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

Desjardins Securities analyst Jerome Dubreuil downgraded Rogers Communications Inc. (RCI.B-T) on Monday, believing most of the potential synergies to be gained from its $20-billion takeover of Shaw Communications Inc. (SJR-B-T) are “already reflected in its share price despite integration risk and high leverage.”

“While we continue to believe the acquisition of SJR is a compelling long-term strategic move for RCI, we believe the company faces meaningful near- to medium-term integration risk, which in our view is not fully reflected in the pro forma multiple discount to peers,” he said in a research note released before the bell. “Indeed, the stock’s discount to BCE is only cheaper than its historical average if we factor in all synergies (discounted to the right period). In other words, almost all synergies communicated by management are already reflected in the share price on an EV/EBITDA basis. We see potential for more synergies than we have in our model on cross-selling and capex, but we expect these to become more apparent in the future. Integration risk is alleviated by the extended time RCI had to prepare, but we believe this could be offset by the deterioration of SJR’s results over the last few quarters.

“RCI’s pro forma FCF profile almost kept us on the other side of the trade. Accretion is significant and the FCF yield of 7–9 per cent (depending on the amount of synergies included) is compelling for a telecom stock. That said, management’s cautious tone on the FCF front (the updated 2023 FCF guidance was lighter than we anticipated) removed a bit of weight from this argument. Finally, the discussions we anticipate in 2H23 about the capex requirements of DOCSIS 4.0 and the 3,800MHz auction could be more difficult to stomach for investors in the context of RCI’s leverage being north of 5 times.”

Moving shares of Rogers to a “hold” recommendation from “buy” previously, Mr. Dubreuil reduced his target to $68 from $73. The average target on the Street is $72.45, according to Refinitiv data.

“Although the company has had two years to prepare for the integration, execution risk remains, especially given the tight balance sheet,” he said.

Concurrently, the analyst said he’s maintaining his positive stance on Quebecor Inc. (QBR.B-T), raising his target by $1 to $37 with a “buy” rating (unchanged) and touting an “attractive” valuation. The average is $36.04.

“We believe the company is running away with a portion of the full RCI/SJR transaction’s economics and as it has now secured a crucial new leg of growth,” he said. “Our lower upside to the target price (given the stock’s recent outperformance) reflects our expectation that squaring off against the Big 3 on their own turf will not be easy.”

He moved Shaw to “tender from “buy” with a $40.50 target to match the acquisition price.

“With no regulatory hurdle left, the discount to the deal price has virtually fully closed,” he concluded.

Other analysts making target changes for Rogers shares include:

* Canaccord Genuity’s Aravinda Galappatthige to $68 from $69 with a “buy” rating.

“With the deal secured, we see investor attention turning to the near-term outlook and early strategic moves by Rogers in the west,” said Mr. Galappatthige. “Given the elevated balance sheet leverage, need to execute on sizable synergy opportunities, and likely substantial integration work to be completed, we do not expect any material shift in go-to-market strategy from Rogers in the west. Naturally, the main thrust of its offering is expected to be based on wireline-wireless bundling, as what used to be a Shaw Cable + Freedom package is upgraded to a Shaw Cable + Rogers package, which comes with a higher-quality wireless network.”

* National Bank’s Adam Shine to $76 from $78 with an “outperform” rating.

Meanwhile, National Bank Financial analyst Adam Shine also moved Shaw to “tender” from “sector perform” with a $40.50 target.


Predicting the $2.6-billion sale of Uni-Select Inc. (UNS-T) to U.S. auto equipment supplier LKQ Corp. (LKQ-Q) will be approved at an April 27 shareholder meeting, National Bank Financial analyst Zachary Evershed moved his recommendation for the Boucherville, Que.-based company to “tender” from “outperform” previously.

On Feb. 27, the companies announced the deal, which will see Uni-Select shareholders receive $48 per share, representing a 19.2-per-cent premium to the previous day’s closing price and 20.7-per-cent to the trailing 20-day average.

