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A look at North American equities heading in both directions

On the rise

First Quantum Minerals Ltd. (FM-T) increased 0.7 per cent after saying it has reached an agreement to settle its dispute with the government of Panama over profit-sharing at the Canadian miner’s Cobre Panama mine.

Under the finalized draft concession agreement, the company will make a payment of US$375-million plus an additional US$20-million to cover taxes and royalties up to the end of 2022.

Starting in 2023, the deal provides for a minimum of US$375-million a year in government income, including corporate taxes, withholding taxes and a profit-based mineral royalty of 12 to 16 per cent, with downside protections.

The company also says the Panama Maritime Authority will issue a resolution that will allow concentrate loading operations to resume at the port for the mine. Ore processing, which had been suspended, is expected to resume and restore the mine to full production levels over the next several days.

The proposed deal is subject to a 30-day public consultation process and requires formal approval.

It will have an initial 20-year term, with a 20-year extension option and additional extensions for the life of mine.

Shares of Ag Growth International Inc. (AFN-T) soared 10 per cent with the premarket release of stronger-than-anticipated fourth-quarter 2022 results and 2023 outlook.

The Winnipeg-based company reported revenue of $374-million, up 14 per cent year-over-year and exceeding the Street’s forecast of $346.3-million as its North American performance jumped (88 per cent higher in Canada and a gain of 11 per cent in the United States). Consolidated adjusted EBITDA and earnings per share of $51-million and 92 cents, respectively, were also above the consensus expectations ($46.7-million and 47 cents).

The company now projects 2023 EBITDA guidance of over $260-million, above analysts’ estimate of $242-million.

“While it may be a bit early to jump the gun and say AFN’s operational and financial performance has seen a permanent inflection, we think investors will appreciate the continued progress witnessed in the quarter,” said analyst Maxim Sytchev in a note. “Organic growth momentum was helped by ongoing recovery in Canada (revenues up 88 per cent year-over-year in Q4) as the effects of the pandemic waned. Growth was driven by a 24-per-cent year-over-year sales increase in the Farm segment on robust demand in grain-handling equipment in Canada, the U.S. and APAC as well as permanent grain handling and storage solutions demand in South America. The backlog reached record year-end levels (up 10 per cent year-over-year, and up 60 per cent vs. Q4/20) and provides significant revenue visibility for the remainder of the year. The balance sheet continued to improve, with leverage coming down to 3.7 times at year-end (vs. 4.1 times in Q3/22 and 4.7x a year ago) on a combination of EBITDA growth and debt repayment (down $77-million quarter-over-quarter). We believe management’s long-term target of 2.5 times is highly achievable over the next 18 to 24 months.”

“After a well-received Investor Day ... when we took over coverage, some of the feedback we heard back from the investment community centred around lack of 2023 numerical guidance post the event and generally poor ROIC. We believe the former point is well addressed with above-the-Street EBITDA as we continue to explain to investors that looking at (historical) ROIC is predicated on maintenance of the now changed and much more shareholder-friendly strategy. The ROIC metric is highly sensitive to M&A. AFN was VERY insistent at the investor day that M&A is no longer part of the capital allocation approach as all FCF goes down to pay back debt / internal projects. Lower interest expenses (function of moderating leverage) and post-COVID normalization of working capital is how mathematically ROIC gets lifted (all key inputs in ROIC calculation). While ag commodities are coming off the 2022 boil, U.S. farm incomes are still projected to be 15 per cent above 20-year average (down 15 per cent vs. 2022). Rapidly growing international markets of India and Brazil (24 per cent of top line for the 2 geographies) are therefore bound to take over the baton. Note that multiple expansion is contingent upon deleveraging and ROE / ROIC improvements.”

ECN Capital Corp. (ECN-T) surged 16.6 per cent after announcing late Tuesday it is initiating a review of strategic alternatives to “maximize shareholder value.”

“In response to interest that has been received by the Company, ECN will evaluate the full range of alternatives to determine the best path forward to continue to drive growth and maximize value for shareholders,” it said in a releease. “Alternatives will include strategic funding and capital relationships as well as other options. ECN has retained external financial advisors to assist in this process.”

Wood products producer Stella-Jones Inc. (SJ-T) gained 4.3 per cent with the release of strong fourth-quarter results before the bell, including a year-over-year revenue gain of 22 per cent.

The Montreal-based company reported revenue of $665-million, exceeding the Street’s forecast of $617.2-million, as sales of poles accelerated. Adjusted earnings per share of 61 cents was 2 cents better than the consensus estimate.

The company raised its quarterly dividend by 15 cents to 23 cents per share.

