per unit. Recall that TSO3 has priced its sterilizers aggressively below the traditional price in recent months for non-GPO sales as it looks to accelerate sales and installations so that its available-for-sale inventory of close to 200 sterilizers is converted into cash and starts generating high-margin revenue from consumables and service/maintenance.”
First Quantum Minerals Ltd. (FM-T) jumped 3 per cent after Reuters reported Zambia has no plans to seize the its assets and the copper producer intends to stay in the country despite the government’s move to wrest control of a rival miner.
Barrick Gold Corp. (ABX-T) rose 1 per cent after announcing before the bell that it will acquire 7,274,142 common shares of Midas Gold Corp. (MAX-T) as part of the public offering of common shares announced Monday by Midas.
Barrick currently owns 46,551,731 common shares of Vancouver-based Midas, representing approximately 19.6 per cent of the outstanding common shares,, on a non-diluted basis.
With the acquisition, which is expected to close on June 19, Barrick will own 19.9 per cent.
“Barrick is acquiring the common shares for investment purposes,” the company said. “Depending on market conditions and other factors, including Midas Gold’s business and financial condition, Barrick may, subject to the terms of the investor rights agreement previously entered into by Barrick and Midas Gold, acquire additional common shares or other securities of Midas Gold or dispose of some or all of the common shares or other securities of Midas Gold that it owns at such time.”
Meanwhile, shares of Midas were down 8.8 per cent.
After the bell on Monday, it announced a $19.9-million bought-deal offering. The company said it has an agreement with a syndicate of underwriters to purchase about 33.2 million shares of the company at 60 cents each. The shares closed at 68 cents on Monday.
On the decline
Allied Properties Real Estate Investment Trust (AP.UN-T) dipped 2.9 per cent after announcing on Monday after market close that it has entered into an agreement with a syndicate of underwriters to issue to the public, on a bought-deal basis, 6.24 million units from treasury at a price of $48.15 per unit for gross proceeds of approximately $300-million.
The Toronto-based REIT has also granted the underwriters, which includes Bank of Nova Scotia, RBC Capital Markets and Goldman Sachs Canada Inc., an option to purchase up to an additional 936,000 units on the same terms and conditions, exercisable at any time, in whole or in part, for a period of 30 days following the closing of the offering.
It said: “Allied will use the net proceeds of the offering (i) to fund the equity component of the acquisition of 700 de la Gauchetiere Street West in Montreal (”700 DLG"), which is scheduled to close on July 17, 2019, (ii) to fund the acquisition of the RCA Building, 1001 Lenoir Street, in Montreal (“RCA Building”), which is also scheduled to close on July 17, 2019, (iii) to repay amounts drawn on its unsecured line of credit to fund acquisitions in Toronto, Kitchener, Calgary and Vancouver that closed earlier in 2019, and (iv) for general trust purposes.
Osisko Gold Royalties Ltd (OR-T; OR-N) fell 1 per cent after it announced on Tuesday before market open that it will provide a senior-secured bridge credit facility to Stornoway Diamond Corp. (SWY-T) together with “certain secured lenders and key stakeholders.” The company said the bridge facility is being provided to support Stornoway during its strategic review process.
“We are working closely with Stornoway, its financial partners, and the Government of Québec to ensure the long term viability of the Renard Mine for the benefit of all stakeholders during these challenging times in the diamond market," stated Sean Roosen, CEO of Osisko.
Osisko owns a senior-secured 9.6-per-cent diamond stream on Stornoway’s Renard diamond mine and will continue to receive deliveries under its stream agreement.
Stornoway shares were down 33.3 per cent in morning trading.
Dream Office REIT (D.UN-T) closed flat after it announced the sale of 700 De La Gauchetière Street West, a 986,000-square-foot-property in Montreal for gross proceeds of $322.5-million. The trust also said it’s in “advanced negotiations” to sell its property in Ottawa.
“The net proceeds from these potential dispositions will be used to repay debt, invest in our capital and development program and potentially repurchase units on an opportunistic basis,” the company stated. “Assuming the successful completion of these sales, the Trust will no longer own any properties in the Ottawa and Montréal region and will increase its presence in the downtown Toronto and Greater Toronto Area to approximately 86.5 per cent of the carrying value of its income properties portfolio as at March 31, 2019.”
CIBC World Markets analyst Chris Couprie said: “With the announced sale of 700 de La Gauchetière (700 DLG) and the advanced negotiations on its Ottawa property, Dream Office is in the final stretch of its disposition program, and we expect attention to shift towards the company’s development and redevelopment activities. We expect net proceeds to be put towards these initiatives, as well as for debt repayment, as the REIT aims to bring leverage below the 40-per-cent range. Opportunistic unit repurchases could also be a use of proceeds. With the asset sale, Dream’s exposure to Toronto office has become more concentrated and pro forma exposure to Greater Toronto increases to 86.5 per cent of investment properties from 76 per cent at Q1/19. 700 DLG has been in the press as for sale for some time, with Dream hinting it might dispose of the property. So while the event is not a complete surprise, we did not model the transaction and our estimates are reduced to reflect the sale.”
With files from Brenda Bow, staff and wires