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

Following Algonquin Power & Utilities Corp.’s (AQN-N, AQN-T) “solid” fourth-quarter 2022 results and a reiteration of its 2023 guidance, RBC Dominion Securities analyst Nelson Ng expects investor attention to remain focused on its US$2.65-billion acquisition of Kentucky Power.

“AQN and AEP refiled the Kentucky Power (KP) transaction for FERC approval on February 14, 2023, and the comment period was set at 45 days (end of March),” he said. “We expect the comments will provide the market with more colour on the potential outstanding concerns and the market will assess whether they can be addressed and resolved in time for the transaction to close by April 26, 2023 (Outside Date of transaction). The timing is very tight, and we believe that it is likely that the KP transaction will not close by the Outside Date, at which time AQN has the option to terminate the KP transaction and pay a $65 million termination fee (the market prefers that AQN not proceed with the transaction).”

Mr. Ng sees “plenty of opportunities to deploy capital” if Algonquin’s deal for Kentucky Power falls through, emphasizing its balance sheet will be in “a stronger position, and there will be less pressure to sell assets.”

“We believe management will be able to reallocate capital towards organic growth opportunities and deploy at least $1 billion per year into its regulated and renewables businesses as we believe AQN’s $1 billion 2023 capex plan (excluding Kentucky Power) was kept low to preserve capital,” he said.

“Potential asset sale should provide additional liquidity. We expect AQN to divest assets (particularly its 42-per-cent stake in Atlantica Sustainable Infrastructure) in 2023 regardless of whether the KP transaction closes. However, if the KP transaction is terminated, AQN can be more selective in asset sales, and even delay the process as high interest rates and market volatility may lead to lower asset values.”

While he raised his funds from operations per share estimate for 2023, Mr. Ng maintained his earnings projections as well as his “sector perform” recommendation and US$8 target for Algonquin shares. The average is US$9.26, according to Refinitiv data.

“We believe the shares of AQN are currently fairly valued given the near-term uncertainties, but we see the shares moving higher if the Kentucky Power transaction is terminated,” he said.

Elsewhere, analysts making target adjustments include:

* iA Capital Markets’ Naji Baydoun to $11 from $10 with a “hold” recommendation (unchanged).

“AQN offers investors a mix of growth and income with (1) a diversified business model (regulated utilities & non-regulated power), (2) healthy medium-term growth (5-8 per cent per year Adj. EPS and FCF/share growth potential), (3) an attractive dividend profile (6-per-cent yield, 80-90-per-cent long-term Adj. EPS payout target), and (4) upside from new growth initiatives (including M&A; excluded from estimates/valuation),” said Mr. Bayoun. “Overall, despite announcing a series of steps to improve its balance sheet and stabilize its portfolio, we continue to remain on the sidelines given (1) the heightened uncertainty regarding the Kentucky transaction, (2) a weak near-term growth outlook, and (3) balance sheet concerns. If AQN is successful in executing on its strategic priorities for the year, we see the potential for the Company to regain investor confidence and for the shares to benefit from valuation multiple expansion. We are slightly increasing our price target to reflect marginally higher estimates due to lower tax rate assumptions.”

* TD Securities’ Sean Steuart to US$8 from US$7.50 with a “hold” rating.

“We attribute Friday’s positive share-price reaction to the headline beat and some investors’ optimism that Algonquin will be able to walk away from the Kentucky Power acquisition. We continue to include this acquisition in our estimates and valuation,” said Mr. Steuart.

“We reiterate our HOLD rating. In our view, Algonquin’s valuation discount is warranted by its compromised earnings base and constraints on regaining growth momentum.”


Citing its valuation, Credit Suisse’s Andrew Kuske raised his recommendation for shares of Brookfield Corp. (BN-N, BN-T) to “outperform” from “neutral” on Monday.

“We upgrade Brookfield Corporation (BN) ... and maintain the US$41 target price largely given on negative stock performance of 13.9 per cent on month-to-date basis that underperformed several benchmarks such as 1260 basis points less than the S&P 500,” he said. “There are some clear issues ahead for parts of the Brookfield Group and BN itself but they look to be more appropriately reflected in the current valuation, in our view.”

His US$41 target sits below the current average of US$47.


BMO Nesbitt Burns analyst Tamy Chen thinks Montreal-based Lion Electric Co. (LEV-N, LEV-T) “stands ahead of several pure-play competitors” within the electric commercial vehicle space.

