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

Calling it a “mainline money maker,” Raymond James analyst Chris Cox initiated coverage of Enbridge Inc. (ENB-T, ENB-N) with an “outperform” rating on Thursday.

"Key to our constructive thesis is the company's compelling portfolio of assets, with an unrivaled North American crude oil value chain, and among the most competitive natural gas transmission networks in the peer group," he said in a research report released before the bell. "We see this portfolio as unparalleled in terms of its scale, diversity, quality and contracting profile, the combination of which we suspect will earn Enbridge a solid berth in investor portfolios looking for exposure to the sector."

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Mr. Cox sees Enbridge as "well positioned" for the current environment coming out of the $37-billion merger with Spectra Energy Corp. in 2017.

“In addition to the benefits of scale and diversification, Enbridge now boasts one of the strongest contracting profiles in the sector, and a competitive portfolio to support continued in-corridor investments to extend an above-average growth profile,” he said. “The balance sheet ranks above-average, following asset sales post-merger and the natural de-leveraging effects as the company worked through a sizable project backlog. Accordingly, we view Enbridge as one of the lowest risk names in the sector.”

“The most visible catalyst for the story remains the approval of the U.S. portion of L3R. With the MPUC recently denying requests for reconsideration, we believe relatively few avenues remain for opponents to successfully block or materially delay this project. Indeed, the only material hurdle we see remaining is the contested case hearing through the MPCA for a water quality certificate, with the regulatory agency already providing a preliminary decision that the project did not violate applicable water quality standards. With that process expected to be complete by mid-November, we believe the stock could see considerable momentum thereafter, assuming a positive ruling.”

Mr. Cox set a target price of $55 for Enbridge shares. The current average target on the Street is $51.46.

“Ultimately, we view Enbridge as a one-stop shop for investors to get exposure to the sector; the stock checks almost all the boxes and is unique in terms of its scale, diversity and defensive attributes. Legal/regulatory noise has weighed on the story for a number of years, though we see those concerns beginning to subside, supporting a more constructive outlook,” the analyst said.


Separately, Mr. Cox initiated coverage of TC Energy Corp. (TRP-T, TRP-N) with an “outperform” rating, believing Keystone XL Pipeline project “offers asymmetric upside.”

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“As the largest project in the current backlog, but also facing the most headwinds, KXL undoubtedly represents the single biggest driver of variability in the medium-term outlook for the stock,” he said. “While the call at this juncture admittedly feels conditional upon the outcome of the U.S. Presidential Election, we see relatively little risk for the shares. The unique funding model with the Alberta Government substantially covers the capital requirements through the election cycle. From a valuation standpoint, we note the stock has given up all of its gains (and more) since the initial project sanctioning and see little to no value embedded in the current share price for the project.”

Like Enbridge, Mr. Cox said his constructive outlook for TC Energy is build on the "view that the asset base and business model are among the highest quality in the sector."

He added: "The company boasts a large and diverse portfolio comprised of critical assets, most of which exhibit strong demand-pull characteristics. Contracting is among the best in the sector, primarily consisting of rate-regulated earnings. Over the medium to long-term, we believe the company's advantaged asset base provides a strong platform for continued in-corridor investments to extend the above-average growth profile."

Calling its shares "expensive and inexpensive at the same time," he set a target price of $75. The average is $71.43.

“The stock trades at a premium to peers on more conventional metrics such as EV/EBITDA,” the analyst said. “We believe this premium is fully justified, given the low-risk nature of the story, the attractive growth profile and the advantaged asset base. However, we also believe these metrics are not the most appropriate to value the stock, given the high portion of regulated earnings. On a P/E basis, the stock is near all-time lows, which we view as incongruent with the fundamental outlook and today’s low-rate environment.”

At the same time, Raymond James’ Justin Jenkins initiated coverage of TC Pipelines LP (TCP-N) with a “market perform” rating.

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TC Energy owns 25.48 per cent of the outstanding units of TC Pipelines.

