Inside the Market’s roundup of some of today’s key analyst actions
In a research report released Thursday, he emphasized the ability of asset sales to “highlight the disconnect between private market valuations and the multiples that public market investors are willing to attach to various assets within BIP,” pointing to the sale of Enwave, its urban energy-systems business, to several institutional investors, including Ontario Teachers’ Pension Plan.
“Since being spun-off roughly 13 years ago, BIP has developed a track record of regularly monetizing mature businesses and redeploying the capital into new investments, typically with a stronger growth profile and usually at a more attractive entry valuation,” said Mr. Kwan. “The capital recycling program has generated roughly $5 billion in gross proceeds since its inception with an average IRR [internal rate of return] of over 20 per cent for the monetized assets. BIP noted that it is ‘on track’ to deliver over $2 billion of proceeds from its capital recycling program this year. Longer-term on the capital recycling front, BIP expects approximately $4-billion of proceeds over the next two years, which it expects will fund 60-75 per cent of its growth opportunities.”
Mr. Kwan said the Enwave deal, valued at US$4.1-billion, highlights Brookfield’s success in recycling capital.
“We positively view the sale of the North American district energy business for $950 million of proceeds (net to BIP) given the attractive valuation (estimated 4-per-cent FFO yield) and the continued execution of the capital recycling strategy as an optimal way to grow cash flow on a per unit basis. Further, in a sign of more to come on the asset recycling front, BIP noted that the district energy sales ‘begin’ what it expects to be a ‘strong year’ for the capital recycling program,” he said.
After modestly increasing his funds from operations estimates for 2021 and 2022, Mr. Kwan raised his target for Brookfield Infrastructure shares to US$61 from US$57, keeping an “outperform” rating. The average on the Street is US$56.59, according to Refintiv data.
“We believe the Enwave sale at an estimated 30 times EBITDA (we valued it at 15-18 times) will help shine a spotlight on assets in the portfolio that could be worth significantly more than what we believe the public markets have ascribed,” he said. “Our new price target is primarily driven by a higher valuation for Data ($2/unit), which we believe still has upside to public comps, ports ($1/unit) and a higher-than-forecast value for Enwave ($1/unit).”
Enerplus Corp.’s (ERF-T) US$465-million acquisition of Bruin E&P HoldCo LLC “checks all the right boxes,” according to Desjardins Securities analyst Chris MacCulloch, calling it a “natural strategic fit.”
He said the deal for the pure play Williston Basin private company allows it to acquire producing assets “directly offsetting its existing properties at Fort Berthold while significantly enhancing free cash flow.”
“Through the transaction, ERF will pick up 24,000 boe/d (86 per cent liquids) and 84.1 mmboe of PDP reserves in the Williston Basin, the bulk of which is located directly adjacent to the company’s existing acreage at Fort Berthold,” said Mr. MacCulloch. “From our perspective, the acquisition is highly accretive to free cash flow while offering operational synergies given the offsetting land position, which fits like a glove within the existing portfolio.”
“We estimate that the Bruin assets will contribute $150-million of annualized cash flow based on current strip prices, which would imply that ERF paid 4.0 times cash flow. Following the deal, we see the company exiting 2021 with a D/CF [debt to cash flow] of 1.2 times at strip, which provides more than $200-million of annualized free cash flow. As a result, we believe ERF is well-positioned to explore future acquisition opportunities and a potential acceleration of returns to shareholders moving into 2022, assuming no major hiccups in the commodity price recovery.”
Upon resuming coverage of Enerplus, Mr. MacCulloch raised his target for its shares to $6.50 from $5, maintaining a “buy” recommendation. The average target on the Street is $6.02.
“We believe that ERF is well-positioned to explore future acquisition opportunities and a potential acceleration of returns to shareholders, either through an enhanced dividend or a resumption of the share buyback program moving into 2022, assuming no major hiccups in the commodity price recovery,” the analyst said.
Elsewhere, others raising their targets included:
* CIBC World Markets analyst Jamie Kubik to $6.50 from $6 with an “outperformer” rating.
“We see the company’s acquisition as opportunistic, and carrying accretion to most metrics under our estimates. The Bruin assets bring additional critical mass to the company’s core Bakken position in North Dakota,” said Mr. Kubik.
* BMO Nesbitt Burns’s Ray Kwan to $6.50 from $6 with an “outperform” rating.
After its quarterly results exceeded expectations on the Street, a group of equity analysts raised their target prices for shares of ATS Automation Tooling Systems Inc. (ATA-T).
* National Bank Financial’s Maxim Sytchev to $30 from $28 with an “outperform” rating.
