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

Stifel analyst Martin Landry sees Dollarama Inc. (DOL-T) becoming “a leading value retailer, not just a dollar store operator.”

“With rising price points, which will reach $5 this summer, the company has successfully increased its addressable market and should continue to gain share of Canadians’ wallet,” he said.

In a research report released late Wednesday, he initiated coverage of the Montreal-based company with a “buy” rating, believing it should be “a core position in most Canadian portfolios, given its low risk profile and growth prospect.”

“With an estimated market share of more than 80 per cent, Dollarama is a market leader in the dollar store segment in Canada,” said Mr. Landry. “The company has a very high brand awareness at 98 per cent and a loyal customer base across all income classes. Our analysis suggests that Dollarama offers significant value to consumers by pricing its products at a discount of 20-25 per cent to Walmart and 30-35 per cent to IGA, owned by Sobeys, while generating gross margins that are 1,700 basis points higher than Walmart and Sobeys. This discrepancy is explained by the direct sourcing prowess of Dollarama and a higher margin product mix. We believe that this deep value will translate into market share gains this year as Canadians trade down to fight inflation.

The analyst emphasized Dollarama’s “attractive” business model, including “flexible” product offerings that are regularly refreshed, which provides management with “significant” control over margins “as demonstrated by the stability seen in the last three years, where gross profit margin evolved within a narrow 30 basis points range (43.6 per cent to 43.9 per cent).”

“This low volatility, which was achieved at a time of heightened challenges, is impressive,” he added. “The company’s business model provides management with good visibility, which translated into Dollarama having met or exceeded its guidance in each of the last five years.”

Also touting its “appealing optionality” through its 50.1-per-cent stake in Dollarcity, a Latin America-based retailer that he values at $5-billion, Mr. Landry sees Dollarama as a “long-term compounder.”

“Dollarama’s 10-year EPS CAGR [earnings per share compound annual growth rate] of 19 per cent is remarkable and among the best within the Canadian consumer sector,” he said. “Dollarama’s proven growth algorithm consists of: (1) unit growth with the company targeting to reach 2,000 stores across Canada by 2031, calling for a 4-per-cent unit growth CAGR; (2) comparable store growth in the range of 4 per cent to 5 per cent; (3) continued margin expansion driven by scale and operational efficiency; and (4) a history of returning capital to shareholders, which has resulted in over $5.5 billion returned to shareholders since FY12.”

Mr. Landry set a target of $80.50 for Dollarama shares. The average target on the Street is $77.04, according to Refinitiv data.

“In these uncertain times, Dollarama can provide investors respite,” he said. “Dollarama’s shares are up 15.9 per cent year-to-date, significantly outperforming the S&P 500 index, which is down 13.3 per cent. The company benefited from a risk-off trading pattern as investors see DOL as having recession resistant characteristics combined with a good ability to cope with inflationary pressures. Given persistent inflation and rising interest rates, the economic turbulence could remain for several months, so we believe Dollarama will continue to be a relative ‘safe heaven’ and provide some stability to investors.”


WSP Global Inc. (WSP-T) is “(accretively) cementing [its] leadership position in Environment & Water” with the US$1.8-billion acquisition of John Wood Group PLC’s environment business, said National Bank Financial analyst Maxim Sytchev.

Shares of the Canadian engineering giant jumped almost 5 per cent on Wednesday following the premarket announcement of a definitive agreement to take over a business known as Environment & Infrastructure (E&I) from Aberdeen, Scotland-based Wood.

“Pro-forma, WSP’s absolute dollar generation at US$3.9-billion in this critical vertical will dwarf that of Aecom’s (#2 player with US$2.6-billion),” said Mr. Sytchev. “Management continues to execute on its strategy in a steady, capital-savvy manner, providing a reprieve in this tumultuous market. The transaction should act as a catalyst to differentiate the company’s shares vs. other peers who have seen their multiples compress due to higher discount rates. The transaction is projected to be 11-per-cent accretive on EPS in 2024 (based on our numbers and in line with its commentary), sets in motion the 2024 strategic plan while demonstrating to the market that WSP can be transactional in good and bad markets.”

Mr. Sytchev sees little chance of regulatory obstacles or a competing offer emerging, citing “the global and highly fragmented nature of the engineering consulting industry.”

