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

While its fourth-quarter financial results exceeded expectations, iA Capital Markets analyst Neil Linsdell lowered his recommendation for North West Company Inc. (NWC-T) in response to recent share price appreciation.

On Wednesday, the Winnipeg-based retailer reported revenue of $579-million, up 2.4 per cent and above the estimates of both the analyst ($552-million) and the Street ($556-million). Adjusted earnings before interest, taxes, depreciation and amortization of $67.1-million also topped expectations ($61.9-million and $61.3-million, respectively).

“The Company continued to show resiliency through the pandemic by maintaining or gaining market share with pricing optimization, strengthening the supply chain, and solidifying relationships with suppliers, with long-term initiatives that are focused on talent and culture,” he said. “The Company expects to scale up capex in F2023 with growth investments and additional store acquisitions, although the overall environment remains challenging, with worldwide supply chain disruptions and inflation pressures, and the winding down of government support payments.”

Mr. Linsdell warned the company is likely to be affected in the coming quarters by reduced spending in rural areas due to the scaling back of government support programs. He also sees the impact of supply chain disruptions and rising inflationary costs weighing, though he noted it has been securing inventory to mitigate the negative impact.

“On the positive side, NWC will benefit from its market leadership in hard-to-reach communities, backed up by its well-managed logistics and the ability to pass through at least some inflation costs,” he said. “The gradual return of tourism to the Caribbean will also be a tailwind, benefitting Cost-U-Less (CUL) and RiteWay Food Markets.”

Moving the stock to “hold” from “buy,” Mr. Linsdell maintained a $39 target. The average on the Street is $39.40.

“With an emphasis on improving customer experience, the Company is working on retaining customers after travel restrictions are reduced and government support payments are discontinued,” he said. “The pandemic provided a good opportunity for the Company to turn short-term benefits into longer-term gains through fine-tuning its logistics, improving product mix, and optimizing pricing. NWC has fared well through the pandemic, and we believe the outlook is still positive overall despite some normalization in shopping habits as the necessity of in-community shopping eases.

Elsewhere, CIBC’s Mark Petrie raised his target to $41 from $40 with a “neutral” rating, while TD Securities’ Michael Van Aelst increased his target to $40 from $39 with a “hold” rating.

“Although we see operating performance and earnings remaining well ahead of prepandemic levels (2022 EBITDA ex-SBC expected to be 36 per cent above 2019 levels), catalysts are hard to foresee, with the share price trading just below all-time highs and adjusted earnings (ex-SBC) expected to decline rather meaningfully year-over-year throughout 2022 as government support payments decline, residents resuming at least some destination shopping, and some cost inflation is absorbed,” said Mr. Van Aelst. “We would look for a better entry point to take advantage of NWC’s attractive remote markets (generally higher population growth, greater government investment, and more stable personal income) and significant logistical advantages (including internal air and maritime shipping capabilities).”


Equity analysts at National Bank made a series of rating changes and raised their target prices for Canadian energy stocks on Thursday.

Dan Payne upgraded Surge Energy Inc. (SGY-T) to “outperform” from “sector perform” with a $14.50 target, up from $10 and above the $12.57 average.

He also raised Baytex Energy Corp. (BTE-T) to “outperform” from “sector perform” and bumped his target to $8.75 from $6.50. The average is $7.68.

The firm’s target changes included:

  • Canadian Natural Resources Ltd. (CNQ-T, “outperform”) to $100 from $90. Average: $84.24.
  • Cenovus Energy Inc. (CVE-T, “outperform”) to $35 from $28. Average: $24.76.
  • Imperial Oil Ltd. (IMO-T, “outperform”) to $78 from $70. Average: $62.
  • Suncor Energy Inc. (SU-T, “sector perform”) to $54 from $52. Average: $46.81.


Calling it “a de-leveraging first, capital return second, story,” Scotia Capital analyst Jonathan Goldman sees CES Energy Solutions Corp. (CEU-T) poised to benefit from significant recent shifts in the energy sector.

In a research report released Thursday, he initiated coverage of the Calgary-based company with a “sector outperform” recommendation.

“In January, large oilfield services (OFS) peers were calling for North American market growth of 20 per cent to 30 per cent in 2022,” he said. “Since then, multiple factors – namely, higher oil prices and reduced global supply due to sanctions – have further raised the prospect of growth in drilling and production activity.

“As demand improved through 2021, supply chains presented several logistical challenges and margin headwinds for CES (and its peers). Due to inflationary pressures, management reset 1Q22 EBITDA margin expectations lower. With price pass-throughs in the works, we expect 1Q22 margins to be a low point and for EBITDA growth to accelerate in 2H22. Despite our conservative margin assumptions – we forecast EBITDA margins of 11.7 per cent in 2022 and 13.4 per cent in 2023 (compared with 13.7 per cent from 2017 to 2019) – we believe CES is firmly set to generate record profits (and FCF) through our forecast horizon.”

Mr. Goldman expects CES to leverage to its excess capacity through the upcycle to generate FCF of more than $250-million through next year, which he notes equates to almost 40 per cent of its current market cap.

“With the capital base operating at less than 50-per-cent capacity, we think CES can expand its revenue base by more than $500 million (versus 2021) without requiring much capital,” he said. “For 2022, CES projects $40 million of capex (versus an average of $70 million from 2017 to 2019). Excess capacity built out in previous cycles will likely enable the company to generate record FCF and enhance capital optionality in the current cycle.”

Also touting the strength of its balance sheet and expecting cash generation to fund growth in the near term, Mr. Goldman set a target of $3.30 per share. The current average is $3.51.

“With shares trading at 4.7 times EV/EBITDA on our 2023 estimates and net debt to EBITDA sitting at 2.8 times, we believe debt repayment and enhanced capital returns could lead to a positive re-rate and accrue sizable gains for equity holders,” he said.


Believing the risk/reward proposition has moved in its “favour” as global rig counts increase and North American rig utilization tightens, RBC Dominion Securities analyst Keith Mackey upgraded Ensign Energy Services Inc. (ESI-T) to “outperform” from “sector perform.”

He made the move after raising his U.S. rig count forecast for 2022 by 6 per cent (to 675) and 2023 by 4 per cent (to 750), calling the market “constructive.”

“We see opportunity for Ensign to re-price a strong portion of its rig fleet as super-spec rig utilization creeps above 80 per cent in the coming months,” said Mr. Mackey. “When Ensign announced its 4Q21 results in March, it had about 12 rigs under contract for over 6 months, leaving opportunity to re-price the majority of its 88 rig fleet near prevailing rates, which have extended into the mid US$20k/day range. We expect all land drillers under coverage to benefit from this dynamic, though Ensign’s financial leverage and limited capital investment should magnify the effect on its cash generation.”

Also touting the potential benefits from market consolidation in Canada and expressing increased confidence in its financial liquidity, he raised his target to $6 from $3.25 after increasing his multiple on improved EBITDA margin expectations and balance sheet leverage. The average on the Street is $4.58.

“Ensign should generate meaningful FCF in the next upcycle, through revenue and margin expansion coupled with relatively limited new capital investment, in our minds,” said Mr. Mackey.


Despite believing its long-term potential “remains compelling,” ATB Capital Markets analyst Tim Monachello lowered Questor Technology Inc. (QST-X) to “underperform” from “sector perform, ” seeing “dislocation” from an accelerating energy market as its rental fleet utilization has been “meaningfully dislocated from rising field activity levels.”

On Wednesday, the Calgary-based clean-air technology company reported weaker-than-anticipated fourth-quarter 2021 results, prompting Mr. Monachello to “significantly” reduce his financial projections.

“While Questor’s strong balance sheet position (with roughly $13-million net cash) meaningfully limits fundamental downside risk and provides it ample time to develop its longer-term strategic initiatives, the path to near-term upside realization is meaningfully challenged, in our view,” he said.

“QST’s challenges are amplified on a relative basis amid an accelerating energy services backdrop where most companies are facing a strengthening outlook for activity and pricing in 2022 while Questor’s North American rentals platform struggles to gain its footing. Longer term, we continue to believe that methane emission reduction technologies will see growing demand, and QST is increasingly being recognized for its depth of knowledge and growing portfolio of IP in this realm. Still, it remains largely uncertain when this potential demand will materialize, and QST’s commercial execution remains somewhat unproven given significant structural changes in its go-to-market strategy and operations team through the downcycle.”

With his “more conservative” view, Mr. Monachello cut his target to $1.50 from $2.25. The average on the Street is $1.81.

“Despite our view that investors are likely better served in other energy services sectors over the near-to-mid-term, we continue to believe that QST is among the leading public market players in methane reduction technology,” he said. “While commercial demand has yet to materialize in earnest, we believe a drive to lower the environmental footprint of upstream and midstream operations must consider low-cost methane reduction technologies as a pillar, an area where QST continues to grow and optimize its portfolio.”


