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

RBC Dominion Securities analyst Nelson Ng expects Methanex Corp. (MEOH-Q, MX-T) to continue to benefit from higher oil and gas prices, and well as the continued recovery in the global economy.

The Vancouver-based producer and supplier recently posted increases to its North American non-discounted reference and Asian contract prices for October, which Mr. Ng attributed to a series of factors, including continued supply constraints, strong demand, higher natural gas prices globally and higher coal prices in China.

He also emphasized the potential positive impact brought by China’s energy dual control policy in the near term.

“China’s top economic planner recently released a ‘dualcontrol’ policy update targeting enhanced control on both energy intensive activities and total energy consumption, ordering regional governments to set targets and cap and ration electricity consumption to control emissions,” he said. “Based on the rationing policies issued by the regional governments to meet targets by year-end, the short-term power cuts have been focused on energy-intensive industries, which include methanol production and MTO facilities, among other industries. Overall, IHS expects the plan to negatively impact both supply and demand for methanol, but see it as a net positive to methanol prices. Longer-term, the impact on methanol prices is uncertain, but could directionally be positive.”

Pointing to IHS’ updated methanol price forecast and Methanex’s non-discounted contract prices for October and the fourth quarter, Mr. Ng raised his 2021 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) estimate to US$1.085-billion from US$1.036-billion.

That led him to raise his target for Methanex shares to US$60 from US$50, keeping an “outperform” rating. The average on the Street is US$48.54, according to Refinitiv data.

“There is currently some short-term uncertainty with respect to global economic growth and trade disputes. However, the long-term demand outlook is more positive, driven by traditional chemical, MTO, and energy applications,” he added.

Elsewhere, TD Securities analyst Cherilyn Radbourne raised her target to US$59 from US$55 with a “buy” recommendation, , while BMO Nesbitt Burns’ Joel Jackson raised his target to US$60 from US$55 with an “outperform” rating.


Tidewater Renewables Inc. (LCFS-T) is “well positioned to be a leader in the growing North American biofuels sector,” according to Stifel GMP analyst Cole Pereira.

In a research report released Thursday, he initiated coverage of the Calgary-based company, a subsidiary of Tidewater Midstream and Infrastructure Ltd. (TWM-T), with a “buy” recommendation, saying he’s “positive” on its investment outlook.

“We view North American biofuels as poised for significant growth over the next few years, as the sector remains relatively early-stage, particularly in Canada,” said Mr. Pereira. “In our view Tidewater is well-positioned given its ‘first-mover’ advantage as it builds the first large-scale Renewable Diesel & Hydrogen facility in Canada, as well as its parent TWM’s ownership of infrastructure and refining assets.”

“Tidewater’s projects boast robust economics driven by government incentives for both constructing and operating biofuels facilities, improving profitability and lowering net capex. We forecast a 1.4-times year EBITDA payback on the net capex for its RDH2 facility based on 2023 estimated EBITDA ($85-million), which is reflected in a ROCE of 16 per cent in 2023 and 17 per cent in 2024. While free cash flow is negative from 2021-2022 during the buildout phase, we forecast attractive FCF yields of 20 per cent in 2023 and 21 per cent in 2024, and its debt to be paid down by 2Q24.”

Also touting its “enviable” ESG characteristics and “attractive” valuation, he set a target of $22.50 per share, exceeding the current average of $21.21.

“Tidewater Renewables currently trades at 4.3 times 2023 estimated EV/EBITDA, a significant discount to its biofuel peers that trade at 10.2 times 2023 EV/EBITDA on average and range between 7.7-12.8 times,” said Mr. Pereira. “While Tidewater Renewables’ business is earlier stage than most of its peers, we view this valuation discount as too large and expect the stock to re-rate over time as we get closer to the 1Q23e ISD of its Renewable Diesel & Hydrogen facility.”


After a “decent” third quarter, Desjardins Securities analyst Gary Ho thinks AGF Management Ltd.’s (AGF.B-T) “change in narrative to deploy capital for growth should drive investor interest, particularly in the high-demand private alt complex.”

Before the bell on Wednesday, the Toronto-based firm reported adjusted earnings per share for the quarter of 21 cents, exceeding the 17-cent forecast of both Mr. Ho and the Street. The beat was driven by a higher-than-anticipated contribution by its private alternative investment business.

“Redeployment of excess capital has been topical (we estimate $300-million-plus in dry powder) — management plans to expand its private alt platform to $5-billion by FY22 (up from $2.1-billion today) and is looking to hire an industry veteran to head up this initiative,” said the analyst.

Also seeing retail sales momentum continuing and touting its “balanced approach” to capital allocation, Mr. Ho raised his target to $10.75 from $10.50, keeping a “buy” rating. The average target is $9.18.

“AGF remains our top pick in the space—retail net sales momentum, DSC catalyst benefiting EPS and FCF, growing presence in the private alt space, attractive valuation (less-than 3 tines WM EBITDA), and mid- to high teens FCF yield (ex cash/seed capital) with a strong balance sheet,” he said.

