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

IA Capital Markets analyst Matthew Weekes likes Superior Plus Corp.’s (SPB-T) “fundamentals as a pure-play propane marketing company, including stable demand and free cash flow, and growth potential through accretive consolidation of fragmented markets.”

However, he lowered the firm’s rating for the Toronto-based company to “hold” from “buy” upon assuming coverage on Monday, pointing to a “compressed” projected return to his target price for its shares.

“Demand for propane is fairly stable, related to weather more so than GDP, with cost-plus pricing, sticky customer relationships, and high switching costs,” said Mr. Weekes. ”SPB earns approximately 80 per centof its EBITDA in Q1 and Q4.”

“The Superior Way Forward provides a goal of at least $700-million of EBITDA by 2026. SPB’s 2021 Investor Day focused on the Company’s strategy to achieve robust growth over the next six years through both tuck-ins and synergies, and to a lesser extent organic growth. SPB aims to spend $1.9-million on acquisitions by 2026, with close to 90 per cent expected to be in the U.S.. Including 2021, this means that SPB needs to complete $350-million plus or minus $30-million of acquisitions per year ($300-million year-to-date excluding Kamps) to achieve its ambition, with earlier acquisitions being better as that gives the Company more time to extract synergies and generate free cash flow which can be reinvested. As such, the delayed acquisition of Kamps, and in general the fact that the US Federal Trade Commission reviews any energy-related transactions above a certain size, is a factor working against SPB as the market likely contemplates whether SPB can achieve its ambition without issuing equity, as the Company is at the top end of its target leverage range.”

Mr. Weekes trimmed the firm’s target for Superior Plus shares to $15.50 from $16 after a valuation “refresh.” The average on the Street is $16.23.

“A factor that investors must consider, but is difficult to quantify, is the potential for propane demand erosion due to higher prices. Offsetting this potential headwind is the highly fragmented nature of the U.S. market, leaving SPB a lot of runway to continue to close accretive acquisition,” he said.


Goldman Sachs analyst Gabriela Borges sees Shopify Inc. (SHOP-N, SHOP-T) “well positioned for the long term,” pointing to “one of the largest total addressable markets in growth software” at US$200-billion and “several avenues for platform expansion.”

However, she initiated coverage of the Ottawa-based ecommerce giant with a “neutral” recommendation on Monday, saying her “long-term positive view is balanced by near-term dynamics.”

“1) We believe it will be 2-3 quarters before GMV growth re-accelerates, in the context of a normalization in demand post a pull-forward in ecommerce penetration during 2020/2021. 2) We expect EBIT margins to trend down in 2022 as Shopify invests in strategic initiatives to reinforce its platform at scale,” she said. “While we view initiatives such as fulfillment as solving a critical pain point at customers, they will likely require continued elevated investment. We believe the stock will likely be range bound in a period where growth is decelerating and EBIT margin is trending lower.”

Ms. Borges set a US$1,570 price target. The average is US$1,672.16.


Kinross Gold Corp.’s (KGC-N, K-T) proposed $1.8-billion acquisition of Great Bear Resources Ltd. (GBR-X) and its flagship Dixie project “represents a high-quality asset for future development, but is at a very early stage of evaluation,” according to RBC Dominion Securities analyst Josh Wolfson.

He thinks Dixie improves Kinross’ “long-term pipeline and overall asset quality.” However, he warned it “carries a high up-front price tag.”

“Unique to Dixie is high-grade, wide, continuous mineralization that begins near-surface at the LP Fault zone,” he said. “The discovery of this zone by GBR was completed May 2019, and no resource or economics have been defined on the property thus far. Kinross management has reviewed some criteria about the potential of the project, but the estimates at this stage are highly uncertain.”

“Given GBR’s up-front acquisition and development costs, and production timelines of 2029, high returns are challenging to achieve. We calculate that Dixie’s ultimate success as a 500,000-ounce producing operation at AISC of $700 per ounce over either a 15 or 25 year time frame, and with capital and timelines that are consistent with management guidance would yield a 6-8-per-cent IRR to Kinross at $1,500 per ounce when including GBR’s acquisition price. These returns are in line with high-quality assets in favourable jurisdictions, but it should be acknowledged that comparable return acquisitions have been completed at later stages, when project terms are much more clearly defined.”

With that view, he trimmed his target for Kinross shares to US$6.50 from US$7, below the US$9.60 average, with an “outperform” rating.

“This limits the potential returns available to Kinross — with successful advancement, we project a mid to high single digit internal rate of return at $1,500 per ounce,” he said.