Calling it a “proven quality compounder with a successful M&A track record,” Desjardins Securities analyst Gary Ho assumed coverage of Boyd Group Services Inc. (BYD-T) with a “buy” recommendation on Thursday.

“Price negotiations with P&C insurers should alleviate some cost pressures and improve margins,” he said. “We felt even more comfortable with the pricing tailwind after doing some homework on the U.S. auto insurance space. A negative 20-per-cent resetting of 2022 consensus forecasts (last five months) and a potentially larger M&A opportunity offer upside, in our view.”

“Why we like the story. (1) Reopening should increase driving activity and normalize supply chain issues (parts challenges are transitory); (2) early successes from negotiations with P&C insurers on DRP price increases, with more pricing changes to follow, which should improve the top line and gross margins. Allstate’s recent investor call was focused on the current auto insurance climate and reassured us of BYD’s ability to ask for future rate increases, albeit with a time lag; (3) single-shop/small MSOs and larger M&A targets are likely to support BYD’s target of doubling the business by 2025. BYD has ample dry powder (US$561-million of available credit and US$28-million of cash at year-end 2021) and flexible covenants until 2023; (4) a resetting of 2022 and 2023 expectations and valuations present a compelling set-up for 2H22.”

Mr. Ho has a $225 target for Boyd shares. The current average is $206.38.

“Our investment thesis: (1) a quality compounder with a history of delivering SSSG [same-store sales growth] and robust ROIC [return on invested capital]; (2) proven and disciplined M&A track record in a fragmented US$40-billion industry; (3) with scale (#2 player in North America), BYD enjoys a competitive advantage (parts procurement, DRP, OEM certification, etc); and (4) a solid balance sheet with US$560-million-plus of available credit to execute on its M&A strategy,” he said.


In a separate note, Mr. Ho assumed coverage of Parkland Corp. (PKI-T) with a “buy” rating, seeing it as “a high-quality and well-managed company which is well-positioned for a post-COVID-19 recovery and strong growth pipeline.”

“We do not believe the solid fundamentals are reflected in the valuation, with the shares trading near trough valuation (7.2 times 2022 EBITDA),” he said. “In our view, two things should help improve valuation. While they will likely take some time to materialize, we believe patient investors should be rewarded.

“1. Investors looking for other attractive opportunities as the energy rally eases (timing is uncertain). Although PKI is in the energy index, it does not benefit as much from rising energy prices as upstream companies. We believe PKI will benefit from funds flow once the energy rally eases and investors refocus on PKI’s strong EBITDA growth and attractive FCF yield (10 per cent). 2. Investors recognizing energy transition is manageable and not an existential threat. We believe Norway serves as a real-life example, with the impact on conventional fuel consumption from rising EV adoption being very gradual. Although EV penetration skyrocketed from 0 per cent in 2011 to 23 per cent in 2021, fossil fuel demand declined by only 0.6-per-cent CAGR [compound annual growth rate]. We believe PKI is well-positioned to capitalize on energy transition.”

Expecting “patient investors should be rewarded,” he set a $49 target. The average is $48.46.


Canaccord Genuity analyst Aravinda Galappatthige expects to see a “continued robust rebound” in wireless when Rogers Communications Inc. (RCI.B-T) announces its first-quarter 2022 on April 20.

He’s projecting revenue to grow 4.4 per cent year-over-year to $3.642-billion, driven by its wireless services and media revenues. His EBITDA estimate is $1.475-billion, up 6.1 per cent while “media profitability continues to be a drag on the overall results.”

“We expect [wireless] service revenues to rise a robust 6.4 per cent (recall Q1/21 was down 6 per cent) to $1.712-billion, supported by weak comp, continued recovery in roaming revenues (Q4/21 was at 78 per cent of the pre-pandemic levels) and strong subs,” he said. “However, this is still 2 per cent below pre-pandemic levels. On EBITDA, we forecast 6.3-per-cent growth to $1.077-billion, implying a healthy service margin of 63 per cent. This represents encouraging progress given the 55-60 per cent we’ve seen typically for Q1. That said, sustainability of these margins will be closely watched, as more restart costs come in. Wireless competitive intensity remains rational and manageable with the entry point for the unlimited plans raised to $85 (from $80) by the incumbents. On the subs front, we have 49.7k postpaid phone net adds. We believe that Rogers’ recent strength in postpaid subs might have benefited from Shaw’s recent weakness. Shaw’s Q2/F22 wireless postpaid net adds were only 8.6k (compared to 75k last year). With Shaw wireless focusing on profitability over subs in this interim period, we expect a continued benefit to Rogers. We also have blended ARPU growth at 2.8 per cent year-over-year. For Q2, we expect constructive guidance due to the aforesaid factors as well as continued recovery in foot traffic to stores.

