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

Seeing a “near-term window of opportunity and mid-term uncertainty,” Desjardins Securities analyst Frederic Tremblay raised his financial estimates for Cascades Inc. (CAS-T) after it joined other North American containerboard producers in announcing a US$50 per ton price increase for Nov. 1.

“Containerboard demand has been surprisingly strong in recent months; combined U.S. box shipments for June, July and August were the second highest three-month total in 30 years,” he said. "According to RISI, industry contacts claim that September demand is also solid. With industry operating rates below the historical average, the market has become tighter (eg low inventories at box plants and mills, increased backlogs).

“Hence, we believe [International Paper Co., IP-N] and other producers saw a near-term window of opportunity to raise prices for the first time since early 2018. Nonetheless, our mid-term view on the containerboard sector remains cautious due to significant additional capacity in the market scheduled through 2023 and uncertainty related to what the post-COVID-19 demand environment will look like.”

Mr. Tremblay estimates the price increase will bring US$44-million in annualized EBITDA for Cascades, however he emphasized price increases normally take 3-6 months to be fully passed through to customers.

Accordingly, he only nudged higher his 2020 EBITDA projection to $659-million from $657-million with his earnings per share forecast rising by a penny to $1.60. His 2021 estimates increased to $661-million and $1.43 from $624-million and $1.12 previously.

Maintaining a “hold” rating for Cascades shares, he raised his target to $17 from $15.50. The average on the Street is $16.60.

Elsewhere, seeing “significant” upside following the price hike, CIBC World Markets analyst Hamir Patel upgraded Cascades to “outperformer” from “neutral” with a $21 target, rising from $17.

“While CAS shares already rallied 8 per cent on Friday, we note that there is 42-per-cent upside to our revised price target and historically CAS shares have moved up over 16 per cent within the first 10 trading days of the prior four industry price-hike announcements over the past four years,” he said.

RBC Dominion Securities analyst Paul Quinn upgraded the stock to “sector perform” from “underperform” with a target of $15, up from $13.


Pointing to “solid” execution that has allowed it to “capitalize on healthy demand,” Desjardins Securities analyst Benoit Poirier said he continues to like Stella-Jones Inc. (SJ-T) in spite of the pandemic and recommends investors buy their shares.

He made the comments in a research note wrapping up recent meetings with the Montreal-based company’s management team, including President and CEO Éric Vachon and Senior Vice-President and CFO Silvana Travaglini.

“First, management reiterated that railway tie volume would be softer in 2H20 vs 2Q20 as some maintenance projects were pulled forward by Class l railroads,” said Mr. Poirier. “For 2021, while it is still early, management expects volume to remain quite stable versus 2020. For utility poles, the recent unfortunate natural disasters in the U.S. (wildfires in California and hurricanes in the south) created incremental demand for SJ’s products. Despite these disruptions, SJ has been able to leverage its extensive network to service affected communities. Finally, management noted that demand for residential lumber remains very solid, with some early signs appearing that demand could spill into 2021. We are impressed with the level of execution delivered by SJ since the beginning of the pandemic.”

Mr. Poirier also emphasized M&A discussions are “warming up,” and he sees the potential to acquire up to US$300-million in revenue in long term.

“Management mentioned that attractive opportunities have arisen since July, with due diligence ramping up despite the pandemic and travel restrictions,” he said. “In fact, management is optimistic it can close some acquisitions between now and the end of 2021.”

The analyst maintained a “buy” rating and $50 target for Stella-Jones shares. The average on the Street is $47.75.

“We like SJ for its resilient business model in spite of the COVID-19 pandemic, as well as its strong balance sheet, market-leading position in the railway ties and utility poles sectors, and the booming residential lumber business,” said Mr. Poirier.


ImmunoPrecise Antibodies Ltd. (IPA-X) has reached a “pivotal moment” with the start of pre-clinical trials for its vaccine trails against SARS-CoV-2, said Industrial Alliance Securities analyst Chelsea Stellick.

The Victoria-based company announced they’ve initiated trials with the Netherland’s LiteVax BXC based on large sets of data obtained during the analysis of its SARS-CoV-2 therapeutic programs. With LiteVax’s adjuvant technology, they are aiming for a single-low-dose administration.

