Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analysts Shane Nagle and Rabi Nizami think valuations for base metals companies are “not yet supportive of [a] more aggressive approach,” believing the gap “presents opportunity for consolidation” in the sector.
“Historically, the most lucrative returns from base metal equities have occurred after copper prices have receded below the 90th percentile of the Global cost curve under recessionary environments (a level we currently estimate at US$2.75 per pound),” they said. “In each of 2009/2016/2020, the sector averaged a 12-month return over 300 per cent. As prices currently remain well above this level, we highlight that our implied copper price analysis and historical valuations suggest equities are fairly valued, at the present time. Under a prolonged recessionary environment, there’s further downside to equities and the market will wait for cost curve support, trough valuations or more attractive relative pricing before pivoting to more leveraged/growth-oriented names like CS and HBM.”
In a research note released Thursday, the analysts updated their near-term commodity price assumptions for the remainder of 2022 and 2023, including a reduction to the firm’s copper estimates for the fourth-quarter and next year to US$3.40 per pound (down from US$3.60).
“We have incorporated Q3 commodity prices and updated our assumptions in line with spot for the remainder of 2022 and 2023, reflecting a deteriorating price environment from our last update,” they said in a note released Thursday. “We continue to trend towards our long-term fundamental price assumptions by 2026 with incentive price analysis driving long-term prices higher for certain commodities. A global slowdown, rising interest rates, China’s zero-COVID policies, Russia’s ongoing invasion of Ukraine, rising inflationary pressures and pending supply growth are putting pressure on near-term copper prices. The potential for supply disruptions may offer some near-term support while supply-demand dynamics lead to more favourable long-term fundamentals.”
In a risk-off environment, the analysts think investor focus should remain on company’s possessing strong balance sheet, seeing Teck Resources Inc. (TECK.B-T), First Quantum Minerals Ltd. (FM-T) and Copper Mountain Mining Corp. (CMMC-T) as “best positioned to weather a prolonged downturn.”
“TECK/B and FM are capable of preserving strong balance sheets and supporting shareholder returns without sacrificing near-term growth objectives while the Eva sale and improving grade profile for CMMC will allow the company to focus on longer-term growth initiatives at the Copper Mountain Mine,” they said.
The duo made several price target changes to stocks in their coverage universe. They include:
- Adventus Mining Corp. (ADZN-X, “outperform”) to 80 cents from $1. The average on the Street is $1.15.
- Arizona Metals Corp. (AMC-X, “outperform”) to $7 from $7.25. Average: $8.55.
- Capstone Copper Corp. (CS-T, “sector perform”) to $4.75 from $4. Average: $5.93.
- Ero Copper Corp. (ERO-T, “sector perform”) to $17.50 from $16. Average: $19.45.
- First Quantum Minerals Ltd. (FM-T, “outperform”) to $32 from $32.50. Average: $31.27.
- Hudbay Minerals Inc. (HBM-T, “sector perform”) to $7.50 from $7.75. Average: $9.27.
- Lundin Mining Corp. (LUN-T, “sector perform”) to $8.50 from $9. Average: $9.77.
- Solaris Resources Inc. (SLS-T, “outperform”) to $14 from $16. Average: $19.19.
- Taseko Mines Ltd. (TKO-T, “sector perform”) to $2 from $1.75. Average: $2.14.
- Teck Resources Ltd. (TECK.B-T, “outperform”) to $60 from $52.50. Average: $52.44.
- Trilogy Metals Corp. (TMQ-T, “sector perform”) to $1.15 from $1.35. Average: $1.63.
Elsewhere, Scotia Capital’s Orest Wowkodaw and Daniel Sampieri see the risk-reward proposition for the mining equities remaining “reasonably attractive.”
“Escalating global macroeconomic concerns from steeply rising interest rates, higher energy prices, and pandemic lockdowns in China, combined with heightened geo-political uncertainty from Russia’s war on Ukraine, have all placed significant downside pressure on most commodity prices,” they said. “However, despite further lowering our nearterm demand expectations, we continue to see most commodity markets shifting to only a modest surplus position, as we have also made commensurate cuts to our supply forecasts. Although the near-term outlook remains highly uncertain, we do not anticipate a complete collapse in near-term commodity prices given that visible inventories are very low and are projected to remain at reasonable levels until large structural market shortages arrive. In the medium to long term, we continue to anticipate the emergence of a new commodities super cycle driven by growing demand from global decarbonization efforts to address climate change amplified by the impact of severe underinvestment in new production capacity.
