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

National Bank Financial’s Rupert Merer was one of several equity analysts on the Street to cut their financial forecast for Boralex Inc. (BLX-T) after the French Senate adopted an amendment to its 2023 budget on the weekend which would set the a price cap on power at €100 per megawatt hour for wind, solar, hydro and nuclear power.

However, he thinks shares of the Kingsey Falls, Que.-based company traded down last week on the prospect for the amendment with the impact largely already priced in.

“This new price cap would replace the E.U.’s proposed €180/MWh cap, which individual member countries had the right to revise by +/- €80/MWh,” he said. “While the E.U. price cap was to become effective on Dec. 1, 2022 (through June 30, 2023), the amendment would make the French cap retroactive to July 1, 2022 and extend its effect through the end of 2023. While the specifics may still be subject to change, we believe the new cap is highly likely to have an impact on revenue for BLX.”

“We were previously modeling a €180/MWh price cap on roughly 400 MW of generation for BLX in France. However, the newly adopted amendment further reduces our estimates for BLX’s French operations.”

With the changes to his model, his fourth-quarter and full-year 2022 proportional EBITDA estimates fell to $203-million and $546-million, respectively, from $234-million and $578-millionm. His 2023 estimate slid to $583-million from $652-million.

Maintaining an “outperform” recommendation for Boralex shares, Mr. Merer trimmed his target to $47 from $48. The average on the Street is $46.92.

“While the lower price cap reduces our estimates, the fact we were not modeling windfall profits over the long term limits the impact on our target,” he said. “However, the drop in future cash flow results in a lower target of $47 per share (was $48 per share) based on a DCF on operating assets with a 6.5-per-cent discount rate and including $8 per share for growth. As our long-term outlook is unaffected, we maintain our Outperform rating.”

Others making changes include:

* Desjardins Securities’ Brent Stadler to $47 from $48 with a “buy” rating.

“In our view, price cap uncertainty was largely priced into the shares,” he said. “With this out of the way, we believe investors should start to focus on BLX’s fundamentals and upcoming catalysts — attractive valuation, solid positioning in key geographies to benefit from the global acceleration of renewables, auctions on the horizon and ample cash for accretive M&A. We are taking a conservative approach to our estimates and believe there is upside to our numbers.”

* RBC’s Nelson Ng to $40 from $42 with a “sector perform” rating.

“The level of revenue upside sharing with the French government for a subset of BLX’s French portfolio has been difficult to gauge, and management has assumed that all of the power price upside received to date will be clawed back. Despite less potential upside in France, the fundamentals of the business remains unchanged, and the company is making good progress on its development pipeline,” said Mr. Ng.

* Credit Suisse’s Andrew Kuske to $36 from $42 with a “neutral” rating.


In a separate note, Mr. Merer said recent contract wins by 5N Plus Inc. (VNP-T) “provide visibility in high-growth and high-margin markets.”

He projects deals with First Solar Inc. (FSLR-Q) and privately owned Sierra Space Corp. could drive about $25-million in high-margin revenue in fiscal 2023 and $60-million in 2024.

“Next year, this growth could be offset by the closure of VNP’s facility in Tilly, Begium, but the Tilly operation is currently a money loser,” he noted. “With this, EBITDA should grow. We are forecasting growth in EBITDA by 38 per cent for 2023 to $44-million with the contribution of high-margin growth and the closure of the Tilly facility.”

Mr. Merer emphasized the Montreal-based producer of specialty semiconductors and performance materials is increasingly active in high-growth markets, noting it is looking to double its production capacity of thin-film solar panels to 16 gigawatts by 2024 “with a strong backlog and growing demand for renewable power.”

“The demand for renewable power is supported by the U.S. Inflation Reduction Act, which provides generous subsidies, and the RePower EU plan which targets growth in solar power to offset a decline in Russian gas supplies,” the analyst said. “VNP is also active in space solar markets, which could see growth of 10 times by 2030E to satisfy the new space race (see next page). VNP reports an increase in bidding activity across the major players in the market, for its germanium-based solar wafers.”

Updating his forecast to include the impact of the closure of its Belgium facility, which he sees as a revenue headwind but inconsequential to EBITDA, Mr. Merer raised his target for 5N Plus shares to $3.75 from $3.25 with an “outperform” rating. The average is $3.40.

