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A look at North American equities heading in both directions

On the rise

Despite facing sustained margin pressure, Boyd Group Services Inc. (BYD-T) rose 7.5 per cent after it reported better-than-anticipated first-quarter results before the bell as same-store growth jumped 25 per cent year-over-year driven by “strong” demand.

The Winnipeg-based company announced sales of $714.9-million and adjusted EBITDA of $84.7-million, both topping the Street’s expectations ($678-million and $81-million).

“BYD remains focused on building capacity through increased staffing and negotiating sufficient price increases to recover lost labour margin,” said Desjardins Securities analyst Gary Ho. “The company continues to experience high volumes of work (increased scanning and calibration revenue) and elevated levels of work-in-process inventory. Thus far in 2Q, the sales run rate is modestly above that in 1Q and SSSG is slightly lower than the 25.2 per cent in 1Q —this compares favourably vs our 12.0-per-cent expectation. However, note that SSSG will face higher comps through the balance of 2023, beginning in May and June. Management remains confident it is on track to achieve its 2025 goal of doubling sales vs 2019 on a constant-currency basis.”

Stella-Jones Inc. (SJ-T) jumped 7.8 per cent with the premarket release of better-than-anticipated first-quarter results, driven by strong sales of utility poles.

The Montreal-based company reported revenue of $710-million, up 9 per cent year-over-year and above the Street’s forecast of $707-million. Earnings before interest, taxes, depreciation and amortization (EBITDA) of $120-million, up 13.5 per cent from the same period a year ago, and adjusted earnings per share of $1.03 also blew past expectations ($98-million and 78 cents, respectively).

“Heading into the quarter, SJ was in our high conviction beat bucket and the company delivered,” said National Bank Financial analyst Maxim Sytchev in a note. “With strong financial performance in Q1/23 and a 100 basis point EBITDA margin lift for 2024, management continues to deliver with the tools it has at its disposal. While we are pleased with the momentum, we wonder for how long the very robust pricing backdrop can persist for poles; after all, vast majority of organic pricing in poles was pricing-related. Poles are 51per cent of the company’s business while the rest is ostensibly standing still (while resi is declining). With one strong vertical, we are leery of chasing that type of investment thesis where we have to hang all of our hopes on pricing sustainability. As we have seen in the past, prices go up (and down as well). At 9.7 times pre-Q1/23 EV/EBTIDA, we view the shares as fairly valued even though we should see the Street move up its numbers to incorporate 16-per-cent EBITDA margin (vs. 15 per cent) in 2024.”

Shares of Rivian Automotive Inc. (RIVN-Q) closed up 1.7 per cent on Wednesday as its positive earnings stood out in a poor quarter for electric-vehicle startups, but analysts warned that stiff competition will be a hurdle in its path to profitability.

The company looked set to add about US$700-million to its market valuation after the EV maker reiterated its annual production forecast and beat quarterly revenue estimates.

The results showed how Rivian’s move to raise prices last year has helped the EV maker stem cash burn at a time when peers Lucid Group Inc. (LCID-Q) and Nikola Corp. (NKLA-Q) are struggling with ballooning losses.

“We do see the average selling price continuing to expand and grow,” CEO RJ Scaringe said, adding that Rivian’s expanded offerings including a larger battery called the “Max Pack” will aid demand.

Still, some analysts were skeptical about the prospects of a company that is caught in a price war started by market leader Tesla Inc. (TSLA-Q) and faces increasing competition from well-heeled legacy players such as Ford Motor Co. (F-N).

“We continue to like the truck, but not necessarily the stock and the headlines that may be ahead,” said Michael Shlisky of D.A. Davidson, who was among the 10 analysts that lowered their price target on a stock that has declined 25 per cent this year.

Mr. Shlisky said Rivian has seen some success in reducing costs by switching to self-made Enduro motors and cheaper lithium iron phosphate batteries, but its efforts to renegotiate with suppliers for lower prices might not yield results as it lacks production volume.

The Amazon-backed company made 9,395 vehicles between January and March, which equates to about 2 per cent of the 440,808 produced by Tesla in the same period.

Nonetheless, the company is expected to benefit from a pullback in commodity prices and easing supply chain issues.

“As sagging EV commodity prices, technology improvements, and supply chain loosening positively impact operations, we see a logical path to positive gross margins next year,” Canaccord Genuity analysts said.

U.S.-based Livent Corp. (LTHM-N) rose 5.2 per cent after agreeing to merge with lithium producer Allkem Ltd. to create one of the world’s most valuable producers of the key raw materials used in electric-vehicle batteries.

