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

Raymond James analyst Chris Cox sees the Canadian midstream energy industry in a period of slow recovery, displaying “impressive resiliency” amid recent headwinds.

“While shut-in volumes are beginning to return - and we are beginning to see it in the data - overall activity levels remain muted,” he said. “We believe production levels from a number of producers and key resource plays will likely settle out at lower levels of production for the foreseeable future. This won’t just be felt in a more muted outlook for growth in the sector - something we believe is already baked into Street expectations - but also in more significant ‘white space’ on existing assets, likely persisting for a prolonged period.”

Mr. Cox made the comments in the firm’s inaugural “Monthly Midstream Monitor” report, released before the bell and aiming to “serve as the definitive guide to monitoring the operational performance across the Canadian Midstream landscape.”

He said the release came in response to investors' view that the sector is “increasingly challenging” to evaluate and is “characterized by both the complexity and diversity of assets underpinning the businesses.”

“One of our favourite quotes from Warren Buffett is: ‘Only when the tide goes out do you discover who’s been swimming naked’; similarly, these sorts of pullbacks can illuminate who’s sufficiently covered,” the analyst said. “In this respect, our analysis of performance across the sector has shed light on a number of assets that have demonstrated impressive resiliency in the face of the headwinds faced in recent months. In particular, gas-focused assets - especially those with a demand-pull component - have demonstrated impressive resiliency, which we believe merits further attention.”

In the note, Mr. Cox downgraded his ratings for Pembina Pipeline Corp. (PPL-T) and Gibson Energy Inc. (GEI-T) to “market perform” from “outperform” recommendations.

He said his move on Gibson was largely a valuation call, emphasizing it shares have outperformed considerably during the recent downturn (by 14 per cent versus Canadian peers and 28 per cent versus North American peers year-to-date).

“While we believe the outperformance is warranted, the shares now trade close to our target price and a premium to the North American Midstream peer group; accordingly, we believe continued outperformance will be challenging and see better risk-reward opportunities elsewhere,” he said.

The analyst maintained a $25 target for Gibson shares. The average target on the Street is $25.59, according to Refinitiv data.

Mr. Cox said his Pembina move was “driven by three factors: 1) less optimistic outlook for Peace; 2) re-contracting/re-financing risk at Alliance & Ruby moving to the forefront of the story; and, 3) investor speculation around future M&A strategy providing a near-term headwind.”

“We would note that each of the points emphasized above has compelling counter-arguments,” he said. "While Peace is likely to face increased competition in a market with a more muted growth outlook, we believe re-contracting risk is limited as contracts rolling over in the next 3-5 years are predominantly at tolls quite a bit lower than what is currently being contracted (or what would be required to underpin alternative transportation options); accordingly, downside risk to current cash flows from Peace are very limited, in our view. While we see potential risk to cash flows from Alliance & Ruby, we expect this will be offset by visible growth opportunities elsewhere. And finally, while the uncertainty with respect to potential M&A represents a tactical consideration for near-term share price performance, the company’s long-term track record with respect to acquisitions deserves consideration here.

“All told, we believe these countervailing arguments portend a more range-bound outlook for the shares, rather than any conviction in direction one way or another. Longer-term, we suspect more considerable growth opportunities will re-emerge, while Management’s track record with respect to capital allocation and commitment to staying within its financial guardrails providing added comfort.”

His target for Pembina shares slid to $35 from $37. The average is $39.71.

Mr. Cox also made the following target price changes:

  • Enbridge Inc. (ENB-T, “outperform”) to $52 from $55. Average: $52.07.
  • Inter Pipeline Ltd. (IPL-T, “market perform”) to $12 from $13. Average: $14.42.
  • Keyera Corp. (KEY-T, “outperform”) to $26 from $27. Average: $27.89.
  • TC Energy Corp. (TRP-T, “outperform”) to $71 from $75. Average: $72.61.


Seeing a “changing character” for the Canadian pressure pumping industry, ATB Capital Markets analyst Waqar Syed thinks the lower active supply in the market is increasingly “evident and quantifiable.”