“Among the base metals, we continue to prefer Cu exposure given low inventories and our forecast of a reasonably tight near-term market, before transitioning to a large medium-term structural deficit due to supply erosion. We also anticipate Cu to be among the biggest beneficiaries of global decarbonization efforts. We are concerned with over-supply risks in Zn and Ni. Given weak steel mill margins and slowing steel output, we still see meaningful downside pricing risks for HCC and Fe from elevated spot levels; however, we continue to like the outlook for the premium segment of bulk commodities. U3O8 fundamentals are improving on aggressive inventory stockpiling and the dual Western World agendas of decarbonization and energy independence.”
In a research report released Thursday, the analysts lowered their 2023 prices for base metals and bulks by an average of 5 per cent, resulting in several target price changes to stocks in their coverage universe.
Mr. Wowkodaw also made one rating revision, downgrading Turquoise Hill Resources Ltd. (TRQ-T) to “sector perform” from “sector outperform” with a $42 target, down from $43 but above the $41.40 average.
“Our revised 2022-2024 EBITDA forecasts of $459 million, $283 million, and $1.2 billion decreased by an average of 7 per cent per annum driven by our weaker near-term copper price outlook,” he said. “However, our updated 8% NAVPS estimate of $44.02 increased by 5 per cent driven by our weaker CAD dollar forecast. We are downgrading our investment rating on TRQ to Sector Perform (from Sector Outperform) due to the limited implied return to our revised 12-month target. Our revised 12-month target of $43.00 per share (from $42.00) is based on Rio Tinto’s (RIO-L; not rated) $43.00 per share takeover offer ... In our view, there remains considerable uncertainly with respect to the success of the pending Rio offer for the minority shares. Moreover, should minority shareholders reject the offer, we anticipate the shares to trade lower.”
On the broader sector, the analysts said: “Overall, we recommend buying 11 of the 23 equities under our coverage. Our buy-rated equities have an attractive average implied return including dividends of 39 per cent. This return compares to the June 2022 level of 55 per cent, and the April 2022 level of only 27 per cent, and is well below the pandemic-distressed April 2020 level of 78 per cent. Overall, Teck Resources remains our Top Pick. We also prefer Capstone Copper and First Quantum Minerals for copper exposure. We also recommend Champion Iron, Ero Copper, Freeport-McMoRan, and Hudbay Minerals. Among the smaller cap producers, we prefer Copper Mountain Mining. Among the base metal developers, we prefer Ivanhoe Mines. Among the royalty companies and streamers, we prefer Ecora Resources. Among the LatAm companies, we prefer Vale. We are maintaining a Sector Underperform ratings on Grupo Mexico and Southern Copper based on relative valuation and elevated uncertainty for Mexican miners.”
In his base metals earnings preview, Canaccord Genuity’s Dalton Baretto also downgraded Turquoise Hill Resources Ltd. (TMQ-T), moving his recommendation to “hold” from “buy,” citing the Nov. 1 shareholder vote on Rio Tinto’s bid and the limited return from where the stock is currently trading.
He raised his target by $1 to $43.
On the sector, Mr. Baretto said: “Looking out into the rest of 2022, we remain neutral on the industrial commodities, again with a preference for copper over those commodities whose demand drivers are directly related to steel production. As with almost every other asset class, the pricing narrative has been dominated by the US Federal Reserve, the trajectory of US interest rates, and the implications of this trajectory on asset pricing, the USD and the global economy (particularly emerging markets). While we do not profess to be economists, our view is that the current dot plot is priced in, the Fed is unlikely to get more aggressive than current projections, and the USD has likely peaked. Against this backdrop, the physical copper and zinc markets are coiled springs. Despite ample concentrate production, refined markets are extremely tight due to ongoing smelter capacity constraints related to power pricing and rationing. With 3 days of refined metal availability on the exchanges, we believe both markets are vulnerable to a supply shock, which could very likely take the form of further smelter curtailments as winter approaches in the Northern Hemisphere. In addition, we believe that any indications of a pivot from the Fed will result in significant rallies in copper and zinc pricing as the market re-focuses on fundamentals.”
