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

Expecting box office weakness to weigh on its fourth-quarter results, Canaccord Genuity analyst Aravinda Galappatthige downgraded Imax Corp. (IMAX-N) on Monday, projecting a 17-per-cent year-over-year decline in adjusted earnings before interest, taxes, depreciation and amortization.

Ahead of the release of its earnings report on Tuesday, he moved the stock to “hold” from “buy.”

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“IMAX closed Q4/18 with $236.1-million in box office sales (down 15.1 per cent year-over-year), coming in below our expectations of $246.1-million,” said Mr. Galappatthige. “This suggests a PSA [per screen average] of $171k, down from $227k in Q4/17. The variance really was broad-based, with a noticeable miss in both China and the domestic segment. China box office came in at $69.2M, up 9.3 per cent year-over-year, but an estimated 18-per-cent decline in PSA to $108k. Recall, this is off a 22-per-cent PSA decline in Q4/17.”

“With another very soft result out of China, we believe the market will continue to factor in a moderated China outlook with respect to the stock. Interestingly, we did see a very encouraging period of strength in the China box office during the Chinese New Year led by the local language titles, The Wandering Earth, Crazy Alien and Pegasus, with total box office of US$32.3-million over the period commencing on February 5. This is up 40 per cent over 2018. Nonetheless, given the recent trends, we believe that it would take a few quarters of out-performance in box office in China to change sentiment. Looking at the slate we continue to believe that $600k in PSA is likely the realistic base for China.”

Though Mr. Galappatthige said 2019's film offerings "look strong," he cautioned that it has a "family slant," which can be a negative for Imax.

“Some of the top tent poles slated for F2019, including How to train your Dragon: The Hidden World, Dumbo, Toy Story 4, Lion King, and Frozen 2, are family oriented, and we know that IMAX historically has under-indexed in this genre,” the analyst said.

For the fourth quarter, Mr. Galappatthige lowered his revenue and EBITDA estimates to US$102.4-million and US$32.5-million, respectively. Both are below the consensus projections on the Street (US$103.7-million and US$36.7-million).

His earnings per share projection dipped to 53 US cents from 62 US cents to account for a one-time restructuring charge and the weakness at the box office.

He maintained a US$23 target for Imax shares. The average target on the Street is US$26.81, according to Thomson Reuters Eikon data.

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"While 2019 projections look attractive, given the experience through 2016-2018 in terms of actual financial results coming in sharply below initial expectations, we suspect that a new round of revisions could cap upside to the stock," said Mr. Galappatthige.


CIBC World Markets analyst Hamir Patel raised his rating Cascades Inc. (CAS-T), believing softness in containerboard prices is already properly priced into the stock.

“While North American containerboard prices may still crack next month, we believe Cascades’ valuation more than reflects this risk,” said Mr. Patel, moving Kingsey Falls, Que-based company to “neutral” from “undeperformer.”

“At the same time, Chinese recovered paper policies point to potentially lower-thanforecast input costs for OCC while tissue capacity challenges have been reduced following the unexpected elimination of 1.5 per cent of industry capacity.”

The move came ahead of the release of its quarterly results on Thursday.

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He maintained an $11 target. The average on the Street is $12.71.

“We had previously double-downgraded Cascades on Dec. 23, 2018 when the shares were trading at $11.35 due to pricing concerns in the company’s core containerboard business,” said Mr. Patel. “Over the last two months, Cascades’ shares have underperformed containerboard peers by 27 per cent, lagged tissue peers by 40 per cent and underperformed the TSX Composite by 26 per cent.”


Though it initiated coverage of the cannabis sector with a bullish view, Jefferies expects increased consolidation in the industry and further moves by major consumer goods companies to take positions.

With “not all at the party” and winners to have both medical and recreational capabilities, the firm gave “buy” ratings to the following stocks:

Aurora Cannabis Inc. (ACB-T) with a $12 target price. The average on the Street is $13.42.

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Green Organic Dutchman Holdings Ltd. (TGOD-T) with a $6.10 target. Average: $7.53.

CannTrust Holdings Inc. (TRST-T) with a $15 target. Average: $19.23.

OrganiGram Holdings Inc. (OGI-X) with a $10 target. Average: $10.44.

The following companies received "hold" ratings:

Canopy Growth Corp. (WEED-T) with a $64 target. Average: $74.22.

Emerald Health Therapeutics Inc. (EMH-X) with a $4.30 target. Average: $5.15.

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Meanwhile, Cronos Group Inc. (CRON-T) was given an “underperform” rating under the belief there’s little to get excited about with the stock beyond Altria Group Inc.'s investment.

"We also question when Altria value creation will begin to materialise, especially as there appears little near-term appetite to put the Altria money to work," the firm said.

The stock was given a $17 target, which falls below the average of $19.57.