“Not only has the industry’s manned pumping fleet reduced from 36 crews in Q4/19 to 13-17 crews in Q3/20, but the operating philosophy of the pumping industry has also changed,” he said in a research note. “Trican, the largest pumper in Canada, recently saw a leadership change after 11 years. Schlumberger Ltd. announced last week that its Canadian pumping assets will be acquired by Liberty Oilfield Services Inc., Calfrac Well Services Ltd. is embroiled in recapitalization restructuring, while BJ Services Company LLC recently declared bankruptcy. It is our view, that after years of suffering weak returns, the character of the Canadian pumping providers is changing and they will be focused more on returns and FCF rather than on growth. This behavioral change has been brought about by changes in leadership style, market forces, and balance sheet realities. We believe that the Canadian pumping space is now in a structurally better position, to take advantage of an upturn in Canadian completion activity.”

The analyst estimates there are 15 pressure pumping crews active in Canada with a rig count of 52, adding the capacity is sufficient to meet the demand for almost 60 rigs.

“Directionally consistent with consensus expectations for E&P budgets, we expect the Canadian pumping demand to increase from 11 crews in Q3/20 to 23 crews by the second half of 2021, and 32 crews by the second half of 2022,” he said.

"We estimate that the industry may be able to meet demand from about 80 rigs without price escalation, but once rig activity heads above 80 rigs, 10-15-per-cent pumping price increases are likely, which could happen in the second half of 2021. We estimate that by 2022, price increases in the 15-25-per-cent range (from current levels) are likely as operators would need to incentivize pumpers to reactivate more equipment. We expect cumulative Canadian EBITDA margins for TCW/CFW/STEP to increase from 9.5 per cent in 2020 to 10.5 per cent in 2021 and to 17.0 per cent in 2022 (10.4 per cent in 2019).”

Mr. Syed pointed to Trican Well Service Ltd. (TCW-T) as a play on the improving Canadian market, calling it a “well capitalized and well positioned pumper.”

“TCW is well positioned in the Canadian market, having the largest pumping fleet in the industry, and the best balance sheet relative to its closest peers,” he said. “As customer demand for pumping picks up, TCW is well positioned to meet it as it has (1) sizeable reactivatable idle capacity, (2) balance sheet strength to finance fleet reactivations and maintenance, and (3) discipline to add capacity in a returns accretive manner.”

He raised his target for Trican shares to $1.60 from $1.20 with an “outperform” rating (unchanged). The average on the Street is $1.13.

At the same time, Mr. Syed increased his target for Step Energy Services Ltd. (STEP-T, “sector perform”) to 60 cents from 50 cents. The average is 53 cents.

“STEP offers leverage to both the Canadian and U.S. pumping and coiled tubing markets," he said. "While STEP is competitively well positioned in Canada and has a strong customer profile, its footprint in the U.S. is small, which puts it at a disadvantageous position versus its larger and better capitalized competitors. STEP has a premium fleet of coiled tubing units, but they are seeing increased competition lately owing to the influx of new supply in 2019.”

Mr. Syed maintained an “underperform” rating and 14-cent target for Calfrac Well Services Ltd. (CFW-T). The average is 28 cents.

“Calfrac’s unsecured noteholders and shareholders will vote on the Company’s recapitalization proposal on September 17th," he said. "There is a competing bid as well which is not on the ballot. While the CFW proposal would improve the Company’s balance sheet, it would create massive dilution for current equity holders, although it would reduce the risk of worst-case potential scenario playing out for equity holders.”


Andrew Bradford of Raymond James also sees Trican Well Service Ltd. (TCW-T) as unique in the Canadian oilfield services sector.

“TCW’s stock chart tells a vastly different story than your typical oilfield services stock," he said on Thursday. "For starters, TCW stock is net flat year-to-date. Only Mullen (MTL-T) stock has done better amid the oilfield, and we’d argue its performance is attributable to its relative lack of oilfield exposure.

"Trican’s low debt position combined with a modestly improving outlook for positive cash flow have been the likely motivators. For our part, we understand that current fracking demand levels are up from 2Q20 and this modestly higher demand is working through a more operationally levered cost structure than we are used to seeing at mid-cycle levels. Consequently, we now suspect that cash flow run-rates are above those implied by either our prior estimates or consensus estimates.”

With that view, he raised his earnings projections, starting in the fourth quarter, but he noted: “This has little to do with any changes to our outlook for 4Q and forward fracturing demand, but has much more to do with the timing of when TCW’s achieved a reasonable demand run-rates - mid-way through 3Q.”

Keeping a “market perform” rating, he moved his target to $1.20 from 65 cents, exceeding $1.13 average.


A series of equity analysts on the Street raised their target prices for shares of Descartes Systems Group Inc. (DSGX-Q, DSG-T) after its quarterly results exceeded their expectations.

