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

Inter Pipeline Ltd.'s (IPL-T) new $700-million hybrid note offering provides a much-needed “safety net," said Industrial Alliance Securities analyst Elias Foscolos.

Following Wednesday’s announcement of the offering of 6.625-per-cent fixed-to-floating rate subordinated notes due Nov. 19, 2079, Mr. Foscolos said he expects the Calgary-based company to explore the sale of its European Bulk Liquids Storage business for $1.0-$1.4-billion.

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Seeing the offering providing flexibility in both the timing of the sale and price received for the assets, he upgraded his rating for Inter Pipeline shares to “buy”from “hold."

“The offering should provide some added confidence in IPL’s ability to fund its capital program," he said.

“The 60-year offering is debt, and we treat it as such for valuation. However, in the event of insolvency, it will convert to equity. As such, the principal is treated as 50/50 debt versus equity for credit rating purposes.”

Pointing to both an increased confidence in its funding execution and recent share price weakness, Mr. Foscolos raised his rating while maintaining a $25 target price for Inter Pipeline shares. The average on the Street is $24.25, according to Bloomberg data.

“Since downgrading the stock to a Hold on Aug. 12, 2019, it has declined 11 per cent and we have reduced our target by 4 per cent in that time,” the analyst said. “With a 24-per-cent projected total return underpinned by a 7.9-per-cent dividend yield, we now view IPL as a Buy.”

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Separately, Mr. Foscolos raised his financial expectations and target price for shares Computer Modelling Group Ltd. (CMG-T) following the release of “very solid” third-quarter financial results after the bell on Wednesday.

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“CMG’s Q2/F20 results exceeded our expectations, achieving 9-per-cent year-over-year growth in core software revenue with minimal noise from Prior Period recognition and Perpetual licenses,” he said. “We have increased our revenue outlook for the Company, which is supported by growth in deferred revenue and potential price increases to take effect in the New Year.”

He added: “CMG ended the quarter with deferred revenue of $24-million (3 per cent year-over-year). CMG’s deferred revenue is a reliable indicator of Maintenance/Annuity revenue to be recognized over the next twelve months as licenses amortize. Therefore, the year-over-year increase in this item is positive for our outlook, indicating that CMG will realize greater use of its software in the near-term. We anticipate price increases will also begin to take effect in the New Year (CMG’s FQ4).”

Keeping a “buy” rating for Calgary-based reservoir simulation software provider, he increased his target to $8.75 from $7.75. The average is $8.40.

Elsewhere, BMO Nesbitt Burns’ Michael Mazar raised his target to $9.50 from $9 with an “outperform” rating.

Mr. