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

After a “strong” 2021 for base metals producers, Canaccord Genuity analyst Dalton Baretto thinks a “more difficult and volatile” year should be expected from a macro perspective.

In a research report released Monday, he said several “catch-22 type decisions” are facing authorities globally, “including (but not limited to): The inflation vs. growth and employment argument in the U.S.; Economic growth vs. ‘common prosperity’ and political agendas in China; A return to normalcy vs. contagion management for health care authorities globally; A push to decarbonize vs. energy security; Economic stimulus vs. national balance sheet management.”

He thinks the results of those “trade-offs” are likely to determine the “trajectory of asset prices globally, and across all asset classes including commodities and equities.”

“From a physical supply-demand perspective, the argument to maintain commodity exposure remains strong,” said Mr. Baretto. “Most commodities enter 2022 with supply challenges and very little surplus inventory – as an example, current copper inventory on the exchanges represents just 3 days of demand. Near-term demand should remain robust given global supply chains that need to be restocked, ongoing strength in consumer goods spending, strong emerging market currencies, and planned infrastructure spending globally. Longer term, decarbonization initiatives and infrastructure upgrades remain on the agenda, which bodes well for metal demand even as rising resource nationalism, higher wage demands, higher energy prices and more stringent ESG criteria serve to elevate supply risks.”

Mr. Baretto made a pair of upgrades to stocks in his coverage universe:

1. Citing “ongoing strength in the coking coal price, line of sight to first production from QB2, potential to re-rate the shares via partial or full sale of the company’s carbon-intensive portfolio components, and the 30-per-cent implied return to [his] new target price,” he raised Teck Resources Ltd. (TECK.B-T) to “buy” from “hold” with a $48 target, jumping from $36 and above the $42.71 average.

“TECK.B shares outperformed peers in 2021, returning 58 per cent vs. the peer group average of 29 per cent,” he said. “This outperformance appears to have been driven largely by met coal pricing climbing to record levels over H2/21; operational performance was largely neutral, and the company faced a number of headwinds including a strong CAD, hiccups at the large QB2 copper project, and weather-driven logistics issues in BC. Looking ahead to 2022, we believe TECK.B’s share price will largely be a function of two factors: Met coal pricing and progress on QB2.”

“A key market focus early in 2022 will be TECK’s supplemental disclosure along with its Q4/21 results in February. In particular the market will likely look to see if initial production guidance will be provided for QB2 over the typical 3-year time frame; in addition, we expect investors to look for a special dividend of some kind given the windfall from elevated met coal prices in H2 2021. A wild-card positive catalyst could be a divesture of at least a portion of either of the fossil fuel businesses.”

2. In response to a pending restructured economic agreement with the Mongolian Government over the Oyu Tolgoi copper-gold mine, he raised Turquoise Hill Resources Ltd. (TRQ-T) to “hold” from a “sell” recommendation and increased his target to $21 from $12.50. The average is $16.14.

“TRQ performed reasonably well in 2021, returning 31 per cent over the year vs. the base metal producer peer group average of 29 per cent,” said Mr. Baretto. “We note a number of major negative updates over the year, including significant COVID-19 impacts on operations and more importantly, material delays and funding gap increases to the Hugo North Lift One project as negotiations with the Government of Mongolia on a revised economic sharing agreement drag on. TRQ enters 2022 mired in uncertainty. Key to the path forward remains an agreement with the Mongolian Government, with the net economic value of the project to TRQ shareholders hanging in the balance. Once an agreement is approved, funding questions still remain, although at this point we view this as almost a formality. Once the undercut is initiated, questions as to whether the rock will cave as anticipated remain, and the spectre of COVID-19 overhangs everything. We note that these are just the uncertainties at the asset level; at the corporate level, the disputes between the GoM, TRQ and RIO have yet to be resolved.”