Calling it a “solid end to the year,” National Bank Financial analyst Maxim Sytchev said: “Further price increases in pole pricing were responsible for the bulk of the segment’s organic growth in Q4/22 (up 27 per cent year-over-year) and served as a big driver of the much better than expected consolidated top line. Management expects further growth in the business in 2023, bolstered by the well-timed recent acquisitions of Cahaba and TEC. We expect pole growth will continue to outpace other verticals on broadband internet and utilities spending as tie volume growth is structurally limited and resi lumber prospects are constrained by a stretched consumer base, suggesting the unit will be above 40 per cent of pro-forma revenues. That being said, we believe we have crested the peak for year-over-year price increases. Management reiterated its prior 2022E to 2024E targets, with 2022 revenues ($3.065-billiob) already exceeding the top end of guidance ($2.7-billion to $3.0-billion); further colour on forward guidance is expected at the May 25th investor day.”

“SJ shares have trounced 2022 with a 21-per-cent advance, pushing the 2024 estimated EV/EBITDA to 9.3 times. Recall, however, that growth in terms of volumes is likely to remain structurally muted as the company has consolidated its key rail / poles verticals. We are also likely to be past the large pricing hikes we’ve seen in 2022. Resi market is, of course, now facing the uphill interest rate battle. We commend management on advancing towards its 2024 goals but believe the risk/reward profile is generally balanced now.”

Benefitting from “significant growth” in its iLottery operations, Pollard Banknote Ltd. (PBL-T) was up 14.4 per cent on better-than-anticipated fourth-quarter 2022 results.

The Winnipeg-based company reported revenue for the quarter of $126.9-million, up 8.9 per cent year-over-year in line with the Street’s $125.4-million estimate. EBITDA rose to $22.4-million from $18.7-million a year ago, topping the consensus projection of $19.3-million. Earnings per share of 39 cents also easily exceeded the 19-cent forecast from analysts.

Raymond James analyst Stephen Boland said: “While iLottery outperformed expectations and drove a headline beat on EBITDA, the quarter-over-quarter gross margin compression was well below our forecast and continues to be the overarching theme at play. The company’s inflationary struggles continued in Q4 as the impact of higher input costs continues to be compounded by PBL’s inability to raise near-term prices. Positively, the company noted in its outlook that pressure on manufacturing costs appears to be easing. We are hopeful that margins could finally begin to stabilize in 1Q23. That said, price increases are not expected to take effect until the latter part of this year. With this in mind, we suspect it could be at least a year before we see gross margins begin to return to more normalized levels.

“Margin pressures aside, there are plenty of reasons to be positive on PBL. The higher margin iLottery business continues to exceed expectations, and we expect further double-digit growth across the division in 2023. In addition, the company’s Charitable and eGaming divisions remain resilient given their ability to raise prices in the near-term. Furthermore, PBL continues to operate in an oligopoly with high barriers to entry. As margins begin to recover, we expect the stock will follow suit. We maintain our Outperform rating.”

Mississauga-based Wajax Corp. (WJX-T) rose 1.5 per cent following a fourth-quarter earnings beat and a raise to its dividend.

The industrial machinery and equipment company reported sales of $541-million, beating the Street’s forecast of $489-million driven by growth across all its regions and segments, including a 69-per-cent gain in new equipment. Earnings per share of 80 cents was 9 cents higher than the consensus estimate.

Wajax’s quarterly dividend was increased by 32 per cent to 33 cents (from 25 cents previously), which it said reflects “growing confidence” in both its near- and longer-term outlooks.

“We raised our estimates following the 4Q beat,” said Scotia Capital analyst Michael Doumet. “The outlook for infrastructure, non-res, energy, and mining in Canada remains favourable. For the heavy equipment business, price hikes and anticipated volumes growth support continued sales growth in 2023. And, for IP and ERS, we expect high-double-digit-percentage organic growth in 2022 to trend towards high-single-digit-percentage organic growth into 2023. That said, a more balanced supply/demand outlook for heavy equipment should moderate margin leverage. Altogether, with our 2023/24 EPS forecast of more than $3 per share, aided by the growth and durability of IP and ERS, WJX appears poised to comfortably out-earn its dividend (50% dividend payout) as well as deploy excess capital to grow IP and ERS via M&A.

“WJX trades at 8.3 times P/E (and 4.9 times EV/EBITDA) on our 2023, reflecting a discount to its historicals and peers. While the discount versus historicals can be partially explained by macro concerns, we believe WJX’s direct Hitachi agreement (and related opportunities going forward) and its strong performance in IP and ERS (40 per cent of sales; peers trade at more than 10 times EV/EBITDA) support multiple expansion opportunity in the shares.”

Occidental Petroleum Corp. (OXY-N) gained 2.2 per cent after Warren Buffett’s Berkshire Hathaway Inc. (BRK.A-N, BRK.B-N) increased its stake in the oil company to about 22.2 per cent.

Berkshire paid about US$355-million for 5.8 million Occidental shares between March 3 and March 7, according to the filing.

The purchases were the first Berkshire has disclosed since late September. It ended last year with a 21.4-per-cent stake.

In August, Berkshire won U.S. Federal Energy Regulatory Commission permission to buy up to 50% of Occidental’s common stock.