WSP is acquiring the assets at 11.5 times pro-forma synergies (on 2022 estimates, compared to own multiple of 14.8 times — ex IFRS),” he said. “C$1.05 bln top line (US$830-million in water vertical) will put WSP on the path to reaching $10-billion top-line goal by 2024; The EBITDA run rate of $140-million (pre-synergies) and $177-million post (17-per-cent EBITDA margin) doesn’t hurt either. Note that multiples (as is typically the case) are calculated excluding US$200-million of present value pertaining to a transaction-related tax benefit.”

Maintaining an “outperform” rating for WSP shares, Mr. Sytchev raised his target to $182 from $180. The average is $177.07.

Elsewhere, other analysts making target adjustments include:

* Desjardins Securities’ Benoit Poirier to $184 from $177 with a “buy” rating.

“The John Wood E&I business acquisition checks many boxes for WSP and strengthens its foothold in North America, specifically the U.S.,” he said. “This structural change should continue to drive business for the consulting sector for years to come. We derive adjusted EPS accretion of 11 per cent in 2024, although there is likely more upside as WSP realizes cross-selling opportunities along the way. We reiterate our bullish stance.”

* Canaccord Genuity’s Yuri Lynk lowered his target to $190 from $200, reiterating a “buy” rating.

“The acquisition aligns with WSP’s 2022-2024 strategic plan as it continues to build the company’s exposure to the rapidly growing environmental services market, particularly in the U.S.,” said Mr. Lynk. “The acquisition is 12-per-cent and 8-per-cent accretive to our 2023 EBITDA and EPS estimates and is expected to drive mid-teen EPS accretion in 2024, once synergies are fully realized. With its strong balance sheet and significant revenue cross-selling potential excluded from our forecasts, we believe WSP, currently trading in line with peers at 14 times 2023 estimated EBITDA, deserves to trade at a premium.”

* Scotia Capital’s Mark Neville to $175 from $170 with a “sector perform” rating.

“We like the industrial logic of the deal as it (i.) significantly scales WSP’s business in high-growth markets (i.e., Energy & Environment, Water, etc.) that should have long tails to growth driven by the push to net zero, (ii.) adds a highly complementary (and long-standing) customer base (e.g., U.S. federal, Fortune 500 industrial co.’s, etc.) that should provide for revenue synergy opportunities (that are not factored into synergy guidance), and (iii.) makes for a more balanced mix of business, across/within end-markets, geographies, and customer base,” said Mr. Neville. “While the acquisition wasn’t cheap (i.e., we estimate the transaction multiple to be at an approximate 3-multiple-point premium to Golder), it is still accretive.”

* Stifel’s Ian Gillies to $172 from $152 with a “buy” rating.

“The acquisition further enhances WSP’s leading position in the E&C environmental vertical, said Mr. Gillies. “This transaction is on strategy, at a reasonable valuation metric and does not stretch the balance sheet. It is another reminder of why WSP is considered a best-in-class E&C firm.”

* BMO’s Devin Dodge to $180 from $170 with an “outperform” rating.

“We believe the acquisition of E&I significantly advances WSP’s efforts to achieve its 2024 and longer-term goals, including establishing the firm as the leader in the environmental sector, exceeding $10-billion of net revenues (12 months ahead of plan) and supporting upside to adjusted EBITDA margins,” said Mr. Dodge.

“We raised our target price by almost 6 per cent to $180 and believe the current valuation represents an attractive entry point into a premier franchise in the sector.”

* TD Securities’ Michael Tupholme to $185 from $180 with a “buy” rating.


With “no signs of slowdown” from Descartes Systems Group Inc. (DSGX-Q, DSG-T) after “strong” first-quarter results, Canaccord Genuity’s Robert Young said it remains “a dependable engine.”

“Descartes noted that shipment volumes on its networks remain strong, and it does not see any impending weakness at the moment,” he said. “Management noted robust demand for its customs compliance and denied party screening products given the sanctions on Russia in addition to uncertainty around special trading rules for Northern Ireland and the UK. In a scenario where macro conditions deteriorate drastically, Descartes will offset slower organic growth with M&A at attractive valuation backed by a pristine balance sheet and unused revolve.”

