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

MPX Bioceutical Corp. (MPX-CN) brings the potential for diversified U.S. exposure at an attractive valuation, according to Canaccord Genuity analyst Matt Bottomley.

He initiated coverage of Toronto-based MPX, which invests in wholly owned vertically integrated medical marijuana companies south of the border, with a “speculative buy” rating.

“We believe investing in vertically integrated operations is of particular importance, as owning retail distribution channels both increases operating margins and protects against wholesale pricing pressures and cultivation commoditization,” said Mr. Bottomley. “We believe successful branding strategies and retail distribution will eventually determine industry winners. MPX has already: (1) launched its own line of branded dispensaries; (2) owns an award-winning concentrate brand; (3) is a market leader in Arizona’s medical market; and, (4) is in the process of expanding its operations to three additional US states this year.”

Mr. Bottomley projects MPX to earn $21-million in revenue in fiscal 2018, which he expects will increase to $259-million by 2022, a compound annual growth rate (CAGR) of 86 per cent. He estimates it will become EBITDA positive in 2019 at $24-million, increasing to $86-million and by 2022.

“With $20-million of pro forma cash on the balance sheet (with another $36-million of in-the-money options and warrants), we believe MPX is funded for its existing growth/expansion initiatives as it becomes cash flow positive in FY2019,” he said.

“With a solid foundation as one of the market leaders in Arizona’s medical cannabis market, MPX has been quickly adding to its geographic exposure as a first-mover in Nevada’s recently legalized rec market, in Massachusetts’ soon-to-be-legal rec market, and in Maryland’s newly introduced medical market; equating to a total annual market potential of greater-than US$3.0-billion.”

He set a price target for MPX shares of $1.15. The analyst average target is currently $1.27.

“MPX currently trades at 6.6 times its two-year forward enterprise value-to-EBITDA, which is only a slight discount to its U.S. peers at 7.5 times but does not include potential near-term material expansion opportunities that are not baked into our forecasts,” the analyst said. “In addition, as cannabis remains a Schedule I narcotic in the U.S., MPX also trades at a steep discount to the leading Canadian Licensed Producers at 19.5 times, due to the increased complexities and risks inherent in U.S. markets. However, we believe MPX’s greater-than 65-per-cent discount to Canadian operators is largely overdone and its vast geographic exposure and growth profile could support a significant valuation re-rating over the long term.”


Tudor Pickering & Co analyst Aaron Swanson upgraded a quartet of Canadian energy companies on Monday.

He raised Painted Pony Energy Ltd. (PONY-T) to hold from sell with a target of $2 (unchanged). The average is $3.07.

His rating for Birchcliff Energy Ltd. (BIR-T) rose to “buy” from “hold” with a target of $4, which is lower than the $5.72 consensus.

He upgraded Tourmaline Oil Corp. (TOU-T) to “buy” from “hold” with a $23 target. The average is $27.

Mr. Swanson moved Advantage Oil & Gas Ltd. (AAV-T) to “buy” from “hold” with a $4.50 target, which is below the $5.95 consensus.


Citing its “unique” combination of growth, free cash flow generation and value, JPMorgan analyst Arun Jayaram upgraded Marathon Oil Corp. (MRO-N) to “overweight” from “neutral.”

Mr. Jayaram maintained a target price for its shares of US$20, which sits slightly below the average of US$21.12.


Margin expansion is the key to a turnaround in investor sentiment toward Fiera Capital Corp. (FSZ-T), said Desjardins Securities analyst Gary Ho.

On Friday, shares of the Toronto-based investment management firm dipped over 4 per cent on the release of its fourth-quarter financial results and the announcement of the $114-million acquisition of CGOV Asset Management.

Fiera reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $36.1-million, in line with Mr. Ho’s $36.5-million projection and the consensus expectation of $36.4-million. Higher-than-expected expenses led to an adjusted EBITDA margin of 25.4 per cent, well below the analyst’s expectation of 28.8 per cent.