“The transaction is subject to customary closing conditions, namely shareholder, regulatory and court approvals; we see no major stumbling blocks to a smooth closing given the planned divestiture process for GSF, averting regulator rejection with respect to LKQ’s existing ownership of Euro Car Parts,” said Mr. Evershed. “UNS’s directors unanimously support the transaction while the largest holders of UNS stock, Birch Hill and EdgePoint (21 per cent of outstanding shares) are also in support of the transaction. Under the terms of the transaction, approval requires 66.67 per cent of votes and a majority of votes cast when excluding Birch Hill and Edge Point’s combined stake, implying the need for support from 45 per cent of remaining shares outstanding.”

“Following the April 27 vote, and assuming it passes, LKQ and UNS will have to jump through several regulatory hoops before the transaction closes. Thus far, we note that all regulatory paperwork has been duly filed, with the CMA approval process likely to prove lengthier than those in Canada or the U.S.”

The analyst thinks the sale price likely precludes a competing bid, and he said a survey of other potential strategic buyers did not reveal an alternative suitor that be able to match the synergies laid out by LKQ.

“We view the offer as a fair and expedient avenue to pull forward shareholder value, even if it would have likely accrued with UNS’s current trajectory of operations,” said Mr. Evershed. “We therefore change our rating.”

His target for Uni-Select shares moved to $48 to match the acquisition price from $50.50 previously. The average on the Street is $48.43.


Stifel analyst Martin Landry expects U.S. online retailer Chewy Inc. (CHEW-N) to expand into Canada in the coming quarters, leading to increase competition in the pet food industry and ultimately poising a significant challenge to Pet Valu Holdings Ltd. (PET-T).

Plantation, Fla.-based Chewy revealed its plan to grow internationally plans during a fourth-quarter earnings call on March 22 with CEO Sumit Singh telling analysts the company is “actively building the capabilities and team to launch our first international market over the next few quarters.” Further details are likely to come in May.

“Launched in 2011, Chewy is a large online pet food retailer, offering more than 3,500 brands and 110,000 products and generating more than US$10-billion in annual sales in the United States, representing roughly 7-8 per cent of the total U.S. pet industry,” said Mr. Landry. “Since 2018, the company has grown its sales by a CAGR [compound annual growth rate] of 30 per cent, significantly outpacing the industry growth of approximately 11 per cent. “Chewy has a popular autoship program, allowing customers to automatically receive their pet essentials on a recurring schedule of their choice, which generated 73 per cent of total company sales in 2022.”

Mr. Landry expects Canadian expansion to come in stage with an initial focus on urban centres, calling it “a difficult country to service online given that it has wide geographic area that is sparsely populated.”

“Such a scenario would likely reduce the impact of Chewy on the Canadian pet industry,” he said.

“In a survey we carried in December 2021 with 240 Canadians, only 8 per cent chose online as their preferred option to purchase pet food, while 44 per cent chose their local pet food store. According to Fusion Analytics, had an 8-per-cent market share of the spending on pet in Canada in 2022. We estimate that online sales represent less than 15 per cent of total pet food sales in Canada, a lower proportion than other retail categories. This may be due to the bulky and heavy nature of pet food in relation to its value, making shipping costs prohibitive in some instances. In addition, pet owners enjoy the interaction and advice from their local pet stores. Nonetheless, we believe that the shift online will continue to impact brick & mortar retailers in the pet food industry and that the arrival of Chewy may accelerate this.”

Mr. Landry thinks Pet Valu is “better prepared to face increased competition online” after increasing its omnichannel capabilities and adding several loyalty programs.

“Longer-term, Chewy’s entrance into Canada should increase competition and could put downward pressure on profitability of the industry,” he added. “While we believe that Pet Valu is well entrenched in Canada with strong customer loyalty, we nonetheless see this development as negative for PET.”

Maintaining a “buy” recommendation for its shares, Mr. Landry trimmed his target by $2 to $42 to “reflect expected increased competition.” The average is $46.14.