He named three top picks:
* Ero Copper Corp. (ERO-T, “buy” and $21.50 target, up from $17)
Analyst: “ERO, where margins are strong on current production, growth capex is on or under budget on both major projects, and exploration results on the nickel front are gathering momentum. We view the November 7th Investor and Analyst update as a potentially strong catalyst for the shares.”
* Ivanhoe Mines Ltd. (IVN-T, “buy” and $12 target, up from $11)
Analyst: “IVN, where the ongoing stellar ramp-up of Kamoa-Kakula coupled with an expanded Phase 3 plan and drill results from the Western Forelands should be meaningful tailwinds for the share price. We also see a non-trivial probability of a consolidation by its two largest shareholders in the coming months.”
* Filo Mining Corp. (FIL-T, “speculative buy” and $25 target)
Analyst: “FIL, where the ongoing drill campaign continues to deliver exceptional results and a pending resource on the sulphides should crystallize the scale/quality of the deposit.”
Scotia Capital analyst Jason Bouvier continues to be bullish on Canadian energy exploration & production (E&P) companies.
“In our view, the valuation difference between Canadian companies and their peers is too wide and does not account for progress that has been made on both environmental aspects (federal ITC, Pathways initiative) and egress (Line 3 expansion on-stream, TMX expected in late 2023),” he said.
In a research note released Thursday, the firm upgraded its commodity price forecast with its 2022 Brent and WTI crude estimates sliding 5 per cent and 6 per cent, respectively, to US$103.63 and US$98 per barrel. Its 2023 Brent projection rose by 1 per cent to US$100, while its WTI forecast dropped 1 per cent to US$94.
“In our view continued capital discipline (i.e., minimal volume growth) and improving egress have laid the groundwork for robust Canadian liquids prices,” said Mr. Bouvier. “We expect demand for Canadian oil to increase as SPR releases end (although they may be extended) and the impending EU embargo on discounted Russian oil comes into effect. Heading into winter, we expect condensate demand to increase due to higher diluent requirements. Further, our forecast assumes SCO will trade at a US$2.50 per barrel premium to WTI in 2023/2024 due to strong diesel cracks. In the long term, we forecast the SCO differential gradually normalizing until SCO is trading at par with WTI. Our forecast assumes that in 2023 the WCS differential will average US$19/bbl. We expect the WCS differential to normalize at US$14-US$16/bbl following the construction of TMX in late 2023.”
With the price deck alterations, he cut his cash flow per share projections for oil-weighted names by an average of 7 per cent in 2022 with an increase of 2 per cent to 2023.
With those changes, he made a pair of rating changes and several target price adjustments.
Despite reaffirming it as one of his large-cap “top picks” (along with Cenovus Energy Inc., CVE-T), Mr. Bouvier lowered Imperial Oil Ltd. (IMO-T) to “sector perform” from “sector outperform” previously.
“Imperial Oil will be net debt free in late 2022 or early 2023, according to our forecasts,” he said. “Coupled with the company’s capital discipline and low payout ratio, we expect strong growth in shareholder returns (dividends and SBB) going forward. However, due to modest share price outperformance and movement in commodity prices (weaker heavy oil prices, falling cracks, stronger SCO prices) our implied return is now more in line with Sector Perform rated companies.”
His target for Imperial Oil shares fell by 3 per cent to $78 from $80. The average on the Street is $74.76.
The analyst also lowered Enerplus Corp. (ERF-T) to “sector perform” from “sector outperform” with a $26 target, up from $25 and above the $23.50 average.
“Enerplus has been THE top performing oil-weighted energy stock we track over the past six months,” he said. We continue to like the company’s strategy of adding assets in their core area (Bakken) when oil prices were weak (and assets cheap) and now selling non-core assets when oil prices are higher. However, given the significant outperformance our implied return is now more in line with Sector Perform rated companies.”
His other target changes are:
- Africa Oil Corp. (AOI-T, “sector perform”) to $3.50 from $3.25. Average: $26.57.
- Cenovus Energy Inc. (CVE-T, “sector outperform”) to $33 from $34. Average: $33.34.
