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

Feeling better organic results are needed, CIBC World Markets analyst Paul Holden downgraded Great-West Lifeco Inc. (GWO-T) to “neutral” from “outperformer.”

Mr. Holden made the move following Wednesday's release of "soft" quarterly results, which featured lighter-than-anticipated profit and fee income growth.

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"Another quarter with U.K. property loss is another reminder why it is easier for investors to avoid names with U.K. exposure," he said. "Currency risk is another reason and the GBP is down 4.5 per cent versus the CAD since the end of Q2. The outcome on Brexit has only become more uncertain and it makes us want to shy away from GWO.

"GWO expects to take a URR charge of $50-million-$75-million next quarter, which is not materially different from our prior assumption of $50-million. However, management commentary around recent experience in certain lines of business makes us think that additional assumption changes could be forthcoming. We would be surprised if the reserve charges are material, but the uncertainty will not help the stock ahead of Q3."

After reducing his 2019 and 2020 earnings per share projections (to $2.90 and $3.34, respectively, from $3.04 and $3.40), Mr. Holden lowered his target price for Great-West shares to $32.50 from $37. The average target on the Street is $31.65, according to Thomson Reuters Eikon data.

“We still think that there is a capital deployment story with potential EPS accretion of more than 10 per cent,” the analyst said. “However, timing is uncertain, organic results have been disappointing and Brexit risks have elevated.”


Seeing visibility to “strong” cash flow generation in 2019 and beyond, Eight Capital analyst Ian Macqueen upgraded Seven Generations Energy Ltd. (VII-T) in response to second-quarter results that he deemed “strong on all fronts.”

“Decreased capex and opex assumptions and stronger forecast condensate price realizations resulted in a materially higher NAV estimate and a slightly positive effect on our 2020 CF estimate,” said Mr. Macqueen. “As a result, we are upgrading our VII rating.”

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Moving the stock to “buy” from “neutral,” he hiked his target to $13 from $10, exceeding the consensus of $12.67.

“It has been a challenge but management’s consistent efforts to redefine the company finally seem to be paying off,” the analyst said. “We see Q2 as the turning point we were hoping for.”


Painted Pony Energy Ltd. (PONY-T) is “navigating a tricky trail” with its attempt to keep spending within cash flow, according to Industrial Alliance Securities analyst Michael Charlton.

Concurrent with the release of its quarterly earnings on Wednesday, the Calgary-based natural gas producer reduced its 2019 expected capital spending range by almost 15 per cent from $95-110-million to $80-$95-million.

“Painted Pony looks to be staying on its path of keeping spending within the context of cash flow, trimming its capital program to match anticipated cash flows,” he said. “Its diverse gas marketing strategy appears to have minimized some of the seasonal downside risk this quarter as the Company was able to realize prices that were a 61-per-cent premium to the AECO 5A benchmark. The Company continues to pursue new and alternative marketing initiatives to add incremental operating netbacks such as the RIPET propane export terminal which offers premium product pricing even in a depressed market. We continue to believe the Company offers investors a deep value play in the long run as it trades at a sizeable discount to its underlying reserve value with a PDP/share value of $6.93 and a PDP less net debt/share value of$4.78/share. Looking out to future increased demand and LNG exports, the PONY has significant reserves in place which could make it a potential feed stock target.”

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However, citing updated commodity pricing and projected cash flow, Mr. Charlton downgraded his rating for Painted Pony to “speculative buy” from “buy.” His target for the stock dropped to $1.50 from $2. The average on the Street is $1.59.

“At current share prices, Painted Pony continues to trade at a deep discount to its base unrisked 2P reserve NPV of $25.64/share discounted at 10 per cent,” he said. “We continue to believe the Company’s reserves are not being fully valued in the market, nor is the near-term upside of its Montney play. Furthermore, the growth potential from its existing land base west of the B.C. royalty line is also not reflected in its current share price providing a value opportunity for investors.”

Meanwhile, National Bank Financial cut the stock to “underperform” from “sector perform” with a 75-cent target, dipping from $1.

Raymond James analyst Jeremy McCrea dropped his target to $1 from $1.50, keeping a “market perform” rating.

Mr. McCrea said: “With the current leverage and capital lease terms, there remains above average risk to the timeline needed to see higher gas prices or an LNG related transaction. The 2Q results and associated FFO at $9.1-million unfortunately will be a reminder of the headline risks and despite a couple positive announcements related to completions, we expect new investors will likely remain sidelined. We are maintaining our Market Perform rating acknowledging the torque and risks present today.”


