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

Scotia Capital analyst Ben Isaacson expects the Russia-Ukraine conflict to lead to “materially higher” in earnings for North American fertilizer companies in 2023 and 2023.

However, he currently sees little upside to their equities.

“It’s hard to see continued outperformance near-term,” said Mr. Isaacson, who downgraded both Saskatoon-based Nutrien Ltd. (NTR-N, NTR-T) and CF Industries Holdings Inc. (CF-N) to “sector perform” recommendations from “sector outperform” in a research note released Monday.

“Are the good times over? No, we don’t think they are. However, from a risk-adjusted point of view, we don’t see a lot of upside to the equities based on, what some may call, slightly aggressive price deck revisions (both Scotia ‘22/23 and mid-cycle). The ROR on all but one of our names is now less than 10 per cent.”

The analyst hiked his target for Nutrien shares to US$118 from US$90. The average on the Street is US$104.69, according to Refinitiv data.

His CF target rose to US$118, above the US$93.58 average, from US$81.

“The only remaining fertilizer producer we believe investors should continue accumulating is K+S,” said Mr. Isaacson. “We would not be surprised to see the North American equities pull back a little in the summer, especially if/when prices begin to roll over following the spring demand surge (panic). In other words, we see better entry points for CF, MOS, and NTR later in the year. For North American investment mandates, NTR remains our preferred name.”


Seeing “significant” tailwinds for U.S. contract drilling, Stifel analyst Cole Pereira upgraded Ensign Energy Services Inc. (ESI-T) to “buy” from “hold.”

On Monday, the firm increased its U.S. rig count forecasts by 10 per cent in 2022 to 701 and 13 per cent in 2023 to 783. Its Canadian rig count forecasts increase by “a more modest” 5 per cent in 2022 to 154 and 2 per cent in 2023 to 162.

“In the near term we view U.S. drilling and drilling-related services as having the most upside, driven by: (1) a large proportion of private operators (55 per cent of the current rig count) not beholden to capital discipline; (2) the material decline in DUC inventories to levels not seen since 2014, requiring incremental rigs to keep production flat; and (3) the reintroduction of some modest growth capital,” said Mr. Pereira. “Additionally, if a change in North American energy security were to occur, we view U.S. shale as the best positioned to address that incremental demand. Beyond the activity outlook, Ensign and its U.S. focused peers have also highlighted that a tightening supply of high-spec rigs is putting significant upward pressure on day-rates. Commentary from the U.S. drillers has been that day-rates have moved up to US$25,000 per day in 1Q22E from US$20,000 per day in 4Q21 and could move as high as US$30,000 per day by late 2022/early 2023 as the excess high-spec rig capacity is exhausted.”

With that view, Mr. Pereira raised his EBITDA forecast for Ensign by 7 per cent in 2022 and 14 per cent in 2023, leading him to increase his target for its shares to $4 from $2.75. The average is $3.69.

“We acknowledge that ESI has a higher relative risk profile given elevated leverage levels and its $3 mm of credit facility capacity exiting 2021, but we believe this is mitigated by the meaningful sector tailwinds, which should drive significant debt reduction over the next few quarters and years,” he said.


National Bank Financial analyst Cameron Doerksen expects BRP Inc.’s (DOO-T) positive momentum to continue after its fourth-quarter 2022 financial results and fiscal 2023 guidance exceeded the Street’s estimates, seeing its shares trading at near-trough valuation levels that “seem to already reflect an expectation of a significant slowdown in the powersports market.”

“BRP will continue to face supply chain issues in the coming quarters, but we believe these challenges as well as concerns over potential end market softness (that has yet to materialize) are already reflected in the share price, and we remain positive on BRP’s longer-term prospects,” he said in a research note.

On Friday, the Valcourt, Que.-based recreational vehicle maker soared 9.3 per cent following the premarket earnings release.

Revenue jumped 29 per cent year-over-year to $2.348-billion, topping both Mr. Doerksen’s $2.190-billion estimate and the consensus forecast of $2.282-billion. Adjusted earnings per share of $3 also blew past projections ($2.50 and $2.53, respectively), despite North American retail sales falling 7 per cent due largely to supply chain constraints.