Mr. Baretto also made these target changes:

  • Capstone Mining Corp. (CS-T, “buy”) to $8.50 from $9. Average: $7.73.
  • Ero Copper Corp. (ERO-T, “buy”) to $25 from $28. Average: $29.09.
  • Filo Mining Corp. (FIL-T, “speculative buy”) to $17 from $15. Average: $14.35.
  • First Quantum Minerals Ltd. (FM-T, “buy”) to $37 from $35. Average: $34.37.
  • Hudbay Mining Corp. (HBM-T, “hold”) to $12 from $13. Average: $11.67.
  • Ivanhoe Mines Ltd. (IVN-T, “buy”) to $14 from $13.50. Average: $12.31.
  • Lundin Mining Corp. (LUN-T, “hold”) to $11 from $10. Average: $11.67.
  • Trevali Mining Corp. (TV-T, “hold”) to $1.75 from 20 cents. Average: $2.75.
  • Titan Mining Corp. (TI-T, “hold”) to 65 cents from 70 cents. Average: 70 cents.

“Our preferred commodity exposure remains copper,” he said. “Given significant macro uncertainty, we prefer equities with clear growth trajectories and potentially meaningful positive catalysts in 2022. Our top picks for 2022 (unchanged from 2021) are: CS, where we believe the consummation of the Mantos merger and subsequent market insight into the deal rationale and synergies will result in a re-rating of the share price; IVN, where the ongoing ramp-up of Kamoa-Kakula coupled with an expanded Phase 3 plan and drill results from the Western Forelands should be meaningful tailwinds for the share price; FIL, where new drill results and a maiden resource for the high-grade sulphide core coupled with ongoing strategic movements by the Lundin family toward the longerterm future of the district should support the share price in 2022.”

Meanwhile, Canaccord’s Tania Gonsalves bumped up her target for shares of Arizona Sonoran Copper Company Inc. (ASCU-T) to $3 from $2.75. The average is $3.15.


CIBC World Markets analyst Stephanie Price sees strong fundamentals in the technology sector, expecting accelerating demand for digitization and cloud solutions.

“After a four-year run of technology stocks significantly outperforming broader markets, returns in the sector underperformed the TSX in 2021, with the TSX Info Tech Index returning 16 per cent in the year versus the overall TSX at 22 per cent,” she said. “With higher inflation expected to pull forward the timing of key central bank rate hikes, there was downward pressure on the higher-growth technology names at the end of the year, pressure that is likely to continue into 2022. Further, many of the individual equities whose share prices benefitted most from the pandemic in 2020 were tech names that experienced some level of price correction in 2021.”

However, citing a lack of near-term catalysts, Ms. Price lowered her rating for Information Services Corp. (ISV-T) to “neutral” from “outperformer” with a $30 target, down from $35.50. The average on the Street is $34.30.

She also made these target changes:

  • Constellation Software Inc. (CSU-T, “outperformer”) to $2,900 from $2,400. Average: $2,456.51.
  • Docebo Inc. (DCBO-T, “outperformer”) to $102 from $125. Average: $119.
  • Enghouse Systems Ltd. (ENGH-T, “outperformer”) to $58 from $69. Average: $63.
  • Lifeworks Inc. (LWRK-T, “outperformer”) to $36.50 from $38. Average: $34.40.
  • Q4 Inc. (QFOR-T, “outperformer”) to $14.50 from $17. Average: $15.36.
  • Softchoice Corp. (SFTC-T, “outperformer”) to $37.50 from $40. Average: $34.29.
  • Telus International Inc. (TIXT-N/TIXT-T, “outperformer”) to US$48 from US$45. Average: US$39.85.

“After a mixed 2021 for technology names, we expect many of that year’s key themes to persist in 2022,” she said. “We expect rising rates to continue to impact technology valuations, with many firms seeing tougher Y/Y comparisons. That being said, we expect the fundamentals of the technology market to remain solid, with accelerated cloud spending continuing to benefit SaaS providers and strong cash balances being put to use in a more attractive M&A valuation environment. Our top picks for 2022 include a SaaS name at an attractive valuation (KXS) and more defensive, mature software names (Constellation, CGI).”


