Inside the Market’s roundup of some of today’s key analyst actions
Canadian Tire Corp. Ltd. (CTC.A-T) is likely to display “softening trends” in a “challenging” macroeconomic backdrop when it reports fourth-quarter 2022 financial results on Feb. 16, according to National Bank Financial analyst Vishal Shreedhar.
“Our review of various consumer health indicators suggests that the backdrop is becoming incrementally tougher (particularly as it relates to demand for durable goods),” he said. “Consumer confidence has softened since the start of 2022 and the Bloomberg Nanos Canadian Confidence Index Q4 2022 quarterly average is at its lowest level since the pandemic. We note an improvement beginning mid-November 2022, although sentiment remains negative overall.”
Mr. Shreedhar is projecting earnings per share for the quarter of $7.21, well below both the consensus estimate on the Street of $7.66 and $8.42 from the same period in fiscal 2021. He said the 14.3-per-cent year-over-year decline “reflects softer results at Retail (macroeconomic uncertainty, dampening apparel demand, gross margin pressure, de-stocking from distributors).”
“Last quarter, management indicated declines in its fall/winter businesses in early Q4 due to unseasonable weather,” he said. “In addition, inventory was heightened partly due to an early receipt of fall/winter merchandise and carryover from spring/summer inventory. We expect these pressures to persist throughout Q4.
“CTC noted a demand shift toward essential product categories and an increase in promotional activity early in Q4. Our review of consumer health indicators suggests the backdrop is soft (year-over-year). Accordingly, we expect sales to remain challenged as unseasonable weather trends persisted through the quarter and consumers increasingly look to manage their discretionary spending.”
Mr. Shreedhar thinks Canadian Tire has “executed well” through the pandemic, however he warns recent increases in inventory and pressure on margins “are unhelpful developments.”
“We expect investors to be focused on consumer demand trends, cost control, supply chain and inventory management,” he said. “CTC’s Retail business trades at a discounted valuation of 9.3 times our NTM [next 12-month] EPS (versus the five-year average of 10.9 times), which we consider to be attractive.”
Maintaining an “outperform” recommendation for its shares, Mr. Shreedhar cut his target to $164 from $167. The average on the Street is $183.50.
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Expressing “increasing confidence” in its earnings and book value per share growth outlook, BMO Nesbitt Burns analyst Tom MacKinnon upgraded Fairfax Financial Holdings Ltd. (FFH-T) to “outperform” from “market perform” previously.
“Traditionally FFH had a heavy reliance on investment gains to drive EPS and BVPS growth,” he said. “Gains from FFH’s investment portfolio, or gains from sale of its insurance holdings, together accounted for 50 per cent of FFH’s pre-tax including NCI earnings from 2011-2022E. This over-reliance on investment gains (unreliable, lower quality) has historically given us pause.
“But EPS and BVPS growth going forward is derived from much more reliable sources, which improves earnings visibility, and gives us more confidence in growth outlook. For 2023/2024, we see a significantly higher contribution to EPS from operating earnings and earnings from non-insurance associates/subsidiaries helped by higher interest and dividend income as FFH puts a substantial amount of its cash position to work in Q3/22, better underwriting income from continued hard markets, especially for reinsurers, as well as improving earnings from associates/noninsurance holdings, which will rebound on improving market conditions in a post-COVID environment. Together these items, which are of much higher quality than earnings growth driven by investment gains, account for 93 per cent of FFH’s 2023E and 2024E pre-tax earnings (including NCI), versus the 40-50 per cent these items together accounted for over the last ten years. This is clearly a positive.”
Mr. MacKinnon increased his BVPS estimate for the fourth quarter of its fiscal 2023 by 6 per cent (to $754) to reflect “firmer reinsurance markets, improved interest/dividend income on improved investment yields, improved earnings from associates/other non-insurance holdings, and better Q4/22 MTM gains.”
His EPS projection jumped to $108.95 from $73.04 given “an estimated $20 EPS lift from the combination of continued firm markets and better investment income, plus the movement of the estimated $15 per share gain from the Go Digit transaction, which is still waiting for regulatory approval, to Q1/23E from Q4/22E.”