Its guidance also surprised with revenue expected to rise 24-29 per cent to $9.494-$9.866-billion, above Mr. Doerksen’s $8.642-billion forecast. Full-year EPS is $10.75-$11.10 (up 8-12 per cent), also higher than his previous estimate ($10.06).

“Given higher energy costs, rising interest rates and geopolitical uncertainty, concerns over a potential slowdown in powersports demand have risen in recent months,” he said. “However, BRP is not seeing any signs of weakening demand noting that its February North American retail sales were the best for the month on record. Furthermore, BRP’s pre-season PWC commitments are up more than 25 per cent compared to the record last year while snowmobile spring unit bookings are up over 100 per cent versus last year’s record. BRP’s just-launched Sea-Doo Switch pontoon is effectively sold out for the season while off-road pre-order levels are also elevated.”

“Even if retail slows, we note that BRP’s dealer inventory is still down 60 per cent versus two years ago which will drive inventory restocking demand starting late in F2023 or early F2024, depending on the normalization of supply chains. Management pegs the restocking wholesale revenue opportunity at roughly one quarter’s worth of revenue, so this will be a strong tailwind through our forecast period.”

Mr. Doerksen now expects BRP’s “aggressive new product rollout to drive further market share gains” and sees the launch of its new all-electric 2-wheel motorcycle as a significant growth driver in the years to come.

“Entering this market segment makes sense for BRP in our view as the company already has a successful 3- wheel on-road franchise, a strong brand, an established dealer network and large manufacturing footprint,” he said. “BRP has announced few details, but the initial models are expected to address a current market segment that totals 600,000 units a year and management believes that ultimately, the EV motorcycle can be at least a $500 million annual revenue business.”

Maintaining an “outperform” recommendation for BRP shares, Mr. Doerksen raised his target to $136 from $124. The average on the Street is $136, according to Refinitiv data.

Others making target changes include:

* Desjardins Securities’ Benoit Poirier to $154 from $150 with a “buy” rating.

“We are very pleased with the execution demonstrated by management to drive profitable growth since the beginning of the pandemic. We recommend investors revisit the story ahead of the launch of the updated FY25 plan in June,” he said.

* Canaccord Genuity’s Derek Dley to $136 from $130 with a “buy” rating.

“In our view, BRP is well positioned to capture additional market share in a growing powersports market as it continues to introduce new products and extends its reach into complementary product lines,” he said.

* CIBC World Markets’ Mark Petrie to $124 from $114 with an “outperformer” rating.

“The F2023 outlook is strong, even with caution built in around supply chain uncertainty. Consumer demand remains robust and pre-orders are at record levels for summer and winter 2022. The market is cautious on discretionary and big-ticket, but we believe BRP is well-positioned to lead the industry and shares represent compelling value,” said Mr. Petrie.

* Scotia Capital’s George Doumet to $133 from $125 with a “sector outperform” rating.

* Canaccord Genuity’s Derek Dley to $136 from $130 with a “buy” rating.

* TD Securities’ Brian Morrison to $125 from $115 with a “buy” rating.


A lack of supply and recovering immigration levels are likely to “intensify” housing and rental price growth, according to iA Capital Markets analyst Johann Rodrigues upon resuming coverage of the Canadian Multi-Family Real Estate sector.

“The principal phenomenon driving soaring home prices and rising rent growth is the Great White North’s dire lack of supply,” he said in a research report released Monday. “There are only 424 housing units for every 1,000 people, the lowest among G7 countries, with 1.9 million homes needed just to meet the average. Except for Montreal, the number is lower across all large population centres (more than 1 million), with Toronto (386) the most pronounced. Canada’s population is simply growing faster than it can build. Despite COVID, Canada’s population still grew 5.2 per cent (1.8 million to 38 million) over the last five years, almost double the pace of the other G7 countries. Roughly 75% of growth comes via immigration. Immigration numbers, including the all-important foreign student, have bounced back and are headed for new all-time highs, with 432K new permanent residents set to be admitted this year as the government works through the 1.8 million immigration backlog. We believe that the rising population weighed against a growing housing deficit is driving a golden decade (on either side of the pandemic) for multi-family stocks that we’re not yet halfway through.”