On Wednesday after the bell, the Waterloo, Ont.-based tech firm reported second-quarter revenue rose 4.4 per cent year-over-year to US$84-million, topping the Street’s US$81.4-million estimate. Earnings per share rose 20 per cent to 12 US cents, matching the consensus forecast.

Canaccord Genuity’s Robert Young said Descartes has displayed “steady execution through turbulence” and feels its well-positioned to “augment organic growth with M&A.”

“We believe that Descartes will be active on M&A in the next 12 months as valuations settle through the volatility," he said. "We expect historically strong execution on M&A and potential for higher-quality assets to become available in tough times could fill any gaps left in the wake of weaker organic growth. In the near term, valuations have become inflated, particularly in attractive end markets like ecommerce and software. Moreover, the number of companies for sale has increased significantly.

"Descartes suggested it would continue to evaluate opportunities but would remain disciplined. The company closed the quarter in a net cash position of $81.9-million, with access to $350-million of debt (with opportunity to expand additional $150-million) and up to $1-billion on a newly filed shelf prospectus.”

After raising his financial expectations for both 2021 and 2022, Mr. Young hiked his target to US$65 from US$50, keeping a “buy” rating. The average target on the Street is currently US$55.38.

Elsewhere, Raymond James' Steven Li moved his target to US$58 from US$42 with an unchanged “market perform” rating.

“DSG remains well positioned to benefit from the dynamic global environment and growing importance of supply chains coming out of this pandemic,” he said.

Scotia Capital analyst Paul Steep moved his target to US$58 from US$48 with a “sector outperform” rating (unchanged), while Stephens' Justin Long raised his target to US$60 from US$42 with an “equal-weight” recommendation.

Meanwhile, RBC Dominion Securities analyst Paul Treiber maintained an “outperform” and US$67 target.

“Descartes reported a healthy quarter, with revenue and adj. EBITDA above consensus expectations,” he said. “Organic growth was slightly positive and appears to have stabilized; however, material re-acceleration appears delayed, given the likely prolonged reduction in air cargo volumes. We’re slightly reducing our organic growth estimates, though maintaining our Outperform recommendation, as we believe Descartes would likely continue to create shareholder value through acquisitions.”


Artemis Gold Inc. (ARTG-X) is “a developer that checks all of the boxes,” said Canaccord Genuity analyst Kevin MacKenzie.

In a research report released Thursday, he initiated coverage of the Vancouver-based company, which is focused on advancing into production its 100-per-cent owned Blackwater project in B.C., with a “speculative buy” rating.

“Artemis recently acquired the 12 million ounce Blackwater project from New Gold for a total consideration of $190-million in cash payments, issuance of 7.4 million shares, and a gold production stream,” said Mr. MacKenzie. “The acquisition of the project was predicated on a rescoped project development/execution plan derived by Artemis, which was centered on a phased development approach. As outlined in the results of the recently released pre-feasibility study, the lower initial throughput associated with Artemis' phased ramp-up (5.5 million tons per annum vs. 22Mtpa previously) significantly reduces the project’s initial CAPEX ($592-million vs. $1.963-billion), which in an improved commodity price environment, dramatically improves the project’s overall economics (AT-IRR of 34.8 per cent vs. 9.3 per cent).”

Mr. MacKenzie emphasized Blackwater’s location in a “top-tier” mining jurisdiction, its “robust” economics and “clear” path to production.

He set a target of $13 per share, exceeding the current average of $10.

“We would expect that Blackwater would be squarely on the radar of many of the industry’s mid-tier to senior producers in terms of development-stage M&A,” the analyst said. “That said, we fully expect that Artemis will look to further unlock the value of Blackwater by advancing the project through construction and into production. As such, and as was the case with Atlantic Gold, we do not expect that Artemis will be acquired pre-production. Notwithstanding a significant bid premium to our target, we believe that this outlook is underscored by management and the board’s 42-per-cent interest in the company.”


Trillium Therapeutics Inc. (TRIL-Q, TRIL-T) is poised to enter “a new phase for growth,” according to H.C. Wainwright analyst Swayampakula Ramakanth.

“On September 8, Trillium reported updated interim results from the ongoing Phase 1 studies of TTI-622 and TTI-621, the company’s CD47-targeting drug candidates, and announced a $25-million equity investment from Pfizer (PFE-N)” he said. “Recall, in August 2019, we highlighted the lack of clinical progress and a looming cash crunch as the primary challenges faced by the company and listed them as the primary reasons behind our downgrade of the stock.”