Those changes led him to bump his target for Fairfax shares to $1,050 from $800. The average on the Street is $1,035.95.
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Separately, Mr. MacKinnon downgraded Definity Financial Corp. (DFY-T) to “market perform” from “outperform” based on its current valuation and higher relative exposure to the low-margin personal auto insurance business.
“While we see no glaring operational issues, we believe valuation, particularly the premium ascribed to DFY’s financial flexibility, is stretched,” he said. “We lower this premium to $3 from $7 given rising debt costs. Combining this with more personal auto exposure relative to peers, where inflationary concerns persist, we believe the path to DFY’s targeted low-teens operating ROE target is longer and perhaps more volatile. Given this, we believe it’s prudent to pause on DFY, a stock that has appreciated 65 per cent over its $22 IPO price just 14 months ago.”
His target fell to $40 from $45. The average is $42.50.
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BRP Inc. (DOO-T) has “undeniable share momentum” even as the powersport industry “falters,” said Citi analyst James Hardiman.
“BRP is the dominant player in a number of mature and fairly static powersports segments (snowmobiles & personal watercraft) and the up-and-coming player in more dynamic segments (ORV, motorcycles, and marine),” he said. “Additionally, the company’s MY23 crop of new products (namely the new SeaDoo Switch, Manitou pontoon, and Rotax outboard engine) all have the makings of share gainers in their respective segments, in our view.”
In a research report released Monday, Mr. Hardiman said there’s “great deal to like about the BRP story,” emphasizing the Valcourt, Que.-based company’s portfolio “features both defensible leadership positions and substantial market share opportunities.”
“In both cases, BRP’s long track record of high-quality products and consistent innovation should (in our view) allow it to gain share for the foreseeable future, even if the market itself is difficult to handicap,” he added
While he pointed out leisure stocks have seen a “substantial” rebound lately with BRP up almost 45 per cent from 2022 lows, Mr. Hardiman thinls the powersports industry is showing “signs of slowing.”
“Our most recent dealer checks and industry data show an ORV [off-road vehicle] industry down mid- to high single digits year-over-year to finish the year (down mid-teens year-to-date), a powerboat industry down low-30s (down mid-teens YTD) and other powersports segments (motorcycles, RVs, snowmobiles, etc.) similarly struggling to get footing,” he said. “More broadly, a combination of inflation and higher financing rates puts pressure on big ticket items. While BRP’s market share gains have more than offset industry weakness so far, we fear that the industry backdrop will get worse before it gets better, limiting the stock’s upside potential near term.”
Accordingly, while seeing it “positioned to be a long-term winner,” he thinks tactical investors are likely to seek out better entry points, leading him to initiate coverage with a “neutral” recommendation and $123 target. The average on the Street is $132.50.
“Our estimates are slightly ahead of the Street for 4Q23 (the current quarter) and more meaningfully ahead for 1Q24 — Subsequently, a combination of a slowing industry, decelerating share gains, difficult replenishment comps, and an increasingly promotional environment puts us short of the Street in 2Q-3Q, with our FY24 estimate falling $0.26 short of the Street before coming back in line ($14.01 vs. $13.95) in FY25. Our price target of $123 (13% upside) equates to 10 times our FY24 EPS estimate,” he concluded.
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National Bank Financial analysts Matt Kornack and Tal Woolley expect returns in the Canadian real estate sector to continue to “oscillate with rates.”
In a research report released Monday previewing 2023, they emphasized interest rate discussion will “dominate again” this year.
“Our sense is that both private and public markets are in price discovery mode as investment volumes remain low,” the analyst said. “Debt capital is available, but certainly not at the quantum or cost seen in recent years. Real Estate equities underperformed in 2022 as a result. We are optimistic central bank tightening activity could slow, possibly even ease and provide a valuation tailwind (hopefully, in the absence of a difficult recession). That said, there is no certainty and given tight spreads between implied cap rates and bond yields, it is difficult to put new money to work at today’s valuations.”
“We are making no recommendations changes and select target prices adjustments. FFO revisions are modest, and we mostly reflect higher rates in our forecast premiums. We believe the market is still pricing in some degree of inflation protection offered by hard assets and/or a lower rate environment, based on the relatively low spreads offered by current implied cap rates over borrowing costs.”