Citing “near-term headwinds for fertilizer prices and sentiment,” Nutrien Ltd. (NTR-N, NTR-T) was removed from RBC’s “Top 30 Global Ideas for 2023″ in a second-quarter update released on Monday.

“Although seasonally stronger North American spring fertilizer demand has started to emerge, we currently see limited price upside over the next few months before the typical summer slowdown,” the firm said. “That said, Nutrien remains our preferred fertilizer stock and we continue to see a very constructive long-term fundamental outlook for ag and fertilizers supporting robust free cash flow generation for several years.”

Analyst Andrew Wong maintained an “outperform” rating and US$110 target for the Saskatoon-based company’s shares. The average on the Street is US$96.40.

Other Canadian companies remaining on the list of “high-conviction, long-term ideas” are:

* Alimentation Couche-Tard Inc. (ATD-T) with an “outperform” rating and $68 target. Average: $74.47.

Analyst Irene Nattel: “Despite challenging macro backdrop, multiple avenues for growth, underpinned by: (1) top-line momentum from a more-focused, data-driven approach to merchandising/promotional strategies; (2) well-defined initiatives and strategies to optimize procurement; (3) focus on localized merchandise pricing, promotions, and assortments; (4) innovative fuel initiatives, including rollout of Circle-K gas; (5) cost optimization; (6) network development; and (7) opportunistic acquisitions.”

* Canadian Natural Resources Ltd. (CNQ-T) with an “outperform” rating and $89 target. Average: $91.90.

Analyst Greg Pardy: “We believe Canadian Natural Resources’ management committee structure and shareholder alignment are unique factors which distinguish the company globally. CNQ’s long-life, low-decline portfolio — anchored by moderate sustaining capital — affords the company superior free cash flow generative power.”

* Canadian Pacific Railway Ltd. (CP-T) with an “outperform” rating and $122 target. Average: $116.55.

Analyst Walter Spracklin: “Our positive view on CP centers on a best-in-class railroad ahead of a transformative acquisition, which we believe will set the stage for significant growth and a material upward valuation re-rate.”

* Constellation Software Inc. (CSU-T) with an “outperform” rating and $3,000 target. Average: $2,775.74.

Analyst Paul Treiber: “We believe that Constellation Software is likely to generate one of the highest returns for shareholders over the long term in our coverage universe. Our Outperform thesis reflects: (1) Constellation’s ability to rapidly compound capital through acquisitions; (2) Constellation is well positioned to benefit in an uncertain macro environment; and (3) Constellation’s valuation appears attractive.”

* Element Fleet Management Corp. (EFN-T) with an “outperform” rating and $27 target. Average: $23.33.

Analyst Geoffrey Kwan: “Four key themes drive our positive view of EFN: (1) attractive growth – We forecast that EFN’s EPS could grow at a mid-teens CAGR over the next five years, driven by new client wins, organic growth within existing customers, and significant returns of capital; (2) multiple potential catalysts (see below); (3) strong defensive attributes – EFN faces minimal credit/residual risks and tends to have long-term contracts(3–5 years) with high retention rates (approximately 99 per cent ); and (4) attractive valuation – we see high EPS growth as a key driver of valuation and potential valuation multiple expansion.”

* Restaurant Brands International Inc. (QSR-N, QSR-T) with an “outperform” rating and US$81 target. Average: US$70.64.

Analyst Christopher Carril: “We continue to view QSR as our top pick among the global franchised fast food group. We see potentially improving Burger King U.S. trends, accelerating development and shifts in capital allocation (toward growth investments and reduction in leverage) driving stock performance. We believe relative valuation for QSR remains compelling (17 times 2024 estimated EBITDA, versus global peer average of 18 times), particularly as we are taking a more cautious stance on the overall group.”

* Telus Corp. (T-T) with an “outperform” rating and $33 target. Average: $31.47.

