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

Calling it “best-in class in powersports,” Shawn Collins, a New York-based equity analyst at Citi, sees “an opportunity” in BRP Inc. (DOO-T) given sell-side coverage of the Quebec-based manufacturer is limited south of the border in comparison to its U.S. competitors.

“BRP is one of two dominant manufacturers of powersports vehicles in North America; the other is Polaris (PII),” he said. “BRP has industry-leading market positions (1 in snow, 1 in water, 2 in off-road), industry-leading margins, and a strong and seasoned management team. This combination has led to better revenue and profit growth and, hence, better stock price performance than competitors since its IPO in 2013. Yet, BRP’s valuation metrics sit squarely in line with the larger leisure universe, and do not reflect a premium for BRP’s best-in-class execution.”

In a research report released Monday, Mr. Collins initiated coverage of BRP with a “buy” rating, emphasizing favourable outdoor recreation industry conditions “that includes inventory restocking (down 67 per cent) in 2021-22 and a strong economy with low financing rates” and expecting further growth in 2021.

“The Covid-19 pandemic has had a positive impact on the Outdoor Recreation sector, as consumers flocked to low-density-recreation via ORVs, RVs, boats, and motorcycles,” he said. “Before 2020, ORV sales grew on average 4 per cent annually since 2011. In 2020, ORV sales grew 24 per cent. Before 2020, snowmobiles grew 2 per cent a year. In 2020, snow sales grew 20 per cent-plus.”

“We are now in the warmer months of the year. Spring weather has been benign in most of NA, which is a big positive for retail sales. This coincides with stimulus aid, vaccine roll-outs, growing GDP, and robust stock and housing markets. We talk to powersport Dealers on a regular basis, who state 1Q was better than expected and April appears to be off to a pace similar to 2020.”

The analyst pointed to several investment “positives” in justifying his bullish stance on BRP, including its No. 1 market share position in snowmobiles ad personal watercraft, growth in its off-road vehicle offerings and its industry-leading margins.

He set a target of $136 for BRP shares. The current average on the Street is $111.73.

Concurrently, Mr. Collins raised his rating for Illinois-based Brunswick Corp. (BC-N) to “buy” from “neutral” with a US$125 target, up from US$94. The average is US$105.92.

“We upgrade our rating to a Buy on Brunswick – the world’s leader in recreational boating (#1 in marine engines, leader in powerboats, & marine P&A),” he said. “With its strategic realignment behind it, Brunswick is flourishing on the top-line and from a margin perspective. We are encouraged by robust marine industry conditions, the inventory restocking cycle (2-3 years), leading margins, and valuation levels in-line with other leisure names rather than at a premium. In addition, a strong economy, low financing rates, and a healthy consumer provide for a favorable backdrop.”

He downgraded Polaris Inc. (PII-N) to “neutral” from a “buy” recommendation with a US$160, rising from US$135 and above the US$142.13 average.

“The fundamentals of Polaris’ business have never been stronger and the company recently unveiled plans to debut an all-new electric RANGER side-by-side vehicle for 2022 release,” he said. “However, in only almost 7 months, the stock is up 58 per cent (vs. SP500 up 23 per cent). Given PII’s healthy stock price increase, we downshift our rating, with the stock moving down our preferred list of names within our coverage portfolio.”


Minto Apartment Real Estate Investment Trust (MI.UN-T) now possesses “attractive valuation levels with substantial organic and external optionality,” according to iA Capital Markets analyst Frédéric Blondeau.

He initiated coverage of the Ottawa-based REIT with a “buy” recommendation on Monday.

“Generally speaking, management considers the pandemic as short term in nature; the vaccination roll-out process is obviously a significant factor that should determine the severity of the pandemic going forward,” he said. “Moreover, management is not expecting any material impact from the pandemic on the REIT’s financial performance. In fact, rental collections since Q2 last year have essentially been consistent with pre-pandemic collection levels.

“In addition, we agree with management on the fact that long-term Canadian multi-residential fundamentals remain exceptionally solid.”

Mr. Blondeau said he expects Minto’s first-quarter results to be “solid,” however he warned more volatility is possible in the second and third quarter, given the recent Ontario lockdown.

“That said, management remains relatively confident in terms of a potential normalization of fundamentals towards the end of 2021 on the back of the potential demand relating to the ‘back to school’ period, among other factors,” he said. " The demand for furnished suites has been negatively impacted by the pandemic, essentially due to reductions in business travelling, corporate relocations, general restrictions on non-essential travel, and the closing of the Canadian border.”