Raising his rating for Trillium to “buy” from “neutral,” Mr. Ramakanth thinks the investment from Pfizer not only boosts Trillium’s financial position but also opens significant opportunities for the company.

“We believe that Pfizer’s equity investment is also a strong vote of confidence in the potential of the company’s products and could lead to partnership agreements or acquisition in the future," he said. "We note that the $25-million investment was made at $10.88 per share, which was a 15-per-cent premium compared to TRIL’s closing price on Sept. 8. While Pfizer has been a latecomer in the field of immuno-oncology, over the last five years the company has poured in significant resources in a bid to catch up with market leader Merck (MRK) and has secured regulatory approval for its anti-PD-L1 antibody, Bavencio (avelumab). The big pharma is also a major backer of early-stage immunotherapy companies, and we believe that this first investment could blossom into a collaboration partnership in the future. Finally, should TTI-622 and TTI-621 continue to demonstrate efficacy in clinical studies, we believe it may potentially lead to the acquisition of the company. We note that Forty Seven Inc., the development leader in the CD47 space, was acquired by Gilead (GILD) in March for nearly $5-billion. Therefore, we believe Trillium’s current market cap of $1.2-billion suggests that there is still significant room for growth.”

Mr. Ramakanth’s target for Trillium shares is US$16.50 per share. The consensus on the Street is US$18.25.


In response to better-than-anticipated third-quarter results, several analyst raised their financial expectations and target price for shares of Transcontinental Inc. (TCL.A-T).

On Wednesday, the Montreal-based packaging, commercial printing and specialty media company reported revenue of $587.4-million, down 19 per cent year-over-year and narrowly below the consensus projection.

However, EBITDA of $139.3-million blew past the Street’s forecast ($104-million), due largely to strong packaging results and a greater-than-anticipated contribution from the Canada Emergency Wage Subsidy. Earnings per share of 78 cents also topped the consensus (46 cents).

Canaccord Genuity analyst Aravinda Galappatthige said packaging “continues to show underlying strength.”

“The robust trends in packaging, even as we emerge from the early pandemic stocking tailwinds, is encouraging,” he said. “In fact, ex the impact of resin prices, Q3 saw a 4-per-cent organic growth rate. While the market was generally aware that the segment would manage relatively well through the current crisis, we believe the results represented a meaningful positive surprise. As we have suggested in the past, at this point, we think investors are still adjusting to the change in TCL’s asset mix and also assessing the extent to which TCL has a grip on the packaging side of the business, particularly given its shorter tenure within the company and recent periods of volatility. As comfort around that factor grows there is room for valuations to trend toward other packaging comps.”

Though he wants to see “more tangible evidence” of a printing recovery, Mr. Galappathige raised his target to $20 from $18, keeping a “buy” rating. The average is $19.56.

“With regards to returning capital, TCL offers an attractive dividend yield of 6 per cent with the prospect of continued annual dividend growth,” he said. “In addition, management has highlighted in the past that it is more than willing to buy back shares if there are no transactions imminent.”

Elsewhere, Scotia Capital’s Mark Neville raised his target to $20 from $18 with a "sector perform rating, while BMO’s Tim Casey moved his target by a loonie to $17.50 with a “market perform” rating.


A jump in ground volume is likely to support a first-quarter 2021 earnings beat for FedEx Corp. (FDX-N), according to Citi analyst Christian Wetherbee.

Ahead of the release of its financial results on Sept. 15, he increased his earnings per share forecast for the quarter to US$2.80 from US$2.40, which is 9 per cent (or 23 US cents) above the consensus on the Street.

“Our increase is driven primarily by higher volume targets for Ground, as we now expect F1Q year-over-year growth (27 per cent) to exceed F4Q’s growth (25 per cent) given the inclusion of August (a strong month) in exchange for March (a weaker month at the start of the COVID-19 pandemic),” he said. “In addition, we believe we may see some signs of yield improvement as surcharges were put into effect early in the quarter. Importantly, we are still assuming 150 basis points of year-over-year margin headwind in Ground due to the sharp mix shift to B2C, but this could prove conservative.”

Mr. Wetherbee also raised his EPS estimates for fiscal 2021, 2022 and 2023 to US$11.55, US$14 and US$15.30, respectively, from US$10.70, US$12.50 and US$14.

“Longer-term, we believe better pricing trends, sustained volume growth from ecommerce, and the reversal of losses in Europe from the TNT integration will drive a return to essentially peak level earnings power,” he said.