Maintaining a “maintaining a cautious outlook on returns this year in light of the interplay between declining bond yields and rising recession risks,” the duo has the highest average return estimates for multi-family real estate investment trusts at 18 per cent followed by industrials at 15 per cent, leading them to increase their targets for each by an average of 5 per cent and 8 per cent, respectively.
By group, their top picks for the year are:
Multi-Family: Boardwalk REIT (BEI.UN-T) with an “outperform” rating and $65 target, up from $63. The average on the Street is $60.55.
Mr. Kornack: “Note that Dream Residential (DRR.UN-T, “outperform” and $10.50 target) has the highest total return to target, and we think it is a compelling opportunity; however, liquidity is limited, so we are highlighting our best total return option with broader applicability to institutional and retail investors.”
“Boardwalk tops our list in terms of apartment potential total returns in 2023 as it offers investors a reasonable valuation and one of the strongest organic growth/earnings performance profiles this year and into next. The REIT saw an inflection in operating performance in 2022 and is now at fractional vacancy levels across its W. Canada markets allowing for a recapture of past incentives offerings. Given a lack of rent controls, we expect this will result in some of the better aggregate organic growth across our coverage universe. BEI has also been a leader in controlling costs and has balance sheet metrics in line with the broader apartment REIT universe.”
Industrial: Dream Industrial REIT (DIR.UN-T) with an “outperform” rating and $15.50 target, up from $14. Average: $15.23.
Mr. Kornack: “DIR remains relatively cheap vs. its asset exposure and expected earnings growth profile in 2023 and 2024. We continue to view it as the best proxy for SMU’s exposure with 65 per cent of the asset base having similar locations and experiencing consistent growth prospects. We also like the European portfolio and FX has been friendlier of late (although interest rate exposure will be an earnings impediment in 2025 and beyond). In light of its relative valuation and operational attributes, we see DIR as a prime candidate for the allocation of SMU proceeds post deal-closing and expect that it has already benefited from some of this capital deployment.”
Seniors Housing/Healthcare: Sienna Senior Living Inc. (SIA-T) with an “outperform” rating and $14 target (unchanged). Average: $14.38.
Mr. Woolley: “During 2022, SIA successfully drew in new residents to its properties, with occupancy expected to reach 89-90 per cent this quarter. We see SIA starting to have an easier time raising rents because of this, which is particularly helpful in an inflationary environment. Moreover, we think the long-term demand fundamentals have not faded. This is due to a combination of factors delaying construction starts and driving up building costs. With less new product coming online and the many boomers approaching the age of retirement, needs-based driven demand should continue to bring new residents to SIA. We acknowledge pre-COVID operating margins maybe a few years away for the seniors operators but believe SIA with its more fully occupied property portfolio is the better long-term pick within our seniors housing/healthcare coverage.”
Retail: CT REIT (CRT.UN-T) with an “outperform” rating and $17.50 target (unchanged). Average: $17.25.
Mr. Woolley: “CRT is our top-rated retail investment idea entering the quarter. We like CRT going into an uncertain environment because of its predictable rent steps as well as a manageable and long-dated balance sheet. Parent company CTC is also expanding its footprint with new developments across the country which adds GLA in many local markets not typically covered by other retailer REITs. We see CTC entering these local markets as a key pillar of its retailing strategy which causes CRT to perform in a steady manner. Secondly, we like CRT as it is conservatively managed. CRT’s balance sheet is strong with 72 per cent of maturities not due until after 2025 and leads the retail group with a conservative leverage ratio of 6.8 times. Combined with one of the lower payout ratios in the retail group (68 per cent), we see CRT as the easiest retail REIT to own in a challenging capital markets environment.”
Office: Allied Properties REIT (AP.UN-T) with an “outperform” rating and $32.25 target, down from $33.75. Average: $35.67.
Mr. Kornack: “Ongoing challenges in the office market point to a flight to quality, particularly in geographies where occupancy is softening. That said, Allied represents the best when it comes to portfolio quality and its urban footprint is enviable (across the broader Canadian REIT universe). Allied’s marketing of its UDC portfolio could be a positive for the REIT if management is able to transact accretively and fund deleveraging in a meaningful way. De-risking the balance sheet at a time of elevated uncertainty positions the REIT best to weather headwinds and take advantage of dislocations while building out existing development and repositioning projects.”
