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

Following last week’s release of weaker-than-anticipated second-quarter financial results, Industrial Alliance Securities analyst Naji Baydoun thinks Algonquin Power & Utilities Corp.‘s (AQN-T, AQN-N) near-term performance is “likely more muted.”

However, he said its long-term outlook “remains compelling.”

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The Oakville, Ont.-based renewable energy and regulated utility company reported adjusted EBITDA and earnings per share of US$176-million and 9 US cents, falling short of Mr. Baydoun’s projections of US$197-million and 12 US cents. The miss was due largely to the fallout from the COVID-19 pandemic, which included lower demand for its Utilities business.

“Despite the weaker-than-expected H1/20 performance, AQN has elected to maintain its 2020 financial guidance, including expectations for (1) full year EPS of US$0.65- 0.70, and (2) capital expenditures of US$1.30-1.75-billion; the Company is targeting US$15-million of expense reductions in 2020 to offset some of the year-to-date headwinds to earnings (US$5-million realized in Q2/20),” said Mr. Baydoun. “At this time, we expect AQN to be near the lower end of its 2020 EPS financial guidance range. Furthermore, we have adjusted our estimates/valuation to reflect AQN’s Q2/20 results, as well as several updates that result in an overall downward revision to our near-term forecasts, primarily related to (1) slight adjustments related to the timing of expected contributions from pending acquisitions (BELCO and NYAW), and (2) updates to Empire District Electric’s regulatory framework.

Calling its current valuation “still attractive,” Mr. Baydoun trimmed his target for Algonquin shares by a loonie to $21, keeping a “buy” rating. The average on the Street is $21.88.

“Despite expectations for more muted near-term performance, we continue to forecast high single-digit average annual EPS and FCF/share growth from AQN through 2024, driven by the Company’s US$9.2-billion five-year capital investment plan (2020-24E), which should support its dividend growth target of 10 per cent per year through 2021, and more modest dividend growth over time to drive the payout ratio lower (in our view). Furthermore, we believe that AQN’s current relative valuation represents an attractive buying opportunity for long-term investors.”

“AQN offers investors a well-balanced mix of growth and income, with (1) a diversified business model (regulated utilities & non-regulated power), (2) robust medium-term growth (8-10 per cent per year EPS and FCF/share growth through 2024), (3) attractive dividend growth (10 per cent per year through 2021), and (4) upside from additional growth initiatives (including M&A; not included in our estimates/valuation).”

Elsewhere, Desjardins Securities’ Bill Cabel maintained a “buy” rating and US$17.50 target.

Mr. Cabel said: “AQN has the potential to deliver strong, sector-leading returns, and it remains one of our preferred names. We expect the company’s diversified assets to generate stable earnings and see further potential upside through its significant development pipeline.”

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Boardwalk Real Estate Investment Trust’s (BEI.UN-T) “solid” execution places it in “a strong position to tackle looming opex challenge,” according to Desjardins Securities analyst Michael Markidis.

“BEI’s 2Q20 results handily exceeded expectations,” he said. “Unfortunately, the stock was not rewarded amid what was undeniably a tough tape for Canadian multifamily REITs across the board. Above-average leverage and concentration in weaker markets (Alberta and Saskatchewan) are more than appropriately reflected in the unit price, in our view.”

On Thursday before the bell, the Calgary-based REIT reported funds from operations per unit of 71 cents, exceeding Mr. Markidis’s 67-cent estimate and the consensus projection on the Street of 66 cents. Net operating income also surpassed expectations on lower-than-expected operating expenses.

“The line of questioning during Friday’s (August 14) conference call seemed to draw a lot of attention to the $0.5-million (5-per-cent) sequential increase in revenue loss attributable to incentives without giving any credit to the 0.6-per-cent increase in rental revenue which was booked during the quarter. More important, in our view, is (1) BEI’s ability to drive occupancy (vacancy loss decreased $0.7-million, or 13-per-cent sequentially) during a period of weak demand, and (2) the improvement in new leasing spreads captured in July vs the lows in May and June. Our forecast provides for a year-over-year revenue decline of 1 per cent in 2021.”