“With the improving outlook for VNP as it refocuses its business around high-growth markets, we are increasing our target ... based on a 7 times (was 6 times) EV/EBITDA multiple on our 2023 estimates,” he said “Our 12-month target implies VNP can close the valuation gap with its peers, which are trading at 7x on FY+1 (not accounting for peers with negative EBITDA, which makes our multiple conservative), as it refocuses its business on fast-growing markets. If the company can execute on growth, the market should reward it with a higher multiple.”


Chemtrade Logistics Income Fund (CHE.UN-T) has “earned a re-think from investors,” according to BMO Nesbitt Burns analyst Joel Jackson, raising his recommendation to “outperform” from “market perform” on Monday.

“The investor event didn’t necessarily introduce new strategies/focus, but nicely put together an attractive investment scenario,” he said. “First, record 2022 earnings likely need to reset lower first (though it’s possible record caustic/chlorine prices stay elevated because of higher European energy/electricity prices and Europe becoming a net importer of more chemicals). Second, the water business seems relatively defensive with CHE potentially on the cusp of finally making headway on high-value water treatment products (PACl, ACH, etc.) after finally figuring out a better and safer process (pellets). Third, though the 5-yr growth capital budget is $270-million (with maybe $100-million in 2023E), the expectation is for $45-million/$75-million of new EBITDA by 2025/2027, more than half if from the ultrapure sulphuric acid investments (greater on-shoring of chip fabs), but also from water treatment and green hydrogen.”

Mr. Jackson justified his rating change by pointing to two factors:

* An “attractive” distribution, resulting in a 7-per-cent yield, with “ample cushion.”

“We model EBITDA slipping to $350-360-million levels in 2023/24 from $425-million guidance for 2022 on lower commodity prices though then after these years we assume stabilization, normal growth and the $45-75-million incremental contribution from the growth capital budget,” he said. “This should bring up CHE’s mid-cycle earnings range by the back half of the decade. At $350-360-million, the payout is only sub-50 per cent, and even if EBITDA falls back to 2021 levels ($263-million), the payout would still be well below 100 per cent. All-in leverage in our base case is in the mid-2s.”

* Investors are “paid to wait for mid-term growth opportunities.”

Mr. Jackson raised his target for Chemtrade units to $10.50 from $9. The average is $11.29.


When Alimentation Couche-Tard Inc. (ATD-T) reports its second-quarter fiscal 2023 financial results after the bell on Tuesday, Desjardins Securities analyst Chris Li expects continuing strong fuel margins and healthy merchandise same-store sales growth south of the border.

He’s projecting revenue of US$16.814-billion for the quarter, up from US$14.22-billion a year ago but below the Street’s forecast of US$17.37-billion. Adjusted earnings per share are expected to grow to 84 US cents, matching the consensus, from 65 US cents a year ago.

“We expect sales to benefit from the Fresh Food, Fast (FFF) rollout, inflation, strong growth in private label and effective promotion/localized pricing by leveraging enhanced data analytics, with a partial offset from the continuing decline in cigarettes (pricing and volume pressures) and the illicit market in Canada,” said Mr. Li. “We forecast SSSG of 4.0 per cent/1.5 per cent/-2.0 per cent in the U.S./Europe/Canada. We expect higher spoilage from FFF to impact margins in the U.S.

“We expect ongoing softness in fuel volumes (SSV to decline 3.0 per cent/5.0 per cent/4.0 per cent in the US/Europe/Canada) due to high prices and work-from-home. However, this is more than offset by continuing strong fuel margins, supported by cost pass-through (rational competition) and margin-enhancement initiatives. We forecast a record quarterly fuel margin of US52 cents per gallon in the U.S.”

Raising his 2023 and 2024 EBITDA projections despite declines to his revenue estimates, Mr. Li increased his target for Couche-Tard shares to $69 from $65. The average is $70.49.

“We believe valuation is supported by funds flow to staples that will benefit from an improvement in macro conditions next year, upside to cash flows from fuel margins remaining elevated and value creation from a strong balance sheet (strategic acquisitions and/or share buybacks),” he said. “Management believes rising interest rates and the likelihood of a recession could result in more M&A opportunities at reasonable valuations.”

Elsewhere, National Bank’s Vishal Shreedhar moved his target to $69 from $68 with an “outperform” recommendation.

“Our favourable view on the shares reflects increasing confidence that ATD’s fuel margins will continue to show strength (improvement initiatives), potential for higher deal flow (acquisitions), and an accommodative valuation,” he said.


With Canadian telecom and cable companies providing a reduced level of disclosure on their wireline businesses, Scotia Capital analyst Maher Yaghi thinks “it has become increasingly complicated to really understand what is going on under the hood.”