Canaccord Genuity’s David Hynes thinks Coveo Solutions Inc. (CVO-T) has the potential to become a “focal name” for Canadian tech investors if it executes as he expects.

He was one of several equity analysts on the Street to initiated coverage of the Quebec City-based enterprise software company after coming off research restriction following its November initial pubic offering.

“For as much as we hear about machine learning and AI these days, it’s a bit surprising that there are so few pure-play investment options for public investors,” said Mr. Hynes. “We suppose that’s because most AI ends up being applied to a specific business function, which means it typically shows up as an embedded feature versus a standalone business. Coveo is a bit different in that it’s still applied AI, but it’s AI applied to search, which is a function that by nature is horizontal. Customers use Coveo to improve search relevance and ultimately drive personalization in areas that today span customer support, ecommerce, website and workplace search. This is a big market ($39-billion TAM) that’s still in its infancy in terms of the sophistication of use cases. To that point, Coveo is subscale compared to most public companies at less than $80-million in revenue, but the business is seeing accelerating growth and the firm has several relatively new efforts that should help sustain the improvement – namely e-commerce adoption and the introduction of a product-led growth motion.

“From an investment standpoint, the stock is reasonable at 10 times EV/R [enterprise value to revenue] and, if the acceleration in growth plays out as we expect, we think it’s possible that CVO could see a bit of gradual multiple expansion. As such, we think it’s reasonable to think that Coveo shares should advance more or less on pace with revenue growth in the 25-30-per-cent-plus range, and if we get lucky, these assumptions will prove conservative.”

Giving Corveo a “buy” recommendation, Mr. Hynes pointed to several positive attributes, including the experience management team of chief executive officer Louis Têtu and chief financial officer Jean Lavigueur, significant market opportunity and seeing “several irons in the fire for faster growth.”

“There are two key initiatives that give us confidence that further acceleration may be in the cards here. (1) Coveo is just getting going in e-commerce, where the firm should be able to use its data and AI platform to make consumer recommendations that improve conversion and drive high average order value,” he said. “This effort is up to 20 per cent of bookings from 5 per cent a year ago, making it Coveo’s fastest growing segment. (2) While Coveo has almost entirely used a direct and partner-assisted growth strategy to date, the firm recently rolled out free trial-based, introductory tiers across each of its core segments. This product-led growth motion is intended to win the developer, who will ultimately take Coveo into departmental and eventually enterprise-wide deployments.”

Mr. Hynes set a target of $18 per share. It closed at $16.03 on Friday.

Others initiated coverage include:

* Scotia Capital’s Paul Steep with a “sector perform” rating and $18 target.

“We believe Coveo’s shares offer investors a way to participate in the trend for organizations to provide all stakeholders with more relevant and timely information,” he said. “We view its stock as a means to benefit from the theme of digital information growth and the need to organize, search, and find relevance. Over the next five years, IDC forecasts data creation and replication will grow to an annual level greater than twice the amount of all data created since the introduction of digital storage. As the amount of data produced increases, organizations face the increased challenge of providing customers, partners, and employees with accurate and relevant information quickly. Coveo is a leading provider of search and relevance solutions through a hosted SaaS platform, enabling organizations to leverage artificial intelligence (AI) to deliver relevant results to users.”

“We believe the company warrants a valuation that reflects a 20-per-cent multiple premium on calenar 2022 estimates to high-growth software as a service (SaaS) peers, reflecting expectations of above-average revenue growth from Coveo over the forecast period.”

* BMO’s Thanos Moschopoulos with an “outperform” rating and $20 target.

* RBC Dominion Securities with an “outperform” rating and $20 target.


It is an ideal time to own shares of Definity Financial Corp. (DFY-T), according to Raymond James analyst Stephen Boland.

“Definity continues to improve its underwriting, grow its market share and has an abundance of excess capital,” he said.

Mr. Boland initiated coverage of the Waterloo, Ont.-based automobile and property insurer, which is the parent company of Economical Mutual Insurance Co., with an “outperform” recommendation following Canada’s largest initial public offering of the year.

“Pricing conditions for P&C insurers have been favourable for many years due to the low interest environment,” he said. “With the firm markets, the Canadian industry is reporting the highest profits in many years with combined ratios under 100 per cent. We believe the favourable conditions will persist into 2023.”

“Canadians are increasingly turning towards digital platforms for their insurance needs. Definity is a market leader in this regard. Its direct insurance platform, Sonnet, is the first fully digital platform widely available in Canada. Combined with its more recently launched broker platform Vyne, Definity has managed to automate the underwriting process for the vast majority of its personal lines and reduce its exposure to poor quality business.”