Maintaining a “hold” recommendation for Rogers shares, Mr. Galappatthige raised his target to $69 from $65. The average is $74.27.

“While the stock’s recent outperformance (up more than 20 per cent year-to-date) benefited from macro factors, which primarily drove a tilt in the market toward defensive sectors (like Telecom), we continue to maintain our HOLD based on 1) lagging recovery in wireless top line, 2) a levered balance sheet post Shaw acquisition, and 3) continued soft cable subs,” he said.


In other analyst actions:

* In a first-quarter earnings preview for Canadian life insurance companies, Desjardins Securities analyst Doug Young cut his Great-West Lifeco Inc. (GWO-T) target to $40 from $42 with a “hold” rating. The average is $41.78.

“In our opinion, 1Q22 will be a tough quarter for the lifecos in light of various COVID-19 pressures in the U.S. and Asia, and unlike last quarter, wealth and asset management results will not save the day,” he said. “That said, we view the COVID-19 headwinds as transient, and in our opinion the setup for the lifecos in 2H22 looks promising, with potential benefits from higher interest rates and from past acquisitions. Might we get more details on the potential impact from adopting IFRS 17 in 2023? Unlikely, in our view. We tweaked our estimates (although we view 2023 estimates as useless in light of pending accounting changes).”

* National Bank Financial analyst Adam Shine lowered Shaw Communications Inc. (SJR.B-T) to “sector perform” from “outperform” with a $40.50 target, exceeding the $40.36 average on the Street.

* National Bank’s Cameron Doerksen raised his Air Canada (AC-T) target to $31 from $29, reiterating an “outperform” rating. The average is $30.

* Stifel’s Robert Fitzmartyn raised his ARC Resources Ltd. (ARX-T) target to $25.25 from $20.25 with a “buy” rating. The average is $21.33.

* CIBC World Markets’ Kevin Chiang increased his Canadian National Railway Co. (CNR-T) target to $169 from $165 with a “neutral” rating. The average is $163.42.

* Mr. Chiang cut his TFI International Inc. (TFII-N, TFII-T) target to US$115, falling below the US$123.90 consensus, from US$130 with an “outperformer” rating.

* Following Wednesday’s announcement of its acquisition of London-based Tictrac Ltd., National Bank’s Endri Leno raised his Dialogue Health Technologies Inc. (CARE-T) target to $12.25 from $11.50 with an “outperform” rating. Others making changes include: CIBC’s Scott Fletcher to $9.50 from $9 with an “outperformer” rating and TD Securities’ David Kwan to $8.50 from $8 with a “buy” rating. The average is $10.03.

“Although there are some notable challenges ahead with the Tictrac acquisition, including platform integration and delivering on its financial targets, we like the acquisition, as among other things, Tictrac’s wellness platform fills a key hole in Dialogue’s offering,” said Mr. Kwan. “Should the integration go well and Tictrac meet/ exceed its lofty financial outlook, we believe paying less than 4 times ARR for what would be a rapidly growing company with very high margins would be a great bargain.”

* Stifel’s Cody Kwong hiked his Enerplus Corp. (ERF-T) target to $26.50 from $24 with a “buy” rating. The average is $20.17.

“Enerplus hosted an in-person investor presentation where it focused on the merits on the economics, operations, and sustainability of its North Dakota Bakken play,” he said. “We came away with the belief that the market is significantly underestimating the depth and quality of its inventory as well as the process/controls the company has in place to extract the maximum value out of its assets. The Company’s clear vision and thoughtful execution only reaffirms our view that Enerplus is a Top Idea in the North American E&P landscape.”

* CIBC’s Krista Friesen assumed coverage of Exchange Income Corp. (EIF-T) with a “neutral” rating and target of $47, up from the firm’s previous $44 target but below the $52.09 average,

“EIF’s earnings and cash flow stream have exhibited a greater level of resiliency versus its pure-play peers, reflecting the benefits of its diversification strategy,” she said.

* Stifel analyst Stephen Soock initiated coverage of Montreal-based Monarch Mining Corp. (GBAR-T) with a “speculative buy” rating and $1.50 target. The average is $1.40.