In explaining his recommendation, he pointed to several factors, including a “strong” management team, “conservative” balance sheet and access to liquidity and “strong” track record.

“We think that MI is strategically positioned within its core Ontario and Quebec markets, and that Minto Group’s extensive track record speaks for itself,” he said. “In the present context, due to the quality of its franchise, we believe MI is strategically exposed to tremendous optionality relating to what we believe is strong pent-up demand from foreigners to immigrate to Canada, and for rental products, especially in Ontario and Quebec.”

“In our opinion, the multi-family sub-sector is well-positioned to navigate through an inflationary environment, even if only for a short time. Obviously, the shorter lease term of multi-family leases is a relatively robust inflationary pressure pass-through. In addition, fund flows directed towards the multi-family space should remain relatively solid during the remainder of 2021 and for the foreseeable future, notably on the back of rising inflation expectations, and possibly the spectre of stagflation (which is essentially the type of risks the Commodity sector’s rising prices is telegraphing to the market, at the time of writing). In such a scenario, we believe the Multi-Family sub-sector, including high quality owners and operators like MI, should ultimately outperform the broader real estate spectrum.”

Seeing an attractive valuation, he set a target of $25.50 per unit. The average is currently $23.81.

Minto closed at $22.15 on Friday.


Ahead of the release of its quarterly results on Wednesday, a pair of equity analysts lowered their targets for shares of Shopify Inc. (SHOP-N, SHOP-T).

They are:

* CIBC World Markets’ Todd Coupland to US$1,325 from US$1,750 with a “neutral” rating. The average on the Street is US$1,422.64.

* Baird’s Colin Sebastian to US$1,550 from US$1,600 with an “outperform” rating.


In response to the close of the US$275-million sale of its U.S. Transportation and Storage business, a group of equity analysts raised their targets for AltaGas Ltd. (ALA-T) ahead of the release of its first-quarter results on Thursday before the bell.

IA Capital Markets analyst Elias Foscolos said the sale to an entity owned by Six One Commodities LLC and Vega Energy Partners “further simplifies” AltaGas’ operations, “allowing the company to focus on its core Utilities and Midstream businesses while continuing to deleverage.”

Keeping a “buy” rating, Mr. Foscolos raised his target to $25.50 from $24.50. The average on the Street is $23.47.

“We believe ALA is well-positioned through its high-quality Utilities and Midstream platforms and clear strategic directive emphasizing disciplined and low-risk growth,” he said.

Others making adjustments include:

* Raymond James’ David Quezada to $24 from $22.50 with an “outperform” rating.

“Based on this historical profitability, we peg transaction metrics at a relatively attractive 13.0 times (2020 EV/EBITDA) and 17.0 times (EV/5 yr. average EBITDA),” he said. “While 2021 results were clearly on pace for a much greater EBITDA contribution (implying a lower 2021 transaction multiple), we would not expect this level of performance to be sustainable as it reflects extremely favourable conditions this quarter from historically cold weather and volatile natural gas prices. For reference, we had forecasted FY2021 EBITDA of $25 mln for the storage and transportation business, which multiplied through by our 11 times EV/EBITDA multiple in our sum of parts valuation, implies a value of $275-million vs. the $344-million sale price. We consider this to be a very attractive monetization and expect the stock to trade higher. Further, this sale comes on the heels of an extremely profitable period for the assets.”

* CIBC World Markets’ Robert Catellier to $26 from $25 with an “outperformer” rating.

* Scotia Capital’s Robert Hope to $25 from $24 with a “sector outperform” rating.

* National Bank Financial’s Patrick Kenny to $25 from $24 with an “outperform” rating.


Seeing it “dealing with difficult differentials,” Credit Suisse analyst Andrew Kuske cut Gibson Energy Inc. (GEI-T) to “underperform” from “neutral” on Monday.

“The downgrade is partially a function of our views on Western Canadian product flows and differentials along with considerations of relative positioning in a tactical fashion,” he said. “Structurally, there is a lot to like about GEI’s physical asset positioning, however, the Marketing business looks to be challenged with an outlook of more narrow crude differentials and the Edmonton terminals gaining in relative importance, in our view ... Clearly, a combination of positives in areas like asphalt and roofing flux along with some benefit from past Q1 volatility may help short-term results. GEI is scheduled to report Q1 2021 results on May 3rd and we forecast EBITDA of $96-million versus a consensus of $95-million (range $89-million-$116-million).

“Given the long-cycle nature of our coverage universe, we do not place undue emphasis on short-term quarterly results.”