The all-stock deal will create a US$10.6-billion entity, the fifth-largest in the world after Albemarle Corp. (ALB-N), Sociedad Quimica y Minera de Chile S.A., Ganfeng Lithium Group and Tianqi Lithium Corp.

ASX-listed Allkem produces lithium carbonate from its Sal de Vida facility in Argentina, which is near Livent’s Hombre Mureto lithium project. It also produces hard rock lithium in Australia and has a chemical conversion facility in Japan.

Livent, based in Philadelphia, supplies lithium products to multiple U.S. automakers, including General Motors Co, Tesla Inc and BMW.

Under the deal, Allkem shareholders will get one share in the combined entity for each of their shares and the company will ultimately own 56 per cent of the new firm. Livent shareholders will get 2.406 shares in the new firm for each existing share.

Benchmark lithium prices rallied sixfold over the two years to November but have since plunged, representing an opportunity for major EV battery makers to secure supplies for the coming decade to meet surging demand from automakers switching to electric vehicles.

The deal is set to close by the end of 2023.

Roblox Corp. (RBLX-N) topped quarterly bookings estimates on Wednesday, as a wider audience swarmed to the platform for games such as Adopt Me! and Pet Simulator X, pushing the company’s shares up 8.3 per cent.

Roblox’s results follow a strong showing from videogame publisher Electronic Arts Inc. (EA-Q) and Call of Duty maker Activision Blizzard Inc. (ATVI-Q), confirming signs of a sector-wide rebound after a slow 2022.

“April was really strong with the Easter holiday. And June is strong because school is out and it’s the start of the summer. And summer is always a big time for the platform as it is for lots of companies,” said Chief Financial Officer Michael Guthrie.

Roblox, which is among the world’s most popular gaming sites for children, has been constantly investing to expand its user base by doubling down on collaborations with NFL, FIFA and artists such as Elton John and Mariah Carey.

“What changed was... as people processed what they had to say in the shareholder letter and on the earnings call, Roblox was very clear that they have a new focus on achieving operating leverage,” said Nick McKay, analyst at Wedbush.

However, adjusted loss of 44 US cents per share was bigger than analysts’ expectation of 40-US-cents loss per share, according to Refinitiv data.

Roblox said higher expenses due to developer exchange fees, personnel costs and infrastructure were the reason behind the bigger loss.

“We also expect our operating expenses to increase significantly in future periods,” the company said, adding it intends to continue to make investments to grow its business and hire more people.

Net bookings for the quarter ended March 31 rose 23 per cent to US$773.8-million. Analysts were expecting US$765.9-million, according to Refinitiv data.

On the decline

Brookfield Asset Management Ltd. (BAM-T) was down 2.9 per cent despite announcing it has raised US$19-billion so far this year, shrugging off a tough fundraising environment and turning increasingly to the Middle East and Asia to attract new money for its investment funds.

A tough economic outlook and the impact of interest-rate increases have made capital more scarce, making fundraising a hard slog for many institutional investors. But Brookfield, which raised US$13-billion in the first quarter and nearly US$100-billion over the last year, still sees “the potential for our fundraising to accelerate throughout the year,” said chief executive officer Bruce Flatt and president Connor Teskey, in a letter to shareholders.

In part, Brookfield is benefitting from its size and reach, with more than US$825-billion in assets under management and operations in 30 countries. Where institutional investors do have money to put to work, they are “are increasingly concentrating their commitments among the largest asset managers who can offer a range of asset types and investment strategies,” Mr. Flatt and Mr. Teskey said.

But as capital has grown harder to come by in North America, Brookfield has filled the void by raising more cash from new markets. After setting up offices in the Middle East and Asia over the last decade, Brookfield raised about 40 per cent of its new capital from those regions over the last year.

“We are currently seeing an increased proportion of our fundraising coming from non-U.S. clients,” Mr. Flatt and Mr. Teskey said.

On Wednesday, the asset manager reported its first full quarter of earnings since it was spun off from parent Brookfield Corp. as a stand-alone entity last year.

Profit was US$516-million, or 32 cents per share, compared with US$348-million, or 21 cents per share, in the same quarter last year.

Fee-related earnings were US$547-million, up 15 per cent year over year, or 33 cents per share. And distributable earnings – a measure of cash flow that shows how much of company profits could be paid out to shareholders – rose 15 per cent to US$563-million, or 34 cents per share. However, when compared with the fourth quarter last year, fee-related earnings fell 2 per cent and distributable earnings were relatively unchanged.

- James Bradshaw

Great-West Lifeco Inc. (GWO-T) fell 2.1 per cent after saying net earnings for its first quarter were $595-million, down more than 55 per cent from $1.3-billion a year earlier.

