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

Northland Power Inc.'s (NPI-T) first-quarter financial results “blew away” estimates, said Industrial Alliance Securities’s Naji Baydoun.

However, despite seeing its long-term outlook for NPI remaining "healthy," the equity analyst lowered his rating for its stock to "hold" from "buy," awaiting further strategic investments and additional growth announcements as well as "a better entry point before accumulating the shares further."

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After the bell on Wednesday, the Toronto-based company reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $421-million, easily exceeding the projections of both Mr. Baydoun and the Street ($334-million and $347-million, respectively). Free cash flow per share of $1.10 also topped expectations (72 cents and 82 cents).

With Northland reiterating its 2020 financial guidance, Mr. Baydoun said the focus rests on its development activities.

“NPI’s La Lucha solar project in Mexico remains under construction and is on track to reach COD in H2/20,” he said. “NPI continues to advance work on its development activities, which include (1) offshore wind development prospects in Asia, driven by the Company’s JV in Japan, and the acquisition of a Korean offshore wind developer in Q1/20, and (2) a 400MW offshore wind development project in B.C. (acquisition announced in March 2020 from NaiKun Wind Energy Group Inc.). Meanwhile, all key permits have been secured for NPI’s Hai Long projects in Taiwan; the Company continues to expect to sign PPAs for its Hai Long 2B and Hai Long 3 projects later this year.”

The analyst raised his target for Northland Power shares to $31 from $30. The average on the Street is $32.53.

“NPI offers investors an attractive mix of (1) stable cash flows from contracted power assets (2GW net in operation, 11-year weighted average contract term), (2) healthy FCF/share growth (7-9 per cent per year, CAGR 2019-24, excluding the Taiwan offshore wind projects), (3) longer-term potential upside (Taiwan and organic development activity), and (4) an attractive dividend profile (4-per-cent yield, 50-70-per-cent FCF payout over 2019-24).”


Despite missing earnings expectations in a “fairly noisy” first quarter, Emera Inc. (EMA-T) displayed “solid” performance from its core regulated assets, according to Industrial Alliance Securities analyst Elias Foscolos.

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Though he trimmed his earnings expectations to account for miss as well as lower assumed return on equity and some deferred capital, Mr. Foscolos raised his rating for the Halifax-based energy and services company to “buy” from “hold,” seeing increased upside to his target price for its shares.

Before the bell on Wednesday, the Halifax-based energy and services company reported adjusted earnings per share of 79 cents, falling short of the projections of both Mr. Foscolos (90 cents) and the consensus on the Street (82 cents). Though earnings from regulated assets grew 9 per cent year-over-year, the analysts said the result was fairly consistent with the same period a year ago, blaming the miss on “a lack of certain earnings related to unregulated assets that were sold in Q1/19.”

With the completion of the sale of Emera Maine, which he called a “cornerstone” of its asset monetization program, Mr. Foscolos said its liquidity position has “strengthened.” It ended the quarter with $1.6-billion in cash on hand and $3.2-billion in total liquidity with no further asset sales required in its funding plan.

"EMA stated that the impacts resulting from COVID-19 had minimal effect on the Q1/20 results," he said. "EMA noted that to date most of its regulated businesses were experiencing weather-adjusted load reduction of 4-6 per cent. The Company’s customer base is weighted more toward residential customers, which has provided an offset to lower commercial/industrial demand. Approximately two-thirds of EMA’s earnings are in USD, with the estimated EPS impact from a 1-cent change in the USD/CAD rate being $0.005-0.01. EMA has hedges in place for a portion of its 2020 and 2021 earnings.

“Some growth capital has been delayed/deferred. Construction on the Muskrat Falls hydroelectric generation facility has been put on pause. An extended delay could result in a shortfall in provincially mandated renewables generation targets or 2020, although it is likely that EMA would receive a break given the extreme circumstances. Additionally, $100-million of non-essential spending in NSPI is also being deferred.”

Noting Emera’s guidance goals through 2022 remain unchanged, including $7.5-billion in capital spendingg and a 8-per-cent rate base compound annual growth, the analyst maintained a target of $59 per share. The average on the Street is $61.92.

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Though he sees more growth on the horizon for Innergex Renewable Energy Inc. (INE-T), Industrial Alliance Securities analyst Naji Baydoun lowered his rating for its stock in response to a recent share price gains.

After the bell on Tuesday, the Longueuil, Que.-based power producer released first-quarter results that largely met expectations. Adjusted proportionate earnings before interest, taxes, depreciation and amortization (EBITDA) of $116-million met the consensus forecast and fell just $2-million short of Mr. Baydoun's estimate.