“We foresee a few near- or medium-term positive catalysts: (1) retail net sales momentum; (2) redeploy capital for organic growth, seed new private alt strategies and share buybacks; (3) growth in fees/earnings from its private alt platform; (4) execution on SG&A cost reduction to improve EBITDA and EBITDA margins; and (5) DSC ban benefiting FCF and EPS.”


Storm Resources Ltd.’s (SRX-T) current share price is “close to a worst-case scenario and offers investors free upside,” said CIBC World Markets analyst Chris Thompson.

Upon assuming coverage of the Calgary-based company, he upgraded it to “outperformer” from “neutral.”

“While uncertainty remains as to the timing and outcome of negotiations between the Blueberry River First Nation and the B.C. government, the company has sufficient permits in place to proceed with its 2022 development plan,” said Mr. Thompson. “The disconnect between the current share price and our base case NPV10, which we view as relatively conservative, suggests that investors are getting a free option on the long-term value of Storm’s assets. We anticipate that delays in the regulatory review process could result in a pullback in the share price, but we believe it would be short-lived and present a further buying opportunity.”

Saying “top-tier assets, impressive capital efficiencies, and embedded M&A value are reasons to own this name,” Mr. Thompson increased the firm’s target for Storm shares to $6.30 from $4.50. The current average is $6.47.

“The company has a newly constructed gas plant at Nig, which will be full by year-end 2021 and can remain so with two to four wells per year. Additionally, it has unused compression at Umbach and newly constructed compression at Fireweed, which will see first production in H2/21. As a result, the majority of infrastructure spending is behind Storm, driving peer-leading capital efficiencies through 2023. We expect the company will grow production by 29 per cent in 2022, while delivering attractive free cash flow,” the analyst said.


Pure Gold Mining Inc. (PGM-X) is “topped up and looking to turn the corner,” according to Stifel GMP analyst Alex Terentiew.

Seeing its current share price representing “a more attractive risk/reward profile and attractive entry point for investors,” he raised his rating for the Vancouver-based miner to “buy” from “hold”

“Pure Gold, on the back of the recently completed $23-million equity financing, has significantly improved its balance sheet, and based on our estimates, will remain compliant with its debt covenants as long as gold prices remain above $1,400 per ounce, with spot prices currently at $1,750 per ounce providing a comfortable margin of safety,” said Mr. Terentiew. “With a stronger balance sheet on hand and production and costs expected to meaningfully improve over the next 12 months, we have upgraded our recommendation.”

He did cut his target for its shares by 20 cents to $1.60 to account for an increased expense forecast and the impact of the equity financing. The average target on the Street is $1.87.

“Since early September, PureGold’s share price has moved downwards from $1.05 to $0.81, significantly underperforming its peers,” the analyst said. “Given this weakness, the stock has lost is prior premium and now trades at a P/NAV of 0.46 times, more in line with its peers. Our target price of $1.60 is derived from applying a 0.9 times multiple to our NAVPS [net asset value per share].”


Vintage Wine Estates Inc. (VWE.U-T, VWE-Q) delivered a “solid” first quarter as a public company, according to Canaccord Genuity analyst Luke Hannan.

However, he thinks investors will be focused on the California-based company’s 2022 guidance, in which he sees the potential for downside risk due largely to a “challenging labour environment.”

On Tuesday after the bell, Vintage, which began trading on the TSX in early June following a merger with special-purpose acquisition company Bespoke Capital Acquisition, reported revenue of US$57-million and adjusted EBITDA of US$9-million, which was below the consensus projection of US$13-million.

“We note the company’s guidance for F2022 remains relatively unchanged compared to what was found in VWE’s Form S-4 filed as part of its go-public process,” said Mr. Hannan. “The company expects pro forma (i.e., inclusive of a full year’s worth of contributions from acquisitions) revenue of $265-$275 million, as well as pro forma adjusted EBITDA of $63-$65 million, both in line with our estimates. Capex intensity is expected to ease in F2022 following a period of investment, falling between $5-$9 million for the year, in line with our model.

“Importantly, the company continues to expect to close three acquisitions per year, above its historical annual pace of 1-2. Concurrent with its results, VWE announced it acquired D2C platform Vinesse LLC, a $20 million revenue business, for $14 million in cash (with potential for a $2.5 million earnout), equating to a 12-times EBITDA multiple which the company expects to synergize down to 5 times within 12 months. Taken together with VWE’s F2021 pro forma revenue of $240 million, the midpoint of the F2022 revenue guidance implies only 4-per-cen organic volume growth, which we view as conservative given VWE’s exposure to the high-growth D2C segment.”

Reducing his 2022 EBITDA forecast to the midpoint of the company’s guidance and after factoring in its updated net debt, Mr. Hannan cut his target to US$16.50 from US$17 with a “buy” recommendation (unchanged). The average is US$15.

“We believe VWE shares are attractively valued at current levels, given (1) our target multiple is in line with branded wines/spirits peers that offer a slower pace of revenue and EBITDA growth over the medium term, and (2) the company has outsized exposure to the e-commerce channel, a higher-margin segment, relative to peers,” he said.

