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

Recent share price depreciation has resulted in a “a sufficiently attractive risk-return profile” for Canadian Utilities Corp. (CU-T), according to Industrial Alliance Securities analyst Elias Foscolos.

That led him to raise his rating for the Calgary-based subsidiary of Atco Ltd. (ACO.X-T) to “buy” from “hold" on Monday.

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On Sept. 11, Atco was awarded the 2020 International Edison Award for the Fort McMurray West 500-kV Transmission Project, completed by Alberta PowerLine (APL), a partnership between CU and Quanta Services. The honour is presented by the Edison Electric Institute and considered one of the electricity industry’s most prestigious awards.

“Utilities outperformed last week, reflecting risk-off behaviour in markets,” said Mr. Foscolos in his weekly review of TSX-listed energy services and infratructure companies.

“The awarding of the 2020 International Edison Award to the Alberta PowerLine Fort McMurray West 500-kV Transmission Project (CU), as well as the awarding of Silver level certification in Progressive Aboriginal Relations (PAR) to H, are testaments to the progress being made by Utilities companies in the areas of social sustainability and Indigenous relations.”

He maintained a $36 target for shares of Canadian Utilities. The average target on the Street is $38.06, according to Refinitv data.


Silvercorp Metals Inc. (SVM-T) is “compelling” for investors seeking leverage to the price of silver, according to Canaccord Genuity analyst Dalton Baretto.

However, acknowledging the stock appears fully valued based on the firm’s commodity price deck, he initiated coverage with a “hold” rating.

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“Our estimates indicate that the company does not currently offer meaningful production or cash flow growth (relative to its precious metals producer peers) but does offer a clean balance sheet and a track record of disciplined capital allocation,” he said. “SVM’s Chinacentric exposure may give investors pause, but we believe there are a number of positive aspects to this exposure as well.”

“SVM offers the highest revenue exposure to silver among the mid-cap precious metals producers we cover. We estimate SVM will generate two-thirds of its revenue from silver. In our view, this exposure, coupled with the recent rise in investor interest in silver leverage, could provide SVM with a ‘scarcity premium’ in its trading multiples. We believe this is already occurring: SVM currently trades at 12.4 times our 2021 EBITDA estimate and 1.7 times NAV, vs. the mid-cap precious metals peer group averages of 5.3 times and 1.1 times, respectively.”

Mr. Baretto set a target price of $12 per share. The average on the Street is $10.50.


ATB Capital Markets analyst Patrick J. O’Rourke sees four key themes facing Canadian exploration & production (E&P) companies in the fall of 2020.

In a research report released Monday, he pointed to the following trends:

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* A shifting supply-demand narrative for oil and gas.

“Since the onset of COVID-19 and its impact on the economy, the narrative around oil has clearly been one driven by demand, with dramatic demand reductions (16 mmbbls/d from Q4/19 to Q2/20)," he said. “At the same time, under pricing and capital access pressures producers have reduced capital spend and future production. As demand recovers this reduced supply will become more apparent (as highlighted by Waqar Syed in this recent report). On the gas side of the equation our conversations over the past six months have generally been dominated by rhetoric regarding reductions in associated gas production and low rig counts, while reduced demand has generally balanced the supply/demand picture and led to projections of gas storage exiting injection season near its physical limits. With foreign market prices firming, LNG exports picking up steam (post hurricane Laura), and if early forecasts of a very cold winter turn out to be correct, we could start to see some dramatic withdrawals in December.”

* A reduction in credit access continuing to spur M&A action .

“Normalized differentials, excess light oil egress capacity, and a hesitance to aggressively drill to grow likely further support growth through acquisition strategies in Q4/20 for well positioned companies – we continue to favour the strong acquirers as originally discussed in our 2020 outlook,” he said.

* Differentiated growth between production and free cash flow “will be very difficult to achieve and will attract capital flow.”

“Energy market investors have pushed companies for a more measured pace of capital deployment and focus on return of capital to equity holders, or capital structure improvement through debt reduction,” he added.

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* The impact of the U.S. election and the potential for a Canadian federal vote.

“Investors may temper their near-term enthusiasm on oil & gas equities regardless of a recovery in commodity market improvements for companies on both sides of the border pending election results and potential policy implications,” he said.

Mr. O’Rourke moved his rating for Painted Pony Energy Ltd. (PONY-T) to “tender” from "underperform in response to its agreement to be acquired by Canadian Natural Resources Ltd. (CNQ-T). His target rose to 69 cents, matching from purchase price, from 35 cents. The average is 64 cents.

“Overall, we view PONY’s Q2 results as having limited relevance given the proposed sale already in place, though the quarter does speak to the challenges faced by the business (and industry in general) in Q2/20. We anticipate a successful shareholder vote and see minimal counter party risk to the proposed acquisition closing,” he said.

Mr. O’Rourke also made the following target price changes:

Large caps

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ARC Resources Ltd. (ARX-T, “outperform”) to $7.50 from $6.50. Average: $8.34.

Baytex Energy Corp. (BTE-T, “underperform”) to 70 cents from 60 cents. Average: 81 cents.

Crescent Point Energy Corp. (CPG-T, “sector perform”) to $2.80 from $2.40. Average: $3.46.

Enerplus Corp. (ERF-T, “outperform”) to $5.50 from $5.75. Average: $5.20.

Seven Generations Energy Ltd. (VII-T, “outperform”) to $5.50 from $5. Average: $6.07.

Tourmaline Oil Corp. (TOU-T, “outperform”) to $22 from $18. Average: $21.88.

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Vermilion Energy Inc. (VET-T, “outperform”) to $9.50 from $9. Average: $7.93.