"TCP's solid balance sheet and regulated natural gas pipeline asset base certainly narrows the range of outcomes - even amid the volatility that naturally comes with a global pandemic," said Mr. Jenkins. "This stability is no doubt attractive to many investors. However, we see these characteristics as widely well understood across the market (e.g., TCP is down 'only' 17 per cent TTM [trailing 12 months] vs. Alerian indices down 35-40 per cent). As such, the more interesting debates, in our view, center around mediumterm counter-party risk, limited free cash flow generation (TCP is going against the grain), LP governance, and broader relative valuation arguments (TCP already trades at a modest 1 times EV/EBITDA multiple premium to mid-cap MLPs). In our view, TCP has already been rewarded for its defensive properties and doesn't retain the characteristics to take market share - neither a 'have' nor a "have not" in the current midstream landscape."

Mr. Jenkins did not specify a target price. The average on the Street is US$39.78.


Seeing its “discounted valuation at odds with [a] de-risked profile” and believing its stock has “experienced weakness well beyond what we would expect given the company’s de-risked business mix and balance sheet,” Raymond James analyst David Quezada upgraded AltaGas Ltd. (ALA-T) to “outperform” from “market perform.”

“With shares hovering 29 per cent below Feb. 2020 highs (vs. the TSX down 11 per cent) AltaGas (ALA) has lagged its peer group materially in recent weeks; something we attribute largely to the perception of risks in the company’s midstream segment,” he said. “Of course, we acknowledge these risks are greater than the steady utility business; however, considering ALA’s well-positioned core midstream assets and significantly reduced leverage, we consider the weakness in ALA to be overdone. Importantly, we expect volumes at ALA’s midstream assets to remain largely intact and note that 85 per cent of volumes are covered by take or pay, cost of service, fee for service contracts or are hedged. Accordingly, we believe capital-light organic growth at RIPET and recently completed expansions at Nig Creek, North Pine and Townsend, will more than offset these counter party risks.”

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Mr. Quezada raised his target for AltaGas shares to $22 from $21. The average on the Street is $19.03.

“Supporting our constructive stance, we believe recent reductions to leverage (via a string of asset sales) and now greater proportion of regulated earnings are not fully reflected in ALA’s share price,” the analyst said. “While we acknowledge ALA maintains leverage towards the high end of its peer group, we consider current levels manageable and note additional asset sales could further improve leverage ratios. Lastly, we note the company trades at a discount to each peer group and we expect the share price under-performance relative to these respective groups will normalize.”


Industrial Alliance Securities analyst George Topping sees both fundamentals and technicals pointing to gold “massively surpassing its previous cycle top.”

In a research note released Thursday, he raised his price forecast for the precious metal, expecting it to breach that cycle peak sooner than anticipated. His 2020 estimate jumped to US$1,750 per ounce from US$1,700, while his 2021 forecast increased to US$1,950 from US$1,900.

“Gold was up 17 per cent in H1/20, averaging US$1,580 per ounce in Q1 and US$1,710 per ounce in Q2,” he said. “Investment demand from ETFs is at record highs (104Moz, US$188-billion) and growing, causing the surge. The worldwide trend of low rates (US$13.7-trillion in negative yielding debt globally, and central banks going all out in their pandemic response are large contributors to positive hard asset sentiment. We note, M2 money supply in the U.S. has grown an alarming 20 per cent year-to-date, and central bank balance sheets have ballooned in the last couple of months. Gold is the best way to protect purchasing power as central bankers print money to prop up their economies but devalue currencies relative to hard assets in the process. Given that gold prices are running ahead of schedule, we have increased our gold prices upfront, calling for bullion to go past its previous cycle top of US$1,900 per ounce sooner rather than later and annualized prices to rise, conservatively, to US$2,100 per ounce by 2022.”

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Noting the gold market is “relatively tiny,” he raised his target prices for several stocks in his coverage universe in reaction to his price deck changes.

Among royalty companies, he made the following changes:

  • Franco-Nevada Corp. (FNV-T, “buy”) to $250 from $230. The average on the Street is $195.10.
  • Wheaton Precious Metals Corp. (WPM-T, buy”) to $80 from $69. Average: $65.44.

For junior gold stocks, his changes were:

  • Amex Exploration Inc. (AMX-X, “speculative buy”) to $4.25 from $3. Average: $2.60.
  • Corvus Gold Inc. (KOR-T, “speculative buy”) to $4.50 from $4. Average: $4.72.
  • Osisko Mining Inc. (OSK-T, “buy”) to $5.30 from $5.05. Average: $5.36.
  • Battle North Gold Corp. (BNAU-T, “buy”) to $2.90 from $2.50. Average: $3.19.
  • Wesdome Gold Mines Ltd. (WDO-T, “strong buy”) to $16 from $13.60. Average: $13.29.