However, she thinks the “cadence for sales and margin to accelerate will take time.” leading her to initiate coverage with a “market perform” rating on Monday.

“Lion has over 10 years of R&D expertise in electric trucks and buses, a purpose-built vehicle design, and proprietary battery systems. The company’s sales and gross profit loss per vehicle are notably better than several pureplay peers,” said Ms. Chen.

“Gross profit has been negative largely due to unabsorbed fixed cost from low sales volumes. In 2022, the company delivered 519 units. By the end of 2023, management expects annual capacity to reach 5,000 vehicles. We believe the timeline for more meaningful electric truck volumes is still several years away, and our forecast of bus sales into 2024 is not yet enough to fully offset the increasing ramp costs. We believe the slow pace of electric truck industry sales is due to most fleet operators still being in a trial phase with this new technology.”

Also “taking a wait-and-see position regarding Lion’s in-house battery pack assembly ramp,” Ms. Chen set a US$2 target, below the US$4 average.

“While the stock has declined from $33 in January 2021 to $2 now, we believe the current valuation of 2-times forward revenues reflects our cautious view,” she said. “We believe the company’s competitive advantages (longer R&D history, product differentiation, higher sales to-date) are already captured in our premium target multiple of 2 times vs. the peer range of 0.5 times to 1 times.”


While its “strong” fourth-quarter results exceeding his expectations, Canaccord Genuity analyst Robert Young lowered his recommendation for Victoria-based WeCommerce Holdings Ltd. (WE-X) to “hold” from “speculative buy,” seeing limited upside until its merger with parent Tiny Capital is finalized.

“The top- and bottom-line beat was driven by a resurgence in Themes revenue with in-line Apps revenue, which was up 5 per cent year-over-year on a cFX basis,” said Mr. Young. “While Agency segment recovery appears to be underway, we expect Themes strength to drive sequential top-line growth while expanding margins further given lower salary costs post CEO Alex Persson’s departure. We are raising our 2023 estimates in line with the Q4 beat and margin expansion potential although the imminent Tiny merger and upcoming shareholder vote scheduled on April 11 likely caps further upside ... Recall, the transaction has backing from 39.9 per cent of minority shareholders, including Table Holdings (Bill Ackman) and Freemark Partners (Howard Marks), implying to us that there is a high probability that the deal will go through. In our view, the combined entity would create a larger, diversified and higher-margin business, albeit with new management.”

Mr. Young’s target for Wecommerce shares rose to $5 from $3.25. The average is $4.88.

“We will re-evaluate our investment thesis and financial outlook once the transaction decision is out of the way,” he said.


In the wake of displaying “strong” sales growth in the first quarter of 2023, Stifel analyst Martin Landry thinks Flow Beverage Corp. (FLOW-T) has “significantly improved” its operations while de-risking its balance sheet “over a short period of time,” which he thinks should “reassure” investors.

“Although Flow remains in cash-burn mode, which carries added risk, we have more visibility on the company’s ability to execute its strategic initiatives and reduce cash burn,” he said in a note. “The current cash balance and $5-million of undrawn debt facility should sustain the company’s operations over the next 12 months, in our view.”

Shares of the Toronto-based company surged 31.1 per cent on Friday following the premarket quarterly results, which included Flow brand revenues of $7.2-million, up 40 per cent year-over-year and above Mr. Landry’s $6.7-million estimate. An adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) loss of $6.2-million was an improvement of more than $4.4-million from the same period a year ago, which the analyst called “a step in the right direction.”

“According to management, the initial launch of Flow’s vitamin water in Canada, which took place in January 2023, is going well,” said Mr. Landry. “The product can be found in 800 locations across Canada. In the U.S., Flow just recently begun the rollout of its vitamin-infused water across Albertsons, Von and Safeway, the second largest grocer in the U.S., counting 2,200 locations. This is a strong endorsement for Flow’s vitamin water, which could open the door to Flow’s other products such as flavored water and collagen-infused water.”