Credit Suisse analyst Andrew Kuske thinks Vancouver-based Mercer International Inc. (MERC-Q) is “favourably positioned” as a large northern bleached softwood kraft producer (NSBK).

However, he warned “pulp pricing movements require nimble trading – especially in a COVID-19 environment,” leading him to lower his rating for its shares to “neutral” from “outperform” absed on a limited return to his target and warning of “near-term potential headwinds.”

“Around the Q3 results release in late October, Mercer International (MERC) traded near the US$10 per share mark that translates into a high-teens capital return to the current levels,” said Mr. Kuske. “The combination price performance, near-term weather issues in British Columbia, logistics and market specific factors, we downgrade MERC ... and maintain the US$12.50 Target Price. As with some others in the sector (and more broadly), we expect ‘noise’ with upcoming results associated with the past weather impacts (see Surveying the State of Emergency; Selected Impacts from the British Columbia Flooding). That dynamic combined with some macro concerns about the pace of economic recovery in China (a large sales channel for MERC), we look for a better risk-reward relationship for MERC stock positioning with a greater excess return that may be possible with an improved longer-term outlook.

“Rather positively, in our view, MERC continues to tactically and strategically position the company for growth as recently evidenced by the purchase of a cross-laminated timber facility (now called Mercer Mass Timber). An area to watch is the Canadian Competition Bureau’s focus on a competitor’s forced divestiture of a pulp mill in Kamloops, BC. Putting these issues aside, pulp markets remain in focus amidst a rather dynamic and uneven economic recovery in selected markets.”

His US$12.50 target is 10 US cents higher than the current average on the Street.


CIBC World Markets analyst Hamir Patel says he’s becoming “more constructive” on the medium-term outlook for wood product prices heading into 2022, seeing “housing markets remain strong and supply constrained (limiting the threat of rising mortgage rates), while prolonged work from home in coming months could support another year of robust R&R demand.”

In a research report released Monday, Mr. Patel raised his earnings before interest, taxes, depreciation and amortization (EBITDA) forecasts for commodity wood names in 2022 and 2023 by almost 50 per cent and 20 per cent, respectively, to reflect higher medium-term pricing assumptions after increasing his lumber price forecasts through next year.

“We see limited risks of unexpected supply additions given lengthy equipment vendor lead times, labour constraints in the South (made worse by Omicron) and potential for accelerated industry supply rationalization in B.C. as government reconciliation, Caribou and old-growth protection initiatives advance,” he said.

Citing “significant” free cash flow generation in a stronger lumber market, Mr. Patel raised his rating for a pair of companies in his coverage universe.

He upgraded Resolute Forest Products Inc. (RFP-N/RFP-T) to “outperformer” from “neutral” with a US$19 target, rising from US$14. The average on the Street is $17.75.

Mr. Patel also raised West Fraser Timber Co. Ltd. (WFG-T) to “outperformer” from “neutral” with a target price of $150, up from $120 and above the $117.35 average.

He also made a series of target price adjustments, including:

  • Canfor Corp. (CFP-T, “outperformer”) to $44 from $36. Average: $42.67.
  • Canfor Pulp Products Inc. (CFX-T, “neutral”) to $7 from $8. Average: $8.20.
  • Cascades Inc. (CAS-T, “neutral”) to $15 from $17. Average: $18.71.
  • Conifex Timber Inc. (CFF-T, “neutral”) to $2.75 from $2.50. Average: $2.92.
  • Doman Building Materials Group Ltd. (DBM-T, “outperformer”) to $10 from $9. Average: $9.92.
  • Hardwoods Distribution Inc. (HDI-T, “outperformer”) to $60 from $59. Average: $68.40.
  • Interfor Corp. (IFP-T, “neutral”) to $46 from $36. Average: $46.83.
  • Intertape Polymer Group Inc. (ITP-T, “outperformer”) to $36 from $38. Average: $38.94.
  • Mercer International Inc. (MERC-Q, “outperformer”) to US$15 from US$14. Average: US$12.40.
  • Richelieu Hardware Ltd. (RCH-T, “neutral”) to $49 from $48. Average: $48.67.
  • Western Forest Products Inc. (WEF-T, “neutral”) to $2.25 from $2. Average: $2.58.
  • Winpak Ltd. (WPK-T, “neutral”) to $42 from $43. Average: $46.38.