Saputo Inc. (SAP-T) continues to execute on its plan to become a leading global dairy processor with the proposed $1.7-billion acquisition of Dairy Crest Group PLC, a leading U.K. processor, according to Desjardins Securities analyst Keith Howlett.

The deal, announced Friday, is the latest in a string of acquisitions for the Montreal-based company, which has now reached over $3.7-billion in the last two years.

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"It took advantage of competitors’ struggles resulting from volatile dairy markets to aggressively expand in Australia and Argentina," said Mr. Howlett.

"Dairy Crest is the leading cheddar cheese manufacturer in the UK, with over 55-per-cent share of branded cheddar and over 20-per-cent share of total cheddar cheese sales (branded and private label). It is also a leading producer of dairy and non-dairy spreads (including butter). Dairy Crest’s EBITDA margin in recent years has exceeded 19 per cent. Saputo may be able to accelerate Dairy Crest’s growth."

Maintaining a "buy" rating, his target for Saputo shares rose to $47 from $4. The average is $44.13.

He added: "Global dairy prices are showing some early signs of strengthening. Management has stated that its recent acquisitions are tracking at or above plan, and that recent weak financial performance has been related to weakness in dairy prices in existing operations. We are staying on board to see how the next few quarters unfold."


Believing it is “carving out a niche” in the LNG market, Citi analyst Ryan Levine initiated coverage of New Fortress Energy LLC (NFE-Q) with a “buy” rating.

The New York-based integrated gas-to-power company began trading on the Nasdaq on Jan. 31.

"NFE's integrated business model targets remote energy markets that have high power or gas prices, weaker credit ratings, and are underserved," said Mr. Levine. "NFE is able to service these customers by using inexpensive midscale LNG facilities (cost estimates at $374-million/mtpa vs $500-million/ mtpa for peers, and 22 months to build vs 51 months for peers), cheap stranded natural gas, and an integrated supply chain that is designed to deliver small volumes to remote end markets. NFE also has the structural advantage of low leverage and a self-funding business model reducing the need to rely on the project finance market which would require large customer portfolios with investment grade counterparties to underwrite new LNG trains or facilities."

Setting a target price for its stock of US$14, Mr. Levine added: "Our investment thesis is that New Fortress Energy 1) has stable long term cash flows and is well hedged against commodity price movements, 2) has a differentiated, integrated business that is well positioned to capture growth and market share, 3) has an attractive corporate structure with management alignment of interests and a conservative balance sheet, 4) is positioned to effectively manage the execution risk of the building the business, and 5) is priced at a discount to peers."

Elsewhere, Credit Suisse’s Spiro Dounis initiated coverage with a “neutral” rating and US$17 target, while Morgan Stanley gave it an “overweight” rating with a target price of US$19.

Mr. Dounis said: “NFE has a unique LNG-centric model linking low-cost US natural gas with high-priced demand markets in the Caribbean and LatAm. No other US LNG name is focused on developing downstream, offering a first-mover advantage. CEO Wes Edens, co-Founder of Fortress Investment Group, has shown considerable success in firming up gas/power contracts with 2.23 mm gal/d signed and 2.28 mm gal/d described as ‘highly likely.’ One upstream liquefier can supply ~3.6 mm gal/d of LNG; NFE has longer-term plans for 5-10 liquefiers given the wide opportunity set.”


After its third-quarter 2019 financial results fell short of expectations, Raymond James analyst Kenric Tyghe downgraded his rating for Greenspace Brands Inc. (JTR-X) to “outperform” from “strong buy,” pointing to lower revenue growth estimates.

"While we believe in the strength of key brands in GreenSpace's portfolio, the legacy noise and material missteps, have the story deep in show me territory, and management in a bit of a corner," he said. "Greenspace is going to need to clean up the portfolio faster than it has, and essentially not only get back to basics (but deliver consistently against reset expectations), in order for the story to start working again. Retailers were clearly frustrated in the quarter (or rather frustrations boiled over) as highlighted by the quantum of penalties. In addition, the lacklustre performance of MeatBar (reflecting lower velocity in the grocery channel) and distribution issues with Cedar (overlayed on a working capital constrained Central Roast) gives us pause. While we believe Riot Eats could be a strong performer in the plant-based dairy category, we worry about the ability to scale and gain significant market share given the short shelf life of the product and the lack of upfront planned advertising, preceding the launch. We are encouraged by the strong order book exiting the quarter and believe that GreenSpace is better positioned today with a more concentrated portfolio of its key brands (aka the stuff that always worked)."

Mr. Tyghe dropped his target to 75 cents from $1. The average is 73 cents.


In other analyst actions:

National Bank Financial analyst Rupert Merer raised Pinnacle Renewable Energy Inc. (PL-T) to “outperform” from “sector perform” with a target of $15.50, rising from $13.50. The average is $15.71.

JPMorgan cut Magna International Inc. (MG-T) to “underweight” from “neutral.”

With files from Reuters

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