The analyst emphasized “it is a myth that investors cannot make money in real estate stocks when rates are rising,” adding: “The trick is to migrate into shorter duration real estate. In the last 20 years, there have been six distinct periods of sustained rising rates (200+ days) and while the TSX Capped REIT Index lagged the broader market (12 per cent vs. 30 per cent on average), short duration real estate (less-than 4-year WALTs) almost tripled the performance of long duration peers (more than 8-year WALTs) and Multi-Family (31 per cent) was the top performing asset class, and the only one to outperform the TSX.”

Mr. Rodrigues also thinks “political theatre” has weighed on equities exposed to the sector recently, however he sees investing opportunities emerging.

“With the upcoming Ontario election and Trudeau’s promise to tackle the ‘financialization of the housing market’ front and centre after the Liberal and NDP agreement, Ontario apartment names have sunk 5 per cent to begin the year (vs. flat Capped REIT Index) ... but the long and short of it is that we believe ‘selling the rumour’ has gone too far and the names will likely bounce as we make our way towards June,” he said.

He resumed the firm’s coverage of seven equities with “buy” recommendations on Monday:

* Boardwalk Real Estate Investment Trust (BEI.UN-T) with a $65 target. The average on the Street is $62.68.

“2021 was a helluva ride for the stock, as Boardwalk was the best performing multi-family REIT and the fifth-best performing real estate company overall, posting a 66-per-cent total return (vs. 35 per cent for the TSX Capped REIT Index). We believe that momentum will continue this year, especially as Boardwalk works to surpass its pre-oil crash peak. There’s still good upside in this name,” he said.

* BSR Real Estate Investment Trust (HOM.U-T) with a US$25 target. Average: US$23.33.

“As a result of the dramatic shift in asset and growth profile, historical valuations are less relevant. However, based on management’s guidance, BSR is poised to put up SPNOI, FFO, and NAV growth that will likely lead both the Canadian and US multi-family sectors while still trading at a relative discount,” he said.

* Canadian Apartment Properties Real Estate Investment Trust (CAR.UN-T) with a $65 target. Average: $67.53.

“Despite strong underlying fundamentals and growth forecasts, CAPREIT is trading at a rare discount to historical levels on both a NAV and AFFO multiple basis. The blue-chip, which has historically traded at a 3-per-cent NAV premium, currently sits at a negative 10-per-cent discount to our NAV. Meanwhile, while the REIT is trading in line with its five-year AFFO multiple average (24.4 times), it’s at a negative 0.5-times multiple discount to the multi-family peer group when it has historically traded at a 0.5x premium. When an opportunity to pick up this REIT bellwether at a discount presents itself, we believe investors should act before it returns to its warranted premium,” he said.

* European Residential Real Estate Investment Trust (ERE.UN-T) with a $5.50 target. Average: $5.73.

“ERES not only trades at the largest NAV discount (13 per cent) of any TSX-listed multi-family REITs (negative 6-per-cent average), it’s also the most attractive from an AFFO multiple basis (19.7 times 2023 AFFO vs. 23.7-times average),” he said. “Considering the REIT should put up better-than-average FFO growth (10 per cent vs. 8 per cent) and NAV growth (8 per cent/6 per cent), we think ERES makes for one of the most compelling risk/reward plays in the space.”

* InterRent Real Estate Investment Trust (IIP.UN-T) with a $20 target. Average: $19.71.

“InterRent’s impressive outperformance is not simply a historical story, the REIT is poised to put up growth going that also leads the Canadian-based multi-family group going forward. Over the next two years, InterRent should generate an average of 5-per-cent SPNOI growth, 13-per-cent FFO per unit growth, and 8-per-cent NAV per unit growth, all almost double the peer average. Given that, the stock should outperform, and a stock that outperforms its multi-family peers (when we think the asset class should outperform broader REITs) is a must-own name to us,” he said.