“In Q1FY23, Flow completed the sale of its Verona production facility, which resulted in a net cash inflow of $15.5-million during the quarter. Additionally, on January 3, 2023, Flow announced a $20.3 million senior secured debt facility with NFS Leasing Canada Ltd, of which $15.3-million was drawn. These capital injection came at an opportune time for Flow and significantly improved the company’s balance sheet. As of Q1FY23, Flow’s cash balance stood at $26-million, much higher than the $2.3-million in Q4FY22. We note that Flow still has roughly $9-million in debt repayment coming due to repay unsecured creditors, which should bring cash balance to roughly $13.6-million at the end of Q2FY23, according to our model.”

Mr. Landry predicts Flow’s “strong” revenue growth from its branded products will continue “albeit at a slightly slower rate in H2FY23 as the impact from strong POS growth fades.”

“We expect sequential improvement in gross margins and operational expenses as Flow continues to extract cost savings from its ongoing restructuring,” he added. “We see upside to our 2023 Flow-branded products sales estimate driven by vitamin-infused water and potential for more POS wins than currently modeled.”

Maintaining a “speculative buy” rating for its shares, he increased his target to $1.25 from $1, touting its “strong growth prospects” and improved balance sheet. The average on the Street is $2.08.

“FLOW has an ACV penetration of more than 30 per cent in the U.S., vs. approximately 80 per cent for peers, leaving significant room for growth,” said Mr. Landry. “In addition, the company’s brand awareness is still low, given its short history. While the beverage industry is highly competitive and dominated by large players with deep financial resources, we see the potential for FLOW to generate significant revenue growth in the coming years.”


Desjardins Securities analyst Kyle Stanley is “highly encouraged” by Flagship Communities REIT’s (MHC.U-T, MHC.UN-T’) operational set-up for 2023, pointing to an “enhanced growth profile.”

After the bell on Thursday, the Toronto-based REIT, which owns and operates a portfolio of income-producing manufactured housing communities in the United States, reported “noisy” fourth-quarter results, which Mr. Stanley said “highlighted the bifurcation between the strength of Flagship’s operating fundamentals and headwinds in the broader macro environment.” That included funds from operations per unit of 25 US cents, below both the analyst’s 29-US-cent estimate and the consensus forecast of 28 US cents.

“[Average monthly rent] growth of 5.1 per cent combined with 160 basis points of same-property occupancy gains and 130 basis points of SP NOI [net operating income] margin expansion drove record 10.4-per-cent SP NOI growth in 4Q,” he said. “The demand profile for manufactured housing continues to improve as the affordability gap widens relative to apartment rentals and traditional homeownership in Flagship’s midwestern markets. For 2023, management expects to achieve 8-per-cent AMR growth, and has reiterated its guidance for 200–300 basis points of occupancy gains. Our forecast, which incorporates 70 basis points year-over-year of NOI margin expansion (to 67 per cent), calls for 9-per-cent SP NOI growth in 2023.”

“4Q results were impacted by noise below the NOI line, with non-recurring dropped acquisition expenses, higher-than-expected G&A and new higher-cost debt driving a headline US$0.04/unit FFO miss. Flagship was progressing through diligence on two transactions valued at US$100-million before environmental and zoning issues, as well as the inability to secure insurance, killed the deals. After stripping out the non-recurring items and incorporating US$16-million of new lifeco debt, our 2023 FFOPU outlook is essentially unchanged , as the enhanced revenue profile more than offset the higher cost structure.:

With an increase to his net asset value estimate, Mr. Stanley bumped his target for Flagship units to US$22 from US$21, reiterating a “buy” recommendation. The average is US$20.83.

“In our view, at current levels Flagship offers investors access to a high-single-digit annual NAV growth profile and an 11-per-cent two-year FFOPU CAGR [funds from operations per unit compound annual growth rate] at a highly attractive entry point (trades at 12.5 times 2024 estimated FFO and a 6.8-per-cent implied cap rate vs the peers at 17.4 times and 5.1 per cent),” he said.

Elsewhere, Raymond James’ Brad Sturges cut his target to US$20.50 from US$22 with an “outperform” rating.

“We believe Flagship’s very limited trading liquidity remains its biggest obstacle in an otherwise attractive investment opportunity based on its discounted public valuation, above-average organic growth profile, and long-term potential to consolidate the very fragmented US Mid-West MHC sector,” said Mr. Sturges. “Looking ahead to 2023, Flagship is well positioned to deliver above-average organic growth year-over-year driven by higher average occupancy rates year-over-year and increasing MHC lot rents year-over-year.”