Mr. Boland highlighted increased flexibility as “one of the more compelling themes for demutualization,” projecting Definity possesses the potential to add $1.4-billion in capital and leverage to grow its business.

He set a target of $32 per share. It closed at $26.74 on Friday.

Others initiated coverage include:

* Scotia Capital’s Phil Hardie with a “sector outperform” rating and $34 target.

“Reasons to like and own Definity: (1) defensively positioned with limited sensitivity to macroeconomic factors, interest rates, or financial markets; (2) solid growth prospects and a resilient model that is likely able to support double-digit earnings growth and compound BVPS by mid-single digits over the mid- to long term; (3) a strong management team; and (4) merger-and-acquisition (M&A) potential serves as an embedded catalyst, with mid-term takeout potential likely limiting downside risks,” he said.

* RBC with an “outperform” rating and $32 target.


Touting a “compelling” risk-reward proposition for investors, ATB Capital Markets analyst Martin Toner initiated coverage of mCloud Technologies Corp. (MCLD-X) with a “speculative buy” rating.

“mCloud is leveraging technology and deep expertise in industrial processes to improve energy and cost efficiency,” he said. “Achieving this goal has a direct and positive impact on the world’s biggest problem, climate change. While much has been done to improve the efficiency of commercial buildings and process industries, they remain highly inefficient. Heating and cooling and asset maintenance schedules are low-hanging fruit to boost profitability and reduce carbon footprints in both corporate and SMB settings. We believe the Company’s vision has been consistent since going public in 2017; delivering a cloud solution that improves the health and performance of the connected assets, and charge a subscription that is a fraction of the resulting benefits.

“We believe the certainty around recurring energy savings, the low implementation costs, and the ESG benefits of the solution are highly attractive to prospective customers. AssetCare, mCloud’s flagship product, uses software and AI to monitor and automate industrial processes, such as heating and cooling of facilities. After years of M&A and internal development, we believe AssetCare, mCloud’s ‘Results-as-a-Service’ asset management platform, has emerged as a unique, high-value solution that helps deliver energy savings, air quality, and an enterprise class monitoring solution to SMBs and Enterprises in select industries. In addition to large enterprises, AssetCare has significant potential in the SMB setting, especially in the office and retail verticals, although energy bills and energy efficiency continue to receive surprisingly little attention. mCloud’s challenge with these customers is marketing, this compelling value proposition to a hard-to-reach customer base.”

Mr. Toner set a $13 target, above the $10 average, for shares of the Calgary-based company.


The Street is “starting to better appreciate the robust fundamental story into 2022″ for Apple Inc. (AAPL-Q), according to Wedbush analyst Dan Ives.

He expects the U.S. tech giant to become the first US$3-million market cap company this week, calling it “another watershed moment” as it “continues to prove the doubters wrong with the renaissance of growth story playing out in Cupertino.”

“The linchpin to Apple’s valuation re-rating remains its Services business which we believe is worth $1.5 trillion in the eyes of the Street, coupled by its flagship hardware ecosystem which is in the midst of its strongest product cycle in over a decade led by iPhone 13,” said Mr. Ives. “Supply shortages of roughly 15 million iPhone units globally remain an issue that should moderate into early 2022, however importantly the underlying demand story is our focus into 2022 and we believe is the ultimate driver of the stock going forward. Our iPhone 13 checks continue to be much stronger than expected with our belief that Apple is now on pace to sell north of 40 million iPhones during the holiday season despite the chip shortage headwinds.

“The focus of the Street has been on the lingering chip shortage for Apple (and every other tech and automotive player), however the underlying iPhone 13 demand story for Cupertino both domestically and in China is trending well ahead of Street expectations in our opinion. We estimate in China alone there are roughly 15 million iPhone 13 upgrades for the December quarter as this key region remains a major source of strength for Apple.”

Mr. Ives said the momentum seen by the iPhone “growth story” will continue into the next year despite the supply chain disruption

“While the supply chain issues have curtailed some growth for Apple on this massive product cycle playing out across its entire hardware ecosystem, we believe the pent-up demand story for Cupertino is still being underestimated by investors with chip issues a transitory issue in our opinion,” he said. “With ASPs continuing to be very positive on Pro/Pro Max and as of today roughly 250 million of 975 million iPhones worldwide not upgrading in 3.5 years, we view supply chain issues as nothing more than a speed bump on a multi-year iPhone 12/13 supercycle.”