“Our top pick among wood/building names is Hardwoods, a well-managed specialty distributor with levers to drive margin expansion and continued M&A growth,” said Mr. Patel. “In commodity wood products, our preferred name remains Canfor, though we also now recommend West Fraser and Resolute. We remain on the sidelines on Interfor (due to valuation) and Neutral on Western FP (given continued fiber uncertainty on the B.C. Coast). In the building/infrastructure space, our Outperformer names include Stella-Jones (benefiting from strong pole demand) and Doman (high-growth U.S. treated lumber platform). On the paper and packaging side, we favor CCL, a high-quality name with significant M&A potential. We continue to favor Intertape given healthy e-commerce/housing trends (combined 37% of its end markets) and Mercer (pulp/lumber play).”


BMO Nesbitt Burns analyst Étienne Ricard thinks the valuation of Guardian Capital Group Ltd.’s (GCG-T) Investment and Wealth Management businesses is “disconnected from earnings potential, providing a favourable risk-reward and total return potential on the stock.”

Accordingly, he initiated coverage of the financial services company with an “outperform” recommendation on Monday.

“Fundamentally, Guardian has delivered long-term double-digit top-line CAGR, underpinned by peer-leading organic AUM [asset under management] growth and compounding scale at IDC WIN [IDC Worldsource Insurance Network Inc.] . In addition, liquidity provides optionality for M&A and increased capital distributions,” said Mr. Ricard.

“We see re-rating potential from: i) improving investor appreciation for IDC WIN; ii) peer-leading organic AUM growth; and iii) declining balance sheet intensity (i.e., continued monetization of BMO (Restricted) shares), with the associated potential for a shrinking holdco discount.”

He set a target of $48 per share, exceeding the $44 average.


National Bank’s Michael Robertson sees “attractive” upside for Pason Systems Inc. (PSI-T), expecting increased activity and earnings growth through next year.

“We roll out our initial 2023 estimates with rig count forecasts mirroring those of our colleagues in Calgary, looking for an additional 8-per-cent increase in North American activity levels over expectations for 2022 (which in turn imply a 25-per-cent-plus improvement over rig count levels seen in 2021),” he said. “Given expectations for rising activity levels we suspect PSI’s operating leverage will deliver year-over-year improvements in EBITDA margins in both 2022 and 2023, partially moderated by inflationary pressures (largely driven by higher labor costs). Our updated forecasts point to 2022 and 2023 EBITDA of $109-million and $126-million, modestly above and below the respective street forecasts.”

“Given Pason’s pristine balance sheet (zero interest bearing debt) and low capital intensity (with modest 2022 capital spending of up to $25-million), we expect significant free cash flow generation in a rising activity level environment in 2022 and 2023, with our updated forecasts implying FCF (after total capex) well in excess of the current dividend ($17-million annually), suggesting ample headroom for a potential dividend increase or a more aggressive NCIB moving forward.”

Mr. Robertson raised his target for Pason shares to $14.50 from $12.25, keeping a “sector perform” rating. The average on the Street is $14.67.

“We previously highlighted expectations for PSI to trade at a discount to historical valuation levels (given what we view as a lower long-term North American rig count ceiling relative to pre-pandemic levels) and while PSI’s recent forward year EV/EBITDA multiple has come in below what we viewed as a more conservative estimate, in light of expectations for a multi-year upswing in activity levels and EBITDA generation we see significant upside even with a more conservative multiple,” he said.