Analyst Drew McReynolds: “We view 2022 as a pivotal turning point for TELUS asthe company transitions into a new post-FTTH build / 5G phase. The provision of 2023 guidance confirmsthat the company has emerged with a distinctively different financial and operating profile relative to most global telecom peers. With FTTH coverage reaching 85 per cent of the targeted broadband footprint, enhanced capex flexibility should enable TELUS to capitalize on 5G without meaningful capital constraints, opportunity costs or FCF impairment. Longer term, under certain competitive and regulatory conditions, we continue to see strong strategic and financial rationale for TELUS to explore a transformational re-organization that can fully unlock the value of core infrastructure assets and core technology assets”

Stocks added to the list were lnylam Pharmaceuticals (ALNY-Q), Boston Scientific (BSX-N) and London Stock Exchange Group (LSEG LN).

With Nutrien, other stocks removed were R1 RCM (RCM-Q) and SBA Communications (SBAC-Q).


A trio of analysts initiated coverage of Lithium Royalty Corp. (LIRC-T) with bullish views on Monday.

The Toronto-based company began trading on March 17 following the completion of a $109-million initial public offering.

Taking a long-term view that lithium supply will “struggle” to keep up with demand, Citi analyst Patrick Cunningham initiated coverage with a “buy” rating, touting its “high quality” royalty assets.

“LIRC is a portfolio of predominantly high-grade, low-cost lithium assets,” he said. “We are structurally bullish on lithium, consistent with Citi’s Commodities team view of higher for longer prices supported by EV momentum and supply challenges. While most of LIRC’s portfolio are in early development stages, LIRC’s has two projects in production and many under construction, providing near-term cash flow and potential upside. The royalty business model is attractive with free upside through organic growth of operating assets and management has a strong track record of securing accretive deals with early-stage projects. LIRC is likely to expand its NAV and multiple as its individual operators execute and accretive royalties are added.”

Mr. Cunningham set a $19 target, representing 17.3-per-cent upside to Friday’s closing price.

“While there is downside from individual operator risk, LIRC also has free upside in the event of mine expansions and extensions,” he added. “Sigma Lithium, Core Lithium, and Zijin’s Tres Quebradas project have increase run-rate expectations substantially post royalty acquisition. We estimate three assets’ near-term upside beyond our base case estimates to be potentially worth $44-million. We believe the lithium structural growth and the experience of the management team warrant a slight premium to NAV, with further multiple expansion as the company executes.”

Others starting coverage include:

* Canaccord Genuity’s Katie Lachapelle with a “buy” rating and $23 target.

“·For investors seeking exposure to lithium, we view LRC as a great low-risk investment option,” she said. “As a royalty company, LRC avoids the capital and operating cost risks inherent to mining companies but retains exposure to exploration upside potential and lithium price movements. LRC is the only pure-play lithium mining royalty company, unique in the more than $50 billion mining royalty industry dominated by precious metal companies.”

“In our view, LRC has royalties on long-life, high-grade, low-cost assets located in safe jurisdictions and backed by strong operators (Ganfeng, Zijin, Allkem, etc). The brine royalties are on projects that have greater than 50 years of resources at forecast production levels. We model a more than15-year mine life at hard rock assets Grota do Cirilo and Finniss. The company’s royalty assets are located in lower-risk jurisdictions, with 50 per cent based in Canada and 27 per cent in Australia.”

* Cowen’s David Deckelbaum with an “outperform” rating and $18.50 target.

It’s worth noting Canaccord and Citi acting as lead underwriters of the IPO.


Scotia Capital analyst Ovais Habib thinks Pan American Silver Corp. (PAAS-Q, PAAS-T) is “creating a dominant Americas-based precious metals producer with organic upside following its acquisition of Yamana Gold Inc.

“Pan American Silver was founded in 1994, having grown since then through organic growth and acquisitions to now occupy a dominant position as one of the largest silver producing companies in the world, in addition to having gold production that we estimate at more than 1Moz annually,” he said. “Post transaction, PAAS now has 11 active mines located in major precious-metals regions in the Americas.”