The Winnipeg-based insurer says base earnings for the quarter ended March 31 were $808-million, up more than 13 per cent from $712-million the same quarter a year ago.

Net earnings per share were 64 cents, down from $1.43 a year earlier and below the Street’s expectation of 92 cents.

The company attributed the decline in net earnings in part to losses in non-fixed income assets and effects from changing interest rates.

It said that the increase in base earnings was driven in part by recent acquisitions.

“This lifeco earnings season will be a strange one as we are dealing with a lot of change all at once,” said Scotia Capital analyst Meny Grauman. “Although our first look at GWO’s results under the new IFRS 17/9 accounting standard is not flashing any major red flags, we note that we are seeing these results in a vacuum and expect a little more clarity once peers begin reporting. For the time being we keep our analysis high level and note that results modestly bested our base EPS forecast as did 2022′s revised base EPS as well, while capital came in only a touch below our forecast. The CSM [Contractual Service Margin] (ex segregated funds) came in 7 per cent higher than guidance, but book value per share was modestly higher. We saw good year-over-year CSM balance growth in the Europe and the CRS segment, but a sizable contraction in Canada. Given the focus on credit we note no major credit charges. Overall, we have a relatively neutral view of the quarter, especially given the fact that the shares have outperformed the peer average by 1,500 bps for the year-to-date on what we believe are largely macro factors.”

NFI Group Inc. (NFI-T) plummeted 10.9 per cent with the premarket announcement of a “comprehensive refinancing plan to improve financial flexibility, strengthen its balance sheet and best position the Company to capitalize on the historic demand for its products and expected financial recovery.”

The Winnipeg-based bus manufacturer received approval for amendments to both its North American and UK senior credit facilities. The $1.0-billion revolving North American Facility will convert to a $400-million first lien term loan and a $361-million first lien revolving credit facility, while its £40-million revolving UK Facility will convert to a £16-million term loan and a £15-million revolving credit facility.

It is also planning to raise an additional $150-million in equity capital through the sale of new common stock and $200-$250 million from a second lien debt.

In a note, National Bank Financial analyst Cameron Doerksen said the financing will “removed a major overhang” on NFI stock.

“Although the equity issuance will be dilutive to shareholders, we believe this was largely expected by the market and priced into the stock,” he said. “A new credit agreement was the primary uncertainty for the stock, so this refinancing that provides the necessary flexibility for the company to ramp production back up removes a key overhang, in our view. ... End-market fundamentals for NFI are getting more positive with the supply chain issues easing, demand for new buses at record levels, and a better priced backlog that offsets the significant cost inflation seen in recent years.

“The company will need to execute on its production ramp, but we are confident that EBITDA will meaningfully improve over the next three years, which will support a higher share price. We value the stock by applying a 7.0 times EV/EBITDA multiple to our 2024 forecast (which will still be at relatively depressed EBITDA levels), which results in a target of $13.00. Our forecast is unchanged for now as we await further details on the terms of the equity issuance and the second lien loan. However, assuming the equity raise and associated net debt reduction, our target would fall to $12.00 per share, which is still material upside from the current share price.”

Nuvei Corp. (NVEI-T) dropped 14.4 per cent despite seeing first-quarter revenue rise 20 per cent compared with a year ago, but recorded a loss for the first three months of the year as it was hit by about US$20-million in costs related to its deal to buy U.S. company Paya Holdings Inc.

Investors were also concerned about the company’s expectations for the remainder of the year, which fell short of estimates.

The Montreal-based payment technology company says its net loss amounted to US$8.3-million or 7 US cents per diluted share for the quarter ended March 31.

The result compared with net income of US$4.5-million or 2 US cents per diluted share a year earlier.

Revenue for the quarter totalled US$256.5-million, up from US$214.5-million in the first three months of 2022.

On an adjusted basis, Nuvei says it earned 44 US cents per diluted share in its latest quarter, down from an adjusted profit of 46 cents per diluted share in the same quarter last year.

Nuvei announced in January its deal to acquire Atlanta-based Paya for US$1.3-billion in cash.

Ballard Power Systems Inc.’s (BLDP-T) shares fell 3.9 per cent on weaker-than-expected first-quarter results.

Before the bell, it reported revenue of $13.3-million, down 37 per cent year-over-year and below the Street’s expectation of $187.3-million. A loss of 11 Canadian cents per share also missed the consensus forecast of a 13-cent prospects.

Margins, which weighed on results, are expected to see pressures into 2024, according to the company, which did not provide revenue or net income (loss) guidance for 2023.

U.S. oil and gas producer Occidental Petroleum Corp. (OXY-N) was down 3.6 per cent in the wake of reporting a 48-per-cent decline in first-quarter earnings that fell well short of analyst estimates as global economic growth concerns led to a decline in oil prices.