Desjardins Securities analyst Chris Li thinks three things have to happen for Freshlocal Solutions Inc. (LOCL-T) to see an improvement in its share price: “(1) remove balance sheet uncertainty; (2) achieve profitable e-grocery growth; and (3) execute and expand on the FoodX partnership with Carrefour in Europe and sign new FoodX customers.”

After coming off research restriction following the completion of the Vancouver-based company’s $13.9-million convertible debenture offering, Mr. Li thinks the $23-million in funding it has secured should support growth through this year. However, he thinks additional assistance will be need for 2023, suggesting the sale of Blush Lane could provide flexibility.

He expects Freshlocal’s fourth-quarter results to show improvement in customer retention and an increase to average order sizes, which he calls “two key elements for profitable growth.”

“Top priority is to execute and expand on its FoodX SaaS-based eGMS (e-grocery management system) partnership with Carrefour in Europe,” he said. “If successful, this should be an important proof of concept, which LOCL can leverage to sign new customers— an important long-term share price catalyst. LOCL plans to sign new FoodX customers by shifting from a whole solutions approach to a focus on its highest value-added services and technology capabilities.”

With a “buy” rating, he reduced his target for the company’s shares to $3.25 from $5, citing a lower long-term FoodX revenue forecast. The average on the Street is $2.53.

“Our Buy rating is predicated on LOCL strengthening its balance sheet, achieving profitable e-grocery growth and signing new FoodX customers,” he said.


Canaccord Genuity analyst Katie Lachapelle sees Aclara Resources Inc. (ARA-T) as “a compelling investment for investors looking for exposure to rare earths.”

The Vancouver-based development-stage company possesses 451,585 hectares of mining concessions located in Chile and is initiating development of its resources through a 600-hectare project called the Penco Module. It completed its initial public offering in early December.

“Aclara’s project represents one of the only scalable and sustainable sources of heavy rare earths outside of China, and we expect the value of the project to grow as it is optimized and de-risked over the next 24 months,” said Ms. Lachapelle. “In addition, we believe the company’s large land package offers significant exploration and development upside.”

Seeing the transition for clean energy driving a demand for rare earth elements, she initiated coverage with a “speculative buy” rating and $2 target. The average on the Street is $2.13.


In other analyst actions:

* In a fourth-quarter earnings preview for the precious metals sector, RBC Dominion Securities analyst Josh Wolfson made a trio of target changes: Franco Nevada Corp. (FNV-N/FNV-T, “sector perform”) to US$140 from US$135; Osisko Gold Royalties Ltd. (OR-N/OR-T, “outperform”) to US$13 from US$14 and Sandstorm Gold Ltd. (SAND-N/SSL-T, “underperform”) to US$6.50 from US$7. The averages on the Street are US$147.32, US$13 and US$9.79.

* After the acquisition of a pair of Honda dealerships in Quebec and a parcel of land in British Columbia National Bank Financial analyst Tal Woolley increased his target for units of Automotive Properties Real Estate Investment Trust (APR.UN-T) to $15.50 from $14 with an “outperform” rating, seeing “room for valuation upside.” The average is $14.52.

“APR is among the least levered REITs in our coverage universe, so it has financial resources to complete more deals such as this (pro forma leverage will be in the mid-6x range on our forecasts),” he said. “The business has also proved operationally and financially resilient during the pandemic. The global chip shortage has hurt the supply chain for new cars. As a result, we suspect that is where dealers’ focus has been of late. We believe we are seeing and will continue to see some cap rate compression in APR units (similar to what has been seen over time with favoured areas of retail like grocery-anchored centres), given the steady growth and operating performance, low leverage and strong institutional support.”

* Following its acquisition of Eastern Fabricators, Scotia Capital analyst Michael Doumet raised his target for Ag Growth International Inc. (AFN-T) to $39 from $38 with a “sector perform” rating. The average is $46.67.

“While AFN’s leverage ratios remain elevated, we view the acquisition favorably given the attractive deal metrics and positive underlying fundamentals in the Food platform,” said Mr. Doumet. “While some uncertainty remains as far as the bin failure incident goes (and what it means for the potential cash outlay), we expect a significant improvement in the company’s FCF generation in 2022 (and beyond) given the (i) expanding profitability, (ii) favorable w/c trends (including softening steel prices) and (ii) that majority of the remediation work has been paid for.”

