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

The Street reacted swiftly to Freshii Inc.'s (FRII-T) decision to withdraw of its 2019 fiscal outlook in the wake of weaker-than-anticipated third-quarter results with a trio of equity analysts downgrading their ratings for its stock.

On Wednesday, the Toronto-based company reported same-store sales growth of negative 0.8 per cent, a steep decline from a rise of 5.1-per-cent in the same period a year ago. Adjusted EBITDA also fell year-over-year to $1.4-million from $1.5-million, despite a 26-per-cent rise in system-wide sales, due partially to a rise in store count.

With the results, Freshii pulled back its 2019 outlook, noting in a release: “Management has now determined that certain of its assumptions relating to its outlook for system-wide store count, system-wide sales, selling, general and administrative expenses as a percentage of system-wide sales and Adjusted Pro Forma EBITDA are no longer valid and that it cannot maintain the Company’s outlook in respect of these measure.”

That decision prompted RBC Dominion Securities analyst Sabahat Khan to lower its stock to “underperform” from “sector perform” with a target of $3, dropping from $7. The average on the Street is currently $6.22, according to Bloomberg data.

Canaccord Genuity's Derek Dley moved the stock to "hold" from "buy" with a $4 target, down from $9.50.

CIBC World Markets' John Zamparo dropped it to "underperform" from "neutral" with a $2.75 target, falling from $5.26.


“Don’t pass on” Pason Systems Inc. (PSI-T), said Industrial Alliance analyst Elias Foscolos following the release of third-quarter results that “pulverized” expectations on the Street.

He raised his rating for the Calgary-based provider of data management systems for drilling rigs to "buy" from "hold."

On Wednesday after market close, Pason reported revenue of $82-million, a jump of 28 per cent year-over-year and exceeding the projections of both Mr. Foscolos ($80-million) and the Street ($78-million). "Unprecedented" adjusted EBITDA of $42-million also easily topped expectations ($37-million and $35-million, respectively), an incremental jump of almost 80 per cent due largely to "strong" growth across all its operating segments.

With the results, Mr. Foscolos raised his revenue and EBITDA projections for both fiscal 2018 and 2019, leading to increased earnings per share estimates for both years (71 cents and 83 cents, respectively, from 57 cents and 65 cents).

His target price for Pason Systems shares rose to $23.75 from $20. The average target is $24.65.


A recent pullback in Yangarra Resources Ltd.'s (YGR-T) share price presents a buying opportunity for investors, according to Canaccord Genuity analyst Anthony Petrucci, who upgraded his rating to “buy” from “speculative buy.”

On Wednesday after market close, the Calgary-based company reported production for the third quarter of 10,323 barrels of oil equivalent per day, exceeding Mr. Petrucci's estimate (9,960 boe/d) and in line with consensus expectations. He feels the company seems "well on pace" to reach its production target of 9,000 to 10,000 boe/d.

Cash flow per share of 34 cents also topped expectations, beating the 30-cent estimate of Mr. Petrucci and 29-cent consensus projection.

"Cash costs, including opex, transport and G&A, continue to trend lower as the company grows its production base," the analyst said.

"Along with the release, YGR announced an increase in its capital budget (from $120-million to $140-million), citing a shorter-than-usual break-up period. With significant increases in production (more than 10,000 boe/d) and debt deleveraging (0.7 times 2019 estimate debt-to-cash flow), the risk profile of YGR has declined, we are now increasing our rating."

Mr. Petrucci maintained a target price for Yangarra shares of $7, which sits 95 cents lower than the consensus.

"YGR offers significant growth potential at a discounted cashflow valuation, which is supported by a healthy 2P NAV," he said.

"YGR is trading at a 2019 estimated enterprise value-to-debt-adjusted cash floe of 2.5 times and a 2019 estimated D/CF of 0.7 times, versus its peer group at 4.4 times and 2.5 times, respectively. We believe YGR's discount is unwarranted given its growth profile, balance sheet strength, and asset base."


Raymond James' Tara Hassan removed B2Gold Corp. (BTO-T) from the firm’s “Canadian Analyst Current Favourites.”