* Killam Apartment Real Estate Investment Trust (KMP.UN-T) with a $25 target. Average: $25.94.

“Atlantic Canada is as hot as anywhere in Canada right now, with stellar economic and population growth,” he said. “Killam has done an excellent job steering through the pandemic without sacrificing NOI and asset value. With fears surrounding the Ontario election weighing on peers, it could end up being the best performer in 2022 and we suggest being along for the ride.”

* Minto Apartment Real Estate Investment Trust (MI.UN-T) with a $26 target. Average: $27.36.

“Investors have a rare chance to pick up Canada’s highest-quality apartment portfolio at a rare discount. We wouldn’t suggest missing out,” he said.


IA Capital Markets analyst Gaurav Mathur thinks the industrial and logistics sector is “moving into a higher gear than ever witnessed,” leading rental rates to continue to “march upwards,” supply pipelines to tighten and the continued compression of cap rates.

In a research report released Monday, he initiated coverage of the Canadian Industrial Commercial Real Estate (CRE) sector, emphasizing its demand drivers are becoming “stronger” than other asset classes.

“With rent growth exceeding expectations in many markets globally, amid tightening supply, investors in the direct CRE sector have rewarded the sector with steady cap rate compressions,” said Mr. Mathur. “Based on our analysis, we believe that the Canadian industrial REITs in our coverage have a larger growth runway than previously understood by the Street. Of note, the focus on markets with an asymmetric risk-reward ratio among management teams has now begun to permeate into individual growth strategies.

“We believe that the process of price discovery continues to occur for the Canadian industrial REITs in our coverage. In our view, segments of the CRE market that have witnessed acquisition activity support our belief that private real estate values have been more than stable and are moving higher in many instances. While the primary Canadian industrial markets such as Toronto and Vancouver will continue to strengthen, markets such as Montreal, South Western Ontario (SWO), and Calgary are expected to illuminate the growth path ahead. Adding select industrial markets in the US and Europe to this mix, which when combined, result in new runways for growth for the Canadian industrial REITs in our coverage.”

The analyst sees the “tightness” of demand in major Canadian markets as a persistent theme, calling industrial assets a “relative winners of the global demand shocks created by the COVID-19 pandemic.” He also thinks other sources of supply in secondary and tertiary markets are “mostly spoken for.”

Concurrent with his report, Mr. Mathur resumed the firm’s coverage of a pair of equities:

* Calling it “an underrated asymmetric risk-reward story,” he gave Dream Industrial Real Estate Investment Trust (DIR.UN-T) a “strong buy” recommendation and $19.50 target, narrowly below the $19.69 average on the Street.

“Overall, we view DIR.UN as an undervalued industrial total return growth story for REIT investors focused on gaining exposure to the opaque European and Canadian industrial CRE sector,” he said. “DIR.UN offers investors an attractive mix of (1) growing industrial assets in Europe and Canada with significant mark-to-market rent appreciation potential, (2) focused capital deployment on acquisitions and developments across Europe and Canada, (3) attractive cost of capital based on swapping higher Canadian interest rate debt with lower cost Euro debt, and (4) an attractive dividend profile (4.4-per-cent yield).”

* Referring to Nexus Industrial Real Estate Investment Trust (NXR.UN-T) as “a strong organic total return growth story in the Canadian Industrial sector,” he also gave it a “strong buy” recommendation with a $15.50 target. The average is $14.76.

“The REIT’s graduation to the TSX last year has increased its exposure among new institutional investors, both domestic and foreign, and improved its trading liquidity,” said Mr. Mathur. “Based on our conversations with the buy-side, we note the rise in investor interest globally as investors seek a compelling total return thesis focused on the Canadian Industrial CRE market.”


In a separate report, Mr. Mathur initiated coverage of the Canadian Downtown Office Commercial Real Estate (CRE) sector, projecting the market to “continue to strengthen” in 2022 and emphasizing a “flight to quality.”