Diversified: H&R REIT (HR.UN-T) with an “outperform” rating and $15 target, up from $14.25. Average: $15.38.
Mr. Kornack: “Within the diversified group, H&R remains our top focus idea, leading the peer group on earnings growth given exposure to quality multi-family assets in strong U.S. markets and industrial development lease-up around the GTA combined with a better balance sheet and limited office maturities. While we think H&R should trade at a narrower discount, investors are cautious on the pace of reaching strategic milestones considering more challenged transaction markets.”
Special Situations: Flagship Communities REIT (MHC.U-T) with an “outperform” rating and US$19 target (unchanged). Average: $20.67.
Mr. Woolley: “Manufactured housing communities continue to be an asset class we view favourably for multiple reasons. It has been a countercyclical asset class that has posted consistently strong long-term organic NOI [net operating income] growth in the 4-per-cent range. In a tight housing market, we also see demand for cheaper housing alternatives like manufactured homes to remain attractive. MHC still has the potential to deliver double-digit returns on investment capital over time through occupancy and operational improvements in its communities. It also benefits from a long-dated balance sheet funded by long-term mortgages.”
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While predicting an “uneventful” end to 2022, Scotia Capital analyst Meny Grauman is expecting “a more thrilling 2023 for lifeco shareholders, especially relative to Canadian banks.”
“That outperformance should be driven by the fact that we expect lifecos to deliver more stable earnings in a mild-recession scenario (which is our base case), but should also be supported a number of notable lifeco-specific catalysts,” he said. “At the top of the list is the introduction of IFRS 17 which has been an overhang on valuation, but one which should go away over the coming quarters as investors get more comfortable with an accounting rule change that will not actually change underlying lifeco economics in any material way. We also believe that China’s abandonment of its zero-COVID policy will be a positive for MFC and SLF in particular given their Asia exposure even if the benefit of that decision will also take some time to materialize. Broadly speaking, we continue to believe that the market’s view of the lifeco space remains coloured by the experience of the sector during the global financial crisis, and that the resilience of the Canadian lifeco sector in the face of a more standard consumer-led recession is being underappreciated.”
For the fourth quarter of the 2022, Mr. Grauman is projecting an average earnings per share increase of 10 per cent quarter-over-quarter (but down 2 per cent year-over-year).
“The sequential increase is being impacted by hurricane-related reinsurance losses incurred by both GWO and MFC in Q3, while the Y/Y decline is being impacted by falling equity markets that are pressuring investment-related earnings,” he said.
Mr. Grauman reaffirmed Manulife Financial Corp. (MFC-T) as his “top pick” across his coverage universe, which also includes Canadian banks.
“The shares have spent the years since the global financial crisis trading at a permanent discount to book value, but we believe that 2023 could be the year when that all changes,” he said. “There are several factors that we expect to contribute to this outperformance including the elimination of the valuation overhang from IFRS 17 and the economic boost from China’s abandonment of its zero-COVID policy, two catalysts that we highlighted above. More fundamentally, we also believe that MFC’s tail risk is now much smaller than what the market is currently giving it credit for. MFC’s tail risk is still not fully eliminated, but it is shrinking which should have positive implications for its relative valuation.”
Mr. Grauman raised his target for Manulife shares to $34 from $26 with a “sector outperform” rating. The average is $27.33.
Introducing his 2024 estimates, he also made these adjustments:
* Great-West Lifeco Inc. (GWO-T, “sector perform”) to $38 from $34. Average: $34.90.
* IA Financial Corp. (IAG-T, “sector outperform”) to $102 from $85. Average: $89.83.
* Sun Life Financial Inc. (SLF-T, “sector outperform”) to $71 from $67. Average: $70.36.