Also touting the potential from new product introductions in 2022, including Apple Glasses in the summer, he maintained an “outperform” rating and US$200 target for Apple shares. The average on the Street is US$171.72.

Elsewhere, JP Morgan analyst Samik Chatterjee raised his target to US$210 from US$180 with an “overweight” recommendation and calling it a “top pick into 2022.”

“AAPL shares are well-positioned for upside led by a strong FY22 iPhone product cycle,” he said.


In other analyst actions:

* Seeing a value disconnect for building materials producers, Raymond James analyst Daryl Swetlishoff raised his targets for Canfor Corp. (CFP-T, “strong buy”) to $53 from $47 and West Fraser Timber Co. Ltd. (WFG-T, “strong buy”) to $180 from $175. The averages are $40.17 and $147.50, respectively.

“Similar to last year, we have another Santa Claus lumber rally on our hands with lumber traders reporting +US$1000/mfbm cash sales last week,” he said. “Accordingly, we have updated our 2021 and 2022 commodity price forecasts and introduced 2023 estimates as our basis for valuation. Investors have largely discounted the 6+ quarter (and counting) building materials rally, with the stocks continuing to price in US$350-400 lumber prices – the market’s perception of ‘Trend’, in our view. But, what exactly is trend when there have been structural supply (not to mention cyclical demand) changes? Trend is usually defined as a historic average, and we apply 5 year average commodity prices and EV/EBITDA multiples as our Base Case valuation producing an average 60-per-cent upside to targets. However, we also present sensitivities including a Bull Case – which assumes 3 year averages; and a Bear Case – based on 10 year averages. Results underscore the fundamental value present in the sector with even the Bear Case offering 20-30-per-cent upside in theoretical equity value with the Bull Case suggesting 90-110 per cent upside!”

* CIBC World Markets analyst Paul Holden upgraded Laurentian Bank of Canada (LB-T) to “neutral” from “underperformer” with a $45 target, while Veritas Research’s Nigel D’Souza raised the stock to “buy” from “reduce” with a $50 target. Elsewhere, RBC Dominion Securities’ Darko Mihelic raised his target to $52 from $49 with an “outperform” rating. The average on the Street is $46.30.

“There was nothing thesis changing in terms of FQ4 results and the Investor Day. Management is working hard to fix the retail bank and to accelerate growth in the commercial bank. Our EPS estimates are little changed as we had already assumed improving financial performance. Our price target of $45 is also unchanged. Given the return to our price target of 12 per cent, we are upgrading LB,” said Mr. Holden.

* CIBC’s Stephanie Price initiated coverage of Converge Technology Solutions Corp. (CTS-T) with a “neutral” rating and $12.50 target. The average target is $13.78.

“We hold a positive long-term view on Converge’s strategy of rolling up the IT Service Provider (ITSP) market, which we expect to lead to significant cost synergies,” she said. “Converge has a sticky, mid-market customer base that has access to limited internal IT talent. We see upside from recurring managed services as this client base transitions to the cloud. That being said .... we initiate coverage on Converge with a Neutral rating and $12.50 price target as we watch for synergies from record M&A spending in 2021 and Converge’s ability to navigate hardware-related supply chain disruptions. We are factoring in $300 million in M&A spending in 2022 and foresee upside to $20 per share if Converge can execute on additional acquisitions.”

* National Bank Financial initiated coverage of Colliers International Group Inc. (CIGI-Q, CIGI-T) with an “outperform” rating and US$170 target, exceeding the US$156.80 average.

* Seeing a “constructive” three-year plan, Raymond James analyst Michael Glen raised his target for H2O Innovation Inc. (HEO-X) to $3.50, exceeding the $3.42 average, from $3 with an “outperform” rating.

“In looking at the North American and global water industry, we continue to see several themes that represent tailwinds to H2O’s growth strategy,” said Mr. Glen. “These include: 1. The depleted state of water infrastructure throughout the U.S. (ASCE drinking water grade C and wastewater grade D+); 2. Funding requirements to upgrade such systems and prospects for merger activity; 3. Climate change, droughts, and water scarcity; 4. Increasing regulatory, compliance, and certification programs surrounding drinking water and water treatment systems; 5. Access to qualified workers (i.e., retiring / aging workforce) to support and maintain increasingly complex water treatment infrastructure; and 6. The absolute critical need for clean drinking water access as a basic need. We believe through its established business and customer relationships, H2O is very well positioned as the global water industry sees a pick-up in interest from both an infrastructure and investment standpoint.”

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