Thursday’s analyst upgrades and downgrades

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

Raymond James’ Tara Hassan added B2Gold Corp. (BTO-T) to the firm’s “Canadian Analyst Current Favourites” on Thursday, believing the company’s current discounted valuation provides investors with an attractive entry point.

“Since commissioning Fekola, B2Gold has continually delivered impressive performance with the project topping all feasibility metrics leading to a 5-per-cent increase to 2018 production guidance to 420-430,000 ounces of gold at AISC [all-in sustaining costs] of US$575-625 per ounce,” she said. “While Fekola has already exceeded expectations, an expansion study contemplating increasing production to 500-600,000 ounces per year is expected in 4Q18 along with a resource update that could add reserves of nearly 1 million ounces of gold. With Fekola generating substantial cash flow, B2Gold has started reducing the debt on its balance sheet and expects to end 2018 with US$500-million of debt (down from US$700-million at the end of 2017). We forecast B2Gold will be in a net cash position by the end of 2020. Despite the company’s strong operational performance, organic growth pipeline, and improving balance sheet, B2Gold has underperformed its peers in 2018, with its shares trading near a 2-year low. We believe this is a very attractive entry point for investors who seek exposure to a growing intermediate producer.”

Ms. Hassan has an “outperform” rating and $5 target for shares of B2Gold. The average target on the Street is currently $5.16, according to Bloomberg data.

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Aecon Group Inc.'s (ARE-T) $199.1-million sale of its Contract Mining business to North American Construction Group Inc. (NOA-T) helps to further optimize its business, according to Industrial Alliance Securities analyst Neil Linsdell, noting the Calgary-based construction and infrastructure development company continues to “capture its fair share of large, complex projects.”

"We expect the record backlog ($6.4-billion at the end of Q2) to lead to an exceptionally strong H2/18 and solid 2019," said Mr. Linsdell.

With the sale, announced Wednesday, the analyst lowered his 2019 fiscal revenue projection by $200-million, while his adjusted EBITDA expectation dropped by $28-million. That led his earnings per share estimate for 2019 to fall to $1.09 from $1.15, while his 2020 estimate is now $1.20, down from $1.25.

"With the sale of the capital-intensive and non-core Contract Mining business, Aecon strengthens its balance sheet and frees up resources to manage the significant number of opportunities in its Infrastructure and Industrial segments that have led to the record $6.4-billion backlog," said Mr. Linsdell. "Aecon has a robust pipeline of opportunities, with submissions for RFPs [request for proposals] and RFQs [request for qualifications] for projects worth approximately $8-billion and $20-billion, respectively."

Maintaining a "buy" rating for its stock, he increased his target price to $19.50 from $18.50. The average is currently $20.50.

Elsewhere, after recent meetings with Aecon’s executive vice-president and chief financial officer David Smales, and senior vice-president of corporate development and investor relations Adam Borgatti, Desjardins Securities analyst Benoit Poirier maintained a “buy” rating and $21 target.

Mr. Poirier said: “We continue to be impressed by management’s execution, strong track record and ability to win major infrastructure projects. We believe the shares are poised for a re-rating as management delivers on its record backlog. We remain bullish on the name and believe the stock could be worth C$23–24 in two years.”

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Canaccord Genuity analyst Yuri Lynk called North American Construction Group Inc.’s (NOA-T) purchase from Aecon a “game changer” for the Acheson, Alta.-based company.

Mr. Lynk said: “We view the deal as favourable for three reasons. 1) We estimate NACG can generate $60-million of EBITDA with these assets, versus the $30-million generated by Aecon, taking into account the removal of a layer of overhead; recall, Aecon and NACG work side-by-side on most sites. This implies 62-per-cent EPS accretion in 2019 to $1.60, which management noted in the press release was its EPS bogey for next year. 2) We estimate the pro forma company will have 35-40 per cent of the contract mining market, giving NACG enviable market positioning. 3) NACG got a good deal on these assets, in our view. The purchase price of $199-million compares to the $190-million paid by Aecon in 2010 when it purchased the business out of CCAA, while on EBITDA, the price equates to 3.3 times, compared to the 4.5x NACG was trading at prior to the deal.”

With the deal, the analyst raised his 2019 earnings per share estimate to $1.60 from 99 cents and his 2020 projection to $1.88 from $1.21.

He kept a “buy” rating for its shares, hiking his target to $22 from $14. The average is $17.50.