He resumed coverage on Monday with a “sector outperform” rating and US$20 target. The average is US$23.60.

“We note that applying current spot metal prices would boost our NAVPS [net asset value per share] by approximately 25 per cent, implying a $25.00 price target, all else equal,” he added. “We believe PAAS offers investors exposure to a long mine life (25 years), diversified silver and gold portfolio with organic growth and exploration upside.”

Elsewhere, BMO’s Jackie Przybylowski raised her Agnico Eagle Mines Ltd. (AEM-N, AEM-T) to US$60 from US$57 with an “outperform” rating upon resuming coverage following the Yamana deal. The average is US$61.77.

“The acquisition of Yamana’s Canadian assets is completed, which strengthens Agnico Eagle’s already-dominant position in the prolific Abitibi region. We expect that investors will be attracted to the safe geopolitical risk, clear growth strategy, and low-risk opportunities for optimization. Model revisions described below have resulted in a boost to our one-year target,” she said.


In other analyst actions:

* Veritas Research’s Desmond Lau upgraded Quebecor Inc. (QBR.B-T) to “buy” from “reduce” with a $36 target, exceeding the average target on the Street by 4 cents.

* Veritas’ Dan Fong raised Linamar Corp. (LNR-T) to “buy” from “reduce” with a $78 target (unchanged). The average is $86.

* In response to Friday’s release of “disappointing” fourth-quarter results, Canaccord Genuity’s Tania Armstrong-Whitworth downgraded Else Nutrition Holdings Inc. (BABY-T) to “hold” from “speculative buy” and lowered her target to $1 from $1.50. The average is $4.50.

* Canaccord Genuity’s John Bereznicki reduced his Anaergia Inc. (ANRG-T) target to $2.75 from $6, keeping a “hold” rating. The average is $8.06.

“Friday morning, Anaergia announced a further delay in the release of its YE22 financial results,” he said. “Recall, the company had originally intended to provide these results Monday (March 27) but postponed this release until Thursday. According to Anaergia, this delay is due to the company’s auditor potentially adjusting an acquisition recognition date (from Q3/22 to Q2/22) for a business combination that may result in accounting changes. The company now expects to file on or before April 10 and notes it is not subject to any insolvency proceedings and is otherwise in compliance with its disclosure requirements. Anaergia is also applying to the OSC for a management cease trade order. Given the facts at hand, we do not believe an adjustment in transaction date should materially impact the company’s fundamental prospects going forward. However, Anaergia already undertook a financial restatement in the past year, so this current audit review is likely to stoke further investor uncertainty over the company’s financial reporting (as evidenced by the headwinds on Anaergia’s share price Friday). We also continue to believe Anaergia faces significant execution risk in a macro environment characterized by inflationary pressures, supply chain challenges, and rising interest rates. While we believe there is inherent value in this business, we remain on the sidelines as we await the company’s year-end disclosure and updated management guidance.”

* Barclays’ David Strauss hiked his Bombardier Inc. (BBD.B-T) target to $70 from $60 with an “underweight” rating. The average is $77.25.

* Following its secondary bought deal offering, BMO’s Rene Cartier resumed coverage of Capstone Copper Corp. (CS-T) with an “outperform” rating and $7 target, up from $6.75 but below the $7.38 average.

“In our view, the announcement of a secondary offering did not come as a surprise, with this risk being highlighted for some time, particularly as we got closer to the anniversary date,” he said. “After updating for our revised commodity price outlook during our research restriction, as well as reflecting reserves and resources contained within the year-end AIF filing, our target price increases.”

* Currently the lone analyst on the Street covering Entree Resources Ltd. (ETG-T), TD Securities’ Craig Hutchison increased his target to $1.95 from $1.80 with a “speculative buy” rating.

* Jefferies’ Christopher LaFemina raised his target for First Quantum Minerals Ltd. (FM-T) to $39 from $37 with a “buy” rating. The average is $31.42.