Mr. Markidis expects “extraordinary” increases in insurance premiums and property taxes in key markets, including Calgary and Edmonton, will start to materialize in the third quarter. He expects that will hurt year-over-year same-property NOI growth, which said has been “very strong” thus far in 2020 (up 7.3 per cent).

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However, the analyst raised his 2020 and 2021 FFO per unit estimates to $2.62 and $2.46, respectively, from $2.59 and $2.43.

Keeping a “buy” rating, Mr. Markidis raised his target to $38 from $37. The average is $38.62.

In separate notes, he made target price changes for other REITs in his coverage, including:

* Automotive Properties Real Estate Investment Trust (APR.UN-T, “buy”) to $10.50 from $9.50. The average on the Street is $10.53.

“We reiterate our positive stance given: (1) rent collections have largely returned to pre-COVID-19 levels in 3Q; (2) its healthy liquidity position and leverage profile position it well for further auto dealership consolidation; and (3) it offers an above-average 8.3-per-cent cash distribution yield,” he said.

* Crombie Real Estate Investment Trust (CRR.UN-T, “buy”) to $14.50 from $15. Average: $14.63.

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“Collections were higher vs most retail-focused peers during 2Q and have improved subsequently,” he said. “The long-awaited delivery of the residential component at Davie Street will occur by year-end and should positively contribute to FFO in 2H21. The potential upside inherent in this project is not captured in our published NAV.”

* SmartCentres Real Estate Investment Trust (SRU.UN-T, “hold”) to $22 from $23. Average: $24.88.

“Collections are improving and we believe that open-air centres are better positioned than enclosed malls,” he said. “That said, we remain cautious on this name given (1) the potential susceptibility of retail properties to a potential second wave, and (2) the presence of small tenants in SRU’s portfolio (7–8 per cent of revenue qualifies for CECRA).”


With the successful restart of its Sugar Zone mill and seeing it poised to benefit from a “strong gold environment,” Haywood Securitieis analyst Pierre Vaillancourt raised his rating for Harte Gold Corp. (HRT-T) to “buy” from “hold” on Monday.

“After multiple delays to mine development, financing is in place, and HRT has resumed operations with the objective of reaching capacity production by year-end. While it may take a few quarters for investors to get back on side, we believe that the company is better positioned to deliver on its new plan,” he said.

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Mr. Vaillancourt bumped his target to 30 cents per share, matching the consensus, from 20 cents.


Canaccord Genuity analyst Tania Gonsalves initiated coverage of Toronto-based Antibe Therapeutics Inc. (ATE-X), which is focused on developing nonsteroidal anti-inflammatory drugs (NSAIDs) to treat pain and inflammation, with a “speculative buy” rating.

"We believe it is on the brink of solving a 50-year-old problem - gastrointestinal (GI) safety," she said. "Data from Phase 2 trials of lead drug otenaproxesul suggest it is both more efficacious at reducing pain and safer than existing NSAIDs that produce GI side effects in 25 per cent of users. Antibe plans to begin a two-year Phase 3 trial in spring 2021. We expect this to coincide with an out-licensing deal for one or more large markets. In our opinion, today's levels present an opportune entry point prior to this potential de-risking event that will likely send the stock up."

She set a target of $1.50 per share. The average on the Street is $2.05.

“We believe the stock will begin moving into next year as we approach the completion of the dose-ranging study in the fall,” said Ms. Gonsalves. “This is usually around the time a partner would step in. The successful monetization of otenaproxesul to fund the rest of Phase 3 would significantly de-risk the story. Based on our $1.50 price target, the purchase of ATE shares today provides for more than 200-per-cent implied upside. While these returns are attractive, we acknowledge that single-asset biotechnology companies are rife with binary risk. Over 90 per cent of our price target hinges on the success of otenaproxesul.”

