Inside the Market’s roundup of some of today’s key analyst actions
Raymond James’ Jeremy McCrea added Kelt Exploration Ltd. (KEL-T) to the firm’s “Canadian Analyst Current Favourites List” on Thursday.
“With KEL increasing their 2018 capital by $65-million (30 per cent) to $275-million and the increase being back-end weighted, the company has clearly set themselves up for 30-per-cent-plus growth for 2019,” said Mr. McCrea. “Higher capex is set for a 6-well Inga pad, a 4-well pad at Pouce Coupe, a Middle Montney well at Progress and $30-million for additional infrastructure handling at Inga. With the change from low intensity to high intensity frac designs and one of the most favourable underlying geology in the Montney, we believe there is a tremendous near-term upside potential in the shares of KEL and hence we are adding KEL to the ACF.”
To make the move, he dropped Bonterra Energy Corp. (BNE-T) as he sees a better relative near-term upside in Kelt.
Mr. McCrea has a “strong buy” rating and $12 target for Kelt shares. The average is $10.72.
His target for Bonterra is $21.50, which exceeds the consensus of $19.33, with a “strong buy” rating.
At the same time, analyst Kurt Molnar added NuVista Energy Ltd. (NVA-T) to the list in place of Paramount Resources Ltd. (POU-T).
“We are adding NuVista to the Analyst Current Favorite list following their 1Q18 results in which they not only posted beats on both production and cash flow but also reaffirmed guidance for full year 2018,” he said. “Their consistent execution to date has given us added conviction in their guidance reliability and it is becoming very obvious to us that NuVista has the financial capacity to do more / faster if they so choose. NuVista has also reported sustained improvements in capital efficiencies and higher CGRs on their Elmworth asset. We believe that this strength, along with strong execution, will keep NuVista as a stock that is likely to continue to outperform its peers.”
Mr. Molnar also has a “strong buy” rating and $13.50 target for NuVista shares. The average on the Street is $11.16.
“Paramount is being taken off the ACF list for lack of guidance reliability while NuVista is being added for conviction in guidance reliability,” he said.
On Wednesday, Mr. Molnar downgraded Paramount to “outperform” from “strong buy” with a target of $25, versus a $22.29 consensus.
“The market has had doubts about execution vs. guidance from Paramount and this news will play to those fears and will likely drive near-term weakness in the stock,” he said. “This news is transitory but is an unwelcome distraction from the strong Karr economics. We have reduced our 2018 estimates on the back of new Paramount guidance.”
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On Thursday, Laurentian Bank Securities analyst Todd Kepler lowered Paramount Resources Ltd. (POU-T) to “buy” from “top pick” in reaction to its first-quarter results, which fell short of expectation based largely on weather and third-party outages, as well as a reduction to its full-year production guidance.
His target fell to $30 from $33. The average is currently $22.29.
Elsewhere, Scotia Capital’s Cameron Bean downgraded the stock to “sector perform” from “sector outperform” with a $20 target, falling from $30.
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New Gold Inc.’s (NGD-T) appointment of Raymond Threlkeld as its new president and chief executive officer creates uncertainty for the company, said Eight Capital analyst Jacques Wortman, who lowered his rating for its stock to “neutral” from “buy.”
On Wednesday after market close, Toronto-based New Gold announced Mr. Threlkeld will replace Hannes Portmann, who has departed to pursue other opportunities, according to the company’s news release.
Mr. Wortman said the change brings several questions, including why Mr. Portmann stood for re-election 10 days ago and whether the change will affect the ramp-up of its Rainy River mine.
He lowered his target price for New Gold shares to $3.50 from $4.25. The average is currently $4.40.
Conversely, Scotiabank analyst Trevor Turnbull sees the CEO move as a positive, leading him to upgrade the stock to “sector outperform” from “sector perform.”
Believing the change doesn’t bring issues that would hamper Rainy River, he kept a $4 target.
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Ahead of the release of its first-quarter financial report after market close on May 14, Desjardins Securities analyst Gary Ho downgraded his rating for Mosaic Capital Corp. (M-X) with the expectation of “softer” results.
“While 1Q tends to be a seasonally less important quarter (2Q and 3Q are more relevant), we believe some of the lingering issues with a few companies could weigh on earnings this quarter,” said Mr. Ho, moving the Calgary-based company to “hold” from “buy.”
Mr. Ho lowered his quarterly EBITDA projection to $4-million from $7.4-million, noting: “Bassi’s results may be impacted by poor weather in 1Q. Combined with increased competition for Ambassador, we expect weaker year-over-year results from its infrastructure division. As for the diversified segment, we forecast lower margins at Industrial Scaffolding, and the ramp-up of the new Mackow manufacturing plant may also weigh on results. These are expected to overshadow contributions from Circle 5.”
His full-year EBITDA expectation now sits at $33.5-million, down from $37-million. His fiscal 2019 estimate dropped to $37.3-million from $39.9-million.
Mr. Ho’s target for the stock fell to $6.50 from $8.25. The average is currently $6.25.
“While Mosaic has a diversified portfolio and we like the company longer-term, we are downgrading the stock to Hold,” he said. “Our investment thesis is based on: (1) the challenges at some of its companies may take a few quarters to iron out, (2) the payout ratio remains elevated, and (3) it will need to look for financing alternatives to fund growth opportunities.”