“Since adding B2Gold to the Analyst Current Favourites list on October 4, 2018, the company’s share price has increased 12.2 per cent, outperforming the VanEck Vectors Gold Miners ETF (ARCA:GDX) by 9.6 per cent,” he said. “While we still view B2Gold’s valuation relative to peers to be compelling, the significant outperformance, over a short time frame, drives the removal.”

Ms. Hassan maintained a target of $4.50 and "outperform" rating for B2Gold shares. The average on the Street is $5.07.


Raymond James analyst Ken Avalos lowered his rating for First Capital Realty Inc. (FCR-T) to “outperform” from “strong buy” in order to bring it in-line with other top retail real estate investment trusts, particularly RioCan (REI.UN-T) and Crombie (CRR.UN-T).

“We now carry our three buy-rated retail names at Outperform, reserving our Strong Buy rating for more population-driven real estate (multi-family, self-storage, death care),” he said. “That said, we continue to recommend that investors acquire shares at these levels, given the retail-leading SPNOI [same property net operating income] and NAV [net asset value] growth and 14-per-cent NAV discount (largely in-line with the two aforementioned peers).”

On Tuesday, Toronto-based First Capital reported third-quarter funds from operations of 30 cents per share, up 1 per cent year over year but a penny below the expectations of both Mr. Avalos and the Street. Occupancy rose 0.2 per cent to 96.5 per cent, its highest level since the fourth quarter of 2011.

“Despite the value we see in the name, it would be disingenuous if we didn’t comment on the largest risk we see at the moment, Gazit’s 30-per-cent majority position,” said Mr. Avalos. “With Gazit divesting of its Regency Centres position and publicly stating that they’d like to revert to owning solely direct real estate, it in effect creates a ceiling on the name until there is a transition in ownership of those shares.”

Mr. Avalos lowered his target for the REIT by a loonie to $22. The average is 43 cents higher.

“SPNOI results and FFO growth continue to be solid, and NAV growth via developments visible and financeable given the strong balance sheet,” he said. “We continue to recommend investors add shares given the compelling NAV discount and high quality portfolio.”


Following “weak” third-quarter results, Industrial Alliance Securities analyst Nav Malik downgraded AirBoss of America Corp. (BOS-T) to “hold” from “buy.”

“While we upgraded the stock to a BUY last month following the announcement of new Defense contracts, our outlook for the Automotive segment has deteriorated due to recent, and likely ongoing, margin weakness,” he said. “In addition, the macro environment remains challenging with uncertainty in global trading relationships, raw material volatility, and higher costs serving as headwinds on AirBoss' financial performance.”

Mr. Malik dropped his target to $11.50 from $14. The average is $15.


Though he thinks the early signs of the reorganization of assets in the George Weston-Loblaw group of companies “appear positive” for Loblaw Companies Ltd. (L-T) shareholders, Desjardins Securities analyst Keith Howlett dropped his target price for the stock ahead of the Nov. 14 release of quarterly results to account for the removal of Choice REIT from his estimates.

“Loblaw will be a less complex entity now that it has spun out Choice REIT,” he said. “Rent expense will become a sizeable item on the income statement, and is the driver behind our reduced EPS estimates for 4Q and 2019. Previously, the rent paid by Loblaw to Choice REIT disappeared on consolidation of the subsidiary’s financial statements. Choice REIT is now controlled directly by George Weston. The new structure will free Choice REIT to expand its horizons beyond food-anchored retail sites, and to obtain full value from the recent acquisition of CREIT and its executive management team. Now that it has a substantial free cash flow from Choice REIT, George Weston has the financial means to add a “fourth leg” to its portfolio of businesses (Loblaw, Choice, baking). The holding company discount applied to George Weston does appear to have widened with the reorganization. We calculate it at 12.7 per cent at present, above the historical range of 6.5– 8.5 per cent (as calculated by the financial adviser to the board).”

Mr. Howlett dropped his earnings per share projections for 2018 and 2019 to $4.38 and $4.04, respectively, from $4.64 and $5.18.