Following weaker-than-anticipated fourth-quarter financial results, Desjardins Securities analyst Lorne Kalmar thinks units of Automotive Properties Real Estate Investment Trust (APR.UN-T) are “fairly valued at current levels” give the macroeconomic backdrop.

On Thursday after the bell, the Toronto-based REIT reported funds from operations per unit of 22 cents, down 4 per cent year-over-year and a penny below the analyst’s estimates. However, same-property net operating income rose 2.2 per cent “as the REIT benefited from its growing exposure to CPI-linked leases (18 per cent in 2022 vs 16 per cent in 2021).”

“On January 4, 2023, APR closed on the acquisition of a six-property portfolio in Quebec for $98.5-million, the second-largest acquisition in its history,” said Mr. Kalmar. However, management is more cautious on its near-term outlook for acquisitions, noting that a significant buy/sell gap continues, though tighter bank lending could be a catalyst. With pro forma leverage at 45 per cent, we believe any significant acquisition activity would likely be accompanied by an equity raise. We have not included any acquisitions in our forecast at this time, though we remind readers APR’s acquisition activity is typically weighted toward year-end.”

Calling the REIT an “inflation hedge,” he added: “As a triple-net-lease REIT, APR has limited exposure to cost inflation. The REIT has also minimized its interest rate risk with 95 per cent of its debt hedged pro forma the 1Q23 acquisition. Further, APR has increased the percentage of leases linked to CPI to 26 per cent in 2023 and 36 per cent in 2024.”

While he raised his FFOPU forecast for 2023 and 2024 to reflect the acquisition, Mr. Kalmar, who assumed coverage in a note released Monday, maintained the firm’s “hold” recommendation and $13 target. The average is $13.05.

Elsewhere, others making changes include:

* Scotia’s Himanshu Gupta to $12.50 from $13 with a “sector perform” rating.

* RBC’s Jimmy Shan to $12.50 from $11.75 with a “sector perform” rating.

* Cormark Securities’ Sairam Srinivas to $13.20 from $13.85 with a “buy” rating.


Canaccord Genuity analyst Tania Armstrong-Whitworth has become “more cautious” on Akumin Inc. (AKU-Q, AKU-T) due to its “muted” 2023 earnings growth outlook.

Seeing “minimal upside from current levels and “significant balance sheet risk,” she lowered her recommendation for the Florida-based provider of outpatient radiology and oncology solutions to “hold” from “speculative buy” previously.

“Based on AKU’s new 2023 guidance, we are taking our 2023 revenue estimate up from $749.4-million to $770.0-million (in line with midpoint),” she said. “We continue to model flat pricing, however, have increased our organic volume growth from 3 per cent to just under 7 per cent year-over-year. We have also updated our estimates for operating costs based on 2022 performance and the operating leverage disclosures provided on page 8 of the Q4 corporate presentation.

“This results in our 2023 forecast of adjusted EBITDA declining from $183.1-million (24-per-cent margin) to $156.8-million (20-per-cent margin). This is within managements’ new guidance of $150.0-160.0-million, which is down from its previous guidance of starting the year at a $178.2-million run-rate. Fortunately, we were never running with numbers this high.”

Ms. Armstrong-Whitworth reduced her target to 90 US cents from US$3. The average is US$1.75.


In other analyst actions:

* Ahead of its March 22 earnings release, CIBC’s Nik Priebe raised his AGF Management Ltd. (AGF.B-T) target to $9.50 from $9 with a “neutral” rating. The average is $9.46.

“We expect AGF to report its 10th consecutive quarter of positive retail fund flows in Q1, an impressive feat against the backdrop of a challenging environment in calendar 2022. We are making some relatively minor revisions to our earnings estimates, raising our price target slightly,” he said.

* Desjardins Securities’ Jonathan Egilo trimmed his Andean Precious Metals Corp. (APM-X) target to $1.05 from $1.35 with a “buy” rating.

“We have updated our estimates for 4Q financial results and 2023 guidance,” he said. “Guidance came in below our estimates as production is slated to be roughly flat year-over-year. Thus, our estimates have fallen and we now model FCF of negative US$4.8-million for 2023 and the Pallacos being depleted in 2H24. While we believe securing another asset through M&A remains a focus for the company, we are most interested in gaining added colour on options to fill the San Bartolomé mill after the Pallacos has been depleted.”