Mr. Buffett’s company now owns about 200.2 million Occidental shares worth US$12.2-billion, based on Tuesday’s closing price of US$60.85.

Those shares would generate about US$144-million of annual dividends, following a 38-per-cent increase that Occidental announced last month.

Berkshire also owns US$10-billion of Occidental preferred stock that throws off US$800-million of annual dividends, plus warrants to buy another US$5-billion of common stock.

Occidental ended January with about 900 million shares outstanding.

Berkshire began buying large quantities of the Houston-based company’s stock about one year ago.

After its stake surpassed 20 per cent, Berkshire adopted the equity method of accounting for its holdings, and now reports its share of Occidental’s results with its own.

Accounting rules normally require the equity method above the 20-per0-cent threshold, reflecting an assumption that the holder might exert significant influence.

Berkshire ended 2022 with US$128.6-billion of cash and equivalents. It plans to keep a US$30-billion cushion.

Occidental’s share price more than doubled in 2022, benefiting from higher oil prices after Russia invaded Ukraine.

Campbell Soup Co. (CPB-N) raised its annual sales forecast on Wednesday, betting on higher prices, improved supply and strong demand for its packaged meals and snacks.

Shares of the Prego pasta sauces maker rose 2 per cent after it also topped market estimates for quarterly sales.

While inflation has strained household budgets, Americans are still snacking on Campbell’s salty crackers and cookies, while also cutting back on restaurant orders in favor of cooking at home, boosting demand for the company’s ready-to-eat meals.

Consumers were turning to Campbell’s products as they look for ways to stretch their food budgets to navigate the current economic environment, Campbell’s chief executive Mark Clouse said in a statement.

Campbell is also benefiting from a recovery in its supply chains, which has helped the company put more of its products on store shelves and ramp up shipments in its food service segment that caters to restaurants, schools and healthcare facilities.

Organic net sales in Campbell’s snacks division, which represents roughly half of its portfolio, jumped 15 per cent in the second quarter, fueled by robust demand for its brands including Goldfish crackers, Cape Cod potato chips and Pepperidge Farm cookies.

The company’s net sales rose to US$2.49-billion in the quarter ended Jan. 29, from US$2.21-billion a year earlier, compared to analysts’ average estimate of US$2.44-billion in Refinitiv IBES data.

The Camden, New Jersey-based soup maker said it expected net sales to rise between 8.5 per cent and 10 per cent in fiscal 2023, compared with its previous forecast of 7-per-cent to 9-per-cent growth. Analysts on average were expecting an 8.3-per-cent jump to US$9.27-billion.

The over 150-year-old company also raised the lower end of its forecast for annual adjusted earnings to between US$2.95 and US$3.00 per share, compared with its prior expectation of US$2.90 to US$3.00.

On the decline

Trulieve Cannabis Corp. (TRUL-CN) fell 3.7 per cent after it forecast sequentially lower first-quarter revenue after reporting quarterly results that missed market expectations.

Demand for cannabis-related products have scaled back after surging in the early days of the pandemic amid regulatory challenges, inflation and a dip in prices.

The company had said in November that it would be lowering production to match the dip in demand. It also reduced its inventory by US$4-million to generate cash.

Peer Green Thumb Industries Inc. (GTII-CN), in February, also reported a fall in net income due to higher costs related to energy and lower prices.

However, Trulieve said that it expects its capital spending to be at least 50 per cent lower this year.

“In 2023, we are laser focused on cash generation while investing to build a sustainable company designed to thrive in an integrated commerce environment,” said Chief Executive Kim Rivers in a statement.

Trulieve also expects positive free cash flow in 2023.

The Florida-based company’s adjusted core profit fell to US$85-million in the fourth quarter ended Dec. 31, from US$100.9-million a year earlier.

Its revenue for the reported quarter fell to US$302-million from US$305-million a year ago, and also missed average analysts’ estimate of US$306.25-million.

Tesla Inc. (TSLA-Q) was lower by 3 per cent after the National Highway Traffic Safety Administration (NHTSA) said Wednesday it is opening a preliminary investigation into 120,000 2023 Model Y vehicles after two reports of steering wheels falling off while driving.

The U.S. auto safety regulator said the steering wheels in both vehicles, which had a low mileage, completely detached. The vehicles were delivered to owners missing the retaining bolt that attaches the steering wheel to the steering column.

The agency is opening a preliminary investigation to assess the “scope, frequency, and manufacturing processes associated with this condition.”

The investigation is a first step before NHTSA could demand a recall.

The agency said it received a complaint from a parent who had bought a new Model Y five days earlier and was on Route 1 South in Woodbridge, New Jersey on Jan. 29 “and all the sudden steering wheel” fell off. “Was lucky there was no car behind and able to pull on divider.”

NHTSA posted a link to a tweet as part of the complaint filing. The tweet has received more than 2.4 million views on Twitter.

With files from staff and wires