- Freehold Royalties Ltd. (FRU-T, “sector perform”) to $19 from $18. Average: $20.34.
- International Petroleum Corp. (IPCO-T, “sector perform”) to $18 from $20. Average: $19.83.
- Prairiesky Royalty Ltd. (PSK-T, “sector perform”) to $22 from $21. Average: $23.88.
- Parex Resources Ltd. (PXT-T, “sector perform”) to $29 from $34. Average: $39.26.
- Suncor Energy Inc. (SU-T, “sector outperform”) to $56 from $57. Average: $54.72.
Seeing Osisko Metals Inc. (OM-X) " well-positioned to capitalize” on the looming global zinc shortage, iA Capital Markets analyst Ronald Stewart initiated coverage of a “speculative buy” recommendation on Thursday.
“Successful investors identify future supply gaps and invest in projects that can fill this need,” he said. “Osisko Metals has recognized the future need for new base metal mines, notably production sources of zinc and copper, to meet the growing global demand for these metals.
“While much has been written concerning the looming copper shortage, the situation concerning zinc is rarely mentioned. Zinc is the fourth most used metal in the world after iron, aluminum, and copper. Galvanizing, dye-casting, and alloying have historically accounted for 80 per cent of the zinc market, and more recently, new key, green-energy growth markets including wind and solar power generation as well as battery manufacturing rely on zinc as a critical ingredient. For example, a 10Mwh wind turbine plant requires 4 tonnes of zinc and a 100Mwh solar park requires as much as 240 tonnes of zinc. Where batteries are concerned, zinc-ion batteries provide a safe and cost-effective alternative to lithium-ion batteries in multiple applications.”
Mr. Stewart called Osisko’s flagship Pine Point Project in the Northwest Territories “one of the premier lead-zinc resource projects available anywhere in the world.”
“Pine Point operated successfully for 22 years producing high-quality zinc and lead concentrates,” he said. “Despite mining depletion of 64.3 million tonnes at an average grade of 7.0-per-cent zinc, 3.1-per-cent lead, the project still boasts a total mineral inventory of over 6.0 billion pounds of zinc and 2.3 billion pounds of lead along with extraordinary exploration potential for additional resources. OM has demonstrated the potential commercial merit of Pine Point in its July 2022 Preliminary Economic Assessment (PEA) report. The Company intends to continue its infill drill campaign into 2023, will look to advance the permitting and environmental assessment, and initiate a full feasibility study targeting its completion by Q4/23.”
Also touting the potential from its Gaspé Copper project in Quebec, Mr. Stewart thinks Osisko Metals “provides shareholders with exposure to the right mix of metals for the future through two well-defined development projects in Canada.”
He set a target of $1.05 per share. The average on the Street is 75 cents.
“Where Pine Point is concerned, the extraordinary potential for value creation is clear to us and while the merit of the Gaspé project rests on the future of the copper market, we are confident it has nowhere to go but up. Over the next few years, OM plans to address the technical risks and uncertainties inherent in both projects and under the watchful eye of CEO Bob Wares, has set its sights on meeting the metal needs of the future in a responsible manner,” he concluded.
With gold prices “hanging in,” Credit Suisse precious metals analyst Fahad Tariq made a series of target price adjustments to equities in his coverage universe on Thursday.
“Q2-22 results were characterized by upward cost guidance revisions (and in fewer instances, lower production guidance) from several companies in our coverage universe,” he said. “From our recent conversations with management teams, overall costs appear to be flattish quarter-over-quarter in Q3, despite some benefit from lower fuel prices and higher production sequentially. In some cases, companies are still drawing down their higher cost inventory from earlier in the year. The messaging appears to be to expect similar costs as Q2, with potential for costs to decline in Q4 with higher production and favourable FX. We do not expect any companies in our coverage universe revising 2022 cost guidance higher with Q3 results.”
“Given the strength of the U.S dollar against other currencies, we think a common theme in Q3 conference calls will be the cost advantage for operations outside of the U.S., partially offsetting inflation (particularly in Q4). Put another way, in local currency terms, gold prices are trading at elevated levels, allowing for improved margins (e.g., in CAD terms, gold is currently $2,300 per ounce). We expect companies to provide commentary on FX hedging, which is relevant for preserving economics of growth projects.”