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Though Wesdome Gold Mines Ltd.'s (WDO-T) drilling into the high grade Deep A Zone at its shuttered Kiena mine and mill project in Val-d’Or, Que. “continues to yield excellent results,” Industrial Alliance Securities analyst George Topping lowered his rating for its stock to “buy” from “strong buy,” pointing to recent “rapid” share price appreciation.

“Kiena drilling continues to return highly economic widths and grades and remains open,” said Mr. Topping. "There may be some disappointment that the originally contemplated split and resultant duplication up plunge has been replaced with a fold but in reality, it’s probably better to have the gold concentrated in one mineralised zone. The interpretation is likely to continue to evolve as more drilling is completed.

“Wesdome owns the +80Koz p.a. @US$1,000 AISC Eagle mine that covers exploration costs and management is advancing Kiena to one of the cheapest, quickest restarts available in the industry. Exploration should outline our estimated 1 million ounces at 8.5 grams per ton prior to restart, enough to support an annual production rate of 100,000 ounces growing to 170,000 ounces p.a. as exploration progresses.”

Calling the Kiena drilling “the gift that keeps on giving,” Mr. Topping increased his target for the stock to $7.50 from $7. The average on the Street is $6.20.


Following lower-than-anticipated second-quarter results, AltaCorp Capital analyst Tim Monachello downgraded Akita Drilling Ltd. (AKT-A-T), believing “weakening” U.S. industry rig activity and “poor visibility toward a recovery” in Canada present “meaningful” risk to its near-term results.

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On Wednesday after the bell, Calgary-based Akita reported EBITDA for the quarter of $3-million, falling short of Mr. Monachello's $7-million forecast. The result was largely attributable to conditions south of the border, including weaker-than-expected activity and higher maintenance expenses.

With the results, the company announced a suspension of its dividend.

"We remain encouraged by the steps AKT management has undertaken to both add top-tier drilling assets, and diversify its operating footprint across North America while boosting profitability of Xtreme Drilling’s U.S. operations following its acquisition in Q3/18," said the analyst. "We believe AKT’s U.S. business is likely to continue to gain traction in the market over-time. That said, E&P capital discipline has weighed on North American drilling activity and we believe there is likely more risk to the downside than upside for U. . activity levels over the remainder of 2019; this combined with limited visibility toward a recovery in Canadian activity levels, presents highly elevated risk for investors over the coming quarters, in our view."

Pointing to a lower forecasts for U.S. activity and lower estimates for U.S. daymargins, Mr. Monachello reduced his 2019 and 2020 EBITDA estimates to $26-million and $37-million, respectively, from $37-million and $43-million.

Moving the stock to “sector perform” from “outperform,” he lowered his target by a loonie to $3. The average is $4.13.

“We remain constructive on AKT’s long-term strategy and positioning for when market conditions improve,” he said.

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InterRent Real Estate Investment Trust (IIP.UN-T) is "one of the best managed REITs in Canada and has been a consistent value creator for its unitholders, according to Laurentian Bank Securities analyst Yashwant Sankpal.

However, he thinks InterRent is currently trading in “fair value territory,” leading him to lower his rating for the stock to “hold” from “buy," despite reporting reporting largely in-line quarterly results on Wednesday.

Mr. Sankpal maintained a $15.75 target. The average target on the Street is $15.47.

Elsewhere, Desjardins Securities analyst Michael Markidis said he thinks the REIT possesses a “visible runway for continued growth.”'

"Our confidence with respect to the sustainability of IIP’s peer-leading organic growth potential is high,” he said. “To this end, we are rolling forward our FFO/unit outlook to 2021 (three-year CAGR of 10 per cent). Post-2Q acquisitions are fully funded, and we see capacity for additional investment.”

Mr. Markidis said InterRent continues to "knock it out of the park from an operating perspective" after its same-property net operating income increased 12.3 per cent in the first half of the year, reflecting top-line growth of 8.7 per cent and a "relatively modest" 2.7-per-cent operating expense inflation.

“Our forecast for the existing portfolio (those assets owned on June 30) calls for annualized NOI growth of 8–9 per cent through 2021,” he said. “We believe this outlook is conservative given: (1) IIP’s average gain to lease estimate (greater-than 25 per cent), and (2) elevated vacancy (17.9 per cent) in the 1,237 suites in Montreal that are being repositioned.”

Also emphasizing its capitalizing on its “attractive” cost of equity, Mr. Markidis raised his target for InterRent shares to $16 from $15.50, keeping a “buy” rating.

Industrial Alliance Securities analyst Brad Sturges increased his target to $15.50 from $15 with a “hold” rating.