Whitecap Resources Inc. (WCP-T, “outperform”) to $4 from $3. Average: $3.38.


Birchcliff Energy Ltd. (BIR-T, “outperform”) to $2.50 from $2.10. Average: $2.41.

Kelt Exploration Ltd. (KEL-T, “outperform”) to $2.85 from $2.75. Average: $3.05.

Paramount Resources Ltd. (POU-T, “sector perform”) to $3 from $2. Average: $2.42.

Small caps

Crew Energy Inc. (CR-T, “underperform”) to 60 cents from 50 cents. Average: 44 cents.

Gear Energy Ltd. (GXE-T, “sector perform”) to 30 cents from 35 cents. Average: 33 cents.

Leucrotta Exploration Inc. (LXE-T, “sector perform”) to 80 cents from 45 cents. Average: 73 cents.

Yangarra Resources Ltd. (YGR-T, “sector perform”) to $1 from 90 cents. Average: $1.20.


Valeo Pharma Inc.'s (VPH-CN) growing portfolio “represents good upside in the short to medium term,” said Industrial Alliance Securities analyst Chelsea Stellick.

She initiated coverage of the Kirkland, Que.-based company a “buy” rating, emphasizing its “proven” track record in partnering with specialty pharmaceutical firms to commercialize their products for the Canadian market.

Valeo currently has seven marketed products with two more set for the coming months and another three expected over the next 12 months. She called two of these products, Two of these products, Redesca for treating blood cots and bioflavonoid HesperCo, “game-changing opportunities.”

“From fiscal 2003 to 2014, Valeo focused on dermatology and hospital products before it sold its product portfolio to Valeant Canada L.P. (Private) in 2014,” said Ms. Stellick. “Valeo leverages its strong partnerships created over the past seventeen years to focus on building its portfolio to meet the needs of specialists within its three targeted therapeutic areas. The Company searches for products with potential Canadian revenues between $5-20-million, which is generally below the threshold of interest for large multinational companies to pursue directly.”

Currently the lone analyst on the Street covering the stock, she set a target price of $2.30 for shares of Valeo.


Following last week’s release of stronger-than-anticipated second-quarter financial results, Industrial Alliance Securities analyst Neil Linsdell said he expects The North West Company Inc.'s (NWC-T) momentum to continue through the second half of the year despite headwinds in tourism dependent markets.

On Sept. 12, the Winnipeg-based retailer reported revenue of $648-million, up 23.0 per cent year-over-year and exceeding Mr. Linsdell’s $584-million forecast. EBITDA rose 79.0 per cent with a 14.8-per-cent margin, up from 10.2 per cent and above his 9.7-per-cent projection. Adjusted earnings per share of $1.02 also easily topped last year’s result and the analyst’s expectation (37 cents and 47 cents, respectively).

“North West Company benefitted from the right mix of products, good logistics (including its own airline), a good pricing strategy, government support payments, and consumers that were restricted from travelling far from their communities,” he said.

Concurrent with the results, North West increased its quarterly dividend by 9 per cent to 36 cents (from 33 cents). It also plans to initiated a normal course issuer bid for up to 10 per cent of outstanding shares.

Mr. Linsdell raised both his revenue and earnings estimates for 2021 through 2023. His EPS estimates are now $2.47, $2.55 and $2.75, respectively, from $1.86, $1.90 and $2.04.

Keeping a “buy” rating for NWC shares, he increased his target to $36 from $30. The average on the Street is $32.20.

“Despite the uncertainty around COVID-19, the company’s role as an essential service, less out-of-community shopping, improved logistics enabling better in-stock positions, and government assistance payments are expected to further benefit results over the next few quarters, although tourism-dependent communities, including islands in the Caribbean, will likely face challenges,” he said. “Cost reduction initiatives and restructuring efforts that were already in process before COVID-19 should enhance profitability, although the sale of most of the Giant Tiger stores in July will hamper top line growth.”


Desjardins Securities analyst David Newman raised his financial expectations for WELL Health Technologies Corp. (WELL-T) at further examination of its US$14-million acquisition of California-based telehealth company Circle Medical.

“With the deal expected to close in the next two months, we model Circle to contribute its run-rate revenue of US$5-million (US$2.8–3.0-million for WELL’s 56–60-per-cent ownership) starting in 2021, which will be reported separately from WELL’s Canadian operations,” he said. “Management expects Canada to become profitable by the end of 2020, while the U.S. could incur small losses as WELL/Circle forges ahead with its US expansion, which could defer its EBITDA profitability milestone to mid-2021.”

“As of early September, WELL had $21-million (Canadian) in cash available for future acquisitions. Pro forma the recent $23-million private placement, led by Sir Li Ka-shing, offset by US$5-million fund Circle’s expansion, we estimate its liquidity war chest is more than $35-million (Canadian). The pipeline remains extremely robust (100+ opportunities across all business units, with 7–8 LOIs at any given time).”

He’s now forecasting an adjusted EBITDA loss of $1.4-million in 2020, rising from a $0.9-million previously. His 2021 projection is a $10.8-million profit, up from $7.4-million.

Maintaining a “buy” rating for Well shares, he raised his target to $7 from $5. The average is $6.83.

“We have increased our estimates and target price, reflective of Circle’s: (1) robust omni-channel offering, including its digital portfolio (telehealth witnessing explosive growth); (2) affordable per-use virtual care offerings, with high net promoter scores, backstopped by major payers; and (3) significant U.S. expansion opportunity (to 50 U.S. states, planned clinic and digital M&A),” Mr. Newman said.


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