Mr. Kuske trimmed his target for Gibson shares to $22 from $24. The average on the Street is $24.12.


CIBC World Markets analyst Nik Priebe adjust his target prices for a group of stocks in his coverage universe.

His changes include:

  • IGM Financial Inc. (IGM-T, “outperformer”) to $45 from $42. The average is $40.88.
  • Onex Corp. (ONEX-T, “outperformer”) to $94 from $92. Average: $95.
  • Power Corporation of Canada (POW-T, “outperformer”) to $40 from $38. Average: $36.79.
  • Trisura Group Ltd. (TSU-T, “outperformer”) to $140 from $130. Average: $136.13.
  • Guardian Capital Group Ltd. (GCG-T, “outperformer”) to $40 from $37. Average: $31.
  • Fiera Capita Corp. (FSZ-T, “neutral”) to $11.25 from $12. Average: $12.36.
  • ECN Capital Corp. (ECN-T, “outperformer”) to $10 from $9.50. Average: $10.05.
  • CI Financial Corp. (CIX-T, “neutral”) to $21 from $20. Average: $22.38.

Elsewhere, TD Securities analyst Graham Ryding raised his target price for shares of IGM Financial Inc. to $47 from $41 with a “buy” rating and Sprott Inc. target to $50 from $48 with a “hold” rating.


Franco-Nevada Corp.’s (FNV-N, FNV-T) two new iron ore royalty investments have “materially positive merits” despite coming at near-peak prices for the metal, according to RBC Dominion Securities analyst Josh Wolfson.

In conjunction with its April 19 annual analyst day, the Toronto-based royalty and stream company disclosed a US$538-million Vale iron-ore focused royalty debenture and a $93-million equity investment in Labrador Iron Ore Royalty Corp. (LIF-T).

“FNV has timed the announcement of its purchase with sharply higher iron ore prices,” said Mr. Wolfson. “Nonetheless, we do not view future lower iron ore prices as an item that will overshadow forecast returns of these transactions. Benchmark iron ore prices today are an elevated approximately $175 per ton and more than 100 per cent above their 5-year trailing average prices; nonetheless, at RBC’s long-term iron ore price of $72 per ton, we calculate a 9-per-cent IRR [internal rate of return on the Vale investment and 8 per cent after-tax cash yield near-term in upcoming years. We highlight that production guidance for Vale includes more than 60-per-cent volume growth which is expected to counterbalance expected steep commodity price declines from today, resulting in more stable expected gold-equivalent production longer-term (although by individual year this could vary). At LIF, FNV reports that it has already recovered 95 per cent of its investment via dividends and shares have appreciated 160 per cent, easily justifying this investment in our view.

“Iron ore will become a material component of FNV’s underlying production, and we forecast the company will be near its maximum threshold of non-precious metals production of 20 per cent. We expect this will limit non-precious metals transaction investment opportunities and skew future investments towards gold, silver, and PGM’s.”

Following the deals, Mr. Wolfson thinks Franco-Nevada’s asset base “remains highly diversified and liquidity is favourable.”

Keeping a “sector perform” recommendation for its shares, he increased his target to US$135 from US$130. The average on the Street is currently US$169.99.

“When assessing FNV’s valuation, the company benefits from receiving a premium valuation to the precious metals royalty group, while maintaining a larger proportion of non-gold and silver royalty assets,” said Mr. Wolfson. “Post-closing in 2Q, we forecast FNV will maintain total liquidity of $1.2-billion. On a go-forward basis at spot gold, we calculate FNV will generate $1.07-billion in total annual FCF (or $840-million net of $230-million in dividends). When assessing FNV’s valuation, the company has managed to retain its relative premium to precious metals royalty peers, even though new investments have predominantly focused on non-precious metals assets. FNV’s ability to benefit from higher non-gold and silver exposure, absent an effect on its valuation has been a meaningful benefit to the company, its growth, and its cost of capital. We do not see multiple contraction due to non-precious metals exposure as a realistic risk today (assuming management adheres to its 80-per-cent exposure limit), but we acknowledge when specific commodity prices diverge, FNV’s more diverse commodity exposure has been a focus point.”


Canaccord Genuity analyst Luke Hannan thinks Freshlocal Solutions Inc. (LOCL-T) is “uniquely positioned to benefit, in both its grocery delivery business and software-as-a-service (SaaS) business, from a secular shift to online grocery that has significantly accelerated with the onset of COVID-19.”

In a research note released Monday, he initiated coverage of the Vancouver-based company with a “buy” recommendation.

