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

Gluskin Sheff + Associates Inc.’s (GS-T) shares are “too cheap to ignore,” according to Desjardins Securities analyst Gary Ho.

In response to Wednesday’s release of better-than-anticipated second-quarter financial results, he upgraded his rating for the Toronto-based wealth management firm to “buy” from “hold.”

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Before market open, Gluskin reported base EBITDA of $12.3-million for the quarter, exceeding the expectations of both Mr. Ho ($11.1-million) and the Street ($11.2-million). Earnings per share of 24 cents also topped estimates (20 cents and 23 cents), due largely to “good” cost containment.

Mr. Ho pointed to six primary reasons for raising his rating for its stock: “(1) Due to index rebalancing and negative headlines from GS’s preliminary AUM [assets under management] release, the shares have been under pressure, which presents a good buying opportunity, in our view. (2) We do not believe the market is properly valuing GS’s expense savings over the next 12–24 months. (3) At the current share price, the market is attributing no value to GS’s ability to generate future performance fees (vs a 34-year track record of generating performance fees in excess of 63 per cent of base management fees). (4) We do not rule out GS being a takeout candidate given the attractiveness of HNW assets (50 per cent of GS’s AUM has an account size greater-than $10-million) and GS’s lack of debt. (5) Even with our conservative estimates, our $12 target suggests a 28-per-cent potential return. (6) Valuation is cheap, the 9.8-per-cent yield is attractive and sentiment could turn positive.”

He maintained a target price of $12 per share, which exceeds the consensus target on the Street by 40 cents, according to Bloomberg data.

“We believe the HNW market has the most attractive growth potential among wealth management segments over the next decade,” said Mr. Ho. “GS’s G&A expenses have likely peaked and could surprise to the downside over the next 12–24 months. At the current share price, investors are attributing little value to GS’s ability to generate performance fees. The shares also offer an attractive 9.8-per-cent dividend yield.”


Seeing a “challenging” near-term outlook, Canaccord Genuity analyst Derek Dley downgraded his rating for Jamieson Wellness Inc. (JWEL-T) ahead of the release of its fourth-quarter 2018 financial results later this month.

“In our view, the challenges related to the Specialty Brands business in Q3/18 are likely to persist during Q4/18 and into 2019,” said Mr. Dley. “Notably, we believe it will take a couple of quarters before the company’s amalgamated sales force begin to demonstrate tangible improvements in cross-selling activity. As a result, we believe product innovation and new product sell-thru at the Specialty Brands division may be underwhelming during Q4/18 and into the early part of 2019.

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“Furthermore, we believe the company’s 2019 guidance may come in softer than Jamieson’s medium-term growth targets of 6-7-per-cent top-line growth and 11-12-per-cent EBITDA growth, given the expected near-term softness within the Specialty Brands division.”

For the quarter, Mr. Dley is projecting revenue of $100-million and EBITDA of $22.6-million, which is in line with the consensus expectation on the Street and above the $18.8-million result of a year ago. His earnings per share forecast of 32 cents is a 7-cent improvement year-over-year and now sits 1 cent above the consensus.

Moving the stock to “hold” from “buy,” Mr. Dley lowered his target to $23 from $26 after reducing his fiscal 2019 expectations. The average on the Street is $26.20.

“Our target price represents 15.0 times our 2019 EBITDA estimate of $72-million,” he said. “We are lowering our target multiple from 16.0 times to reflect our expectations for near-term challenges at the Specialty Brands division, along with a decline in the valuation of the company’s peer set.

“Jamieson is currently trading at 13.7 times our 2019 EBITDA estimate, in line with a blended average of its peer group. Given our expectation for near-term challenges, we believe the shares are appropriately valued.”


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The outlook for Home Capital Group Inc. (HCG-T) is getting “tougher,” said Raymond James analyst Brenna Phelan, who lowered her rating for its stock to “market perform” from “outperform” ahead of the Feb. 22 release of its fourth-quarter results.