* TD Securities’ Daryl Young raised his target for Badger Infrastructure Solutions Ltd. (BDGI-T) to $33 from $32 with a “hold” rating. The average is $35.66.

“Badger is making the necessary investments to position for sustained higher activity levels and drive future growth,” said Mr. Young. “However, we expect margins to remain volatile in the short term, while investments in sales/marketing functions are completed. In our view, the risk/reward tradeoff is relatively balanced at the current valuation, pending evidence of sustainably improved margins.”

* TD Securities’ Aaron MacNeil trimmed his Ballard Power Systems Inc. (BLDP-Q, BLDP-T) target to US$5 from US$6 with a “hold” rating, while BMO’s Ameet Thakkar lowered his target to US$4.50 from US$5.50 with a “market perform” rating. The average is US$8.

“BLDP’s ongoing evolution towards higher-volume product sales away from demonstration/consulting projects will take time,” said Mr. Thakkar. “That said, we were somewhat disappointed by 4Q revenue and GM% which implies a lower exit rate than anticipated. Backlog growth was a silver lining. However, the combination of low current product volume and the utilization of a pricing strategy that prioritizes winning customer contracts led to a steady decline in gross margins that likely persists into 2023.”

* In response to its $95-million acquisition of BVGlazing Systems, Raymond James’ Steve Hansen increased his Exchange Income Corp. (EIF-T) target to $65 from $62, keeping a “strong buy” rating. The average is $62.91.

“We view this latest transaction as highly strategic and solidly accretive, providing EIC with several key benefits, including: 1) the addition of critical capabilities (i.e. railings, curtain walls) previously lacking in EIC’s ‘building envelope’ platform (anchored by Quest); 2) geographic expansion into western Canada; and 3) extensive synergy/optimization opportunities with Quest, both immediate and longer-term,” he said.

* ATB Capital Markets’ Frederico Gomes trimmed his target for Hexo Corp. (HEXO-T) to 80 cents from $1.40 with an “underperform” rating, while Canaccord Genuity’s Matt Bottomley cut his target to $1.80 from $2.80 with a “hold” rating. The average is $5.82.

“FQ2 represented another quarter of sharp sequential revenue declines as the company elected to not chase sector-wide pricing headwinds as part of its increased focus on sustainable profitability,” said Mr. Bottomley.

* Mr. Bottomley also lowered his Terrascend Corp. (TER-CN) target to $2.85 from $3 with a “buy” rating. The average is $3.45.

“Overall, Q4 results were largely flat, with incrementally higher revenues offset by a lower gross margin profile in a macro environment that continues to face pricing and inflationary pressures,” he said.

* RBC’s Tom Callaghan bumped his Melcor Developments Ltd. (MRD-T) target to $14 from $13, which is the average, with a “sector perform” rating.

“Post Q4 results, there is no change in our neutral stance on Melcor Developments. Thematically, we believe the company remains well positioned to navigate through a challenging operating environment, and we are encouraged by continued demand for new lots in Canada, coupled with an improving tone on the U.S. portion of the business, which should support a rebound in 2023,” said Mr. Callaghan.

* BMO’s Michael Markidis trimmed his Nexus Industrial REIT (NXR.UN-T) target to $11 from $11.50 with a “market perform” rating. The average is $11.95.

“The outlook for this year calls for improving SPNOI growth, continued portfolio expansion (mainly through acquisitions, but also through development) and non-core dispositions. Reflecting downward revisions to our NAV and FFO outlook, we have trimmed our target,” he said.

* Calling it a “premium stock at a discounted valuation,” Scotia’s George Doumet raised his Premium Brands Holdings Corp. (PBH-T) target to $114 from $112 with a “sector outperform” rating. The average is $115.

“We continue to be constructive on the name (a top smaller cap idea) and anticipate that the multiple recovery (currently at 15-per-cent discount to its historical average) should gain traction when volume growth and margins normalize (which we believe could be as soon as 2H/23),” he said.

* In response to the announcement of a $40.15-million secured convertible debenture financing, Canaccord Genuity’s Derek Dley reduced his target for Taiga Motors Corp. (TAIG-T) to $4, below the $4.75 average, from $7 with a “buy” rating.

“In our view, the financing helps address Taiga’s near-term cash needs, which should partially bridge the gap towards fully ramped production levels,” he said.

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