“Monarch Mining is about to be the newest gold producer in the Abitibi,” he said. “After refurbishing the Beaufor mine and fully permitted Beacon mill, the company is on track to ramp up to 50koz/yr at an AISC of $1,221/oz by 2024. This will produce $18-million per year in FCF to fund the restart of production at the Croinor mine (additional 40koz/yr) and advance resource expansion drilling at depth at both operations. In parallel, the company plans to continue to actively explore the nearby McKenzie Break and Swanson properties which together already host 521koz of resources. Management has an excellent track record of value creation (as Monarch Gold) and a wealth of M&A experience on the GBAR board. The stock trades at spot P/NAV of just 0.28 times vs 100koz/yr producer peers at 0.46 times.”

* National Bank’s Rupert Merer increased his target for Northland Power Inc. (NPI-T) by $1 to $45 with an “outperform” rating. The average is $46.17.

* Benchmark initiated coverage of Shopify Inc. (SHOP-N, SHOP-T) with a “hold” rating.

* National Bank’s Shane Nagle initiated coverage of Solaris Resources Inc. (SLS-T) with an “outperform” rating and $20 target. The average is $20.70.

* JP Morgan’s Michael Glick raised his Stelco Holdings Inc. (STLC-T) target to $67 from $62 with an “overweight” rating, while RBC’s Alexander Jackson increased his target to $61 from $60 with a “sector perform” rating. The average is $59.88.

“We expect a solid quarter for Stelco, albeit down compared to Q4, on lower steel prices and sales volumes. HRC prices were falling through Q1 before rebounding in March on a return of buyers and increased raw material costs, and we expect Stelco exited the quarter with a much fuller order book than it entered. We increase our HRC forecasts, which are now inline with consensus and result in our price target moving to $61,” said Mr. Jackson.

* Credit Suisse’s Curt Woodworth raised his Teck Resources Ltd. (TECK.B-T) target to $58 from $49.53, exceeding the $55.38 average, with an “outperform” rating.

“We continue to view Teck as the best mining pick in our coverage and believe the stock is underappreciated by the market despite having the best growth potential vs. its peers,” he said. “With coking coal prices staying at elevated levels (spot at $500 per ton), Teck should reap a windfall FCF gain over the next several quarters, which should put the balance sheet in position to easily fund the solid pipeline of potential growth projects. TECK should also benefit from strong copper prices with its annual copper output estimated to double by 2023. Looking ahead, we see completion of QB2 project and any potential announcement of stake sale energy assets as the key catalysts for the stock. We believe QB2 is now de-risked post the recent 10-per-cent capex raise and TECK is well positioned to benefit from higher prices /copper growth.”

* BMO’s Stephen MacLeod raised his Tricon Residential Inc. (TCN-T) target to $23 from $22.50, exceeding the $20.95 average, with an “outperform” rating.

“We came away from Tricon’s investor day with confidence in its SFR [single-family rental] growth opportunities, differentiated partnership model and power of its tech-enabled operating platform,” he said. “We believe Tricon is well-positioned to drive 15-per-cent annual core FFOPS [funds from operations per share] growth through 2024, with sufficient liquidity and growth tailwinds. We believe that creeping negative sentiment towards the industry is misplaced; as it relates to Tricon, overlooking its role as a housing provider and contributor to housing supply. We see a long runway for growth.”

* Raymond James’ Steven Li initiated coverage of Verticalscope Holdings Inc. (FORA-T) with an “outperform” rating and $32 target, below the $33.51 average.

“Enthusiast communities (forums, apps, or marketplaces) create valuable online content daily that has inherent commercial value. As a strong aggregator and operator of enthusiast communities (1200+ communities, 113 mln+ monthly active users [MAU] and 56 mln+ registered users), we believe VerticalScope stands to benefit both organically (higher monetization, new platform) and inorganically (more than 20-per-cent synergies on average),” he said.

* Canaccord Genuity’s Yuri Lynk raised his target for Xebec Adsorption Inc. (XBC-T) to $2.50 from $2.25, reiterating a “hold” recommendation, while Raymond James’ . The average is $3.06.

“We believe Xebec is well positioned to benefit from the increased demand for renewable gases that we see evolving from the energy transition,” he said. “This growth potential was evident in management’s strategic three-year plan released last month. Nonetheless, we remain on the sidelines as we await signs of improved execution, especially with input cost inflation and logistical issues likely to weigh on Q1/2022. Currently, Xebec trades at 2.1 times EV/Sales (2022E) versus industrial gas peers at 2.5 times. We set our target using 1.8 times EV/Sales (2023E) down from 2.0 times previously. The reduction in our target multiple reflects our concern Xebec may struggle to profitably replace this carbon capture order when it rolls off next year and the execution risk associated with such a large contract.”

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