“We sense investors are impatient with the delayed margin expansion outlook,” said Mr. Ho. “As for positives: (1) the dividend was increased 5.6 per cent (stock yields 7 per cent); (2) 1Q-to-date net sales are $1.0–1.5-billion; (3) average management fees of 32.7bps increased year-over-year and sequentially; (4) the CGOV acquisition is attractive on many fronts (cross-selling potential, 7.5 times EBITDA post synergies, HNW play); and (5) its alternative platform buildout is progressing well (5.9 per cent of AUM [assets under management, 17 per cent of revenue).

“Investors now view FSZ as a show-me story; however, we are confident management will deliver by 2H18 and that patient investors will be rewarded.” Maintaining a “buy” rating, Mr. Ho reduced his target to $14.50 from $16.00. The analyst average is $14.88. The analyst said: “Our positive view is based on: (1) management’s ability to acquire accretively and integrate successfully (key driver in its $200-billion AUM target); (2) it has grown revenue organically by 6 per cent over the past few years; (3) we like its expansion into alt assets; (4) we see margin expansion to mid-30 per cent over time; (5) FSZ’s business model is largely insulated from regulatory concerns facing its peers; and (6) FSZ has a history of steady dividend increases.”

Elsewhere, Canaccord Genuity analyst Scott Chan dropped his target to $15 from $15.75 with a “buy” rating (unchanged).

“Our revised outlook mainly reflects a lower target P/E [price-to-earnings] multiple of 13.0 times (from 13.5 times) due to (1) adjusted EBITDA margin compression; (2) net flow traction below target (management stated Q1 to-date net sales were $1-1.5-billion); and (3) recent market volatility.”


Though he expects “solid” first-quarter results from AGF Management Ltd. (AGF.B-T), CIBC World Markets analyst Paul Holden believes market volatility will have a bigger impact on how its stock trades.

“AGF carries more sensitivity to market movements than either CIX or IGM due to operating and financial leverage,” he said.

Ahead of the release of its results on Wednesday, Mr. Holden thinks AGF’s relative fund performance appears to be little change from the previous quarter, when 54 per cent of its assets under management were above the median on 1-year performance and 62 per cent on 3-year performance.

Overall, he expects total average AUM to finish the quarter 2 per cent lower than forecast.

Accordingly, he lowered his EBITDA expectation to $27.2-million, just below the consensus of $27.3-million. His earnings per share projection of 15 cents is a penny ahead of the Street.

“We are forecasting net redemptions of $115-miullion, effectively unchanged from a year ago,” said Mr. Holden. “Our view is that gross sales will have to grow by double digits for the net redemption picture to improve. Fund performance will need to improve further for this to happen.

“AGF is seeking growth outside of its core mutual fund business, including a push into the alternatives space. There is room for upside relative to our expectations based on capital invested, return on invested capital and the timeline for future fundraising.”

Maintaining a “neutral” rating, he lowered his target to $8.50 from $8. The average is $8.48.

“Our price target includes $2.78 per share in value for AGF’s stake in Smith & Williamson,” he said. “The path to monetization and estimated value will have significant influence on how AGF trades.”


RBC Dominion Securities analyst Amit Daryanani expects Apple Inc. (AAPL-Q) to release three new iPhones to launch in September.

In a research note released late Sunday, Mr. Dayanani predicted an update to its current 5.8-inch iPhone X, which he suggested would be called the iPhone XI. He also suggested a larger 6.5-inch organic light-emitting diode (OLED) device, which he billed the iPhone XI Plus, and a budget-friendly 6.1-inch liquid-crystal display (LCD), which he called the iPhone 9.

“Clearly, naming of these phones is becoming a complicated process,” he said. “Effectively we would have three phones with two being OLED and one ‘budget’ friendly LCD model.”

“Two OLED devices - 5.8 inch form factor and a larger 6.5 inch form factor; one LCD model 6.1 inch size. The larger device is likely targeted at China, where the form factor has been popular in the past. The LCD device is likely to have aluminium edges vs. premium steel in other two devices. All three phones are expected to have Face ID (no home button) and likely to be more powerful devices vs. past generation. AAPL is reportedly going to begin trial production earlier than usual to avoid supply chain issues that delayed iPhone X launch.”

In the wake of the company’s “limited” success with its iPhone X, which had an average selling price of over US$1,000, Mr. Daryanani pointed to pricing as a key factor for investors to watch.