“The top 10 gold equities by market cap total just US$225-billion or still just 14 per cent of Apple’s (AAPL-Q) market cap and even the annual physical gold market is just US$250-billion,” said Mr. Topping. “With so much money chasing so few shares, it’s telling that generalists have yet to fully buy into the gold trade. Certain stocks, such as the safer business model royalty/streaming equities like Franco-Nevada, Wheaton, and Osisko Gold Royalties will continue to benefit. A telling sign the bull market is in full effect is that speculators (previously lost to cannabis and blockchain in the bear market) are returning to juniors and spreading the capital down-cap.”

Mr. Topping also made changes to his silver forecast for 2020 and 2021, increasing his estimates to US$18 and US$21 per ounce, respectively, from US$17 and US$20. His copper, zinc and nickel prices also increased.

“The first half of the year started weaker for industrial metals as global economic growth stalled due to the pandemic but a rebound took shape closing out Q2. Silver has trudged back from its March low of US$11.98 per ounce to current levels of US$18.75 per unce and is looking to behave like a precious metal once again (outperformed gold 2:1 in the last cycle). Copper has similarly bounced back from its March low of US$2.10 per pound, all the way to US$2.80 per pound. Supply issues in Chile, in particular for state-owned Codelco, who has been hit hard by COVID-19 amongst its staff, is pushing copper higher. Nickel is following copper, while zinc, dealing with a potential surplus before the pandemic, has been slower in its recovery.”

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With those changes, he raised his targets for the following producers:

  • Copper Mountain Corp. (CMMC-T, “buy”) to $1 from 85 cents. Average: 82 cents.
  • First Quantum Minerals Ltd. (FM-T, “hold”) to $12.70 from $12.50. Average: $12.56.
  • Hudbay Minerals Inc. (HBM-T, “buy”) to $7.10 from $6. Average: $4.61.
  • Lundin Mining Corp. (LUN-T, “buy”) to $10.60 from $9.50. Average: $8.52.


Centerra Gold Inc. (CG-T) is “transitioning into a free cash flow machine,” according to RBC Dominion Securities analyst Mark Mihaljevic.

“Centerra is set to deliver significantly stronger free cash flow in 2020+ than 2019 driven by (1) higher gold prices, (2) ramp-up of the Oksut project, and (3) limited growth capital expenditures ahead,” he said. “We forecast average free cash flow of $515-million in 2020-22 (implied yield of 15 per cent vs. Intermediate peers at 7 per cent) at $1,800 per ounce gold (plus or minus $70-million for a $100 per ounce move in gold prices). In addition to strong free cash flow, Centerra already has a solid balance sheet, exiting Q1/20 with $194-million in cash and $136-million drawn on its $500-million revolving credit facility.”

Based on its “strong” financials, Mr. Mihaljevic expects investors to focus on Centerra’s capital allocation strategy, noting: “Management has indicated its focus in 2020 is paying off debt and solidifying its balance sheet (already well positioned, in our view). We also expect the company to invest in extending the openpit mine life at Kumtor with an upcoming mine plan update in H2/20 following recent resource growth (likely a low capital project). Having recently reinstated its dividend, Centerra is likely to continue returning capital to shareholders with the potential for dividend growth and/or a buyback. Based on management’s plans to evaluate projects and M&A at $1,250 per ounce gold, we do not see either avenue as likely at this time, although we would expect this to be re-evaluated as cash builds.”

Seeing its valuation “in line with fundamental positioning,” Mr. Mihaljevic raised his target to $16 from $13. The average on the Street is $16.52.

He kept a “sector perform” rating as he awaits “clarity on the company’s longer-term outlook.”

“We believe Centerra is well-positioned in the near-term given positive operational momentum and strong free cash flow generation,” the analyst said. " However, we remain neutral on the company’s shares, which appear fairly valued, in context of its relative fundamentals following significant outperformance since the start of 2019. We also expect investors to seek greater clarity on the company’s capital allocation priorities as FCF builds and operating results top out.”


Kinross Gold Corp. (KGC-N, K-T) was added to RBC Dominion Securities’s “Q3/20 Global Mining Best Ideas Portfolio” on Thursday.