“The combination of secular headwinds, cyclical supply-demand impacts, structural changes amid work-from-home (WFH), and investor wariness can potentially lead to a significant loss in the value of office buildings,” he said. “These apparent threats have been extensively highlighted in the media (painting doomsday scenarios on the death of the office), while at the other end, office owners have been asking tenants to re-enter their assets. As is often the case, reality lies somewhere between the two scenarios.

“We believe that while there are many attributes that make a difference to tenants, the ones that matter the most – well-located modern buildings that are close to transit lines – are expected to remain top of mind for most tenants in the Canadian Downtown Office market. At the same time, we caution that this does not mean that all older buildings are doomed, but that they will need to include more amenities and upgrades. From an investor’s perspective, the net result will be higher capital expenditures when underwriting older and some newer buildings.”

Mr. Mathur resumed the firm’s coverage of Allied Properties Real Estate Investment Trust (AP.UN-T) with a “buy” recommendation, saying he views it as “the secular Canadian Downtown Office total return growth story.”

“The REIT has built a portfolio of strong office assets in the Canadian downtown peripheral markets, which continue to attract tech and creative industry tenants,” he said. “Combined with an attractive development pipeline, the move towards the life sciences sector, and the stringent focus on capital allocation, Allied Properties REIT is strongly positioned to take advantage of the rising tailwinds in the Canadian Downtown Office market.”

He set a target of $53 per unit. The average on the Street is $50.85.

“Overall, we view AP.UN as the strongest Canadian downtown office total return growth story, that is moving from strength to strength,” he said. “AP.UN offers investors an attractive mix of (1) cohesive office portfolio that drives organic growth, (2) additions to FFO as the development pipeline kicks in, (3) further optionality from life sciences tenants, (4) stringent focus on capital allocation, and (5) an attractive dividend profile (approximately 3.8-per-cent yield).”


IA Capital Markets’ Matthew Weekes made a series of target changes in his weekly review of Diversified Industries and Energy companies in his coverage universe.

His changes include:

* Canadian Utilities Ltd. (CU-T, “buy”) to $39 from $38. The average on the Street is $37.59.

“As the value play within the regulated space, we believe that CU is positioned well in an environment where rising interest rates will likely continue to keep overall sector valuations in check. The addition of growth projects to CU’s energy transition strategy focused on non-regulated assets could enhance its growth profile, supporting further valuation expansion relative to peers. However, this will take time,” he said.

* Enbridge Inc. (ENB-T, “hold”) to $57 from $56. Average: $56.45.

* TC Energy Corp. (TRP-T, “hold”) to $72 from $68. Average: $69.02.

“.ENB and TRP are trading essentially in line with one another,” he said. “In the near term, ENB is set to deliver more growth in 2022 with a full year of the Line 3 Replacement being operational as well as the addition of the Ingleside Energy Centre inQ4 last year. However, growth between the two should even out over time, and over the long term, we expect a more favourable growth outlook for gas assets compared to liquids, favouring TRP’s business weighting. Geopolitical events have driven positive sentiment around LNG export development, as European countries seek to secure more supply from outside of Russia. We expect ENB to face uncertainty on Mainline tolls beyond 2022, and potential volume competition from the Trans Mountain Expansion, although that project faces significant cost overruns and delays. We estimate the Mainline will contribute 30 per cent of ENB’s 2022 EBITDA. We view Coastal GasLink construction as TRP’s biggest uncertainty.”

* Pembina Pipeline Corp. (PPL-T, “hold”) to $47 from $46. Average: $46.97.

“We are expecting a strong year for PPL’s Marketing division given high oil prices and frac spreads and volatility, and we should see these impacts in full force in Q1, which is typically a seasonally strong quarter for the Company’s Marketing segment,” said Mr. Weekes. “This is driving our 2022E Adj. EBITDA for PPL above the high end of management’s guidance, and we are currently among the higher of Street estimates for Q1. Our concern for PPL is that the Company’s growth will tail off in the medium-term with a normalization of commodity prices and a limited backlog of growth projects in the core infrastructure business.”