Ms. Phelan said the proposal for tougher rules governing deposits sourced online or from third-party brokers from the Office of the Superintendent of Financial Institutions (OSFI) is a significant overhang for Home Capital shares in the near term.

“We upgraded Home Capital to Outperform following the sell-off that followed Berkshire Hathaway's exit via the SIB, which took HCG shares to 0.5 times BVPS [book value per share] and was, in our view, overdone,” said Ms. Phelan. “Since then the shares have rallied, but more recently, consistently negative housing data coupled with a draft proposal by OSFI on tighter liquidity requirements have us moving back to the sidelines, with the belief that macro and regulatory risks, both real and perceived, will prevail sentiment-wise over at least the near-term.”

For the quarter, Ms. Phelan is projecting earnings per share of 41 cents, which sits 2 cents below the consensus on the Street.

“Overall, we think that this quarter should look ok,” she said. “That said, we are cautious on 1Q19 and beyond as mortgage data continues to look worse, with national residential mortgage credit growth at its lowest level since April 2001, and Toronto Real Estate Board data indicating 4Q18 price sales was down 12 per cent year-over-year and down 22 per cent over 4Q16. “

She maintained a target price of $18.50 per share. The average is $18.71.

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With a potential total return of 22 per cent, including a 4.5-per-cent dividend yield, Ag Growth International Inc. (AFN-T) possesses both an “attractive” growth profile and “healthy” financial position, said Desjardins Securities analyst David Newman.

Believing it is transforming from an “Ag play” to a food infrastructure play, he initiated coverage of the Winnipeg-based manufacturer of seed, fertilizer, grain, feed and food handling, blending, storage and conditioning equipment with a “buy” rating.

“It now offers a full suite of turnkey equipment and solutions to the global food value chain—ie to facilitate the storage, handling and movement of crop inputs (seed, fertilizer), to move the crops to market and to process the crops into feed or food,” said Mr. Newman. “AGI continues to augment its core competencies in storage and handling with greater capabilities in food safety, control, design, engineering and project management, with a growing skew toward customers in its Commercial segment.

“With its leading market positions, diversified portfolio and relatively recession-resistant stream of cash flows, AGI should be well-positioned to exploit a broad range of growth opportunities including: (1) favourable secular trends to feed the world’s growing appetite, supported by large crops in its key markets; (2) large infrastructure gaps in most emerging grain-growing regions; (3) continued investment in scale, productivity and safety in mature markets; and (4) acquisition opportunities in fragmented markets, with fertilizer and food processing being particularly fertile soil for future deals. A more apt name for AGI would be ‘Food Infrastructure Growth’, in our view.”

Mr. Newman emphasized Ag Growth’s “strong” competitive moat, fortified by its “unique” valuation proposition as the sole player to target the global food infrastructure industry from “field to consumer.” He said that “encapsulates five platforms (fertilizer, seed, grain, feed and food), six continents (Africa, Australia, North America, South America, Europe and Asia) and a full suite of products and services encompassing seven components (30 market-leading brands in storage, handling, structures, process, controls, engineering and project management).”

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“With AGI’s leading positions across an array of attractive end markets, solid execution of its ‘land and expand’ strategy as well as growing cash flows, the company is well-positioned to create long-term shareholder value, in our view,” he said. “Since the end of 2012, AGI has delivered 115 per cent in cumulative total shareholder returns, significantly outperforming the 50-per-cent total return generated by the S&P/TSX Composite Total Return Index.”

Mr. Newman set a target of $62 per share. The average on the Street is currently $70.29.

“This is reflective of its attractive growth prospects, especially through acquisitions in new verticals and international markets,” he said. “AGI’s move to diversify the business could potentially serve to improve margins, reduce volatility and result in a re-rating of the stock in time.”