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K-Bro Linen Inc.‘s (KBL-T) set-up for the second half of the year is “very compelling,” said Raymond James analyst Michael Glen.

He maintained his revenue forecast for its hotel/hospitality segment, which accounted for 45 per cent of 2019 sales, despite expecting volumes to remain under pressure through the end of the year.

"We see an environment of improving visibility (particularly in the UK), and we are leaving our revenue forecast for the segment largely unchanged (i.e. down 50 per cent in the 3Q20, down 25 per cent for 4Q20)," he said. "That said, we would stress a more optimistic tone from management pertaining to the hotel business, with profitability in the UK anticipated to move back towards breakeven through the balance of the year, and the company also taking action to bring a significant number of furloughed UK staff back."

For its healthcare/hospital business, Mr. Glen is raised his projections to reflect “robust” conditions.

He also pointed to several tailwinds, including: "1. Increased use of reusable versus disposable by the hospitals; 2. Potential volume wins coming out of long-term care (we estimate $5-6-million in sales vs. $50-70-million market opportunity); 3. Catch-up related to elective surgeries; and 4. Contractual price increases. Based on these factors, we are increasing our 2H20 Canada healthcare sales growth estimate to an increase of 6 per cent (was 2 per cent), with 2021 now up 5 per cent (was 2.5 per cent), and 2022 up 3 per cent (was up 2.5 per cent). Based on our dialogue with KBL regarding trends with reusables in particular, we believe there could be upside to these estimate."

Overall, Mr. Glen increased his 2020 earnings per share projection to a 19-cent profit from a 46-cent loss previously. His 2021 expectation rose to 41 cents from 23 cents.

Keeping a "strong buy" rating for K-Bro shares, he hiked his target to $40 from $37. The average is $35.38.

"We continue to see K-Bro as a compelling investment and reiterate our Strong Buy rating coming out of 2Q20 results," said Mr. Glen. "We believe the stock should have traded much better given the 2Q and continue to encourage investors to purchase shares at this level. Visibility on the operations is improving and there are multiple tailwinds to take into consideration for the Canadian healthcare segment that should drive organic growth in the coming year.

“We continue to value KBL using a price/book valuation, which we believe more adequately captures the underlying value of the asset base. In particular, K-Bro has just come of a very significant capital investment program, with $140-million in capital deployed towards upgrading and modernizing a very efficient Canadian operating footprint.”


Citing its efforts to control costs, a stronger well servicing outlook and “resilience” in its Canadian Production Services business, ATB Capital analyst Tim Monachello raised his financial expectations for High Arctic Energy Services Inc. (HWO-T) following better-than-anticipated second-quarter results.

On Aug. 13, the Calgary-based company reported headline EBITDA of $1.2-million. Adjusted for the Canadian Emergency Wage Subsidy and restructuring costs, the result was a loss of $0.8-million, down 70 per cent year-over-year but exceeding Mr. Monachello’s estimate of a $3-million loss.

With the results, the analyst raised his EBITDA projection for the second half to $5-million from a $1-million loss previously, including CEWS benefits. For 2021 and 2022, his estimates rose by $2-million and $3-million, respectively, to $11-million and $14-million.

“We also note that HWO maintains its clean balance sheet, with roughly $34-million cash on hand and $10-million drawn on its credit facility, the latter which we understand to be driven by management’s desire to hold cash as a contingency for international operations rather than out of necessity,” said Mr. Monachello. “Nonetheless, HWO’s Drilling Services segment continues to face an uncertain path forward as upstream development in PNG has stalled under numerous regulatory challenges and an idling of workers on the PNG LNG expansion in late-July by project partners due to COVID-19. Moreover, visibility to a recovery in North American well servicing and snubbing activity continues to be opaque over the near-to-mid term, and pricing has been pressured lower through Q2.”