* Scotia’s Mark Neville increased his CCL Industries Inc. (CCL.B-T) target to $82 from $80 with a “sector outperform” rating. The average is $80.89.

“The company has been very active on its M&A program, completing six acquisitions since the end of Q3 – including [Friday’s] acquisition of McGavigan Holdings, a supplier of ‘in mould’ decorative components for automotive interiors for $105.5 million (the largest of the six),” he said. “The individual acquisitions aren’t overly materially in size, but they add up: combined total consideration amounts to approximately $267 million (or approximately 2 per cent of CCL.b’s EV). The acquisitions also look to be highly accretive, with the estimated combined purchase multiple at approximately 6.5 times LTM [last 12-month] EBITDA vs. CCL.b trading at 10.6 times our 2022 estimate. We’re encouraged with the pace of M&A and look forward to additional deals, with CCL’s leverage sitting at less than 1.1 times at the end of Q3/21 and the company having more than $2 billion of liquidity.”

* Barclays analyst Duffy Fischer raised his Nutrien Ltd. (NTR-N, NTR-T) target to US$84 from US$80 with an “overweight” rating. The average on the Street is US$80.88.

“NTR should finish the year at the upper end of its 2021 EBITDA guide ($6.9-7.1-billion),” he said. “The company’s Retail business is likely ahead of its topend guide given strong Fall fertilizer application as the warm weather provided a widened window and demand remained robust. Volumes in N + K are expected within guided ranges, but at low end due to weather (flooding/cold). Higher than expected pricing should offset. 2022 Outlook - consensus to come up: Ag macro looks strong as crop prices remain high and farmer profitability robust. NTR’s strong retail business highlights our view that the demand destruction argument remains overblown and farmers will continue to optimize yields with input decisions - similar commentary from CF in December. We see only 2 negatives for NTR in ‘22: a) N prices look unsustainably high; and b) ag retail made money on the carry-trade in ‘21, which likely won’t repeat. That said, the start point for ‘22 is so strong that we are taking up our #s significantly and believe consensus will have to follow (we increase our 2022 EBITDA estimate by 15 per cent to $9.7-billion vs. current consensus of $8.8-billion).”

* CIBC World Markets analyst Nik Priebe raised his target for Trisura Group Ltd. (TSU-T) to $61 from $58 with an “outperformer” rating. The average is $57.64.

“We have been promoting Trisura as our top pick ... We believe consensus expectations for premium growth and earnings are conservative, and that the momentum in E&S markets continues unabated,” said Mr. Priebe.

* Morgan Stanley analyst James Faucette raised his target for Telus International Inc. (TIXT-N, TIXT-T) to US$34 from US$33, below the US$39.85 average, with an “equal weight” rating.

“Amidst the challenging global labor supply environment, management continues to reiterate its focus on pursuing profitable business opportunities, reinforcing our view that the path to an above-peer multiple is via mix shift toward higher-value digital solutions, which is critical to diversifying exposure away from lower-margin contact center work,” he said. “That said, we continue to expect TIXT to benefit from existing higher-growth capabilities such as content moderation and data annotation. Consolidated sequential revenue growth of 4.3 per cent in TIXT’s most recent quarter (3Q21) was largely in line with below-peer sequential headcount growth of approximately 4% (ex. contractors), with management characterizing the labor market as “going to get harder every day.” TIXT’s relatively muted hiring relative to that of others in our coverage helps inform our preference toward companies in our coverage with both better digital exposure and more robust recruiting abilities, particularly given the elevated demand environment for digital transformation enablement.”

* Piper Sandler analyst Brent Bracelin cut his target for Shopify Inc. (SHOP-N, SHOP-T) to US$1,400 from US$1,650 with an “overweight” recommendation. The current average is US$1,674.27.

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