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

Seeing it “on the road to recovery,” Desjardins Securities analyst Benoit Poirier raised his rating for Uni-Select Inc. (UNS-T) in response to better-than-anticipated operational results that highlighted improving market conditions as well as a recent pullback in share price.

“Following 2Q20 results, we became more constructive on the story although we preferred to wait for further confirmation of the sales trends before revisiting our investment thesis,” he said. “[Wednesday’s] operational update reinforced our confidence, with sales declining only 11 per cent year-over-year in August.”

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The Boucherville, Que.-based distributor of automotive refinish and industrial paint and related products said sales continued to improve through August, which saw a decline of just 11-per-cent year-over-year versus drops of 15 per cent in June and 46 per cent in April.

“Stronger operational performance is unlocking further balance sheet flexibility - disclosures on bank covenants are welcomed. UNS noted that its stronger-thanexpected operations improved its access to liquidity to US$200-million, up from US$182-million in 2Q20,” said Mr. Poirier. “UNS also mentioned that its total net debt was trending marginally lower than 2Q20 at the end of August. This is encouraging as we had expected total net debt to increase sequentially to US$470-million (from US$444-million as of 2Q).”

The analyst said Uni-Select’s valuation remains “attractive” in comparison to peers, but he noted “management needs to execute to close the gap.”

“UNS currently trades at a significant EV/FY2 EBITDA discount of 3.2 times versus its U.S. aftermarket peers,” he said." Ultimately, we understand that the valuation gap between UNS and its US peers is mainly due to recent operational challenges with the business and its levered balance sheet (net debt to EBITDA of 4.6 times versus 2.2 times on average for peers). We note that further operational execution and deleveraging efforts will be needed to help close the valuation gap vs peers. We believe the healthy valuation for U.S. peers is justified by the resiliency and robust FCF generation capabilities (low capex requirement) of the aftermarket industry —two attributes that should be reflected in UNS’s multiple over time. In the meantime, we believe UNS’s current P/B ratio of 0.4 times is attractive compared with peers (AAP currently trades at 2.8 times versus 1.6 times for LKQ; no relevant multiple for other U.S. aftermarket peers)."

Moving the stock to “buy” from “hold,” Mr. Poirier trimmed his target to $9 from $9.25. The average on the Street is $10.20, according to Refinitiv data.

“While we acknowledge that UNS’s balance sheet remains fragile, we believe the faster-than-expected recovery and recent share price pullback offer an attractive entry point for long-term investors,” he said.


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Seeing “see a path to a more robust $35 over the medium term from recovering travel demand” as well as specific growth opportunities, BMO Nesbitt Burns analyst Fadi Chamoun raised his rating for CAE Inc. (CAE-T) to “outperform” from “market perform.”

“CAE is likely to emerge from the pandemic with a stronger competitive position and more profitable than it was before. he said. "Moreover, CAE’s civil aviation business is more indexed to the business aviation segment and narrow-body aircraft commercial fleet, which we believe could recover faster than the overall market.”

Mr. Chamoun’s target increased to $25 from $23, which is above the $24.35 average on the Street.


BMO Nesbitt Burns analyst Randy Ollenberger sees Suncor Energy Inc. (SU-T) as an “under appreciated value.”

“Suncor shares have underperformed peers and crude oil prices in 2020 following the 55-per-cent cut to its dividend and third quarter operating challenges in its oil sands business,” he said in a research note.

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“Third quarter results are expected to be mixed; however we believe weak results are priced into the shares.”

He has an “outperform” rating and $28 target, down from $30, for Suncor shares. The average is $30.04.

“In our opinion, the shares offer compelling long-term value, and we recommend that investors increase exposure at current levels,” Mr. Ollenberger said.


Algonquin Power & Utilities Corp. (AQN-T) is “poised for continued growth,” said Industrial Alliance Securities analyst Naji Baydoun, seeing its hybrid utility and power business offering multiple platforms for expansion

“AQN’s current five-year capital investment plan of US$9.2-billion (2020-24) is expected to drive high single-digit average annual EPS and FCF per share growth through 2024,” he said following virtual investor meetings with the Oakville, Ont.-based company.