“With an undemanding valuation of just 8.7 times 2019 estimated EPS, improving fundamentals with earthworks activity in the oil sands increasing and the market for yellow-iron tightening in Western Canada, and good financial flexibility, NACG shares appear set to materially outperform over the next year, in our view,” said Mr. Lynk.

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Enbridge Inc.’s (ENB-T, ENB-N) current share price does not properly reflect its recent progress on simplifications and leverage, said UBS analyst Shneur Gershuni.

Also pointing to capital projects coming online and the approval of Line 3 by the Minnesota Public Utilities Commission, Mr. Gershuni initiated coverage with a “buy” and $50 target. The average target on the Street is $54.36.

At the same time, he initiated coverage of TransCanada Corp. (TRP-T, TRP-N) with a “neutral” recommendation, believing its current leverage will act as a near-term overhang.

He set a target of $56. The average is $66.89.

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Though its stock has dropped 44 per cent thus far in 2018, Citi analyst Mark May is keeping his “sell” rating for Snap Inc. (SNAP-N), lowering his financial forecasts in response to recent user trends and average revenue per user (ARPU) growth as well as its third-quarter guidance and his projected 2018 exit growth rate.

“We are maintaining our Sell rating on SNAP shares for five main reasons: 1) recent executive departures, user trends in Q2, continued operating losses, and Q3 guidance do not bode well for near-term results, in our view; 2) consensus 2019 revenue forecasts still appear too high, as they imply acceleration vs. 2H18; 3) without meaningful changes in revenue growth and/or operating leverage, Snap could be forced to further rationalize costs and/or raise additional capital in 2019/2020; 4) despite the recent share price declines, short interest has continued to rise of late, which suggests strong conviction from bears; and 5) Snap still trades at a premium to most comps (9-10 times enterprise value to estimated 2018 revenue versus peer average of 6\ times).”

With the changes to his financial model, Mr. May lowered his target price for Snap shares to US$7 from US$8, which is below the consensus target of $11.07.

Elsewhere, Evercore ISI analyst Anthony DiClemente dropped his target to US$7 from US$9 with an "underperform" rating (unchanged).

"We believe that competition (particularly from Instagram) is irreversibly reducing SNAP's opportunity to deliver on long-term investor expectations," said Mr. DiClemente. "Given the lack of positive catalysts in the face of declining users and decelerating revenue growth, not to mention management turnover ahead of the seasonally critical 4Q, we lower our Target Price."

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True North Commercial REIT’s (TNT-UN-T) “attractive” yield is supported by a “stable” portfolio of credit-rated tenants, according to Canaccord Genuity analyst Brendon Abrams.

“Overall, True North provides investors with exposure to a geographically diversified Canadian office portfolio which generates predictable and stable cash flows due to the high credit quality of its tenants,” he said. “The REIT is capitalizing on the opportunity to acquire properties which are generally too small for larger institutional investors and too large for smaller private investors. We believe True North offers an attractive yield for income-oriented investors and should benefit from continued strength in the Canadian economy.”

The analyst initiated coverage of Toronto-based REIT with a “hold” rating and target of $6.75, which sits slightly below the average of $6.88.

“Our $6.75 target price is set at an 10-per-cent premium to our NAV estimate and is supported by an attractive yield that should be sustainable,” said Mr. Abrams. “As the REIT grows its market cap and liquidity, we expect its valuation to improve. Our target price implies a one-year total return of 12.3 per cent.”

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BMO Nesbitt Burns analyst Mike Murphy upgraded Crew Energy Inc. (CR-T) to “outperform” from “market perform” with a $3.25 target, which is a nickel higher than the consensus.

“We view the positive FID from LNG Canada as potentially triggering consolidation and increased M&A activity in the BC Montney, and see a high probability of Crew being able to transact on non-core undeveloped properties to reduce leverage,” said Mr. Murphy.

“Based on our analysis, the company is trading at a steep discount to our sum-of-parts valuation of land, production, and debt. On this basis, we are upgrading Crew Energy shares.”

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In other analyst actions:

Hartleys analyst John Macdonald downgraded Copper Mountain Mining Corp. (CMMC-T) to “neutral” from “buy” with a target of $1.80, down from $2.83. The average is $1.82.

TD Securities analyst Dustin Besaw initiated coverage of Tamarack Valley Energy Ltd. (TVE-T) with a “buy” rating and $7 target, exceeding the average of $6.34.