Results of the collaborative, pre-clinical study are expected by November.

“We believe this is a pivotal move for the company as it develops a more pharma-based business model approach, while leveraging the internal clinical experience of the CRO business unit,” said Ms. Stellick. “The initiation of pre-clinical trials indicates the crystallization of the Talem business segment and the acceleration of IPA.”

Keeping a “buy” rating for ImmunoPrecise shares, she increased her target to $3, matching the current consensus from $2.50.


NFI Group Inc. (NFI-T) is “riding the electric vehicle growth opportunity,” said Laurentian Bank Securities analyst Nauman Satti.

In a research report released Monday, he initiated coverage with a “buy” rating, seeing it “well positioned” to benefit from the rising popularity of EV and benefitting from a “strong” backlog that provides revenue stability.

“The Electric Vehicle market remains competitive given the growth opportunity it provides,” said Mr. Satti. “Despite a competitive environment, we believe NFI will continue to remain relevant in terms of market share because of the company’s long-standing relationships with transit agencies, established brand as its ZEB product is already being used by customers, well-established after-sales service network, and continued focus on innovation. The company is well-positioned for both the transition to EV and post-transition scenarios as NFI is propulsion agnostic and can therefore support transit agencies with diesel, compressed natural gas, and hybrid vehicles, as transit agencies complete the longer-term transition to EVs where NFI has a strong offering.”

Mr. Satti said NFI has a history of delivering double-digit growth with a 15-per-cent compound annual growth rate between 2014-2019.

“The growth was a combination of organic and M&A as NFI undertook transformative acquisitions of MCI in 2015, and Alexander Dennis in 2019. The growth in revenue was also reflected in bus-units sold over the same period (CAGR of 17 per cent),” he said. Although 2020 results will be impacted by COVID-19, we expect medium-term growth to be double-digit amid a growing demand for electric buses. We remain conservative with our approach as we estimate a 20-per-cent revenue decline in 2020, followed by a 16-per-cent growth in 2021 and 10-per-cent growth in 2022, which is in-line with NFI’s 10-year CAGR.

“NFI Group’s EBITDA growth has historically outpaced its revenue growth with CAGR of 25 per cent during the last five years. The improvement was primarily driven by gross profit margin growth from 9.5 per cent to 14 per cent as NFI successfully integrated the MCI acquisition alongside product rationalization within the New Flyer and NABI business. More importantly, we believe that the M&A growth was not merely a topline growth driver but also extended NFI’s geographic footprint and product offerings. The softness in the EBITDA margin during the last two years is attributable to a host of factors including production and delivery challenges from new product launches, ARBOC’s chassis supply disruptions, and extended start-up costs of NFI’s KMG Parts and fabrication facilities. However, this also provides an upside opportunity as the company undertakes its cost-saving initiatives; we estimate EBITDA margin to recover to 11 per cent by 2022. NFI has historically achieved success in driving efficiencies to grow margin. We are also comforted by the fact that management has reintroduced guidance for 2020 with Adj. EBITDA range of $145-$150-million versus our conservative est. of $140-million and cons. of $145-million.”

Seeing an “attractive” valuation after its stock got battering by the impact of the COVID-19 pandemic, Mr. Satti set a target of $23 per share. The average on the Street is $22.

“While recognizing that COVID should have negative implications on demand for buses, the stock price decline from $34 to $18 is overdone in our opinion as the backlog remains strong, and NFI’s main customers are government agencies with deep pockets. The stock is currently trading at 6.5 times 2022 EBITDA vs. its 5-year NTM average of 8.0 times, and peer group average of 10 times,” he said.


After a proprietary survey found rising competitive risks and seeing a less attractive risk-reward proposition for investors, RBC Dominion Securities analyst Mark Mahaney downgraded Expedia Group Inc. (EXPE-Q) to “sector perform” from “outperform” on Monday.

The firm’s annual online travel survey found only 49 per cent of U.S. and 55 per cent of UK respondents expect to return to pre-COVID-19 travel frequency in 2021 with another 33 per cent expecting 2022 or later.

“These results don’t suggest any upside to our current EXPE estimates that call for Gross Bookings to return to 2019 levels beyond 2022,” said Mr. Mahaney.

