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

Cardinal Energy Ltd.'s (CJ-T) “mature” oil-weighted asset support “strong sustainability, free cash flow optionality and upside leverage to improvements in oil pricing,” according to RBC Dominion Securities analyst Luke Davis.

Believing the Calgary-based oil-focused company is “on the right track," Mr. Davis initiated coverage of the stock on Monday with a “sector perform” rating.

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“We believe management’s efforts to improve operating costs and reduce decommissioning obligations will become evident over time but limited near-term catalysts keep us on the sidelines for now,” he said. “Based on our current outlook, we estimate Cardinal can cover a maintenance program in 2020 at US$46/bbl and maintain the current dividend payout down US$50/bbl.”

Mr. Davis thinks Cardinal’s operations, which he called “a mature light and medium oil-weighted assets spanning Alberta and South East Saskatchewan,” support peer-leading free cash generation. He also emphasized sustainability metrics that exceed its competitors.

However, he pointed to margins that lag, blaming its higher cost base and exposure to medium crude slate.

“Cardinal’s cost base is significantly higher than the peer group ($21/boe operating costs vs peer average of $12/boe) driven by the maturity of the assets (1,671 producing wells with a corporate watercut of approximately 96 per cent),” the analyst said. “The company’s exposure to medium oil (WCS pricing) also weighs on margins, currently amounting to approximately half of the company’s oil volumes. However, management has noted several areas for improvement, including: light oil directed drilling, which would boost the top line, a focus on cost improvement through initiatives aimed at reducing exposure to the power grid, and investing in undercapitalized assets to leverage economies of scale.”

Mr. Davis set a 12-month target price for Cardinal shares of $3.50. The average target on the Street is currently $3.50, according to Bloomberg data.


Citing the positive impact of the expansion project for its Tasiast mine in Mauritania and expected near-term throughput improvements, RBC Dominion Securities analyst Stephen Walker raised his financial estimates and target price for shares of Kinross Gold Corp. (KGC-N, K-T).

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On Sept. 15, the Toronto-based miner announced it plans invest US$150-million into the mine, projecting production will rise to an average of 445,000 ounces of gold a year starting in 2020. Last year, the mine produced approximately 250,000 ounces.

“The Tasiast expansion from 12,000 tons per day to 24,000 tons per day is estimated to add 200-250,000 ounces of annual production, and Kinross’ study indicates an incremental IRR of 72 per cent at $1,400/oz gold,” said Mr. Walker. “This includes lower upfront plant and infrastructure capex than the previous 30 Ktpd Phase II expansion plan, and a benefit from capitalized waste stripping completed as part of Phase I. In our view, Kinross’ recent discussions with the new President of Mauritania regarding shared benefits from Tasiast likely provided management with greater confidence in the ability to continue to invest and operate in the country, given that it subsequently announced its 24K expansion decision.”

Mr. Walker also expects other projects to act as catalysts for Kinross moving forward, noting: “We expect the Bald Mountain Vantage and Round Mountain Phase W expansion projects to ramp up in H2/19 and have a full contribution in 2020. The Ft. Knox Gilmore project is expected to contribute in early 2020. In Chile, details of the La Coipa feasibility study are expected in February and a pre-feasibility study for the nearby Lobo-Marte project is expected in mid-2020. In Russia, the recently acquired Chulbatkan development project is expected to extend production from the region beyond the current 5-year M&I resource life at Kupol-Dvoinoye to 10+ years (pages 5-6)."

He raised his earnings per share projections for 2020 and 2021 to 37 US cents and 34 US cents, respectively, from 35 US cents and 27 US cents. His net asset value per share estimate rose by 5 per cent to US$4.37.

Keeping a “sector perform” rating, Mr. Walker increased his target to US$6 from US$5.50. The average is US$5.45.


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Seeing an underappreciated opportunity in menswear and international growth, Piper Jaffray analyst Erinn Murphy initiated coverage of Lululemon Athletica Inc. (LULU-Q) with an “overweight” rating.