Regardless, he sees the outlook for the industry as “not terribly rosy.”

“Over the last few years, disclosure by public companies has been reduced when it comes to subscriber metrics and revenues per service,” said Mr. Yaghi in a note released Monday. “On the telco side the split between residential and business NAS was curtailed, and we rarely see how wireline revenue is compiled within the 3 services that they sell in the market (i.e., TV, internet, and phone). On the cable side as well, disclosure has been reduced over time as some companies used to report all three revenue lines by service and separate SMB/Enterprise versus now aggregating reporting to sometimes just one revenue line.

“Periodically, the CRTC provides a compilation of additional visibility on the marketplace and its latest update for the month of October pushed us to review some of our assumptions given how quickly some services are seeing deterioration in economics.”

Mr. Yaghi said both TV and wireline are “now exhibiting trends that could potentially pressure companies with high exposure to these segments to underperform operationally.”

“When combining these trends and a general loss of market share from cable cos to telcos due to FTTH being marketed more aggressively, we forecast a potential worsening of the dynamic in the marketplace ... We highlight the lower exposure of TELUS, Rogers and BCE among the group and believe their higher exposure to wireless as well as other industry segments should provide them with favourable business mix to outperform,” he said.

“We also would like to remind investors of our cautious stand towards broadcasting and radio operations, which we delved into in previous reports as also seeing deteriorating dynamics.”

After reducing his financial projections for the sector, he cut his target for Cogeco Communications Inc. (CCA-T) shares to $90 from $92.50 with a “sector perform” rating. The average on the Street is $91.80.

He maintained his targets and recommendation for these stocks:

  • BCE Inc. (BCE-T) with a “sector outperform” rating and $66.75 target. Average: $66.61.
  • Quebecor Inc. (QBR.B-T) with a “sector peform” rating and $31.25 target. Average: $33.35.
  • Rogers Communications Inc. (RCI.B-T) with a “sector outperform” rating and $71 target. Average: $70.53.
  • Shaw Communications Inc. (SJR.B-T) with a “sector outperform” rating and $39 target. Average: $40.20.
  • Telus Corp. (T-T) with a “sector outperform” rating and $32 target. Average: $33.


RBC Dominion Securities analyst Josh Wolfson said Barrick Gold Corp.’s (GOLD-N, ABX-T) revised five-year forecasts are “negative” to his valuation, pointing to lower-than-anticipated near-term free cash flow while reinforcing upside potential after 2025.

He said the guidance, revealed at its biennial Investor Day event in New York on Friday, has “reset to reflect inflationary pressures and higher capital spending.”

“As compared to prior forecasts, guidance over the prior-issued overlapping 2023-26 period incorporates negative 1-per-cent production, a 14-per-cent rise in total cash costs, and 35-per-cent increase in capital spending,” said Mr. Wolfson. “Cost changes reflects re-sequencing and higher energy prices (WTI forecasts now $90 per barrel in 2023 and $70/bbl long-term, vs. prior flat $60/bbl). High capital spending reflects PV’s [Pueblo Viejo] expansion at $2.1-billion (vs. $1.4-billion prior), a transition to Lumwana owner mining, and green energy project investments.”

“5Y projections outline cost improvements, driven by declining energy prices and volume improvements. AISC [All-in sustaining cost] projections of $1,150 per ounce in 2023 decline to $950 per ounce by 2027 as a result of projected declines in energy prices (from $90/bbl in 2023 to $70/bbl), plus volume upside. Barrick noted that 90 per cent of its cost structure is ultimately driven by US$ input prices, which has represented a headwind in 2022, but where a US$ reversal could improve its cost structure. Barrick projections also forecast a decline in capital spending (from $2.6-billion in 2023 to $1.4-billion by 2027), reflecting key project spending completion.”

Mr. Wolfson did point to stable gold production in its 10-year guidance, “driven by development of Reko Diq (agreement closing with Pakistan pending, FS in progress) and a Lumwana expansion (PFS in progress), where technical updates are guided over 2023-24.”

“Key upcoming milestones remain the completion and ramp-up of PV’s expansion (2023), Goldrush permitting (1H23), and the advancement of Porgera’s production resumption (2023),” he said. “Barrick communicated it expected to replace corporate reserves at year-end, overwhelmingly supported by reserve conversion with PV’s expansion, and the company reiterated reserves will be revised to $1,300 per ounce (vs. $1,200 per ounce prior). The company also reviewed optionality at its longer-term projects, including Norte Abierto (1H24 PFS), and Pascua Lama (updated development plan under evaluation, subject to drilling permits).”