* Jefferies’ Christopher LaFemina lowered his Teck Resources Ltd. (TECK.B-T) target to $70 from $75 with a “buy” rating. The average is currently $65.35.

* Echelon Capital’s Andrew Semple cut his Jushi Holdings Inc. (JUSH-CN) target to 70 cents from $1.20 with a “hold” rating, while Eight Capital’s Ty Collin dropped his target to $1.50 from $5 with a “buy” rating. The average is $2.33.

“Q4/22 results reported last Friday were broadly in-line with our expectations. Price compression remains an acute challenge, but the Company highlighted several initiatives in motion to improve profitability in 2023,” said Mr. Collin. “JUSH has taken important steps to shore up the balance sheet, but there is still work to be done to reach sustained cash flow generation. To that end, management has resolutely shifted focus from growth to cash flow, but execution remains critical.”

* Following a site tour of its Beta Hunt and Higginsville operations in Western Australia, Canaccord Genuity’s Michael Fairbairn raised his Karora Resources Inc. (KRR-T) target to $6 from $5.50, keeping a “buy” recommendation. The average is $6.41.

“We left with greater confidence in KRR’s ability to execute on its goal of increasing production to 200koz per year,” he said. “We now forecast KRR will generate annual FCF of $115-million by 2025, presenting investors with a 14-per-cent-plus FCF yield. Beyond its current growth plans, we also see the potential for further upside from additional gold and nickel discoveries at Beta Hunt, longer-term M&A, and various other optimization activities that are underway.”

* RBC’s Paul Treiber trimmed his Lifespeak Inc. (LSPK-T) target to 80 cents from $1.40, below the $1.51 average, with a “sector perform” rating.

“LifeSpeak’s Q4 showed progress toward reducing its cost structure,” said Mr. Treiber. “The convertible debentures and debt restructuring should alleviate near-term liquidity concerns. However, growth has slowed and leverage is quite high, limiting financial flexibility. We now see low/mid-teens organic growth and low 30-per-cent adj. EBITDA margins going forward (previously 20 per cent and mid 20 per cent to low 30 per cent).”

* RBC’s Pammi Bir cut his Northwest Healthcare Properties REIT (NWH.UN-T) target to $10 from $12 with a “sector perform” rating. Others making changes include: Scotia’s Mario Saric to $11 from $13.50 with a “sector perform” rating, National Bank’s Tal Woolley to $9 from $10.50 with a “sector perform” rating and CIBC’s Dean Wilkinson to $12 from $14 with an “outperformer” rating. The average is $12.71.

“We see a few puts & takes post Q4 results that were short of our call,” said Mr. Bir. “On the one hand, we’re pleased to see further progress on the UK JV, where a larger stake by its investment partner will advance strategic initiatives. As well, fundamentals are sound, while earnings seem set to stage a rebound in the year ahead, with possible upside from stronger deal flow. However, amid a climate where risk appetite is limited, we believe progress on the US JV and de-leveraging remain critical pieces of the valuation recovery equation.”

* BMO’s Devin Dodge raised his targets for SNC-Lavalin Group Inc. (SNC-T) to $33 from $30, Stantec Inc. (STN-T) to $88 from $86 and WSP Global Inc. (WSP-T) to $196 from $194. The averages are $36.67, $87.10 and $191.85, respectively.

* National Bank’s Cameron Doerksen bumped his Taiga Motors Corp. (TAIG-T) target to $2.25 from $2 with a “sector perform” rating. The average is $2.63.

“Taiga continues to hold a lead over other powersports OEMs in the development of electric powersports vehicles, and we are encouraged that supply chain challenges that have heavily impacted the company appear to be easing,” said Mr. Doerksen. “However, the company still faces a major challenge in ramping production, and we believe the company will need to access additional financing to support its growth. We therefore maintain our Sector Perform rating. As a result of our forecast changes, our target is now $2.25.”

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