Pointing to management’s comments on both sales and margin initiatives following the release of weaker-than-anticipated third-quarter 2019 financial results, Acumen Capital analyst Nick Corcoran thinks investors should see the remainder of the fiscal year to be a “transition period” for Andrew Peller Ltd. (ADW.A-T) with “heightened” expenses.

“We expect the company to continue investing in capex, people, and sales initiatives to create differentiation in the market,” he said. “Management noted that ADW will be releasing some new products that are expected to be potential growth drivers. Also consistent with our investment thesis, Management continues to evaluate potential acquisitions and partnerships to diversify its product portfolio and market positioning.”

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On Wednesday, the winemaker reported quarterly sales of $103.2-million, falling short of both Mr. Corcoran’s $110.8-million estimate and the $107.5-million consensus expectation on the Street. Adjusted EBITDA and earnings per share of $15.6-million and 13 cents, respectively, also missed his projections ($18.9-million and 23 cents).

“While we view ADW’s Q3/FY19 financial results as negative in the short-term, we continue to believe that the efforts by management to rationalize the portfolio, as well as ongoing business efficiencies, should have lasting positive effects on margin performance that will create value as the company scales,” said Mr. Corcoran. “The rationalization of ADW’s product line is expected to be completed in Q1/FY20 (quarter ended June 30, 2019).”

Maintaining a “buy” rating for Andrew Peller shares, his target dropped to $17 from $19. The consensus is now $17.25.

“ADW is trading at a discount to the alcoholic beverages peer group on both EV/EBITDA and P/E,” the analyst said. “We continue to believe that ADW’s scalable business model, brand recognition, significant barriers to entry, and balance sheet strength will allow it to trade in line with the peer group.”


Valens GroWorks Corp. (VGW-CN) is “positioned to be a leader in the Extraction Services market,” said Haywood Securities analyst Neal Gilmer, who initiated coverage of the Kelowna-based cannabis producer and processor with a “buy” rating.

“The Company has significant current production capacity that is expanding towards 150,000 kilograms annually,” he said. “Not only is the Company set-up for extraction processing into crude oil, it also has the ability to further refine these extracted products for various oil derivative products that are expected to be approved for the market later this year. We are of the opinion that the extraction services market and development of oil derivative based products will become an important aspect of the cannabis landscape. Valens’ primary driver of revenues will be toll processing in the near-term, followed by expanding to white-label products and its own branded products towards the end of 2019. As the market evolves towards consumer-packaged goods (CPGs) we view extraction services as a key aspect of the marketplace.”

Recommending investors accumulate Valens shares at current levels, Mr. Gilmer set a target of $5.25. The average is $4.50.

“We view Valens as an attractive investment in the cannabis sector as the market evolves towards extracted product and consumer products,” he said. “We believe the shares of Valens GroWorks are undervalued trading at 5.0 times fiscal 2020 consensus EV/EBITDA.”


Believing it has the potential to become a “major” lithium producer in the future, HC Wainwright & Co analyst Heiko Ihle initiated coverage of Standard Lithium Ltd. (SSL-X) with a “buy” rating and $3.20 target, exceeding the consensus of $2.64.

“We attribute much of the 51-per-cent decline in the firm’s share price from its 52-week high to a weak lithium price and non-producing nature of Standard Lithium’s assets, rather than any company issues," the analysts said. “For reference, the Solactive Global Lithium ETF (SOLLIT) shows a 20-per-cent decrease from its 52-week high while Albemarle Corporation (ALB), a global leader in lithium production, shows a decline of 32% from its annual high. With the recent option agreement on the Smackover property and joint venture agreement with Lanxess, we believe that the firm has established itself as a potential key player in the lithium production space.”


In other analyst actions:

TD Securities analyst Brian Morrison initiated coverage of BRP Inc. (DOO-T) with a “hold” rating and $46 target, which falls below the average of $57.73.

Macquarie analyst Brian Bagnell upgraded Suncor Energy Inc. (SU-T, SU-N) to “outperform” from “neutral” and hiked his target to $50 from $39. The average target is currently $53.29.

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