His changes include:
* Centerra Gold Inc. (CG-T, “neutral”) to $7.50 from $7. Average: $8.35.
* Endeavour Mining PLC (EDV-T, “outperform”) to $32 from $36. Average: $40.32.
* Triple Flag Precious Metals Corp. (TFPM-T, “outperform”) to $20 from $19. Average: $20.96.
“Our top precious metals picks remain Agnico Eagle, Endeavour Mining, Barrick, Yamana, and Triple Flag,” he said.
Sleep Country Canada Holdings Inc.’s (ZZZ-T) performance will be hurt by “weakening” consumer sentiment, said National Bank Financial analyst Vishal Shreedhar, who sees a “challenging backdrop” for the retailer.
“Consumer confidence, a key metric as per management, has deteriorated over recent months; in July 2022, it touched the lowest level since the height of the pandemic,” he said. “In addition, other industry indicators are also challenged, which we believe will pressure ZZZ’s sales. Specifically, we note the following: (a) StatsCan data indicates that manufacturer mattress sales were modestly lower year-over-year (July data only); and (b) The real estate backdrop has slowed over recent months (lower y/y unit sales and lower y/y average prices).”
For Sleep Country’s third quarter, Mr. Shreedhar is projecting earnings per share of $1, which is in line with the consensus on the Street but 7 cents lower than the result during the same period a year ago.
“We expect ZZZ’s EPS to decline by 6 per cent year-over-year, reflecting negative sssg [same-store sales growth] (weakening consumer confidence, difficult y/y comparisons) and a higher SG&A rate (marketing, digital transformation), partially offset by a higher gross margin rate (pricing),” he said.
Mr. Shreedar is expecting a rise in near-term expected costs, expecting capital allocation to remain in focus.
“While the current backdrop is challenged, over the medium term, we expect ZZZ to remain well-positioned given various initiatives, including: (a) Investing in digital infrastructure (ERP, etc.); (b) Opening a minimum of six new stores in 2022 (four stores opened YTD); and (c) Expanding through strategic partnerships and innovation,” he said.
“ZZZ’s solid balance provides flexibility for M&A opportunities, NCIB and/or dividend increases. The company repurchased 574k shares in Q3, leaving another $13.1 million in shares to be repurchased based on management’s target of $50 million (NCIB concludes March 8, 2023).”
Keeping a “sector perform” rating for Sleep Country shares, Mr. Shreedhar cut his target by $2 to $35 ahead of the Nov. 7 release of its quarterly results. The average on the Street is $33.33.
Calling it a “stellar print,” Canaccord Genuity’s Derek Dley was one of several equity analysts to raise their target price for shares of Aritzia Inc. (ATZ-T) following better-than-expected second-quarter 2023 financial results.
After the bell on Wednesday, the Vancouver-based retailer reported revenue of $526 million, blowing past Mr. Dley’s estimate of $455-million and the consensus forecast on the Street of $454-million. Adjusted EBITDA of $83 million also topped expectations ($74-million and $69-million, respectively).
“ATZ’s Q2/F23 net revenue of $526 million represents year-over-year growth of 50.1 per cent, reflecting (1) strength in the U.S., where sales grew 79.8 per cent year-over-year (making up 50.1 per cent of the quarter’s revenue), (2) comparable sales growth year-over-year of 28.3 per cent, including double-digit growth in Canada, (3) 8 more boutiques in its store network relative to last year, and (4) its robust e-commerce offering, with e-commerce revenue growing 33.3 per cent year-over-year,” he said.
“Aritzia noted the momentum from Q2/F23 has extended into Q3/F23, with the company tracking toward delivering $565-$590 million in net revenue for the quarter, above the current consensus figure of $511 million. Further, sales guidance for F2023 was lifted to $2.0-$2.05 billion (vs. $1.875-$1.9 billion previously), representing a 34-37-per-cent increase in net revenues year-over-year and indicating top-line strength (driven by higher new customer traffic) that’s expected to persist through H2/F23. The company has yet to witness any deterioration in key metrics such as average order values (AOVs), basket sizes, or conversion rates.”
Keeping a “buy” rating for Aritzia shares, Mr. Dley hiked his target to $67 from $64. The average is $58.57.
