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

Canaccord Genuity’s Scott Chan raised his earnings expectations for Canadian banks ahead of next week’s start of fourth-quarter earnings season.

The analyst bumped up his adjusted cash earnings per share by an average of 3 per cent on Thursday, though he remains 2 per cent below the consensus on the Street. He also increased his full-year 2021 and 2022 projections by 1 per and 2 per cent, respectively.

Canada’s big banks expected to raise dividends next week but size of increases will vary widely

Collectively, we made a number of small adjustments that were net positive: (1) slightly better loan growth (e.g. most Canadian loan categories continued upward movement towards Sept/21; see Fig. 27); (2) margin stability (benefit from steeper yield curve) from modest compression; (3) total PCL ratio lower (mainly for North America; should see performing loan releases moderate from last quarter); (4) higher asset growth in AM/WM supporting Other income; and (5) average FX (lower CDN$ from our prior mark),” he said.

Citing the “expectation of improvement at International (important part of the story) with better momentum into fiscal 2022″, Mr. Chan raised his rating for Bank of Nova Scotia (BNS-T) to “buy” from a “hold” recommendation.

He said: “We believe the following factors support our upgrade: (1) International FQ4 adjusted NI target of $500-million should be easily exceeded (FQ3: $493-million) from: (a) better quarter-over-quarter credit, (b) sequential loan growth (delayed one quarter from prior guidance; commodities tailwind), and (c) stable margin (rate hikes in select regions such as Mexico, Chile, Peru supports higher NIM in F2022E); (2) Canadian P&C momentum carries into FQ4 and next year (Q3: PTPP up 15 per cent year-over-year; at upper end of peer range) as Canadian loan growth we track (e.g. mortgages, commercial, auto) should benefit BNS; (3) Asset Management strength (strong relative fund performance likely led to solid net inflows) and benefit from past acquisitions (JF, MD); (4) NCIB announcement of at least 2 per cent of shares; (5) most attractive on P/E (similar to CM) and P/PTPP basis (similar to BMO); (6) BNS shares has significantly lagged peers during the pandemic ; and (7) peer high dividend yield of 4.3 per cent (although one-time catch-up dividend growth should be at low end vs. Group due to F2022E payout ratio of 46 per cent compared to Group at 39 per cent).”

Mr. Chan raised his target for Scotiabank shares to $88 from $83. The average on the Street is $89.98, according to Refinitiv data..

“BNS now offers the highest dividend yield at 4.3 per cent with fiscal 2022 expected payout ratio of 46 per cent (vs. 39-per-cent average),” he said. “BNS stock represents the highest P/E (NTM) discount to historical average amongst the Big-6.”

Also in reaction to his increased earnings expectations, he made these target changes with the expectation capital deployment initiatives, including dividend increases will be revealed concurrently with the earnings reports:

  • Bank of Montreal (BMO-T, “buy”) to $152 from $149. The average on the Street is $148.79.
  • Canadian Imperial Bank of Commerce (CM-T, “buy”) to $163 from $161. Average: $162.34.
  • National Bank of Canada (NA-T, “hold”) to $109.50 from $103.50. Average: $107.32
  • Toronto-Dominion Bank (TD-T, “hold”) to $93.50 from $87.50. Average: $97.59.


Labour shortages and supply chain disruptions continue to weigh on the near-term outlook for Alimentation Couche-Tard Inc. (ATD.B-T), said Stifel analyst Martin Landry.

After the bell on Tuesday, the Laval, Que.-based company reported second-quarter 2022 earnings per share of 65 cents, down 2 per cent year-over-year and below both Mr. Landry’s 72-cent estimate and the consensus forecast on the Street of 67 cents.

“Slower recovery in foot traffic coupled with supply chain issues impacted sales, resulting in North American merchandise and fuel SSS underperforming expectations. Efforts to stabilize the company’s workforce have come at a higher cost through (1) retention bonuses, (2) higher training costs, and (3) minimum wage increases, and were a large factor in driving OPEX up 8 per cent year-over-year and resulting in lower than expected earnings,” he said.

Though he sees signs of stabilization after facing “significant labour challenges, particularly in the U.S.,” Mr. Landry expects supply chain issues to continue to affect same-store sales growth.

“ATD is facing a range of external factors that potentially resulted in lost sales, according to management,” he said. U.S. labour shortages on the supply side have resulted in a shortage of truck drivers and warehouse staff, impacting DSD suppliers and delaying shipments of merchandise. Suppliers are also seeing raw material shortages, which has negatively impacted SKU availability as they pivot to better selling items. Expectations are for this dynamic to continue, and could continue to be a drag on SSS growth for the upcoming quarters. We reflect this with a 70 basis points lower estimate for SSS growth in the U.S.”

“Work from home trends are persisting in North America. The resulting lower traffic to convenience stores has impacted some profitable day-parts, such as the morning, which typically has strong food and coffee sales. This is also preventing a recovery in fuel volumes, with most North American markets still operating below pre-pandemic volumes. In highly vaccinated Scandinavia, ATD is seeing traffic patterns normalizing, which has resulted in better merchandise and fuel SSS than expectations. However, visibility is limited as to when traffic patterns will normalize in North America.”