After the bell on Wednesday, the Waterloo, Ont.-based firm reported revenue of US$116.4-million, up 17.8 per cent year-over-year and exceeding both Mr. Young’s US$113.9-million estimate and the consensus projection on the Street of US$114.3-million. Earnings per share rose 29 per cent to 27 US cents, beating the Street by a penny.

“Given strong organic growth in fiscal 2022, management has a more difficult comparison in F23 although it is off to a strong start in Q1,” said the analyst. “Organic growth in the quarter was 12-13 per cent, which is a slight improvement year-over-year from ‘just over double-digit organic growth’ in Q1/F22. Descartes highlighted a wide range of ongoing geopolitical and economic drivers from trade restrictions/denied parties arising from the Ukraine conflict to supply chain pressures exacerbated by China COVID lockdowns. The company reiterated target EBITDA margins of 38-43 per cent and growth of 10-15 per cent year-over-year despite beating both in FQ1. The baseline calibration provided by management supports a modest increase to our FQ2 estimates, which flows through to full-year estimates. Descartes continues to see ample M&A targets but is reluctant to chase valuations, which may soften after a gap as the market readjust.”

Pointing to multiple compression across the tech sector, Mr. Young cut his target for Descartes shares to US$74 from US$85, below the US$81.40 average, with a “buy” rating.

“In a jittery tech market that values cash flow and consistency, Descartes continues to be a logical stock to hold,” he added.

Elsewhere, other analysts making changes include:

* Raymond James’ Steven Li to US$71 from US$83 with a “market perform” rating.

“Some slowdown was expected given lapping pandemic comps (Brexit step-up, re-opening) but at 12-13-per-cent organic, this is still well above pre-pandemic range (approximately 6 per cent),” he said. “Valuation has held up better than others, so it’s important for DSGX organic growth to remain above pre-pandemic levels to demonstrate the company’s tailwinds are sustainable.”

* BMO Nesbitt Burns’ Thanos Moschopoulos to US$68 from US$81 with a “market perform” rating.

“We think Descartes can continue to execute successfully against its strategy of delivering consistent EBITDA growth. However, on a relative basis (and principally due to valuation), we prefer other consolidators in our coverage universe,” he said.

* Stephens’ Justin Long to US$80 from US$96 with an “overweight” rating.

“Bottom-line, DSGX continues to outperform expectations in the nearterm, and we believe the secular demand for its products and healthy balance sheet ($212-million of net cash) will help the company navigate macro volatility,” said Mr. Long.

* TD Securities’ Daniel Chan to US$84 from US$95 with a “buy” rating.


National Bank Financial analyst Endri Leno applauded Jamieson Wellness Inc.’s (JWEL-T) accretive US$210-million acquisition of California-based Nutrawise Health & Beauty Corp.

“We view the transaction as a positive for several reasons including: 1) expansion into the U.S. market; 2) complementary to JWEL’s portfolio with little product overlap; 3) 150k sq. ft. manufacturing facility has little capex needs and adds capacity as well as new capabilities; 4) a well-established brand with diverse distribution channels and presence in non-North American geographies; 5) potential synergies (not incl. in our forecasts) via JWEL’s operational, financial and consumer insights,” he said.

Jamieson estimates the deal, which sent its shares higher by 6.1 per cent on Wednesday, will generate 2022 pro forma revenue of US$155-million to UA$159-million and adjusted EBITDA of US$28-million to US$29-million. That led Mr. Leno to raise his 2022 EBITDA and earnings per share estimates by 10 per cent and 9 per cent, respectively, with his 2023 forecasts rising 24 per cent and 21 per cent.

“Jamieson’s growth track record (13-per-cent 2014-2021 CAGR) has been overwhelmingly due to volume growth both domestically and internationally (26-per-cent 2014-2021 CAGR) with the latter representing 13 per cent of sales in 2020,” he said. “In Canada, Jamieson has a significant market share (25-per-cent-plus overall and #1 in top 10 of 13 categories) and brand recognition (63 per cent top of mind brand awareness) that has been supported through product innovations and shelf space growth in new and existing retail partners. Jamieson’s international strategy includes, among others, 1) expansion into e-commerce and domestic physical stores in China via local and international retail partners; 2) e-commerce forays in the U.S.; and 3) long-term opportunities in India (as well as in 40+ other countries across the world) through partnerships with local pharmacy retailers.