Elsewhere, Citi analyst Wendy Nicholson cut her target to US$13 from US$14 with a “buy” recommendation.

“We believe that the company will continued to deliver outsized growth for the foreseeable future, leading to market share gains in the overall wine category (despite competing in a highly competitive industry),” she said. “Furthermore, we expect the company will continue to make accretive acquisitions of wine brands, which will supplement strong organic growth. Additionally, we believe the company’s margins and profitability will improve substantially both through accretive acquisitions and capital improvements. With all of this in mind, we think there is room for the current valuation multiple for the stock to expand.”


While its hopes for significant contributions from gains south of the border in 20222 remain in tact, Desjardins Securities analyst John Chu cut his forecast for Heritage Cannabis Holdings Corp. (CANN-CN) following weaker-than-anticipated third-quarter results.

“Sales for 3Q fell short of expectations due to continued industry headwinds in the sector and our aggressive outlook on the company’s acquisitions,” he said. “EBITDA also fell short, mainly due to heightened opex (up 56 per cent quarter-over-quarter) to support growing market share, higher business activity, increased geographical reach and new product launches.”

On Wednesday, the Toronto-based company reported net sales for the quarter of $4.3-million, missing the analyst’s $5.3-million estimate. That result and higher-than-anticipated operated expenses led to an adjusted earnings before interest, taxes, depreciation and amortization loss of $3.5-million, higher than Mr. Chu’s estimate of a $0.7-million loss.

“Opex ramped up in 3Q and appears sustainable at these levels; we adjusted our forecast to reflect these higher levels but have also scaled back on sales a bit to reflect the 3Q shortfall. Combined, these led to a significant drop in our EBITDA forecast. Gross margin declined to reflect our bringing down our sales numbers (ie lower utilization rates) and 3Q coming up a bit short vs our expectations,” he said.

With lower sales and EBITDA estimates, Mr. Chu cut his target for Heritage shares to 20 cents from 25 cents, keeping a “buy” recommendation.

“U.S. optionality could provide a boost to our outlook but this is difficult to forecast at this point in time,” he said.

“Heritage’s US subsidiary Opticann’s e-commerce platform is preparing to launch ArthroCBD, and Opticann is also planning to sell ArthroCBD-branded products over the counter at select US retailers. Opticann remains in discussions with national retailers (CVS, Walgreens, Rite Aid, Kroeger, Walmart, Costco) and is on track for potential product launches later in 2021 and in early 2022. Opticann also launched six CB4–branded products on September 20, 2021 through its medical partners and Heritage Patient Care, while Heritage intends to launch two new CB4-branded skincare products.”


In other analyst actions:

* In a research report previewing third-quarter earnings season for North American railway companies, Stephens analyst Justin Long reduced his target for Canadian Pacific Railway Ltd. (CP-T, CP-N) to US$72 from US$83 with an “equal-weight” recommendation. The current average is US$82.60.

“We finally appear to have some level of clarity on the KSU merger after the STB rejected CNI’s proposed voting trust structure earlier in the quarter,” he said. “Since that time, KSU has determined CP’s proposal is ‘superior’ and is now moving forward with the regulatory approval process and a shareholder vote that is expected to be in December 2021. Full control of KSU (allowing for integration of the two business) is expected in 4Q22. We continue to think the probability of this deal successfully closing is high, and in our view, the long-term opportunity for growth/synergies could be significant. However, we believe CP’s stock is likely to be primarily influenced by regulatory data points in the near term (hard to predict) and it seems clear the volume environment for the company is also becoming incrementally more challenging (driven by Canadian grain).”

On the sector as a whole, he added: “We walked away from our in-person investor plane trip (in early September) incrementally more cautious on the rail sector given the recent underperformance in volumes / service and limited visibility around a near-term recovery. While the stocks have come under pressure since that time, we are still somewhat hesitant to ‘buy the dip’ as we think it will be tough for the sector to convince investors that a volume/service recovery can materialize until we progress through peak season and the winter months. So from a tactical standpoint, our view is that the rail stocks could continue to tread water in the near-term. But taking a longer-term perspective, we still believe the stage is set for a strong 2022 with momentum building throughout the year as volumes rebound, pricing improves, service recovers (fingers crossed!) and the comps ease as we lap the 2021 network disruptions.”

* JP Morgan initiated coverage of Lithium Americas Corp. (LAC-T, LAC-N) with an “overweight” rating and $35 target, exceeding the $31.07 average.

* Jefferies analyst Owen Bennett cut his Aurora Cannabis Inc. (ACB-T) target to $7.50 from $8.56 with a “hold” recommendation. The average is $7.53.

* Jefferies’ Suji Jeong, increased his target for Bellus Health Inc. (BLU-Q, BLU-T) to US$10 from US$6, maintaining a “buy” rating. The average is US$10.49

* Scotia Capital analyst Trevor Turnbull lowered his Fortuna Silver Mines Inc. (FSM-N, FVI-T) target to US$6.50 from US$7 with a “sector perform” rating. The average is US$7.50.

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