Cutting his near-term free cash flow estimates and net asset value model, Mr. Wolfson lowered his target for Barrick shares to US$20 from US$27. The average is US$20.75.


Citing its “substantial low-cost production, meaningful dividend, substantive exploration potential, proven management team backed by the Lundin Group, and intriguing M&A possibilities,” Canaccord Genuity analyst Michael Fairbairn initiated coverage of Lundin Gold Inc. (LUG-T) with a “buy” recommendation.

In a research report released Monday titled Ecuador bears golden fruit, he called Lundin, a single-asset intermediate producer operating the Fruta del Norte Mine, “built to withstand inflation and lower gold prices.”

“LUG boasts a leading percentage of NAV ‘fully built’ vs. peers, a distinguishing risk advantage in today’s inflationary environment. FDN’s low-cost production should also help sustain the mine’s impressive FCF vs. peers across all phases of the gold price cycle,” said Mr. Fairbairn.

Believing its near-term free cash flow potential will likely enable future M&A, he sees “intriguing” exploration potential around FDN, thinking it’s “positioned for further success in Ecuador

“LUG’s 64km2 land package surrounding FDN facilitates possible mine life extensions via additional reserve conversion at the deposit and/or new discoveries,” Mr. Fairbairn said. “Optionality through greenfield discovery also exists given Ecuador’s rich and underexplored geology in the prolific Andean Volcanic Belt.”

“Positive policy developments to Ecuador’s mining industry under multiple governments have been overshadowed by recent instability from national protests. Key protest outcomes include reforms to the country’s growing industry, which we believe will be constructive for its long-term stability. We see relatively low near-term geopolitical risks for LUG, with longer-term risks mitigated by its producer status, comprehensive ESG programs, and local support.”

He set a target of $15 per share. The current average is $13.39.


After revising his estimates following third-quarter earnings season, Credit Suisse analyst William Janela made target changes to a group of large-cap energy companies in his coverage universe on Monday.

His changes were:

* Cenovus Energy Inc. (CVE-T, “outperform”) to $35 from $37. The average is $33.71.

“We are modestly lowering our 2022 EPS forecast to $3.79 (from $3.90 prior), entirely driven by 3Q22 which came in at 81 cents, below CS estimate of 95 cents primarily on lower-than-expected U.S. Refining segment earnings” he said. “We modestly raise our 2023 EPS estimate to $3.01 (from $2.97 prior) on stronger FCCL netbacks, partly offset by a smaller share buyback (we now assume a more evenly-split allocation between share repurchases and variable dividends in CVE’s excess cash return framework).”

* Imperial Oil Ltd. (IMO-T, “neutral”) to $80 from $72. Average: $78.88.

“Our 2022 EPS forecast was little changed overall ($10.82 vs. prior Credit Suisse estimate of $10.76), but we raised our 2023 EPS estimate to $10.16 (from $9.85 prior) on stronger Upstream price realizations, partly offset by lower Downstream segment estimates compared to our previous forecasts,” he said.

* Suncor Energy Inc. (SU-T, “outperform”) to $60 from $63. Average: $54.84.

“We are lowering our 2022 EPS forecast to $8.50 (from $9.04 prior), primarily on 3Q22 EPS which came in at $1.88, below Credit Suisse’s estimate of $2.31 on lower Downstream segment earnings relative to our forecasts,” he said. “We trim our 2023 EPS estimate to $7.44 (from $7.61 prior), also driven by revisions to Downstream which offset higher Oil Sands income, as we incorporate SU’s recently announced acquisition of an additional 21-per-cent working interest in its operated Fort Hills project.


Finding himself “more optimistic” on the steel industry, Stifel analyst Ian Gillies called Russel Metals Inc. (RUS-T) his “favourite way to play the steel space given its organic and M&A growth prospects, inexpensive valuation (1.1 times price/Book) and wide product offering.”

“Moreover, there is good downside support in the event our improved steel sector optimism is misplaced,” he added.

In a report released Monday, he raised his target for Russel shares by $1 to $41, keeping a “buy” recommendation and seeing annual total returns of 20 per cent as “achievable.” The average on the Street is $37.14.

“We recently hosted a series of meetings for Russel’s CFO Martin Juravsky with investors and came away with increased confidence on this name,” said Mr. Gillies.