Mr. Monachello maintained a “sector perform” rating for High Arctic shares, pointing to “weak visibility” across its platform, but increased his target to $1 from 80 cents. The average on the Street is $2.20.


Seeing it “built for the age of employee enablement” and “well positioned” for an expanding total addressable market, RBC Dominion Securities analyst Matthew Hedberg initiated coverage of Jamf Holding Corp. (JAMF-Q) with an “outperform” rating and US$43 target.

The Minneapolis-based enterprise management software provider began trading on the Nasdaq on July 22.

“We see Jamf’s primary mission as to help organizations succeed with Apple,” he said. “As the standard in Apple Enterprise Management, we think Jamf is in a great position to leverage the growing preference of Apple in the enterprise. In addition to a TAM that likely expands faster than previously expected in a post-COVID world, the financial profile of the company is unique given rapid growth and profitability.”

Other analysts initiating coverage on Monday include:

* Canaccord Genuity’s David Hynes Jr with a “buy” rating and US$45 target

“The firm’s secret sauce is in preserving the native Apple experience that consumers have come to love while giving IT professionals the ability to provision, manage and secure the devices as is required by large enterprises,” he said. “This is north of a $10-billion annual opportunity that is growing more than 15 per cent per year as Apple gains share, and Jamf is without a doubt the category leader in terms of combined scale and functionality. Jamf is growing in the mid-30-per-cent range, the business is nicely profitable with FCF margins already in the teens, and we believe the combination of new products, improving customer cohort dynamics, and compelling unit economics paint a picture of sustainable growth and improving profitability. We find JAMF’s valuation at 14.5 times EV/R [enterprise value to revenue] on calendar 2021 estimates palatable in an otherwise expensive space, and we believe investors should have at least some exposure here to participate in Apple’s continued enterprise share gains and to benefit from what’s likely to be a beat-and-raise cadence for the next several quarters.”

* Mizuho Securities’ Gregg Moskowitz with a “buy” rating and US$43 target.

* Piper Sandler’s Robbie Owens with an “overweight” rating and US$44 target.


In other analyst actions:

* CIBC World Markets analyst John Zamparo upgraded Calgary-based Sundial Growers Inc. (SNDL-Q) to “neutral” from “underperformer” with a 50-US-cent target, up from 60 US cents. The average is 70 US cents.

“Sundial appears to be through its most challenging period, with significant progress made on both the balance sheet and SG&A,” he said. “More work is needed on the former, as well as margins, but we expect improvements in the coming quarters. The at-the-market (ATM) equity offering may pressure the stock somewhat, but was a requirement for the company to improve its capital structure. Meanwhile, the announcement of strategic alternatives provides a few different intriguing outcomes, the most likely of which we view as a potential merger of equals. With the stock having breached our target, and tangible improvements made, we upgrade Sundial.”

* Mackie Research analyst Stuart McDougall resumed coverage of Amarillo Gold Corp. (AGC-X) with a “speculative buy” rating and US$1.10 target after the closing of a $52.7-million equity financing. The average on the Street is 78 cents.

“We continue to recommend Amarillo Gold as a SPECULATIVE BUY for investors wanting exposure to an advanced open-pit gold project in a developed area of Brazil,” he said. “Once in production, the mine is expected to produce an average of 84,500 ounces per year over nearly 10 years, at a total cash cost of US$706 per ounce and an AISC of US$738 per ounce. Higher grades in the first four years are expected to see production average 102,500 ounces and total cash costs, US$649 per ounce. At those rates, we estimate annual CFPS at $0.28, or 1.25 times current prices, making AGC one of the best value plays in our coverage universe.”

* Craig-Hallum initiated coverage of Trillium Therapeutics Inc. (TRIL-Q, TRIL-T) with a “buy” rating and US$15 target. The average on the Street is US$11.37.

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