He also said a number of negative signs emerged from Expedia, including a loss in market share from the most popular planning destination to No. 3 behind Airbnb and Google and a drop the three key metrics of selection, ease of use and pricing. The analyst almost emphasized the impact of a rise in popularity of and Airbnb.

With his downgrade, Mr. Mahaney maintained a US$93 target. The average on the Street is US$99.66.

“With shares trading roughly in line with our price target, we view risk/reward as more balanced here,” he said. “EXPE now trades at 7.4 times EV/EBITDA on our 2022 EBITDA estimate that is 9 per cent below the Street. On Street numbers, EXPE is trading at 6.7 times EV/EBITDA on 2022 estimates. EXPE’s 3-year median EV/forward EBITDA multiple is 8.0 times and given the highly uncertain recovery in Global Travel and multiple negative read-throughs from our survey results, we no longer view valuation as compelling here.”


“A burgeoning industry provides a favourable ecosystem” for PopReach Corp. (POPR-X), according to Canaccord Genuity analyst Aravinda Galappatthige.

Calling it an “acquisition-driven pure play in mobile gaming,” he initiated coverage of the Toronto-based tech company with a “buy” rating.

“PopReach is an operator of a portfolio of free-to-play (FTP) mobile games and has a highly focused strategy of acquiring game assets that are in the more mature stages of their lifecycles but which possesses certain evergreen credentials, largely in the casual and mid-core genres,” he said. "The strategy is the result of the many ‘neglected’ game assets in the broader market that have genuine longevity but have seemingly passed their peak, and thus become non-core to their developers or publishers. Once acquired, PopReach revitalizes these games through a multi-faceted process that includes cost rationalization, game design improvements, technology upgrades, possibly IP extension, and branding.

“PopReach’s leadership, CEO Jon Walsh and COO Christopher Locke, have extensive experience in this space over two decades and, in our view, are ideally suited to exploit this opportunity.”

Pointing to its longer-term upside and the potential for “substantial” growth, Mr. Galappatthige thinks PopReach could see a “snowball effect” if its initial execution on its acquisition strategy is successful, including a jump in ad monetization through game engine rebuilds, the benefits of scale as acquisition opportunities emerge and the ability to cross-sell properties with an expanded portfolio.

“The sustained high growth in the industry has created a broad landscape of game assets,” the analyst said. "With the industry behemoths focusing on the larger assets, and independent publishers focused on the next hit game, PopReach’s target set is largely neglected. PopReach’s leadership is highly experienced in this sector and is ideally suited to exploit this opportunity, in our view. Management has developed a strategy of acquiring those assets that have underlying longevity, but are underperforming due to dated technology, inefficient cost models and general neglect. We are already seeing positive early results in certain key franchises (e.g. War of Nations).

“Given that these assets can be acquired at 1-2 times revenue (2-3 times EBITDA post synergies), we illustrate that even a single acquisition within the size parameters identified by the company can drive as much as 25% upside to current market capitalization. Management expects to close on 1-2 acquisitions in 2020 and 2-4 in 2021.”

He set a target price of $1.50 per share. The average on the Street is $1.85.


The recent pullback in Parkland Corp. (PKI-T) shares brings “a solid opportunity for long-term investors to add to positions,” said Raymond James analyst Steve Hansen.

In a research note previewing its third-quarter, he raised his financial expectations for the second half of 2020, expecting margin strength to offset lower volumes in Canada.

“While North American transportation activity improved across most major modes through 3Q20 (i.e. road, rail, air, sea), the aggregate pace of this recovery slowed in recent weeks as economic re-opening plans stalled in some regions (& accelerated in others),” he said. “That said, we believe that stronger retail fuel margins, robust C-Store sales, improved refinery utilization/spreads, and sustained cost discipline provided healthy offsetting tailwinds.”

Mr. Hansen raised his 2020 EBITDA and earnings per share projections to $928-million and 32 cents, respectively, from $907-million and 12 cents. His 2021 estimates increased to $1.26-billion and $1.79 from $1.22-billion and $1.44.

He kept a “strong buy” rating and $48.50 target for Parkland shares. The average is $45.96.