* PrairieSky Royalty Ltd. (PSK-T, “buy”) to $21.50 from $20.50. Average: $20.75.

“We continue to view Royalty companies as a means to gain exposure to the oil and gas sector in a way that also provides natural inflation insulation due to the low cost structure of these businesses. We believe that FRU is well-positioned within the sector given its valuation discount, diversification into the U.S., and leading balance sheet,” he said.


In other analyst actions:

* Seeing “significant growth opportunities at its doorstep as a consolidator of the U.S. SFR [single family rental] home sector,” Raymond James analyst Brad Sturges initiated coverage of Tricon Residential Inc. (TCN-N, TCN-T) with an “outperform” rating and US$18.50 target, above the US$16.84 average.

“The pandemic has accelerated pre-existing migration trends between U.S. states, and accelerating job and population growth within the larger US Sunbelt metropolitan statistical areas (MSAs),” he said. “The steady flow of new residents into U.S. SunBelt MSAs is creating larger affordable housing shortages and providing a longer runway for growth in the SFR housing sector. Tricon suggests that its recent US initial public offering (IPO) may somewhat constrain its 2022 AFFO [adjusted funds from operations] per share growth. That said, Tricon is well capitalized to execute its near-term strategic growth plan. Further, Tricon’s U.S. SFR gain-to-lease AMR growth opportunity has expanded to 20 per cent in recent quarters, supporting solid future organic and AFFO/share growth prospects looking further out.”

* Scotia Capital analyst Himanshu Gupta raised his target for Automotive Properties Real Estate Investment Trust (APR.UN-T) to $15 from $14 with a “sector outperform” rating. The average on the Street is $15.29.

* TD Securities analyst Daryl Young raised his Dentalcorp Holdings Ltd. (DNTL-T) target by $1 to $20, keeping a “buy” rating, while Scotia’s Patricia Baker also bumped her target to $20 from $19 with a “sector outperform” rating. The average is $20.50.

“With 1.7M active patients currently and 4 million visits per year, DNTL is set to see continued outsized growth in the Canadian dental market through its M&A activity, and drive organic growth through operating efficiencies, as well as drive longer term growth with expansion of its proprietary model to other verticals. DNTL noted the current M&A pipeline is strong with more than 150 potential opportunities in advanced discussions, indicating F22 is likely to be a very solid year for DNTL with respect to bolstering its Canadian network via further accretive M&A,” said Ms. Baker.

* Desjardins Securities’ Frederic Tremblay cut his Lassonde Industries Inc. (LAS.A-T) target to $170 from $180 with a “hold” rating.

“4Q results reflected the continuing impact of labour-related issues in the U.S. along with supply chain and inflationary headwinds,” he said. “These challenges are expected to impact Lassonde in 2022, although management expects some relief in 2H22 from price increases and optimization initiatives. While we are encouraged by the launch of new strategic initiatives to accelerate growth and drive margin improvement in the mid- to long term, we remain on the sidelines due to near-term headwinds,” he said.

* CIBC’s Nik Priebe cut his target for Trisura Group Ltd. (TSU-T) to $50 from $61 with an “outperformer” rating. The average on the Street is $57.64.

“We were more surprised by the market reaction to Q4 results than the results themselves,” said Mr. Priebe. “We interpreted the elevated claims activity that drove the miss to be transient in nature with no impact to 2022 or beyond. Specialty lines like Surety tend to demonstrate strong underwriting margins in the long-term, but volatile claims activity in the short-term. Fundamentally, nothing that emerged from Q4 results leads us to believe that earnings should be structurally lower going forward. We continue to like TSU for its strong growth trajectory, healthy underwriting margins and positioning as a specialty insurer benefitting from hard market conditions.”

* CIBC’s Allison Carson lowered her Victoria Gold Corp. (VGCX-T) target to $23, above the $21.30 average, from $24, keeping an “outperformer” rating.

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