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A pair of analysts upgraded their ratings for Great Canadian Gaming Corp. ( GC-T ) on Thursday.
TD Securities’ Damir Gunja moved the stock to “buy” from “hold” with a target of $54, jumping from $39.
Cormark Securities’ David McFadgen increased it to “market perform” from “reduce.” His target rose to $37 from $32.
The average target on the Street is $41.80.
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Gamehost Inc. (GH-T) is a stock for investors who want exposure to Alberta’s economic rebound, said Acumen Capital analyst Brian Pow.
Also emphasizing its 6.4-per-cent annual dividend yield, Mr. Pow upgraded his rating for the Red Deer-based casino operator to “buy” from “speculative buy” following the release of better-than-anticipated first-quarter financial results on Wednesday.
Gamehost reported operating revenue for the quarter of $17.7-million, exceeding Mr. Pow’s $17.3-million estimate and representing a rise of 6 per cent year over year. All three of its operating segments (gaming, hotels and food and beverage) saw growth. Overall, earnings per share of 18 cents met his projections and represented a 2-cent rise from the previous year.
“GH results showed the benefits of a recovering Alberta economy. Fort McMurray is showing a recovery from the 2016 wildfires, and offsetting the loss in Fort McMurray activity is Grande Prairie, which is strengthening from the increased oil and gas activity driven from higher oil prices, in the Montney and Duvernay regions. Deerfoot in Calgary showed strong y/y results from operating efficiencies and will likely continue to show improvements as the Calgary economy strengthens.”
Currently the lone analysts covering the stock, Mr. Pow raised his target for Gamehost shares to $11.40 from $11.
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Canaccord Genuity analyst Tom Gallo initiated coverage of Nighthawk Gold Corp. (NHK-X) with a “speculative buy” rating.
“Nighthawk Gold Corp. (Nighthawk) owns a significant property package in Canada’s Northwest Territories,” he said. “In addition to its flagship Colomac property, which has seen significant improvements since the last resource update, the property hosts several other prospective exploration targets. Nighthawk’s technical team’s systematic approach to exploration has led to a new geologic model that has identified a new high-grade zone beneath the previously mined Colomac pit. We highlight the project’s scalability, low sovereign risk and high-grade resource upside, which we view as a potential game changer should it grow to critical mass. An upcoming resource update could be catalytic if it can demonstrate high-grade resources at Nighthawk’s Zone 1.5 beneath the Colomac pit. The dark-horse story is the potential for lower-grade portions of the 2.1Moz resource to be processed via heap-leaching. Ongoing metallurgical work will refute or prove viability. Strategic investor Kinross (K-T) has an abundance of cold weather heap-leach experience and, in our view, could provide technical assistance or emerge as a suitor in a takeover situation.”
He set a target of $1, which is 15 cents less than the average.
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Home Capital Group Inc. (HCG-T) now appears to be “firmly on the road to both mitigating company specific risks and resuming normal course operations,” said Raymond James analyst Brenna Phelan.
“However, we continue to view the regulatory and interest rate environment as increasingly likely to have an adverse impact on non-prime mortgage originations, and potentially on credit losses via the impact of higher interest rates on debt service ratios. This presents uncertainty around earnings growth in the near term and continues to hold back both our EPS estimates and the multiples we view as appropriate for the shares at this time.
The company reported first-quarter earnings per share of 43 cents on Wednesday, exceeding Ms. Phelan’s estimate of 37 cents and the consensus on the Street of 40 cents.
Despite the beat, Ms. Phelan lowered her target for the stock to $16.50 from $19 after adjusting her valuation methodology. The consensus target on the Street is $18.
She kept a “market perform” rating.
“We expect valuation multiples to remain under pressure in the sector to reflect elevated uncertainty and concern around the housing market’s volume and price outlook,” the analyst said.
Elsewhere, Industrial Alliance Securities analyst Dylan Steuart dropped his target to $20 from $21.50, keeping a “speculative buy” rating.
“Given the improved near-term outlook, our NTM BVPS [next 12-month book value per share] forecast is $24.53, up from the current $23.04,” he said. “However, we still believe that in the near term HCG will likely generate mid-single digit ROE [return on equity] levels (6.6 per cent for 2018). As such, we are reducing our target multiple to 0.8 times on a P/B [price-to-book] basis, down from 0.9 times. Overall this leads to a decrease in our target price … derived by applying a 0.8-times multiple to our revised book value forecast.”
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In other analyst actions:
Tudor Pickering & Co analyst Jeoffrey Lambujon downgraded Encana Corp. (ECA-N, ECA-T) to “hold” from “buy.”
CIBC Capital Markets analyst John Zamparo downgraded Liquor Stores NA Ltd. (LIQ-T) to “neutral” from “outperform” with a $10 target, falling from $13. The average is $12.
GMP analyst Ian Gillies upgraded Horizon North Logistics Inc. (HNL-T) to “buy” from “hold.” Mr. Gillies raised his target to $3.75 from $2.50, which exceeds the consensus of $2.81.
Cormark Securities Inc. analyst Gavin Fairweather upgraded Solium Capital Inc. (SUM-T) to “buy” from “market perform” with a $12 target, which is 81 cents less than the average.
David Leeder