Despite shares of the Vancouver-based apparel maker sitting at near record levels, Ms. Murphy thinks there is additional upside from men’s clothing sales, improved profitability in Europe and better-than-expected performance in China.

Calling it a “share gainer in a secularly growing category” and possessing a “significant runway of growth,” she set a target of US$227, which exceeds the current average of US$209.83.


Following a recent site visit, Raymond James analyst Brian MacArthur emphasized the “numerous” synergies and “large” exploration potential stemming from the Nevada Gold Mines joint venture between Barrick Gold Corp. (GOLD-N, ABX-T) and Newmont Goldcorp Corp. (NEM-N, NGT-T).

“At [Turquoise Ridge/Twin Creeks], by eliminating the tolling agreement, costs have been reduced, the cut off grade has been reduced, more ounces have been unlocked and NAV improved," he said. "Furthermore, with the completion of Shaft 3 at TR, overall production should increase as higher grade TR ore replaces TC ore in the autoclave. NGM also provides flexibility for Cortez and Carlin/Goldstrike ores to be sent to the optimum processing facility to achieve maximum profitability by increasing recovery and production and minimizing transportation costs subject to ore chemistry. For example, Cortez ore can now be sent to Carlin to save on transportation costs. Future Goldrush ore can also be sent to Carlin which allows GOLD to save over $1 bln in future capital as the alternative was to build another roaster at Cortez. In addition, Carlin/Goldstrike ore has been rerouted (e.g. Nevada underground ore to Goldstrike). Over time, increased production should allow the Carlin roaster to operate at higher rates and reduce costs. Finally, NGM now plans to keep Carlin mill 5 operating for a number of years processing stockpiles originally scheduled for the 2030s. NGM has also increased exploration spending in the region.

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“While Goldrush is already a major discovery, there are also numerous underground targets at all sites which could lead to higher grade ore discoveries. If successful, given regional excess processing capacity, these discoveries can increase production. Of note, Fourmile (not in NGM but must be vended in by GOLD once a feasibility study with acceptable returns is completed) is located adjacent to Goldrush and continues to intersect higher grade material than Goldrush. Given the high prospectivity, NGM is confident that exploration will allow it to maintain production at 3.5-4.0 Moz through at least 2028. In summary, the site visit confirmed the industrial logic of NGM and highlighted the substantial exploration potential and synergies that exist and we have increased our NGM NAV to reflect this.”

Based on his findings, Mr. MacArthur raised his earnings per share projection for Barrick in 2020 to 64 US cents from 62 US cents.

He kept a “market perform” rating and US$20 target, rising from US$19 and exceeding the current consensus of US$19.17.

“Barrick has a controlling interest in numerous high-quality gold mines and copper assets that allows it to generate strong cash flow,” the analyst said. “The no premium deal with Randgold provided more tierone assets and free cash flow, but also increased Barrick’s jurisdictional risk given Randgold’s large African portfolio. The creation of the Nevada JV with Newmont consolidated management at the world’s largest gold complex and provided the opportunity to create meaningful synergies.”

At the same time, Mr. MacArthur hiked his EPS projection for Newmont in 2020 to US$1.87 from US$1.80.

With an “outperform” rating (unchanged), he increased his target to US$47 from US$46. The average is currently US$45.49.

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“Over the past few years, we believe NEM has done an excellent job of restructuring its portfolio and improving its operational excellence, and offers investors exposure to gold through a lower jurisdictional risk, global portfolio that generates solid CF and is supported by a strong balance sheet,” he said. “In addition, it screens well on most of our metrics and is the only S&P listed gold stock. Given these attributes, we rate the shares Outperform.”

Elsewhere, Canaccord Genuity analyst Carey MacRury said: “We believe most analysts and investors (including us) came away with a much more positive view on the value creation potential in Nevada. The tour highlighted the progress made in setting up the new JV structure since closing on July 1, progress on realizing the targeted synergies, the potential for additional operating and cost improvements, and the enormous exploration potential remaining in Nevada (30-50Moz of exploration upside potential not included in current reserves or resources). In our view, the site visit was very helpful in better understanding the opportunities to realize value from a complex operation with limited detailed disclosure.”