“We also maintain our Sector Outperform ratings on IAG and SLF, even as we prefer MFC ... With respect to IAG, the stock has not just outperformed its peers by a wide margin in 2022, but was in fact the best-performing name in our entire coverage universe last year,” he said “Although that outperformance continues to make the stock vulnerable heading into reporting season, in our view this stock still provides significant upside due in large part to the jump in deployable capital that the company will see as a result of the transition to IFRS 17 (an additional $1.5-billion on top of the $450-million reported as of Q3). Sun Life is also a name we continue to like despite its larger exposure to wealth. Besides strong and consistent execution we note that under IFRS 17 the company is targeting an ROE of 18 per cent-plus (from 16 per cent plus) which will remain at the top of the peer-group. We also like SLF’s strong track record of smart capital deployment including the ongoing build out of its alternative asset management platform and its US group benefits business, including its recent DentaQuest deal.”
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Echelon Capital Markets analyst Gabriel Gonzalez is anticipating “stronger for longer” lithium prices following a significant jump in 2022.
“Recent commentary has narrowed on to how sustainable lithium prices are given the massive run-up in prices, with one global investment bank calling for a significant price drop in 2023,” he said. “Weighed against lithium supply, which was expected to increase in 2023 regardless of rising prices, we believe prices and demand are likely to remain robust driven by both government policy designed to increase adoption and lower battery pack prices sustained by increasing manufacturing capacity. Europe alone was recently estimated to be increasing its battery production sixfold to 2030, as it and North America catch up to Chinese manufacturing capacity.
“We believe increasing lithium prices won’t necessarily drive much higher battery prices or significantly dent demand so as to cause supply to overshoot demand and dramatically reduce prices. Battery pack prices did record their first-ever annual increase in prices in 2022, with the average price of a pack rising to US$151/kWh, up from US$141/kWh in 2021, after a rapid decline from US$732/kWh in 2013 as global battery gigafactory capacity expanded. A 2017 article from Bloomberg estimated that a doubling of lithium prices, which at that time hovered around US$17,000/tonne of lithium carbonate, would only increase battery pack prices by 8 per cent. Given further production efficiencies and economies of scale, we expect that figure will remain roughly the same even as the value of lithium cells in a battery pack has increased from 70 per cent to 80 per cent (i.e., relative to electronic components) from 2017 to 2022.”
Mr. Gonzalez said his expectation for higher prices stems from an imbalance between supply and demand, adding: “We are fundamentally positive on the lithium minerals development sector given the growing demand for electrified transportation and grid-scale battery storage, owing to lithium’s favourable weight and high energy density characteristics versus other energy storage technologies, and the continual projected catch up in supply. We believe that lithium chemical prices will remain robust, and look for wellfinanced companies with large projects in geographically attractive regions that can drive investor returns either through M&A and/or projects of significant enough scale to feed a growing global, and more importantly, regional supply gap.”
In a research report released Monday, he resumed coverage of Alpha Lithium Corp. (ALLI-NE) with a “speculative buy” rating with a $1.95 target, calling it “, a company with bright M&A prospects given the 100-per-cent ownership of the entire, well-situated Lithium Triangle salar.”
“We believe that Alpha’s ownership of the entire Tolillar Salar provides attractive project development and further resource growth potential. Given the increasing global demand for lithium for its role in high-energy density battery storage, we also believe Alpha’s Tolillar project can attract increasing takeover interest as the project continues to advance,” the analyst said. In November 2021, prior to the maiden resource estimate in August 2022, Alpha attracted a US$30-million investment in Tolillar from Uranium One Group, a private energy company backed by Rosatom, for a 15-per-cent project interest with an option to acquire a further 35 per cent for an additional US$185-million and valuing Tolillar at US$430-million. The transaction was cancelled in March 2021. Since then, Alpha has remained focused on continuing to increase project value through resource development and the demonstration of its DLE process with a pilot plant planned to be completed near Q223-end. Alpha has also begun drilling its first holes at Hombre Muerto in 2022. The Company is well financed with approximately $33-million in cash, which we estimate will be enough to build and operate a pilot plant at Tolillar.”
Mr. Gonzalez also gave American Lithium Corp. (LI-X) a “speculative buy” rating with a $7.75 target, emphasizing it has “two of the largest Americas-based lithium projects under development.”