“We think the LCD model could drive the highest volumes (35-50 per cent of volume) and could be priced at $700-plus,” he said. “Furthermore, the refreshed 5.8-inch OLED (XI) could be priced at $899 ( $100 cheaper vs. current iPhone X) and the larger 6.5-inch OLED could be priced at $999 - this would effectively lower the average ASP’s but we think will drive a stronger unit growth. Overall, we think the focus this cycle would be around AAPL’s ability to segment market and expand its install base.”

Mr. Daryanani maintained an “outperform” rating for Apple shares with a target of US$205. The average is US$191.79.

“We think iPhone ASPs are likely to be down depending on mix versus iPhone X cycle,” he said. “However, gross margins would benefit from cost downs from suppliers. Further, NAND pricing has been trending lower in CY18, which could provide another tailwind. Installed base growth even at low-end model provides services tailwind to GM. Our analysis suggests services gross margins (60 per cent) are ahead of corporate average and to the extent 18-per-cent services CAGR is achievable it should provide 50-60 basis points of GM tailwind.”


Emerita Resources Corp. (EMO-X) is building a portfolio of zinc projects that could propel it from developer to producer in relatively quick order, said Mackie Research analyst Stuart McDougall.

Calling it an advancing zinc play at a fraction of the going rate, he initiated coverage of the Toronto-based company with a “speculative buy” rating.

“The flagship Salobro project, in Brazil, contains an historic resource exceeding one billion pounds, while the Plaza Norte project, in Spain, sits next to one of the world’s richest historic zinc mines, Reocín,” said Mr. McDougall. “Moreover, the latter is being advanced in partnership with Grupo Aldesa, one of Spain’s largest construction companies. We also think that partnership places Emerita in good stead with its ongoing pursuit of two other domestic assets: Aznacóllar and Paymogo. All told, Emerita has nearly nine billion pounds of potential zinc mineral inventory in its sights.”

He set a target price of 40 cents for Emerita shares “based on company’s successful confirmation and development of the Salobro historic resource, plus a nominal value for the exploration potential at Plaza Norte.”

Mr. McDougall is currently the lone analyst covering Emerita, according to Bloomberg.


K92 Mining Inc. (KNT-X) is a “very cheap” small cap with “massive” exploration upside, said Clarus Securities Nana Sangmuah.

He initiated coverage of the Vancouver-based company with a “speculative buy” rating.

“The Kainantu project in Papua New Guinea has achieved commercial production, which in our view, is a significant de-risking milestone for KNT as it transitions from burning cash towards cash generation from operations,” said Mr. Sangmuah. “This should allow KNT to self-fund growth and further exploration on a highly prospective land package. The Kora asset has the potential to be a highly profitable mine with our estimated fully ramped-up production rate of 110,000 ounces per year at a low AISC [all-in sustain cost] of less-than US$700 per ounce by 2020, generating an annual FCF [free cash flow] of US$55-million. Kora remains open to the south along strike and vertically, both up-dip and down-dip. In our opinion, continued exploration success could more than double the existing resource of 1.65 million ounces AuEq. We see significant additional exploration upside from the regional targets in addition to the 9 untested porphyry targets. With the potential to delineate a greater-than 5-million ounce resource at Kainantu, we believe the project should be on the radar screens as a highly compelling M&A target given its 40-per-cent discounted valuation to peers.”

He set a target price of $1.60 “based on very conservative assumptions and yet represents a 155-per-cent potential return from current levels.”

“In our opinion, KNT offers a deep value investment opportunity. We are encouraged by the progress made by management on the project to date and believe that continued management execution and exploration success should drive a significant re-rating of the stock,” said Mr. Sangmuah.


In other analyst actions:

Bryan Garnier & Cie analyst Nikolaas Faes initiated coverage of Canopy Growth Corp. (WEED-T) with a “buy” rating and target of $51. The average target on the Street is currently $33.61.

Raymond James analyst Christopher Caso upgraded Intel Corp. (INTC-Q) to “market perform” from “underperform” without a specified target. The average target is US$53.29.

JMP Securities analyst Patrick Walravens downgraded Adobe Systems Inc. (ADBE-Q) to “market perform” from “market outperform.” He did not reveal a target price. The average target is US$247.87.

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