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“AQN continues to target dividend growth of 10 per cent per year through 2021, and we believe that dividend growth beyond 2021 will slightly lag EPS growth in order to drive the payout ratio lower over time.”

Mr. Baydoun said Algonquin management remains bullish on its “greening the fleet” investment opportunities for its regulated utility and non-regulated power businesses. For its Utility segment, he thinks a lower interest rate environment “represents a net positive for AQN, and [he expects] the company’s regulated portfolio to continue delivering within its historical achieved allowed ROE [return on equity] range.”

Seeing its valuation remaining “compelling,” the analyst kept a “buy” rating and $21 target for its shares. The average target on the Street is $20.42.

“AQN is currently trading in line with its historical average FY2E P/E [price-to-earnings and at a premium to large cap regulated utility peers (given its strong growth profile),” said Mr. Baydoun. “Furthermore, AQN’s current dividend yield spread over Canadian benchmark bond yields is above its historical average; if this spread were to compress back to its historical average, we estimate that AQN’s shares could trade closer to $22-23/share.”

“AQN offers investors a well-balanced mix of growth and income, with (1) a diversified business model (regulated utilities & non-regulated power), (2) robust medium-term growth (8-10 per cent per year EPS and FCF/share growth through 2024), (3) attractive dividend growth (10 per cent per year through 2021), and (4) upside from additional growth initiatives (including M&A; not included in our estimates/valuation).”


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Aya Gold & Silver Inc. (AYA-T) is a “rare pure-play silver miner with exploration and expansion upside potential,” according to Desjardins Securities analyst David Stewart.

In a research report released Thursday, he initiated coverage of the Montreal-based company with a “buy” rating.

“Aya Gold & Silver Inc. is the only pure-play silver miner on the TSX and we believe its rarity alone will attract investors to the story,” said Mr. Stewart. “Aya’s producing Zgounder silver mine in Morocco is the current focus and has plenty of potential to be improved, rightsized and, ultimately, grown through exploration and expansion. We believe Aya should outperform its peers based solely on Zgounder while investors can expect additional potential upside through the advancement of the remaining property portfolio.”

The analyst compared Aya to K92 Mining Inc. (KNT-X), noting “it has a small-scale producing asset which was historically mismanaged and under-explored, but with new management is being transformed through modern exploration, resource growth and, ultimately, production expansions.”

“Zgounder has seen some of the world’s highest-silver-grade drill intersections over the past year, and management is targeting a 100moz resource over the next few years,” he added.

“Given the resource growth potential, we believe a prudent expansion of the current small-scale operation could see a meaningful increase in production toward 5moz per year. As the new management team continues to make improvements to the operation and delineate the true growth potential of Zgounder and the remaining assets, we believe Aya should be a catalyst-rich story which outperforms its peer group not simply through re-rating but also through NAV growth over time.”

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Seeing “significant” re-rating potential as it cycles through coming catalysts, including a first-quarter 2021 resource update and a fourth-quarter 2021 expansion feasibility study, Mr. Stewart, who is currently the lone analyst on the Street covering the stock, set a target of $5.25 per share.


Higher prices are likely to provide a tailwind for North American base metal equities, said RBC Dominion Securities analyst Sam Crittenden.

In a research report previewing third-quarter results, he adjusted his earnings expectations for many of the companies in his coverage universe, and sees other analysts making increases as earnings season comes closer.

“Copper seems to have paused around $3.00 per pound on second wave concerns and the equities have consolidated in the last couple weeks but we expect copper prices to remain well supported into 2021 based on a strong Chinese economy and low inventory levels,” he said. “Meanwhile, met coal prices have bounced and we expect prices to continue to rally into 2021 on rising seaborne demand in China and India and supply risks have emerged (a recent accident in China could spur safety checks, and La Nina could impact Australian supply).”

“Copper averaged $2.96 Q3 which is up 22 per cent from $2.42 in Q2, zinc was $1.06 up 21 per cent from $0.88, while gold and silver were up 12 and 50 per cent which helps by-products. Most operations are getting close to full production following COVID impacts in Q2. Our EPS and EBITDA estimates were up approximately 35 per cent and 7 per cent after marking to market for Q3 metals prices and we are now 23 per centabove consensus on average so we expect street estimates to rise in the coming weeks ahead of results.”