Echelon Capital analyst Amr Ezzat thinks VOTI Detection Inc.'s (VOTI-X) weaker-than-anticipated third-quarter financial results look “like the trough.”

He now expects Quebec-based x-ray security systems developer to see growth “from here on out.”

“While we recognize the risks of revenue lumpiness in this early stage of the Company’s lifecycle, we believe VOTI presents attractive risk-reward characteristics at current levels," the analyst said. “Specifically, VOTI has recently transitioned into a positive EBITDA operator and has gained traction with marquee customers, further giving us confidence that the Company’s products are best-in-class. Given the lumpy nature of the business quarter to quarter, we take a longer-term view when evaluating the merits of an investment in VOTI. The Company’s 3D Perspective technology and proprietary algorithms create best-in-class image clarity and eliminate blind spots for enhanced threat detection. In addition, VOTI’s remote diagnostic and repair capability minimizes downtime and provides its customers with a reliable security technology. In side by side testing with major competitors, VOTI has been selected on a number of occasions as the technology of choice by end-users. The Company’s superior product is evidenced by its client roster. Notable recent deployments and wins include Amazon’s (AMZN-Q) North American fulfillment centres, the US Air Force, Ports America (the largest terminal operator and stevedore in the US), Carnival Cruise Lines (largest cruise line in the world), Madison Square Garden (repeat order), US Bank Stadium (repeat order), and Bell MTS Place (home to NHL team Winnipeg Jets.”

Keeping a “speculative buy” rating, Mr. Ezzat trimmed his target to $1.25 from $1.75. The average on the Street is $1.03.


Macarthur Minerals Ltd.'s (MMS-X) Lake Giles project appears set up to produce a “premium iron ore that demands premium pricing,” said Paradigm Capital analyst David Davidson.

Seeing an “attractive” valuation, he initiated coverage of miner with a “buy” rating.

“For the past decade, China has dominated the iron ore market with 50 per cent of global consumption (80 per cent of seaborne iron ore trade) because of its insatiable appetite for steel production,” said Mr. Davidson. "However, owing to the growing amount of air pollutants plaguing its cities, China increased regulations through its Blue Sky Action Plan that includes a focus on the production and use of iron ore, coking coal and natural gas.

“Lake Giles' iron ore concentrate is a high-grade, low-impurity product that permits steel mills to optimize and balance lower-quality ore blends, increase efficiency, lower costs and reduce CO2 emissions in the blast furnace. Going forward, we believe continued growth in steel production, which consumes more than 98% of iron ore, will support iron ore prices; however, we conservatively use a long-term price of US$70/tonne for 62% iron ore concentrate (vs. today’s spot price of US$120 per ton). Using a US$20 per ton premium for Lake Giles 65–68-per-cent iron ore concentrate and a US$10 per ton shipping cost we arrive at US$80 per ton selling price.”

Seeing Macarthur having made “significant” progress at Lake Giles and now seeing a “clear path” to production, he set a target of $1.65 per share.


In other analyst actions:

* BMO Nesbitt Burns analyst Ben Pham raised his target for shares of Hydro One Ltd. (H-T) to $32 from $31, keeping an “outperform” rating. The average target on the Street is $28.86.

“Recent moves to optimize Hydro One’s balance sheet provide further visibility to H’s 4-7-per-cent EPS CAGR [earnings per share compound annual growth rate] target through 2022, along with supporting future annual dividend growth,” he said.

“Coupled with a 5-per-cent rate base CAGR and sharp attention to cost savings, we believe H is well positioned to not only achieve but also to exceed guidance.”

* Fundamental Research analyst Sid Rajeev initiated coverage of Steppe Gold Ltd. (STGO-T) with a “buy” rating and fair value of $4.15 per share.

“Relative to the major gold producers, Steppe’s shares are trading at a significant discount on an Enterprise Value (”EV") to resource ratio ($93 per ounce versus the producers' average of $263 per ounce), EV to annual production ratio ($2,028 per ounce versus $6,832), EV to Revenue (forward) ratio (1.5 times versus 3.7 times), and EV to EBITDA (forward) ratio (3.5 times vs 6.9 times)," he said.

“Steppe’s shares are undervalued even if they trade at just 50 per cent of the average metrics of senior producers.”

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