“Given the robust acceleration of revenue growth expected from Aritzia as stores reopen, we are comfortable assigning a premium multiple, more in line with the group we view as best-in-class retailers,” he said.
“In our view, Aritzia has done a great job of navigating a changing retail landscape by offering an aspirational customer experience within its brick-and-mortar locations and an improved e-commerce platform. With a healthy track record of comparable sales growth and strong growth this quarter, a robust pipeline of new store openings, a healthy balance sheet to support growth and margin enhancement initiatives, and a well aligned management team, we believe Aritzia is deserving of a premium valuation.”
Others making changes include:
* BMO’s Stephen MacLeod to $61 from $59 with an “outperform” rating.
“Strong growth momentum continued in Q2/23 (adj. EBITDA up 65.2 per cent), leading to another impressive earnings beat. Topline momentum across all geographies and channels has continued into Q3, leading to increased 2023E revenue guidance. The U.S. was again a key growth driver (up 80 per cent) and presents significant opportunity. Aritzia remains well-positioned to execute on its U.S. growth strategy, with ample liquidity, strong omnichannel, and a loyal employee and client base,” said Mr. MacLeod.
* RBC’s Irene Nattel to $56 from $53 with an “outperform” rating.
“Both Q2 and outlook stronger than forecast underpinned by strong consumer demand for the company’s Everyday Luxury apparel that shows no sign of slowing Q3 to date. We maintain our thesis that ATZ has an exceptional growth runway as it continues to seed the US market, grow its omnichannel presence and expand assortment into new categories. Q2 results and Investor Day on October 27 should raise investor comfort around ability to navigate a consumer spending slowdown. SP reflects sector exposure/valuation/relative upside potential,” said Ms. Nattel.
* CIBC’s Mark Petrie to $60 from $59 with an “outperformer” rating.
“Aritzia posted another stellar quarter led by broad-based strength across both channels and geographies,” said Mr. Petrie. “Margin performance was healthy despite a headwind from expedited freight, but the top line remains the focus and Q2 revenue growth (on a three-year CAGR basis) accelerated from Q1 (30 per cent vs. 28 per cent). Concerns about a slowdown in consumer spending, elevated inventories and a return to discounting across the industry have weighed on apparel stocks, but ATZ has showcased – once again – brand momentum is accelerating, particularly in the U.S. Our estimates are increased.”
CIBC World Markets’ Jacob Bout adjusted several target changes in his coverage universe on Thursday.
“With the increased risk of a recession or cost inflation, we continue to prefer high-quality names that have a relatively better ability to protect margins (such as WSP and STN), or those with valuations that already price in a significant downturn (such as FTT),” he said. “Analyzing periods of past downturns or market corrections, WSP and STN performed relatively better than the broader TSX index. Both companies today are more exposed to resilient end markets such as Transportation, Water and Environment, and less so to economically sensitive areas such as Commercial Offices. We would flag that construction-focused names ARE and BDT have already sold off meaningfully, but given we are still in the late cycle, and there is an ongoing risk from inflation and project delays to 2023 estimates, we recommend investors be patient before entering into these names.”
* Aecon Group Inc. (ARE-T, “neutral”) to $11.50 from $14. The average on the Street is $14.04.
* Bird Construction Inc. (BDT-T, “neutral”) to $6.75 from $9. Average: $9.42.
* Finning International Inc. (FTT-T, “outperformer”) to $37 from $38. Average: $39.36.
* North American Construction Group Ltd. (NOA-T, “neutral”) to $16 from $17.50. Average: $23.80.
* Westshore Terminals Investment Corp. (WTE-T, “neutral”) to $29 from $35. Average: $29.20.
* WSP Global Inc. (WSP-T, “outperformer”) to $177 from $181. Average: $178.77.
In other analyst actions:
* Touting its recent stock weakness as a buying opportunity, TD Securities analyst Vince Valentini raised BCE Inc. (BCE-T) to “buy” from “hold” with a $62 target, down from $66 and below the $67.83 average.
He said “BCE is not 100% immune to the risks of a recession” but “investors rarely get an opportunity to lock in a dividend yield over 6.5% on this bluechip name, and we fully expect 5% dividend growth to continue in 2023.”