“We see the scale of American Lithium’s projects, which potentially represent up to 110,000 tonnes/year of LCE production, their upcoming development/de-risking catalysts, coupled with an expected and persistent global demand and supply deficit, as providing a compelling case to invest in the Company,” he said. “Against a backdrop of historically high lithium prices and bullish sector sentiment, the shares are trading slightly below their 52-week range of $1.56 per share to $4.49/shr. Our target price represents an 85-per-cent potential estimated return.”
He concluded: ”We believe these companies’ projects are well-positioned to potentially meet regional supply requirements for a North American battery industry seeking to catch up to Asian and European industry, specifically in relation to the U.S. Inflation Reduction Act, which aims to re-shore the U.S.’s critical minerals and EV supply chain, which could open a regional supply imbalance that will need to be met.”
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Barclays’ Matthew Murphy lowered Kinross Gold Corp. (KGC-N, K-T) to “equal-weight” from “overweight” with a US$5 target (unchanged), which is 42 US cents below the consensus.
“While economic growth has remained better than expected, we still see gold as a good hedge against further deterioration in the outlook and continue to prefer gold over copper equities. We maintain OW on AEM and GOLD, but downgrade KGC to EW,” he said.
Mr. Murphy also made these target adjustments:
- Agnico Eagle Mines Ltd. (AEM-N/AEM-T, “overweight”) to US$65 from US$63. Average: US$63.25.
- Barrick Gold Corp. (GOLD-N/ABX-T, “overweight”) to US$26 from US$23. Average: US$21.39.
- Franco-Nevada Corp. (FNV-N/FNV-T, “underweight”) to US$115 from US$111. Average: US$141.67.
- OceanaGold Corp. (OGC-T, “equalweight”) to $3 from $2.50. Average: $3.52.
- Wheaton Precious Metals Corp. (WPM-N/WPM-T, “equalweight”) to US$42 from US$40. Average: US$53.18.
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With its shares down more than 60 per cent since early November, Canaccord Genuity analyst Matt Bottomley thinks increased concerns about Ayr Wellness Inc.’s (AYR.A-CN) ability to manage its debt load “make the prospect for a material valuation re-rating more speculative in nature.”
That led him to lower his recommendation for the Miami-based cannabis multistate operator to “speculative buy” from “buy,” citing heightened balance sheet risks for the company in the current macro-environment.”
Mr. Bottomley said the change was not in reaction to Friday’s announcement that Ayr has decided to terminate its US$55-million acquisition deal for Dispensary 33, an Illinois-based cannabis operator with two dispensaries in the Chicago area.
“Although we believe Illinois represents one of the most attractive recreational cannabis markets in the U.S. today, we view [Friday’s] announcement as likely net positive,” he said. “Given overall industry growth headwinds and a balance sheet that still houses more than US$500-million of long-term debt, we believe the termination of the deal provides more breathing room for the company to navigate towards profitability while freeing up US$15-million of net cash. Further, note that back in May/22, Ayr closed its original deal in Illinois (Herbal Remedies), which included two adult-use locations in the state.”
His target for Ayr shares dropped to $16.50 from $21. The average is $21.14.
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In other analyst actions:
* “Bullish on the prospects of continued strength in the Canadian industrial real estate space,” Scotia Capital’s Himanshu Gupta initiated coverage of Nexus Industrial REIT (NXR.UN-T) with a “sector outperform” rating and $12 target in a note titled Double Valuation Re-rating – One Done and One to Go.
“We see a path for NXR to become the go-to pure-play Canadian industrial name on the TSX,” he said. “NXR is a predominantly industrial REIT with an IFRS portfolio value of $1.8 billion comprising 10.7 million sf of total gross leasable area (GLA) in Canada. Approximately 90 per cent of total portfolio net operating income (NOI) is derived from industrial real estate (pro forma 1H/23) and the remainder is from retail (6.1 per cent) and office (4.2 per cent). NXR has a larger presence in secondary Canadian markets; non-VECTOM (Vancouver, Edmonton, Calgary, Toronto, Ottawa, Montreal) regions comprise 60 per cent of its total asset base.”
“NXR has outperformed the REIT sector in the last two years as it broke out of the diversified camp; however, we believe its valuation multiple could expand by 2 times to 3 times turns in the near term as the market begins to recognize NXR as a pure-play Canadian industrial name.”