Formerly known as Rainy Hollow Ventures Inc., it began trading on the TSX on April 21 following a reverse takeover by Sustainable Produce Urban Delivery Inc.

“Freshlocal’s online grocery arm delivers best-in-class unit economics, reflecting 25 years of optimizing and refining its fulfillment centre infrastructure to take on the logistical challenges of delivering perishable goods directly to customers’ homes,” said Mr. Hannan. “The company has been able to achieve unit profitability in a sector known for razor-thin margins at best. We estimate it generates $20 in unit profit/order, compared with Canadian and US peers which lose $4-9/order.”

Mr. Hannan is projecting a 25-per-cent increase in annual revenue in 2021 to $134-million with his 2022 and 2023 estimates at $173-million and $201-million. He’s estimating an EBITDA loss of $10-million this year with positive earnings coming in fiscal 2023.

“The most compelling part of the Freshlocal story, in our view, is its eGMS software, FoodX: (1) it provides a holistic solution to customers with greater speed to market than competitors; (2) it is suitable for both large and small grocers, with the latter group representing a segment that other eGrocery management solution (eGMS) providers have largely not addressed; and (3) it has been developed in partnership with industry leader Microsoft,” he said.

Currently the lone analyst on the Street covering the stock according to Refinitiv, he set a target of $9.50 per share. It closed at $6 on Friday.

“We see material upside to our target price based on successful execution within Freshlocal’s SaaS business,” he said. “We have conservatively valued the SaaS business at 7.0 times FY+2 revenue, below its more mature peers which trade at 12.5 times and at the lower end of the range, due to the early stage nature of the business and accounting for the possibility of execution risk. We believe any new client wins or announcements of existing clients expanding the rollout of FoodX into additional locations will serve as catalysts that will close this gap.”


In other analyst actions:

* Seeing decarbonization and electrification as “powerful trends that will create substantial long-term investment opportunities for high quality and proven clean energy-leveraged companies,” Wells Fargo analyst Jonathan Reeder upgraded Brookfield Renewable Partners LP (BEP-N, BEP.UN-T) to “overweight” from “equal weight,” seeing an attractive entry point after recent “stretched” valuations. His target rose to US$48 from US$42, exceeding the US$44 average.

* BMO Nesbitt Burns analyst Devin Dodge cut his target for Aecon Group Inc. (ARE-T) by $1 to $19 with a “market perform” rating, while Canaccord Genuity’s Yuri Lynk increased his target to $23 from $21 with a “buy” recommendation. The average is now $22.27.

We maintain our positive view on Aecon,” Mr. Lynk said. “COVID-19 impacts remain. However, existing backlog to be executed over the next twelve months is 8.5 per cent higher year-over-year, positioning the company for revenue growth as early as this quarter.”

* CIBC World Markets analyst Kevin Chiang upgraded CAE Inc. (CAE-T) to “outperformer” from “neutral” with a $44 target, up from $42 and exceeding the $42.89 average.

* CIBC initiated coverage of Well Health Technologies Corp. (WELL-T) with an “outperformer” rating and $9 target. The average is $11.93.

* National Bank Financial analyst Zachary Evershed cut his KP Tissue Inc. (KPT-T) target to $10.50 from $12 with a “sector perform” rating. The average is $11.92.

* National Bank’s Vishal Shreedhar raised his Loblaw Companies Ltd. (L-T) target to $76 from $75 with an “outperform” rating. The average is currently $76.64.

* National Bank’s Endri Leno raised his Knight Therapeutics Inc. (GUD-T) target to $7.75 from $6.75, topping the $7.51 consensus, with an “outperform” rating, while Raymond James’ David Novak bumped up his target to $8.50 from $8 with an “outperform” recommendation.

* TD Securities analyst Bentley Cross cut his Terago Inc. (TGI-T) target to $9 from $9.50 with a “buy” recommendation. The average is $8.80.

* Scotia Capital analyst Michael Doumet hiked his GDI Integrated Facility Services Inc. (GDI-T) target to $65 from $55 with a “sector outperform” rating. The average is $60.57.

* Evercore ISI analyst James West increased his target for Precision Drilling Corp. (PD-T) to $37 from $35, keeping an “in line” rating. The average is $40.37.

* iA Capital Markets analyst Elias Foscolos raised his target for Emera Inc. (EMA-T) by $1 to $60, exceeding the $58.93 average, with a “hold” rating.

* iA Capital’s Chelsea Stellick increased her target for shares of Mississauga-based Microbix Biosystems Inc. (MBX-T) to 90 cents from 80 cents, reiterating a “buy” recommendation.

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