Kinross is one of nine companies on RBC’s Precious Metals list.

Barrick Gold Corp. (ABX-T), Endeavour Mining Corp. (EDV-T), Kirkland Lake Gold Ltd. (KL-T), SSR Mining Inc. (SSRM-T) are holdovers on the list.

“We maintain our Precious Metals sector weighting at Overweight, relative to the other mining sectors,” the firm said. “We expect central bank policy actions to remain a key driver of gold prices, and both fiscal and monetary stimulus remain highly accommodative. Despite changing inflation and growth expectations throughout 2020, real interest rate expectations have remained anchored at low, negative levels, supporting gold’s utility and value. In our view, heightened economic outlook uncertainties, which have encouraged repeated statements of accommodative policy objectives by central bankers, are supportive of this scenario persisting and gold prices remaining elevated. We add Centamin and Kinross Gold to the portfolio.”

In justifying the decision to add Kinross, the firm said:

“Following the recent resolution of Mauritania fiscal terms, the single largest identifiable risk for the company has been resolved, while Kinross’ relative valuation discount remains elevated. At spot gold we forecast an FCF/EV of 6.5 per cent/10.4 per cent/11.8 per cent in 2020/21/22 (vs. senior group average 4.5 per cent/5.9 per cent/6.4 per cent) and Kinross could generate a compelling $4.8-billion in FCF over an upcoming 5-year period. We expect upcoming improvements from various ramp-ups (Fort Knox Gilmore, Bald/Round Mountain projects, and Tasiast’s expansion today to 2023) which should help offset near term production and project deliverable risks. KGC is advancing a pipeline of development projects which have the potential to partially offset declining production from some of the company’s maturing assets.”

It maintained an “outperform” rating for Kinross shares, noting: " Our Outperform rating is predicated on our view that KGC’s valuation reflects the potential for positive financial results providing for greater corporate capital allocation flexibility, accounting for the company’s geopolitical/operating risk profile relative to peers.”


Citing stronger-than-expected housing numbers south of the border, Canaccord Genuity analyst Yuri Lynk raised his rating for CanWel Building Materials Group Ltd. (CWX-T), also expecting it to benefit from “the quarantine-induced home improvement trend.”

“Despite 21 million Americans losing their jobs in April due to shut-downs to stem the spread of COVID-19, demand for residential building materials has been much stronger than we had expected,” he said. “This is particularly true of Building Materials and Garden Equipment and Supplies Dealers’ retail sales, which increased 3 per cent year-over-year in April before exploding 16 per cent year-over-year in May to an all-time high as homeowners undertake improvement projects during quarantine. We have also seen several other indicators of future construction and renovation activity rebound in May including a 44-per-cent month-over-month increase in pending home sales and a 12-per-cent month-over-month increase in single-family housing building permits.”

Expecting to see strength in its decking and railing products during the second quarter, Mr. Lynk reiterated his adjusted-EBITDA estimate of $27-million, down 2 per cent year-over-year but well ahead of the $22-million consensus on the Street.

“Our macro view beyond Q2/2020, however, hasn’t changed much,” he said. “While U.S. housing starts are rebounding, most forecasting bodies have them flat in 2021 with 2019. With that said, we are increasing our 2020 EPS estimate to 21 cents from 19 cents and our 2021 estimate to 30 cents from 20 cents while leaving EBITDA unchanged. The dramatic drop in interest rates has made CanWel’s $395-million of debt (at Q1/2020) less burdensome as it is carried at floating rates. We have adjusted for this and lowered our depreciation and amortization assumption as capex over the next two years should be minimal.”

Moving CanWel to “hold” from a “sell” rating, Mr. Lynk increased his target by a loonie to $4. The average on the Street is $4.49.

“Over the last 6 years, CanWel has traded at an average forward P/E multiple of 12.5 times compared to the 15-times multiple on 2021E EPS it currently trades,” he said. “With the group trading at 14 times 2021 estimated EPS, CanWel shares appear fully valued, especially considering they generally trade at a discount to the group. A lower valuation multiple, better clarity on the sustainability of the housing recovery, or an accretive acquisition could get us more constructive, all else being equal.”


Goodfood Market Corp. (FOOD-T) is proving its business model “works,” said Desjardins Securities analyst Frederic Tremblay following the release of better-than-anticipated third-quarter results that saw the Montreal-based company posting positive adjusted EBIYDA for the first time.