“We continue to like ATA’s Healthcare/Food/Nuclear steady state businesses that should command a higher multiple,” said Mr. Sytchev. “Encouragingly, after the Transport restructuring there appears to be better momentum in the EV space in North America; continued investment in e-commerce is also bringing life to the Consumer vertical.”
* TD Securities’ Cherilyn Radbourne to $33 from $31 with a “buy” rating
* RBC Dominion Securities’ Steve Arthur to $28 from $25 with a “sector perform” rating.
* Scotia Capital’s Mark Neville to $35 from $30 with a “sector outperform” rating.
Despite COVID-19-driven restrictions and energy demand headwinds, ATB Capital Markets analyst Nate Heywood thinks market fundamentals are showing improvement for TSX-listed energy infrastructure companies heading into fourth-quarter earnings season.
“Energy infrastructure names continue to boast attractive dividend yields relative to fixed income returns, supported by modest payout ratios, with limited near-term risk of dividend cuts,” he said. “While we expect few distribution increases, we are optimistic names will look to strategic alternatives to improve leverage metrics and opportunistic growth projects given improved FCF profiles.
Mr. Heywood also emphasized renewable energy companies “continue to benefit from optimism surrounding long-term growth in high-demand markets with supportive policy measures.”
“We expect the changing political environment in the U.S. and global renewable demand will continue to drive investment and allow for significant growth opportunities,” he said.
After raising his estimates ahead of earnings season, Mr. Heywood made a series of target price changes:
* Keyera Corp. (KEY-T, “outperform”) to $29 from $28. The average on the Street is $27.78.
* Pembina Pipeline Corp. (PPL-T, “outperform”) to $39 from $38. Average: $38.29.
* Capital Power Corp. (CPX-T, “sector perform”) to $38 from $36. Average: $38.31.
* Pinnacle Renewable Energy Inc. (PL-T, “outperform”) to $11.50 from $9.50. Average: $11.35.
* TransAlta Corp. (TA-T, “outperform”) to $13 from $11. Average: $12.50.
* TransAlta Renewables Inc. (RNW-T, “sector perform”) to $21 from $19. Average: $20.79.
Expecting wood product prices to remain high in 2021, CIBC World Markets analyst Hamir Patel raised his target prices for lumber stocks in his coverage universe.
“Not only has new residential demand returned to mid-cycle levels (with several years of elevated consumption likely given sub-3-per-cent mortgage rates), but R&R activity looks likely to grow further in 2021 (after a record 2020),” said Mr. Patel. “At the same time, wood product inventories are very lean, offshore markets are strong (reducing the likelihood of a surge in imports), and the industry seems incapable of bringing on additional capacity to rebuild inventories. We do not anticipate a meaningful capacity response until 2022. Earlier this week, PotlatchDeltic CEO Eric Cremers suggested COVID may be disrupting industry output by 4 per cent of capacity, a productivity challenge we suspect will persist throughout this year. Even before COVID, the Southern lumber industry has been contending with turnover rates of 30-40 per cent, making it difficult to add shifts.”
His changes were:
- Canfor Corp. (CFP-T, “outperformer”) to $34 from $29. The average target on the Street is $31.42.
- CanWel Building Materials Group Ltd. (CWX-T, “neutral”) to $8.50 from $8.25. Average: $8.44.
- Conifex Timber Inc. (CFF-T, “neutral”) to $2.50 from $2. Average: $2.33.
- Interfor Corp. (IFP-T, “outperformer”) to $37 from $29. Average: $32.08.
- West Fraser Timber Co. Ltd. (WFG-T, “outperformer”) to $120 from $102. Average: $107.60.
- Western Forest Products Inc. (WEF-T, “outperformer”) to $1.70 from $1.50. Average: $1.58.
“Our top pick is West Fraser,” said Mr. Patel. “Our other Outperformer wood products names include Canfor, Interfor, Resolute and Western FP. We also remain constructive on Stella-Jones and Hardwoods, two names with attractive M&A pipelines and exposure to residential construction.”
With its shares up 120 per cent since its mid-December initial public offering and 26 per cent year-to-date, Canaccord Genuity analyst Robert Young said he’s “taking a pause” on Haivision Systems Inc. (HAI-T).
He moved the Montreal-based video streaming and encoding company to “hold” from “buy,” citing “a lack of any further visible levers for upside before fiscal 2022 and with M&A and cloud growth appearing to be late F21 and F22 driver.
However, Mr. Young continues to look positively on its future.
“Haivision reported strong Q4 results last week, beating our top- and bottom-line expectations,” the analyst said. “We hosted management in a series of well-received marketing meetings on the back of the quarter, providing confidence that the company is positioned well. Management reiterated low-teen revenue growth in 2021 and a path to 20-per-cent EBITDA margins in the medium term. On the recurring revenue end, Haivision expects its Connect and Hub offerings to hit shelves in summer this year and to benefit Cloud revenue beginning in 2022. M&A is also a key priority, with 50 targets in the pipe and discussions underway although no announcements are imminent.