Global energy prices in the quarter pulled back from last year’s peaks triggered by Russia’s invasion of Ukraine. Occidental’s crude oil sold for 19% less than the year-ago quarter, averaging US$74.22 per barrel.

Earnings declined despite a boost in first quarter oil and gas daily output to 1.22 million barrels from 1.08 million a year earlier, helped by higher production from its Permian operations.

The company, in which billionaire investor Warren Buffett’s Berkshire Hathaway Inc. (BRK.B-N) owns a 24-per-cent stake, reported adjusted income dropped 48 per cent from the prior year to US$1.1-billion as it accelerated investments and shareholder returns.

Adjusted earnings of US$1.09 per share for the quarter fell far short of analysts’ US$1.24 per share estimate compiled by Refinitiv.

Occidental almost doubled capital spending in the quarter from a year earlier to US$1.5-billion, and cash flow from operations before working capital fell 24 per cent to US$3.2-billion.

Occidental increased its year-end production guidance by 20,000 barrels of oil and gas to 1.22 million barrels per day.

Mr. Buffett said on Saturday that Berkshire Hathaway was not planning to acquire Occidental but remained happy with its large investment in the oil company.

The New York Times Co. (NYT-N) missed estimates for quarterly revenue on Wednesday as a turbulent economy sapped digital subscriber growth and forced businesses to cut back on advertising spending, sending its shares tumbling 7.8 per cent.

High inflation and rising interest rates have prompted readers to rethink their paid subscriptions, hampering the publisher’s strategy of bundling its core news reports with digital content ranging from The Athletic’s sports coverage to cooking recipes and games like Wordle.

“Advertising continues to experience near-term, cyclical challenges,” said CEO Meredith Kopit Levien.

The Times expects digital ad revenue to decline by low-to mid-single digits in the current quarter, joining ad-dependent companies such as Snap Inc in struggling with tightened marketing budgets across industries.

Digital ad revenue fell nearly 9 per cent to US$61.3-million in the January-March period, while total revenue of US$560.7-million was below estimates of US$571-million, according to Refinitiv data.

In a move that could shield it from ad weakness, the publisher said it plans to hike prices for 550,000 digital news and game subscribers in the current quarter, with another 1 million to be notified of increases by 2023-end.

It added 190,000 digital-only subscribers in the first quarter, compared with 240,000 in the prior quarter, bringing its total subscriber base to more than 9.7 million.

The company has also been using promotional pricing to attract new subscribers with the goal of moving them to higher-priced, all-access bundles later.

Its subscription revenue grew nearly 7 per cent in the quarter.

“Our bundle strategy is gaining momentum, engagement metrics are strong, pricing initiatives are taking hold and we are slowing cost growth,” Ms. Levien said.

Adjusted profit of 19 US cents per share beat estimates of 17 US cents.

Separately, the Times named strategy head William Bardeen as its finance chief, replacing Roland Caputo who had announced his retirement in December.

Airbnb’s (ABNB-Q) shares plummeted 11 per cent after the top vacation rental firm issued a gloomy second-quarter forecast and signaled that the high cost of travel may be finally catching up to budget-conscious U.S. consumers.

Household savings and pent-up demand have largely insulated the U.S. travel industry from inflationary pressures that have roiled other sectors.

Airbnb, however, said on Tuesday it expects fewer bookings and lower average daily rates, or accommodation prices, in the second quarter.

“What we’re seeing is that people are most price-sensitive, at least currently, in North America, especially in United States,” CEO Brian Chesky said in response to an analyst question during a post-earnings call.

Hilton Worldwide Holdings Inc. (HLT-N) last month indicated that pent-up travel demand that helped the hotel operator boost its annual profit outlook may run out of steam in the second half of 2023.

The resiliency of travel demand has been closely watched by investors amid fears that the recovery over the past year may hit a macro-economic speed bump.

Some airlines and hotel operators have resumed investor returns in the past few months, as higher prices boosted profits.

But average daily rates during Airbnb’s first quarter was flat year-on-year at US$168, after rising 5 per cent a year earlier.

“We believe Airbnb’s commentary will result in increased caution in the travel space, but more specifically around vacation and the U.S. with OTAs (online travel agencies) better insulated overall,” JPMorgan analyst Doug Anmuth said.

Some analysts say accommodation prices may now need to go down further.

“While (Airbnb) believes it is supply constrained, it will have to compel hosts to cut prices in order to improve demand,” RBC Capital Markets analyst Brad Erickson said in a note, while cutting price target by US$30 to US$105.

With files from staff and wires

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

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