He maintained a “hold” rating and $22 (Canadian) for Barrick. He kept a “buy” rating and US$53 target for Newmont.


Pointing to “added conviction” in its “broad portfolio of ‘embedded growth’ opportunities,” Raymond James’ Steve Hansen raised his target for Exchange Income Corp. (EIF-T) following an Analyst Day that centered on recently acquired Quest Windows Systems Inc.

“By almost all accounts, Quest appears to be a competitively-advantaged, niche business with robust growth prospects,” he said. "Boasting $375-million in firm backlog and a newly commissioned plant still in its early innings of ramp-up, we see Quest positioned to nearly double in size over the next 2-3 years, with substantial runway still beyond.

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“While window wall systems are not exclusive/proprietary to Quest, our initial assessment suggests the company’s ‘one-stop-shop’ business model, strong brand equity (as a pioneer/innovator in the space), and healthy access to capital collectively position the company with a strong advantage over its competition.”

Following that acquisition, Mr. Hansen thinks Exchange Income’s embedded growth is “starting to emerge.”

The analyst said: “After several years of strategic investment ($125-million), EIF is poised to benefit from a large portfolio of embedded growth opportunities, in our view, including: 1) PAL’s ‘Force Multiplier’ program (recorded first revenue in July, now reportedly in high demand with several government agencies); 2) R1′s JV with Skywest (ramping quickly, incl./ a new 10 year deal to deploy 9 CRJ airframes/14 engines to a NA carrier); 3) PAL’s 20 year fixed-wing SARs in-service support contract (starting late 2019); 3) PAL’s newly secured fisheries contract (5+5 yrs, starting 2H20); 4) Legacy Airlines’ new Manitoba General Transport contract; and 5) as described herein, the steady ramp of Quest’s Dallas production facility. Collectively, these already secured (& paid for) opportunities give us solid visibility into EIF’s growth/earnings outlook—a refreshing attribute vs. the increasingly uncertain macro outlook.”

With a “strong buy” rating (unchanged), Mr. Hansen raised his target to $55 from $49. The average target on the Street is currently $46.36.

Meanwhile, AltaCorp Capital analyst Chris Murray maintained an “outperform” rating and $55 target.

Mr. Murray said: “We believe the intent of the site tours was to contrast the capacity loading between Quest facilities and the progress being made with the ramp of the Texas facility, which had been of some concern for investors and an argument being made by short sellers. With the focus on Quest, there was limited other new information provided by management, with expectations and guidance remaining intact. The tour was supportive of our thesis that the growth of Quest is likely to be an important earnings driver for EIF as we move into 2020 and the Texas facility reaches full productive capacity in H1/20.”


Citing an improved outlook, Noble Capital Markets analyst Mark Reichman upgraded Endeavour Silver Corp. (EXK-N, EDR-T) to “outperform” from “market perform.”

“In our opinion, the company is poised for improved performance during the second half of 2019 and 2020 based on greater production, higher metals prices and lower production costs,” he said.

He maintained a US$3 target, which tops the consensus of US$2.93.


In other analyst actions:

Macquarie initiated coverage of Encana Corp. (ECA-N, ECA-T) with a “neutral” rating and US$5.50 target. The average on the Street is US$7.81.

TD Securities analyst Steven Green initiated coverage of Leagold Mining Corp. (LMC-T) with a “buy” rating and $4.50 target. The average is $4.05

Scotiabank analyst George Doumet upgraded Colliers International Group Inc. (CIGI-Q, CIGI-T) to “sector outperform” from “sector perform” with a US$87.50 target, rising from US$74. The average is US$82.50.

Consumer Edge Research analyst Jonathan Feeney initiated coverage of Nutrien Ltd. (NTR-N, NTR-T) with an “overweight” rating and US$67 target, which exceeds the consensus of US$62.92.

Jefferies analyst David Katz initiated coverage of Stars Group Inc. (TSG-Q, TSGI-T) with a “hold” rating and US$18 target. The average on the Street is US$20.94.


With files from Bloomberg News

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