Mr. Sturges said: “The REIT’s Canadian multifamily real estate portfolio comprises 65 per cent of repositioned suites on a pro forma basis, while 35 per cent of InterRent’s apartment suites are experiencing or expected to undergo various stages of value-enhancing repositioning initiatives. The REIT’s non-stabilized properties provide the potential for significant NAV/unit and AFFO/unit upside through increasing average occupancy levels, realizing higher AMRs for occupied suites, and improving average NOI margins. However, we believe much of the REIT’s near-term growth profile is fairly reflected in InterRent’s current premium valuation.”


Though some indicators stemming from its largely in-line quarterly results were “squishy” for CGI Inc. (GIB-A-T), RBC Dominion Securities Paul Treiber thinks it’s too early to “suggest a trend reversal.”

On Wednesday before the bell, the Montreal-based IT and business consulting services firm reported adjusted earnings per share of $1.22, up 13 per cent year-over-year and matching the consensus expectation on the Street. Revenue of $3.12-billion represented a 6.1-per-cent increase and fell just below the $3.15-billion projection.

Though constant currency organic growth decelerated and bookings were “light,” Mr. Treiber said it’s not yet time to panic, “considering several one-time headwinds Q3 and management’s positive comments on CGI’s pipeline.”

“Organic growth and bookings are key measures to gauge the health of CGI’s business,” he said. "However, these measures are sensitive to temporary changes, which may not suggest a trend reversal. Regarding organic growth, Q3 was impacted by a onetime contract adjustment in the U.K. (estimated 90 basis points headwind) and one less billable day (est. 70 bps year-over-year headwind). Regarding bookings, Q3 is disappointing but reflects lumpiness (trailing 12-month bookings still healthy at 1.07 times) and CGI’s shift to larger, more profitable end-to-end contracts (which involve a longer sales cycle). Positively, CGI’s pipeline for longerterm end-to-end services rose 20 per cent year-over-year.

“CGI has created the majority of shareholder value through acquisitions. Management indicated on the conference call that it is seeing more attractive valuations in the market, which suggests a higher probability of additional acquisitions in the near term, in our view. Unannounced acquisitions are not reflected in Street estimates and represent a potential catalyst for the stock.”

With an “outperform” rating, he increased his target for CGI shares to $115 from $108. The average is $105.69.

“We rate CGI shares Outperform on: 1) strengthening constant currency growth; 2) further margin expansion; 3) continued growth through acquisition; 4) healthy cash flow; and 5) sustained re-valuation above global peers,” he said.

Meanwhile, Desjardins Securities analyst Maher Yaghi increased his target for CGI to $105 from $101.50 with a “hold” rating (unchanged).

Mr. Yaghi said: “While we continue to believe GIB is a core holding for a tech portfolio, we view the stock’s current valuation as a potential headwind to upside in the short to medium term without sizeable accretive acquisitions. We continue to look for a more attractive entry point.”


Cargojet Inc.'s (CJT-T) management has positioned it to “harness the growth of ecommerce by utilizing its existing fleet of aircraft to meet increased demand,” said Acumen Capital analyst Nick Corcoran, who hiked his target for its stock following better-than-expected second-quarter results.

On Wednesday before the bell, the Mississauga-based company reported revenue and EBITDA of $119.1-million and $37.5-million, respectively, representing year-over-year increases of 9.3 per cent and 30.2 per cent. Both exceeded Mr. Corcoran's projections ($118-million and $34.9-million).

“Our key takeaways from the conference call are (1) CJT is well positioned to harness the growth of e-commerce by increasing the utilization of its existing fleet (increased revenue will generate significant free cash flow), (2) CJT is successfully diversifying its business away from its core network with over 25 per cent of its aircraft committed to higher margin ACMI routes, (3) capex will remain elevated in 2019 with maintenance capex of $100-million and growth capex of $100-million (compared to our estimate of $191-million), and (4) no news on the Fedex/Morningstar contract," the analyst said.

Calling the results “a positive,” Mr. Corcoran increased his target to $110 from $95, citing his improved outlook. The average on the Street is $103.95.

“Catalysts for the story will be a return to mid-to high-single digit volume growth (expected with the Q3/19 results) and another record peak with subpeaks expected from Amazon Prime Week, Black Friday, and other major shopping events,” said Mr. Corcoran, who maintained a “buy” rating for the stock.


In other analyst actions:

Beacon Securities analyst Michael Curran lowered Golden Star Resources Ltd. (GSC-T) to “hold” from “buy” with a target of $6.50, falling from $8.25. The average target is $7.94.

Mr. Curran said: “We have made changes to our 2019 operating forecasts, life-of-mine operating estimates for Prestea, and tweaked our trading multiples for the company. While our fair value estimates suggest upside potential from the current price level, we believe investors are likely to await the plan (and costing) to stabilize the Prestea Mine (if not begin to execute the plan), before revaluing GSC shares higher. As a result, we are downgrading our rating.”

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