* Citing its valuation, CIBC World Markets’ Anita Soni downgraded B2Gold Corp. (BTG-N, BTO-T) to “neutral” from “outperformer” with a US$4.75 target, down from US$5 and below the US$5.02 average on the Street.
“BTG is up 30 per cent over three months, and now provides a 17-per0cent return to our revised price target,” she said. “While we are constructive on the name for its operational execution and strong management team, given the share price performance we prefer to take a pause while we await the Fekola study, which is expected to be released in Q2/23.
“Our model now reflects Q4/22 results and the recently released 2023 guidance, which pointed to a higher-than-expected capex outlook (link to first read). Partially offsetting the higher capex in 2023 is the inclusion of a preliminary estimate for the stand-alone mill and oxide processing facilities for the Anaconda area, for which a study is expected in Q2/23. We have included 2Moz of resources to be mined at Anaconda and an additional (over the 2023 spend) initial capex of ~$330M to be spent over 2024 and 2025.”
* TD Securities’ Chris Hutchison raised his Champion Iron Ltd. (CIA-T) target to $8.50 from $8, above the $7.90 average, with a “buy” rating.
* Resuming coverage following a $15-million convertible debenture issue, ATB Capital Markets’ Chris Murray bumped his Exro Technologies Inc. (EXRO-T) target to $3.30 from $3, keeping a “speculative buy” rating. The average is $3.33.
“The timing of the financing was consistent with our expectations, with net proceeds to be used to advance several ongoing initiatives, including commercial partnership development and the completion of its Calgarybased production facility, which is expected to start commercial production in H2/23,” he said.
* Previewing its Feb. 15 fourth-quarter earnings release, RBC Dominion Securities analyst Andrew Wong cut his Nutrien Ltd. (NTR-N, NTR-T) target to US$115 from US$120 with an “outperform” rating. The average is US$98.90.
“Nutrien remains our preferred name for broad exposure to strong ag and fertilizer fundamentals, with downside support from steady Retail segment and elevated FCF (14 per cent and 12 per cent in 2023 and 2024) supporting balanced capital allocation,” he said. “We see potential near-term downward consensus revisions and softness in fertilizer prices, but a buying opportunity as expectations re-base post Q4 reporting.”
* Following Friday’s first-quarter earnings release, ATB’s Martin Toner sees “signs of life” from Real Matters Inc. (REAL-T), raising his target for its shares to $8.50 from $8 with an “outperform” rating. Others making changes include: BMO’s Thanos Moschopoulos to $5 from $4.50 with a “sector perform” rating and Canaccord Genuity’s Robert Young to $4.50 from $4 with a “hold” rating. The average is $5.64.
“We believe the seasonally quiet Q2 will likely be the trough for Real Matters’ revenue and free cash flow and for industry volumes,” said Mr. Toner. “When looking at historical quarterly refinance data since 1991 and adjusting for the average house price in the U.S. to get a proxy for volume, Q3/FY22 is the fifth-lowest value, suggesting the refinance market cannot get much worse. While our confidence in economic forecasts is not high, we expect improvement in the second half of the Company’s fiscal year. The spring (March and April) period will be key in determining the direction of the residential mortgage market. The recent performance of stocks tied to the U.S. housing market reflect this optimism.”
* RBC’s Alexander Jackson increased his Stelco Holdings Inc. (STLC-T) target by $5 to $49 with a “sector perform” rating. The average is $49.35.
“We have updated our estimates, marking to market for Q4 steel prices and modestly adjusting down our steel prices going forward to bring them in line with consensus,” he said. “Stelco continues to provide investors strong leverage to the North American steel market in a highly fixed, low cost operator in our view; however, given our outlook on steel prices and the current valuation, we remain neutral on the shares and reiterate our Sector Perform rating.”
* National Bank Financial’s Adam Shine cut his Transcontinental Inc. (TCL.A-T) target to $19 from $22 with an “outperform” rating. The average is $21.
“A valuation reset is in order as TCL’s discount to peers persists, and we await an improvement in Packaging and a steadying of Printing margins,” he said.
David Leeder