“Overall, we have/maintain a positive view on Jamieson given favourable demographics (seniors tend to use more supplements), domestic and international expansion plans, management’s track record of achieving growth and continued strong demand, domestic and international, for health and wellness products.”

Maintaining his “outperform” rating for its shares, Mr. Leno increased his target to $46.25 from $42.75. The average is $43.35.

Elsewhere, others making changes include:

* Scotia Capital’s George Doumet to $39 from $37 with a “sector perform” rating.

“WEL announced the transformational acquisition of Nutrawise, creating a platform for expansion into the U.S., the world’s largest VMS market (growing in the mid- to high single digits),” he said. “We expect Nutrawise to grow at a faster clip given its plans for expanded distribution in the FDM and specialty channels, where it is currently under-penetrated. We see strategic merits to the acquisition and highlight that Nutrawise EBITDA margins are 400 basis points below those of JWEL – allowing for margin expansion opportunities, as well. The strategic merits are : (i) distribution expansion opportunities (mainly in the U.S., but also in Canada); (ii) international expansion, through beauty products, especially in China; and (iii) improvement in product innovation, by leveraging JWEL’s R&D and know-how. Furthermore, given that Nutrawise has an underutilized manufacturing footprint (40-per-cent capacity utilization), this pushes out the need to build additional greenfield capacity.”

* CIBC World Markets’ John Zamparo to $45 from $42 with an “outperformer” rating.

* TD Securities’ Derek Lessard to $50 from $45 with a “buy” rating.


Desjardins Securities analyst Benoit Poirier said he’s “quite encouraged” by the improving outlook for CAE Inc.’s (CAE-T) Civil and Defence business, believing it “bodes well” for its future results.

He said that supports his view that “recent share price weakness offers an attractive buying opportunity for long-term investors.”

“CAE’s 4Q FY22 results gave us many reasons for optimism: (1) a notable sequential improvement in utilization; (2) robust FFS orders of 48 units in 4Q FY22 vs 11 in FY21; and a (3) healthy book to bill for Civil and Defence,” said Mr. Poirier. “In addition, the robust level of pent-up demand for air travel combined with the step up in global government defence spending offer an encouraging set-up for CAE.”

Maintaining a “buy” rating, he raised his target for CAE shares to $40 from $37, exceeding the $39.55 average.

Elsewhere, TD Securities’ Tim James bumped his target to $41 from $39 with a “buy” rating.


Several equity analysts on the Street raised their financial forecasts and target prices for Laurentian Bank of Canada (LB-T) following Wednesday’s premarket earnings release, which sent its shares soaring by 8.9 per cent.

Those making changes include:

* Scotia’s Meny Grauman to $50 from $46 with a “sector perform” rating. The average on the Street is $45.83.

“When Laurentian Bank unveiled its 5-point strategic plan on December 10, 2021, to reverse an extended period of sub-par performance, the bank’s own management team made a point of emphasizing that there is no such thing as strategy without execution,” said Mr. Grauman. “For our part, we liked what we heard at that investor event, but took a cautious approach to incorporating it into in our estimates given the scale of the task at hand. Six quarters later, including a Q2 result that came in 20 per cent above our forecast, we can comfortably admit that we were too conservative in our outlook. Even though it is still too early to declare mission-accomplished at LB, the company is clearly executing well. So well in fact that, during the analyst call, LB’s CEO noted that the bank now expects to exceed its 2022 financial targets, even as it guides to some moderation in performance in the second half of the year. Those targets include adjusted EPS growth more than 5 per cent, adjusted ROE greater than 8.5 per cent, positive adjusted operating leverage, and an adjusted efficiency ratio of less than 68 per cent. We agree that the bank will easily exceed those F2022 targets, but continues to model a more modest performance in F2023 even as we take our expectations higher in that out-year as well.”

* Credit Suisse’s Joo Ho Him to $43 from $39 with an “underperform” rating.