Keeping a “buy” rating for FedEx shares, he hiked his target to US$260 from US$235. The average is US$214.38.

“We believe the sharp decline in EPS estimates that has transpired over time, coupled with stabilizing/improving global trade trends, the surge in ecommerce volume and potentially better parcel pricing suggest that estimates have finally bottomed,” said Mr. Wetherbee. “We believe that a directional change in earnings from a trend of misses and guide downs to meets and then to beats and raises is a powerful catalyst for the stock even if the magnitude of increases was smaller than the decline. We think we are at/near the inflection point to positivity and see a reasonable path toward 60-per-cent gains in earnings power from F20 to F23.”


Evertz Technologies Ltd. (ET-T) is “likely passing the low point,” said Canaccord Genuity analyst Robert Young following the release of weaker-than-anticipated first-quarter results.

“Government wage supports, reduced discretionary spend and lower travel offset the full impact on margins and EBITDA," he said. :The company does appear to be through the worst of the impact with the backlog climbing to record levels and strong August shipments benefiting from steady resumption of live sports. Moreover, Evertz management suggested the more positive environment had carried into September. The key bottleneck is logistics on current programs gated by customer site access rather than demand weakness of program cancellations.

"We remain cautious on the level of uncertainty inserted by COVID-19 and expect near-term share weakness; however we continue to believe that the headwinds will prove temporary and that Evertz has the potential to emerge from the pandemic in a stronger competitive position.”

Maintaining a “buy” rating, Mr. Young trimmed his target for the Burlington, Ont.-based company to $13.50 from $15. The average is currently $14.13.


In other analyst actions:

* Echelon Capital Markets analyst Rob Goff moved Pivot Technology Solutions Inc. (PTG-T) to “tender” from “speculative buy” after it agreed to be acquired by U.K.-based Computacenter at $2.60 per share.

“We are changing our Speculative Buy rating and $2.40 PT to Tender assigning a high probability to the deal being successfully completed,” he said. "While possible, we are not assigning a high probability to a higher offer given the deal terms and considering that PTG has been considered a takeover candidate for some time. We believe management’s efforts to crystallize value through the sale of its SmartEdge technology along with its 2019 efficiency moves were key contributors to the offer premium. We put the acquisition at roughly 8.0 times/7.3 times 2020/21 EV/EBITDA. We note that the termination fee at $2-million or 5 cents per share is relatively modest.

* Lake Street Capital analyst Frank Takkinen initiated coverage of Mississauga-based Profound Medical Corp. (PROF-Q, PRN-T) with a “buy” rating and $22 target, exceeding the US$18 consensus.

“We see a pathway to a $60+ stock over time,” he said. “There is much to be done between now and then, including reimbursement and commercial execution as significant constituents, but we feel the TULSA benefits and significant market size support our illustration. Over time, we believe TULSA-PRO could garner one-sixth of the 180,000 U.S. annual prostate cases, about 30,000 procedures. We believe Profound’s business model has the framework for scale (disposable recurring model with $55,000 TULSA upfront cost to Profound). At 30,000 procedures revenues would be about $225-million with 75-per-cent gross margins. At this level we believe a 30-per-cent EBITDA margin is achievable. These assumptions result in about $70-million in EBITDA. At this run-rate, we believe PROF could command a 25 times multiple. We believe the 25 times EBITDA multiple is justified on the average multiple of 26 times FY19 for a group of comparable companies. We factor in 30-per-cent dilution (growth capital) over time resulting in a stock over $60. Execution will be key and many near-to-intermediate catalysts must align, but we believe Profound’s technology has serious potential to becoming a standard of care in prostate cancer.”

* Credit Suisse analyst Brian Russo upgraded Spotify Technology SA (SPOT-N) to “outperform” from “neutral” with a US$315 target, rising from US$215 and above the US$259.18 average.

“Two factors have made us incrementally positive on SPOT shares: 1) we see potential upside to consensus MAU [monthly active user] and subscriber estimates through 2021 from exclusive podcasts, as well as a recent partnership with mobile carrier MTS in Russia; and 2) we now see a greater likelihood that major labels will participate in Spotify’s Marketplace and help expand gross margins, a change from our prior view,” he said. “We raise our ’21 sub forecast by 4 million, and are now above consensus for both MAUs and subscribers in 2020 and 2021. We see primary catalysts as 3Q earnings in October and 2021 guidance in January.”

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