“Given the outlook, we believe Haivision is in a strong position to benefit from growth in streaming video and mix shift towards recurring software. A bolstered balance sheet also provides room for meaningful acquisitions, although we do not reflect this in our estimates and reflect it in our valuation multiple.”
Mr. Young, currently the lone analyst covering the stock, raised his target for Haivision shares to $13.50 from $11.50.
“We are increasing our price target ... based on 17 times EV/F2022E EBITDA (from 14 times) backed by increased F22 estimates and a SOTP valuation, now a premium to peers,” he said. “We believe cloud acceleration appearing before F22, increased growth outlook or faster-than-expected action on M&A would be causes for a more aggressive view.”
Seeing it positioned for a “steady” ramp in production from 2021 on and emphasizing changes to its revenue mix have not yet been priced into its shares, Red Cloud Securities analyst Jacob Willoughby initiated coverage of Great Panther Mining Ltd. (GPR-T) with a “buy” rating on Thursday, seeing “plenty” of upside and good optionality at its Tuscano mine in Brazil.
“Great Panther’s growing gold and silver portfolio includes three operating mines located in Brazil and Mexico as well as one near-term development asset in Peru. Having overcome operational challenges in 2019 and multiple COVID-19-related shutdowns in 2020, the company has managed to meet its consolidated 2020 guidance of 146-158k oz Au Eq at AISC of US$1,150-1,250/oz sold,” he said. “The company remains growth focused, and we expect that a large portion of the company’s value remains in exploration, particularly at Tucano where GPR has committed US$7-million in exploration budgeting in 2021. The constant focus on continuous improvement at its operating mines, combined with the development of the underground option at Tucano and the transition of the Coricancha asset from care and maintenance into production should also drive future growth.”
Mr. Willoughby set a $1.90 target, exceeding the $1.70 consensus.
In other analyst actions:
* In the wake of the release of its quarterly results after the bell on Wednesday, Raymond James analyst Chris Cox raised his target for Suncor Energy Inc. (SU-T) to $33 from $32, keeping an “outperform” rating. The average on the Street is $28.15.
“This was a solid finish to an otherwise choppy year for Suncor, with strong results from its Oil Sands portfolio a particular highlight to close out 2020,” he said. “With the Base Plant, Syncrude and Firebag all operating close to nameplate capacity, confidence in the 2021 production guidance should improve coming out of the quarter. Against the backdrop of improving oil prices, this focuses the attention on capital allocation, with the current strip signaling a return of the robust free cash flow profile that had characterized Suncor prior to the pandemic. For now, it will be a waitand-see story on the dividend increase; nevertheless, we expect the Street will be encouraged by Management guidance for $1.0-1.5-billion of debt reduction and $0.5-1.0-billion of buybacks, alongside the restart of the key longer-term growth projects to support the $2-billion FCF growth target.”
* National Bank Financial analyst Vishal Shreedhar lowered his Loblaw Companies Ltd. (L-T) target to $76 from $82 with a “sector perform” rating. The average on the Street is $77.18.
* Scotia Capital analyst Michael Doumet lowered his target for shares of Exco Technologies Ltd. (XTC-T) to $12 from $19 with a “sector perform” rating , while BMO Nesbitt Burns’ Peter Sklar moved his target to $11 from $9 with a “market perform” recommendation. The average is $11.67.
* Scotia’s Trevor Turnbull increased his Silvercrest Metals Inc. (SILV-N, SILV-T) target to US$12.50 from US$12 with a “sector outperform” rating, while National Bank’s Don DeMarco trimmed his target to $17.25 (Canadian) from $19 with an “outperform” recommendation. The average is $15.25.
* Scotia’s George Doumet raised his target for Rogers Sugar Inc. (RSI-T) to $5.75 from $5.50 with a “sector perform” rating, while Desjardins Securities’ Frederic Tremblay raised his target to $5.75 from $5.50 with a “hold” rating. The average is $5.70.
“1Q FY21 results were mixed, with lower-than-anticipated performance in the sugar business and a beat in the maple segment,” said Mr. Tremblay. “Sugar is expected to recover in 2Q and maple appears to be on the right track, although the evolution of the pandemic brings some uncertainties. Our FY22 estimates move up modestly, based mainly on a slight increase in our assumptions for sugar volume growth and maple margins.”
* National Bank Financial analyst Zachary Evershed raised his Hardwoods Distribution Inc. (HDI-T) to $36.50 from $35 with an “outperform” rating. The average is $33.70.