Mr. Landry said Couche-Tard continues to possess “healthy” balance sheet optionality to navigate the current headwinds, however he thinks he company’s M&A pipeline “appears full” with valuations remaining elevated, “which could taper execution.”

Maintaining a “hold” recommendation for the company’s shares, he reduced his target to $49 from $54. The average on the Street is $56.28.

“The decrease in our target price comes from our lower estimates and also lower valuation multiples. We decrease our valuation multiples to reflect the macro-economic challenges faced by the company which we expect to persist for at least the coming 2 quarters,” he said.

Other analysts making target adjustments include:

* CIBC World Markets analyst Mark Petrie to $57 from $59 with an “outperformer” rating.

“Couche-Tard reported mixed Q2 results with slower U.S. merchandise and fuel same-store sales and higher opex, offset by better results in Canada and Europe and steady improvement in gross margin percentage. Higher opex clips our forecasts but does not fundamentally alter our bullish view on the business and shares. C-stores face several challenges, but carry high relevance with consumers. Further, ATD is poised to benefit from myriad organic growth initiatives, he said.

* National Bank Financial’s Vishal Shreedhar to $53 from $56 with an “outperform” rating.


After recent price depreciation, iA Capital Markets analyst Matthew Weekes sees upside in Brookfield Business Partners L.P. (BBU.UN-T, BBU-N), calling it “a public way to own a private equity strategy.”

“We believe that BBU is positioned to deliver robust NAV [net asset value] growth as it seeks to monetize assets that are at or near maturity, continues to enhance EBITDA in existing operations, and redeploys capital to further expand and diversify its operations and provide new growth platforms,” he said upon assuming coverage in a research note released Thursday. “Given BBU’s proven track record of realizing strong capital appreciation on investments, we believe that targets set out by the Partnership to continue growing NAV at a 15-per-cent CAGR [compound annual growth rate] over the next five years are highly achievable.”

Mr. Weekes expects “robust” growth to continue, seeing Brookfield possessing a “competitive advantage in sourcing and executing attractive deals through its partnership with Brookfield Asset Management Inc.”

“In addition to corporate liquidity for bridging future transactions, BBU’s existing portfolio companies generate strong distributable cash flow, and BBU has also noted potential up-financing opportunities,” he said. “While we expect BBU to continue to exercise patience, several of its businesses are likely at or near maturity, and with the series of acquisitions announced year-to-date, BBU appears to have reached a turnover point for its portfolio, which would indicate that a ramp up in monetizations is likely on the horizon.”

“BBU is targeting a per unit value of $110 in five years, which equates to a CAGR of 15 per cent. Given BBU’s track record of delivering average IRRs of 30 per cent on monetizations, we believe this is highly achievable.”

He set a target of US$57, up US$1 from the firm’s previous target. The average is US$53.50.

“BBU estimated its NAV at $54-58 per unit at its most recent Investor Day in September, with potential embedded value of $75+ per unit,” said Mr. Weekes. “This implies a current discount of 15 per cent for BBU’s units. We believe that the units tend to trade at a discount to BBU’s NAV estimate in part because BBU does not include corporate costs and management/performance fees in its NAV. However, we continue to see upside in the units based both on valuation upside for certain key assets and continued growth through the execution of the Partnership’s strategy.”


Voxtur Analytics Corp. (VXTR-X) is “benefiting from a solid management team with a strong track record,” according to iA Capital Markets analyst Frédéric Blondeau, touting its “conservative, flexible balance sheet with solid access to capital” as it focuses on its external growth.

Believing its valuation is “relatively attractive” at its current stage of development, he initiated coverage of the London, Ont.-based data analytics company that provides valuation solutions for real estate assets, formerly known as iLOOKABOUT Corp., with a “buy” recommendation.

“VXTR’s management has shown strong leadership since the repositioning of iLOOKABOUT, notably on the external growth front across North America, as discussed above,” said Mr. Blondeau. “We believe that leadership, combined with an already solid and growing access to capital and a flexible balance sheet, should further position VXTR as the leading consolidator within the sector.

“The Corp.’s evolving proprietary technology underpinning its digital platform has enabled it to experience exponential growth over the last couple of years and has positioned it as a market leader in the real estate data analytics market. As the company introduces new capabilities to its suite of offerings – through in-house development and external acquisitions – we expect the firm to solidify its competitive advantage over its peers with its AI-based solutions.”

Mr. Blondeau emphasized barriers to entry to this niche market for newcomers are “increasingly difficult to break through as incumbents gain even more traction in the marketplace and further tailor their services to clients.” Accordingly, he expects Voxtur to continue to remain acquisitive in the near term, seeing it possessing the potential to become a “dominant market consolidator.”

He also touted its “optionality relating to the current environment,” adding: “One particular factor is the U.S. government foreclosure moratorium, which expired on July 31. Borrowers with governmental backed loans have access to several sources for help, and could receive forbearance protections until September 30. Generally speaking, in such context, we believe both VXTR’s wealth and tax business segments are favourably positioned to benefit from the increasing demand for data, whereas foreclosures have recently been on the rise. Moreover, we expect the Corp. to create strategic partnerships with major institutions on the back of VXTR’s specific expertise.