According to Bloomberg, Mr. Valentini said, relative to most Canadian large-caps companies, BCE possesses stable and diversified cash-flow streams as well as a strong balance sheet and underappreciated long-life infrastructure assets.
* Though he sees its valuation “too punitive considering recovery continues to progress,” BMO Nesbitt Burns’ Fadi Chamoun cut its Air Canada (AC-T) target to $30 from $35, remaining above the $26.20 average, with an “outperform” rating.
“Several headwinds have emerged pressuring our F2023 estimates including the potential for slower global GDP, unfavorable FX, and higher fuel costs. We recognized these challenges in our forecast, but note that the recent pullback in valuation is likely to prove too pessimistic even when considering lowered F2023 forecast and – definitely – in the context of a more normalized earnings power in F2024/F2025 timeframe,” he said.
* Scotia Capital’s Mario Saric reduced his Allied Properties REIT (AP.UN-T) target to $40.50 from $46 with a “sector outperform” rating. The average is $41.75.
“While we think there is excellent long-term value here for patient investors, consistent with the message in our Office Report very negative Office sentiment requires REIT-specific catalysts to emerge, which for Allied we characterize as hitting target 94-per-cent occupancy by year-end, more active asset recycling program (incl. UDCs), and development completions (i.e., AFFOPU growth),” he said.
* CIBC’s Bryce Adams trimmed his Capstone Copper Corp. (CS-T) target to $5.50, below the $5.93 average, from $6.25 with an “outperformer” rating.
* Mr. Adams also cut his targets for Largo Inc. (LGO-T, “neutral”) target to $11 from $13, Lundin Mining Corp. (LUN-T, “neutral”) to $8.50 from $9.50 and Sierra Metals Inc. (SMT-T, “neutral”) to $1.25 from $1.50.. The averages are $16.34, $9.77 and $1.33.
* RBC’s Alexander Jackson cut his targets for Russel Metals Inc. (RUS-T, “outperform”) to $35 from $42 and Stelco Holdings Inc. (STLC-T, “sector perform”) target to $42 from $47. The averages are $36.93 and $50.53, respectively.
On Russel, he said: “We forecast weaker results quarter-over-quarter for Russel with margins compressing in the Metals Service Center (“MSC”) and the Metals Distributor segments on falling steel prices. Despite the weaker expected quarter, we continue to like Russel for its diverse customer base and improving through the cycle margin profile with investment in value added processing and a growing MSC footprint. With our preview we have reduced our target multiples to reflect current market conditions and our price target goes to $35.”
On Stelco, Mr. Jackson said: “We expect weaker results q/q on lower steel prices and higher operating costs due to inflationary pressures. Despite our expectation for weaker sequential results we forecast solid FCF generation on steady volumes. With our preview we have revised our forecast HRC prices bringing down our estimates, inline with consensus. We expect HRC to avg. around spot levels in 2023 and Stelco remains well positioned to continue generating positive FCF and prioritizing returning capital to shareholders. As a result of our HRC price revision our target goes to $42.”
* With the sale of the remaining 20-per-cent interest in its US multi-family portfolio for US$376-million, CIBC’s Dean Wilkinson reduced his target for Tricon Residential Inc. (TCN-T) to $18 from $21, maintaining an “outperformer” rating. Others making changes include: Raymond James’ Brad Sturges to US$15 from US$16.50 with a “strong buy” rating and Canaccord Genuity’s Christopher Koutsikaloudis to US$15.50 from US$16.50 with a “buy” rating. The average is $18.58.
“Overall, Tricon’s pending transaction occurred slightly ahead our assumed timing, and positively generated net proceeds greater than our forecast due to the inclusion of $100-million in earned performance fees,” said Mr. Sturges. “We highlight that Tricon’s market valuation has recently contracted from a relative P/AFFO multiple premium of 6 times to its US SFR peers, down to an 7 times P/AFFO multiple discount currently. Also, Tricon is trading at a wider NAV discount valuation than its recent historical levels following Tricon’s recent trading underperformance. However, we expect Tricon to generate improving 2023E AFFO/share growth of 15 per cent year-over-year, up from a respectable 2022E growth forecast of 13 per cent year-over-year after significant deleveraging its balance sheet.”