Concurrently, it revealed its 2020-2025 strategic plan, which the analyst said focuses on "operational improvements, disciplined growth, and diversification (particularly into battery/storage technology)."

"Earlier in May, INE announced that it had secured US$192-million in financing for the Hillcrest solar project (US$110-million from a tax equity bridge loan, and US$82-million from a construction loan), with COD still expected in Q4/20," said Mr. Baydoun. "Elsewhere, the Company announced that it had won additional solar/storage capacity in Hawaii’s latest renewable auction (35MW of solar and 140MWh of storage), which further supportsthe growth forecast (not yet included in estimates/valuation). Finally, we expect INE to continue executing on additional growth initiatives, including (1) ongoing negotiations for two potential acquisitions (partially factored into estimates/valuation), (2) solar opportunities in the U.S., and (3) development prospects in the French onshore wind market."

Mr. Baydoun said the company's long-term outlook "remains strong," forecasting 7-9-per-cent annual free cash flow per share growth through 2024, which supports "modest" dividend growth of 3-4 per cent per year with a declining payout ratio.

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However, based on recent gains, he lowered his rating to "buy" from "strong buy" with a $21 target, rising from $20 but 6 cents below the consensus.

“We continue to like INE’s (1) high-quality, low-risk asset portfolio (2.5GW net in operation, 15-year weighted average contract term), (2) FCF/share growth (6-9 per cent-plus per year, CAGR 2019-24), (3) healthy dividend (4-per-cent yield, albeit with a more-than 80-per-cent payout over our forecast period), (4) significant potential longer-term upside from organic development (more than 7GW in Canada, France, the U.S., and Chile), and (5) the support of the Hydro-Québec strategic alliance,” said Mr. Baydoun.


Desjardins Securities analyst David Newman expects Chemtrade Logistics Income Fund (CHE.UN-T) to benefit from a resiliency in water treatment chemicals and a “strong” rebound in caustic soda price in 2020.

However, he warns of “significant” near-term headwinds in the chemicals sector stemming from COVID-19 and the accompanying recessionary conditions.

On Tuesday, Toronto-based Chemtrade reported better-than-anticipated first-quarter results with EBITDA of $81-million exceeding the projections of both Mr. Newman ($72-million) and the Street ($75-million).

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“This was driven by lower merchant acid volumes offset by higher selling prices, weak regen acid (lower refinery utilization), resilient water products, and a decline in chlor-alkali prices (caustic soda and HCl) offset by improved chlorine demand,” said Mr. Newman. “Overall, COVID-19 impacts were not significant in 1Q20 but are expected to be more pronounced in 2Q and 3Q, followed by a recovery in 4Q.”

After trimming his financial expectations for 2020 and 2021, Mr. Newman lowered his target for Chemtrade stock to $6.50 from $7.50, keeping a "hold" rating. The average on the Street is $6.97.

“While all facilities remain in operation, we expect a trough in 2Q20 given COVID-19 headwinds in the oil & gas sector (regen acid and HCl),” he said.


Rubicon Organics Inc. (ROMJ-CN) is positioned to “dominate” the organic, super-premium cannabis product category in Canada, said Canaccord Genuity analyst Kimberly Hedlin.

In a research report released Thursday, she initiated coverage of the Vancouver-based company with a “speculative buy” rating, seeing Rubicon offering a “differentiated” product as one of only six organic certified licensed producers in the country.

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“Rubicon is focused on both the organic and super-premium market segments,” the analyst said. “In our view, the ability to target both segments is difficult (and rare) due to inherent production and supply chain challenges; as such, we expect Rubicon to maintain high prices amid broader oversupply concerns. To date, Rubicon has received overwhelmingly positive reviews on its Simply Bare brand. With sustainability considered from seed to sale, we also see ROMJ as a solid ESG investment.”

“With the company’s Delta, BC, greenhouse now fully canopied and an outdoor pilot underway, we believe premium pricing, low-cost cultivation, and lean corporate overhead will contribute to high margins. With two years’ experience operating in Washington, the company expects to achieve cultivation costs of 50-cents per gram at this facility once ramped. With the goal of achieving average gross margins of $5 per gram, ROMJ is targeting a manageable 2-3-per-cent Canadian market share.”

Also emphasizing its “strong” financial outlook following the $12-million sale of its Washington facility in April as well as its experienced management in the cannabis sector, Ms. Hedlin set a target of $3.90 per share. The average on the Street is $3.83.

“Following the start of sales of Rubicon’s Simply Bare brand in January 2020, we believe the company is at an inflection point,” she said. “As production ramps to 11,000 kilograms per year, we expect management to deliver strong results given the team’s winning track record and rare ability to produce organic certified, super-premium cannabis at a low cost.”