“One additional factor that could translate into growth opportunities for VXTR is the global increase, and growing awareness, in regards to elder financial abuse and, more specifically to the U.S., the 2021 adoption of The Elder Abuse Protection Act, while there is immediate needs for private securitized solutions. Lastly, we would mention Fannie Mae, Freddie Mac and the Federal Housing Administration who, in 2020, relaxed their standards relating to property appraisals, as a potential growth vector for VXTR.”

Mr. Blondeau set a target of $2.90 per share. The average on the Street is $1.50.

“When looking at management’s track record, especially in 2020 and 2021, in parallel with expected growth, we feel the stock’s current valuation levels look compelling on 2023 numbers when looking at P/Sales, P/Book Value, EV/Sales, EV/EBITDA,” he said.


Following “another better-than-expected” quarter and a third guidance raise of the year, Raymond James analyst Steve Hansen increased his financial projections for Itafos Inc. (IFOS-X), citing “robust/sustained phosphate price momentum, and [his] continued belief the company has a compelling path to deleveraging over the next 12-18 months.”

“Persistently tight phosphate markets and Itafos’ vastly improved earnings/FCF profile are poised to rapidly transform its historical balance sheet concerns,” he said. “This improved pathway, coupled with substantial upside optionality via the potential sale of non-core assets ($50-$100+-million), provides investors with a strong risk-reward profile, in our view.”

Maintaining an “outperform” rating, Mr. Hansen increased his target to $4, matching the consensus, from $3.75.


In other analyst actions:

* Despite its “promising” recent acquisitions, including a US$16-million deal for, Canaccord Genuity analyst Aravinda Galappatthige lowered his Emerge Commerce Ltd. (ECOM-X) target to $1.20 from $1.30, below the $1.78 average, with a “buy” rating.

“We have largely maintained our F2022/23 top-line estimates due to further downward adjustments to our forecasts on some of the legacy assets, including Underpar, Wagjag, etc. Underpar in particular continues to be affected by the fact that high sell-through rates of golf courses have mitigated the need for promotional spend,” he said. “Recent management commentary, however, indicates signs of an uptick in Q4. We have also trimmed expectations for truLOCAL, due to potential headwinds from inflationary conditions.”

* Scotia Capital analyst Ovais Habib trimmed his target for First Majestic Silver Corp. (FR-T, AG-N) to US$12 from US$13, keeping a “sector perform” recommendation, following Wednesday’s release of a technical report on its Santa Elena Silver/Gold Mine in Sonora, Mexico. The average target is $20.20 (Canadian).

“Overall we view the Santa Elena update as mixed; the inclusion of Ermitano ore boosts overall grade profile although is offset by higher costs. We note however that further upside could be realized at the project in the future through ongoing resource conversion,” said Mr. Habib.

* CIBC’s Bryce Adams lowered his target for Lundin Mining Corp. (LUN-T) to $12 from $13, keeping a “neutral” recommendation. The average is $12.14.

* After a “stable” second quarter, Desjardins Securities analyst Kevin Krishnaratne cut his target for Martello Technologies Group Inc. (MTLO-X) to 15 cents from 20 cents, keeping a “hold” rating. The average is 27 cents.

“We await signs of accelerating DEM customer wins, which now look to be pushed out a bit further based on guidance (3.5 million subs targeted by 1H FY23 vs the end of FY22 previously),” he said.

* Canaccord Genuity’s Robert Young reduced his Pivotree Inc. (PVT-X) target to $5.50 from $6 with a “hold” rating. The average is $8.31.

“We remain confident in the medium-term growth opportunity, but we see PVT shares rangebound as investors regain confidence in recurring revenue growth, the key driver of valuation, in our view,” said Mr. Young.

* IA Capital Markets analyst Chelsea Stellick raised her Quipt Home Medical Corp. (QIPT-X) target to $13.50 from $13.25, topping the $12.16 average, with a “buy” rating.

“QIPT continues to expand through M&A to build out a national DME platform, and recent momentum is in line with management’s commentary and our call for a larger acquisition by year end. These three acquisitions unambiguously create value and reinforce the value creation that make QIPT our top pick,” she said.

* CIBC’s Dennis Fong raised his Suncor Energy Inc. (SU-T) target to $48 from $44, keeping an “outperformer” rating. The average is $39.13.

“We recently hosted management from Suncor Energy for a series of marketing meetings. We were encouraged by the progress made to ramp up Fort Hills, continued focus on capital discipline and cash returns to shareholders. We also gained further details around work being completed through the Pathways initiative around lowering carbon emissions,” said Mr. Fong.

* Following the release of results from its Hod Maden feasibility study, Canaccord Genuity’s Carey MacRury dropped his target for Sandstorm Gold Ltd. (SSL-T) to $9.50 from $10 with a “hold” rating. The average is $11.88.

* CIBC’s Anita Soni reduced her Yamana Gold Inc. (AUY-N, YRI-T) target by US$1 to US$6, below the US$6.46 average, with an “outperformer” rating.

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