He also increased his target for Algoma Steel Group Inc. (ASTL-T) to $10.75 from $10.25, keeping a “hold” rating. The average is $12.75.

“We believe the stock’s near-term performance could be choppy given uncertainties stemmed from operational issues. With that said, we have already factored in the higher production costs in our model and any increase in the HRC strip would be positive for EBITDA increase,” he said.

Mr. Gillies maintained a Street-low $36 target and “hold” rating for Stelco Holdings Inc. (STLC-T). The average is $47.32.

“We believe the stock is getting expensive given its valuation premium of 1.0 times over its BOF peers and consensus estimates will likely migrate lower given declining HRC price and elevated costs,” he said.


In other analyst actions:

* In response to its appointment of Pat Doyle as executive chairman, Morgan Stanley’s John Glass upgraded Restaurant Brands International Inc. (QSR-N, QSR-T) to “equal-weight” from “underweight” and increased his target to US$71. The average is US$65.61.

* Following a site visit to its operations in Chile last week, CIBC World Markets’ Bryce Adams raised his target for Capstone Copper Corp. (CS-T) to $5.50 from $5 with an “outperformer” rating. Others making changes include: National Bank’s Shane Nagle to $5.50 from $4.50 with a “sector perform” rating and Scotia’s Orest Wowkodaw to $5.50 from $4.75 with a “sector outperform” recommendation. The average target is $5.93.

“We reiterate our Sector Perform rating, primarily due to recent appreciation of the share price and our more cautious near-term commodity outlook,” said Mr. Nagle. “That said, we believe CS will be the copper name the market pivots to under an improved macroeconomic backdrop given several transformational growth opportunities and a management team in place to deliver its stated growth objectives.”

* “Following another uninspiring quarter and steep drawdown of cash resources,” Raymond James’ Steve Hansen cut his Farmers Edge Inc. (FDGE-T) target to 45 cents from 75 cents with an “underperform” rating. The average is $1.28.

“While management has outlined a reasonable new strategy designed to reaccelerate acreage growth and reduce its cash burn, we’re increasingly of the view these efforts come too late,” said Mr. Hansen.

* Credit Suisse’s Andrew Kuske increased his targets for Hydro One Ltd. (H-T, “neutral”) to $36 from $34 and Innergex Renewable Inc. (INE-T, “outperform”) target to $22 from $21.50. The averages on the Street are $35.54 and $20.38, respectively.

* “Staying cautious” ahead of the outcome of covenant relief discussions, National Bank’s Cameron Doerksen bumped his NFI Group Inc. (NFI-T) target to $14 from $13 with a “sector perform” rating. The average is $13.30.

“NFI ended Q3 with $471 million in total liquidity and expects to end 2022 with $500+ million, well within the company’s minimum liquidity covenant of $250 million,” he said. “However, NFI will be offside its total leverage ratio covenant of less than 5x as of January 1, 2023 and will fall short of its minimum cumulative adjusted EBITDA covenant. We believe NFI will receive covenant relief without being forced to raise additional equity, given that liquidity is sufficient and demand for new buses remains very strong. However, until there is certainty on relief, we expect the stock to remain under pressure. Management noted it is in discussions with Export Development Canada (an existing member of its lending syndicate) and the Government of Manitoba alongside negotiations with the lending syndicate on covenant relief and other financing solutions.”

* RBC Dominion Securities’ Pammi Bir trimmed his Northwest Healthcare Properties REIT (NWH.UN-T) target to $12, below the $13.11 average, from $14 with a “sector perform” rating.

“Post a tough quarter that fell short of our call, we see a few puts and takes emerging from Q3,” said Mr. Bir. “While results were partly impacted by timing and one-time costs, higher interest rates are weighing on growth, along with slower deal flow as price discovery continues. De-leveraging will likely also take longer with a smaller investment in the UK seed portfolio by its new partner, while U.S. JV discussions continue. Still, the UK JV marks an important strategic milestone. As well, NWH’s confident outlook on deals could drive upside to our forecasts.”

* Scotia’s Phil Hardie trimmed his Power Corp. of Canada (POW-T) target to $38.50 from $39 with a “sector perform” rating. The average is $36.56.

“We believe POW’s NAV discount should narrow to the mid-teens after the monetization and redeployment of capital invested in standalone businesses, while we expect a further tightening to the 10-per-cent to 15-per-cent range as management continues to demonstrate both its willingness to return excess capital to shareholders and the benefits and earnings power of a scaled-up alternative asset management platform,” said Mr. Hardie.

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