Mr. Crittenden said First Quantum Minerals Ltd. (FM-T) remains his preferred copper producer as its Cobre Panama project “resumes the ramp up to becoming a world class mine.”

He maintained an “outperform” rating and $16 target for its shares. The average target is currently $16.58.

“We could see a positive reaction to First Quantum’s Q3 results which we expect to be up quarter-over-quarter and slightly ahead of consensus,” he said. "The company reiterated guidance in early September and noted it does not expect further impacts from COVID-19 with its current precautionary measures in place. Cobre Panama was able to restart and management noted Zambia operations are running well. We expect the focus will be on the execution of the Cobre Panama ramp-up and ongoing operations to help generate strong FCF which should drive share price performance in our view. "

He also expressed a preference for Teck Resources Ltd. (TECK.A-T) as it benefits from rising met coal prices and Ivanhoe Minerals Ltd. (IVN-T), feeling the recent technical report for its Kamoa-Kakula project highlights its potential value and a phased approach at Platreef could unlock value.

He kept an “outperform” rating and $22 target for Teck shares. The average is $22.22.

“We expect a neutral reaction to Teck’s Q2 results as we expect coal sales to be relatively muted again in Q3 due to challenging market conditions, offset by stronger base metals prices,” he said. “Teck could provide an update on the COVID impact at QB2 but we expect this to be within the prior range ($260-290-million with a 5-6 month delay) as the workforce is expected to be back at pre-suspension levels by the end of October. We do not expect an update to the initial capital estimate for QB2 of $5.2B, we expect Neptune to remain on schedule and the fish studies in the Elk Valley are expected later in the year. We estimate EPS of $0.15 vs. consensus of $0.21 and EBITDA of $603-million versus consensus of $653-million. We could get additional guidance on Teck’s coal sales outlook for Q4. The company provided H2/20 coal production guidance of 11-12Mt and we have seen the coal price rally in the past few weeks on improved demand out of Asia which should be positive for Teck’s sales.”

Mr. Crittenden has a “buy” rating and $7 target for Ivanhoe shares. The average is $7.17.


BMO Nesbitt Burns analyst Thanos Moschopoulos resumed coverage of Dye & Dunham Ltd. (DND-T) after coming off a research restriction related to its recent equity financing and secondary offering.

“We believe the PIE acquisition should prove to be highly accretive, given the potential synergies with DND’s existing UK property business, and DND’s balance sheet provides it with room for additional M&A,” he said.

“Further, Q4/20 results and Q1/21 guidance were both ahead of expectations, providing incremental comfort with respect to DND’s near-term organic growth trajectory.”

Mr. Moschopoulos’s target jumped to $26 from $18, exceeding the consensus by a loonie.


In other analyst actions:

  • TD Securities analyst Graham Ryding raised Morneau Shepell Inc. (MSI-T) to “buy” from “hold” with a $34 target, down from $35. The average target is $36.
  • TD’s Aaron Bilkowski cut Freehold Royalties Ltd. (FRU-T) to “buy” from “action list buy” with a Street-high $9 target, sliding from $10.50 but above the $5.86 average.
  • JPMorgan analyst Phil Gresh downgraded Cenovus Energy Inc. (CVE-T) to “underweight” from “neutral” with a $6 target, down from $7.75. The average on the Street is $7.69.
  • Mr. Gresh also dropped his target for shares of Imperial Oil Ltd. (IMO-T) to $18 from $24 and Suncor Energy Inc. (SU-T) to $20 from $27. The average targets on the Street are $22.98 and $30.04, respectively.
  • Eight Capital analyst Ralph Profiti raised his target for Kinross Gold Corp. (K-T) to $15.50 from $15 with a “buy” rating. The average is $16.21.
  • TD’s Derek Lessard raised his target for MTY Food Group Inc. (MTY-T) to $32 from $28, keeping a “market perform” rating. The average is $33.17.
  • TD’s Damir Gunja cut his target for Chemtrade Logistics Income Fund (CHE.UN-T) to $5.50 from $6.50 with a “hold” rating (unchanged). The average is $7.47.

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