“In our view, key catalysts include the launch of new products and brands, provincial distribution agreements, an uplisting, and EU GMP certification. Given the company’s margin potential and unique value proposition, we also believe the company could be a take-out candidate for larger LPs or new entrants looking to source a strong brand/operator in the ultra-premium, organic certified category.”


After posting “impressive” second-quarter results across the board, including organic growth of 20 per cent, Desjardins Securities analyst Benoit Poirier recommends investors revisit Calian Group Ltd. (CGY-T) and buy its shares.

"The company also reiterated its FY20 guidance despite COVID-19, which speaks to the resiliency of its business model," he said. "We remain confident in management’s ability to leverage the pristine balance sheet (net cash position of $33-million) to create value with its M&A strategy and come out of COVID-19 stronger."

On Tuesday, the Ottawa-based professional services company reported revenue for the quarter of $105-million, up 25 per cent year-over-year and above the $98-million forecast of both Mr. Poirier and the Street. Adjusted earnings per share of 77 cents also exceeded expectations (57 cents and 54 cents, respectively).

“CGY’s balance sheet in an enviable position to face this crisis thanks to recent equity financing,” the analyst said. “CGY ended 2Q FY20 with net cash of $33-million (or $3.42 per share) following the completion of the $69-million equity offering. For FY20, we forecast capex of $6-million and FCF usage of $4-million due to the ramp-up of the large satellite ground systems contract. We expect a reversal in FY21 with FCF generation of $41-million as these contracts are successfully delivered. Excluding any potential M&A, we estimate that CGY will end FY20 and FY21 with net cash of $42-million and $58-million, respectively. The company’s solid balance sheet offers it significant flexibility to maintain its quarterly dividend (28 cents per share) while also continuing to look for accretive M&A opportunities.”

“Management has not stopped looking for M&A opportunities, although it noted that the pandemic was negatively affecting its ability to perform due diligence in the short term. We believe CGY’s pristine balance sheet puts the company in an enviable position to continue to execute on its growth agenda.”

Mr. Poirier raised his EPS projections for 2020 and 2021 to $2.67 and $2.75, respectively, from $2.54 and $2.68.

Keeping a "buy" rating, he increased his target for Calian shares by a loonie to $53. The average is $53.67.

“We are again impressed with CGY’s robust organic growth in 2Q in the context of COVID-19,” said Mr. Poirier. “With management’s strong track record of delivering both organic and inorganic growth (disciplined M&A playbook), we believe CGY is ideally positioned to unlock value for shareholders with its pristine balance sheet.”


In a research note released mid-day Thursday titled “FY20 Will Prove to be Real Pain in the Butt,” Beacon Securities analyst Doug Cooper lowered his rating for CRH Medical Corp. (CRH-T, CRHM-N) to “hold” from “buy” following weaker-than-anticipated first-quarter results.

"The results were down materially both on a year-over-year basis as well as sequentially," said Mr. Cooper. "For the first 2 months of the quarter, revenue was up slightly on a y/y basis but that came to an abrupt stop in mid-March due to COVID.

"Unfortunately Q2 is going to get much, much worse. The vast majority of their ASC partners were closed in April and only some have started to tentatively re-open in May. At this time, it is purely guess work to know how many procedures will be performed in Q2. A year ago, the company performed 84,656 cases. This year, we believe it could be less than 30,000, which would likely produce an EBITDA loss for the period."

Mr. Cooper also said he's "getting a little concerned" about the financial covenants on the company’s debt with JP Morgan.

"As of March 31, it had drawn $70.4 million. We note that the Total Leverage Ratio covenant is not to be greater than 3 times EBITDA," he said. "If Q2/FY20 EBITDA is slightly negative, that would make its TTM shareholder EBITDA $22-million, which would put the leverage ratio at 3.2 times or in violation of that (and only) covenant."

The analyst reduced his target for CRH to US$2 from US$3.25. The average is US$3.


“Waiting for more visibility” on fundamentals and catalysts, Echelon Wealth Partners analyst Stephan Boire lowered Firm Capital Property Trust (FCD.UN-X) to “hold” from “buy” following the release of in-line quarterly results.

“While rent collection is going well for FCD and despite the quality of the REIT’s tenants, we are downgrading to a HOLD while we wait for more colour on the retail portfolio, which represents 75 per cent of NOI [net operating income],” he said. “We remain concerned with the ‘after-COVID19’ potential environment, as well as the de-confinement process, which could materially impact many of FCD’s tenants, and potentially for a prolonged period. National retail tenants are of particular concern at this juncture.”

Mr. Boire trimmed his target to $5.25 from $5.75. The average is $5.83.

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