“Reaching positive adjusted EBITDA was an important milestone we were looking for, and it occurred earlier than we anticipated,” the analyst said. “While the improvement in financial performance was accelerated to a certain degree by COVID-19 tailwinds, it was also undoubtedly the result of Goodfood’s five-year evolution (eg products, footprint, logistics, automation, brand recognition) as part of management’s balanced approach between growth and profitability. With some new consumer behaviours likely to have some ‘stickiness’ post-pandemic and continued strong execution at Goodfood, we believe that solid performance and shareholder value creation should continue in the coming years.”

For the quarter, Goodfood reported revenue of $86.6-million, exceeding the projections of both Mr. Tremblay ($78.9-million) and the Street ($81.9-million). Adjusted EBITDA of $6-million also blew past $1.2-million-loss expectation of both the analyst and the Street.

After raising his revenue and earnings expectations for 2020 and 2021, Mr. Tremblay increased his target for Goodfood shares to $7.50 from $7.25, keeping a “buy” rating. The average on the Street is $6.77.

“We view Goodfood as an excellent way for investors to gain direct exposure to: (1) a multi-billion-dollar shift from food away from home to food at home, and (2) the acceleration of the adoption of online grocery,” he said. “We view Goodfood’s focus on high-demand private-label grocery products, its wide offering which also includes ready-to-cook and ready-to-eat meal solutions, and its network of purpose-built fulfillment centres reaching 95 per cent of the Canadian population as attractive attributes that should contribute to the company’s future success in the growing and competitive online grocery market.”

Elsewhere, Raymond James analyst Michael Glen hiked his target to $8.50 from $5.90, keeping an "outperform" rating.

Mr. Glen said: “With the reporting of 3Q20 results we are making some substantial upward revisions to our numbers, and we now have the business generating positive EBITDA in both 2021 and 2022. From that perspective, while we can understand some of the management commentary designed to temper expectations surrounding future periods, we must also acknowledge that the tailwinds to the business right now are very significant and we see them persisting over at least the next several quarters. As such, an important factor we believe all investors should take into consideration is this: as we describe the adjustments to our model and estimates below, we continue to see a number of very significant levers in the model (i.e. gross margin and SG&A) that could stand to offer meaningful upside. This is particularly true given how we saw the business perform during 3Q and how we see the operating strategy evolving over 2021 and 2022.”


In other analyst actions:

* Raymond James analyst Brian MacArthur resumed coverage of MAG Silver Corp. (MAG-T) with an “outperform” rating and $22 target. The average on the Street is $23.22.

“We believe that MAG is one of the better options for investors looking for exposure to silver given its 44-per-cent interest in the world-class Juanicipio joint venture (JV), which is a district-scale, low cost, high-grade silver development project with a strong partner and meaningful exploration potential,” he said. “After years of development, Juanicipio is now under construction and approaching startup, potentially leading to a market re-rating. Furthermore, MAG is well funded near-term to cover the majority of its funding for Juanicipio with over US$110-million in cash. Finally, based on successful drilling to date, we believe there is potential for more resource additions which could improve the project further. Given the high quality of the asset, a strong partner, its near-term startup which could lead to a market re-rating, MAG’s financial position and excellent exploration potential, we rate the shares Outperform.”

* Haywood Securities analyst Kerry Smith raised Lundin Gold Inc. (LUG-T) to “buy” from “hold” with an $11.50 target. The average on the Street is $14.02.

“Lundin Gold’s Fruta del Norte project ranks as one of the largest and highest-grade undeveloped gold projects in the world,” he said. “The project has a 14-year mine life with production of over 350,000 ounces of gold per year. After declaring commercial production this past February, the mine was placed on suspension in March due to COVID-19 restrictions in Ecuador. We expect the operation to restart later this year and once back in production will be a major gold producer.”

* Haywood’s Pierre Vaillancourt upgraded Falco Resources Ltd. (FPC-X) to “buy” from “hold” with a 70-cent target, rising from 40 cents and above the 60-cent consensus.

* TD Securities analyst Arun Lamba initiated coverage of Marathon Gold Corp. (MOZ-T) with a “speculative buy” rating and $2.75 target. The average is $2.88.

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