“· LB’s Q2 results handily beat both CS and consensus even excluding for one-time items,” said Mr. Kim. “Better than expected inventory financing volumes drove results, though the bank expects a seasonal volume reduction in Q3 (followed by a gradual recovery in Q4). Margins were the other area of positive, in terms of forward guidance. Expenses were better than our forecast, but are expected to step up in H2, and lastly, we expect continued conservatism on credit and capital from the bank. Despite the many positives coming out of LB’s results this quarter, we continue to look for signs of further execution against its strategic priorities, before we get more positive on the name.”

* Stifel’s Mike Rizvanovic to $44 from $40 with a “hold” rating.

“LB’s strong results in Q2 marked a stark improvement from recent quarters as the management team looks to build some positive momentum following a turbulent past couple of years,” he said. “Some clear positives in the quarter included strength in commercial loans, outsized Capital Markets, and importantly, moderation in expenses. While Q2 was certainly encouraging, the bank continues to face challenges as it moves ahead with its transformation strategy that is still in its early stages. With some of the key factors that drove an outsized Q2 expected to moderate in the near-term, a bit of pressure on capital that prompted a freeze on share buybacks, and another sequential decline in key non-term personal deposit balances in the digital channel that highlights the difficulty in competing with the Big Six banks on digitization, we maintain our HOLD rating on the shares.”

* RBC’s Darko Mihelic to $53 from $52 with an “outperform” rating.

“Q2/22 results were strong driven by higher than expected revenues and continued loan growth momentum. LB should easily exceed targets for 2022 and our estimates have moved up nicely for 2023 and 2024. LB’s valuation is still very attractive, in our view,” said Mr. Mihelic.

* National Bank Financial’s Gabriel Dechaine to $53 from $49 with a “sector perform” rating.

* TD Securities’ Mario Mendonca to $47 from $44 with a “hold” rating.

* CIBC World Markets’ Paul Holden to $43 from $31 with a “neutral” rating.


In other analyst actions:

* In response to its deal to be acquired by Gold Fields Ltd. (GFI-N), Canaccord Genuity analyst Carey MacRury lowered Yamana Gold Inc. (YRI-T) to “hold” from “buy” with a target of $7.50, down from $10.50. The average is $8.77.

“In our view, the industrial logic of this transaction makes sense; the combined company provides investors with a larger, more liquid, diversified global platform with near-term growth and a solid balance sheet,” said Mr. MacRury. “The combined company would be the world’s fourth-largest gold producer and ... increased scale has been rewarded with higher valuation multiples. That said, as we have seen with recent gold sector M&A, investors tend to take a skeptical view of transaction premiums and GFI shares fell more than 20 per cent [Tuesday]. We suspect that as investors digest what we viewed as a surprise combination, this transaction is likely to go through, and we see the probability of an interloper as low.”

* Canaccord Genuity’s Shaan Mir downgraded Entourage Health Corp. (ENTG-X), a Toronto-based cannabis company, to “hold” from “speculative buy” with a 5-cent target, down from 40 cents.

“Given the company’s heavy debt burden, we believe ENTG will see challenges in investing to grow its various business lines and have applied a 200 basis points financial risk premium across all forecasted segments,” said Mr. Mir. “Although we still see value in ENTG’s operations, we would remain on the sidelines as we believe the debt restructuring could see a notable amount of value accrue to lenders. "

* RBC’s Paul Treiber lowered his Enghouse Systems Inc. (ENGH-T) target to $50 from $55 with an “outperform” rating. The average is $50.67.

“Enghouse has not made a material acquisition in 17 months. As a result, near-term growth is sluggish and valuation has compressed to 9-year lows. In light of the pullback in public markets and Enghouse’s strong balance sheet, we believe Enghouse is likely to deploy capital on acquisitions in the next year, which would be a potential catalyst. For Q2/ FY22, we expect a mixed quarter,” said Mr. Treiber.

* Scotia Capital’s Michael Doumet increased his target for Stelco Holdings Inc. (STLC-T) to $57 from $53 with a “sector perform” rating. The average is $59.25.

* CIBC World Markets’ Dennis Fong hiked his Vermilion Energy Inc. (VET-T) target to $32 from $25 with a “neutral” rating, while ATB Capital Markets’ Patrick O’Rourke raised his target to $36 from $31 with a “sector perform” rating. The average is $35.68.

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