With a “buy” rating, his target fell to $62 from $77. The average is $63.99.

“We are seeking confirmation in 3Q results that Loblaw is continuing to adhere to its operational and financial model, and will generate consistent and good results,” he said. “Once firmly on this course, the company has solid underlying assets that it will be able to tap to accelerate growth.”


Calling it a “best-in-class” gold equity, Industrial Alliance Securities analyst George Topping initiated coverage of Franco-Nevada Corp. (FNV-T) with a “buy” rating.

“Since the firm’s IPO in December 2007, Franco has had a 463-per-cent return while the cyclic gold price returned 38 per cent, and other gold equities, as measured by the S&P/TSX Global Gold Index, have returned an appalling negative 48 per cent,” said Mr. Topping. “Franco’s business model shields it from the ebbs and flows of the gold market, thus it has been a consistent outperformer. With more than 80 per cent of its portfolio in precious metal royalties/streams, a gold price rally would drive revenue growth.”

He set a target price of $105, which slightly higher than the consensus of $104.65.

“The royalty/streaming business model is low risk and allows Franco to limit its exposure to capital, operating, and other costs faced by traditional miners,” the analyst said. “As such, it deserves and receives a premium valuation. The sheer size of Franco’s portfolio compared to other royalty peers', exposure to O&G, provide diversification and further reduce risk to any one particular asset.”


Citing “the challenged Alberta differential environment, which we do not see improving until late Q1/19," AltaCorp Capital analyst Thomas Matthews downgraded Bonterra Energy Corp. (BNE-T) to “sector perform” from “outperform” and lowered his target to $21 from $23. The average is $20.36.

Mr. Matthews also lowered Peyto Exploration and Development Corp. (PEY-T) to “sector perform” from “outperform,” seeing “cheaper valuations and higher potential for oil-weighted names with pending improvement to western Canadian oil-differentials.” His target rose to $14.25 from $13.50, exceeding the $13.10 average.

TD Securities’ Aaron Bilkoski also downgraded Peyto to “hold” from “buy,” keeping a $12 target.


Industrial Alliance Securities analyst Michael Charlton downgraded Prairie Provident Resources Inc. (PPR-T) to “speculative buy” from “buy.”

“We recognize Prairie Provident is trading at a discount to its estimated pro-forma PDP value of $1.29 per share, however given the increase in debt and uncertainty with regards to the 2019 capital program and commodity price differentials, we believe the risk in this stock has increased and have adjusted our valuations accordingly,” he said.

Mr. Charlton dropped his target to 60 cents from 90 cents. The average is $1.18.


Raymond James analyst Frederic Bastien upgraded Bird Construction Inc. (BDT-T) to “strong buy” from “outperform” with a target of $10.50. The average is $10.

Mr. Bastien said: “Our selection of Bird Construction as one of Raymond James' Best Picks for 2018 has proved a humbling experience-to put mildly. Just when we thought it was poised to rebound from a challenging 2017, the contractor successively suffered from a commercial dispute, rigid accounting changes, a labour strike and outright investor apathy toward Canadian small cap stocks. But with financial results stabilizing and momentum for the firm’s industrial business continuing, rarely has it been as good a time to pick up the Bird as now, in our view. Accordingly we are upgrading the common shares.”


In other analyst actions:

GMP FirstEnergy analyst Michael Dunn upgraded Imperial Oil Ltd. (IMO-T) to “buy” from “hold.” Mr. Dunn hiked his target to $50 from $40, which exceeds the average target on the Street of $46.83.

TD Securities analyst Graham Ryding downgraded Home Capital Group Inc. (HCG-T) to “hold” from “buy” with a $19 target. The average is $19.13.

TD’s Brian Morrison downgraded Linamar Corp. (LNR-T) to “hold” from “buy” with a target of $64, down from $65. The average is $74.86.

Roth Capital Partners initiated coverage of Hexo Corp. (HEXO-T) with a “buy” rating and $10 target, which is 58 cents higher than the consensus.

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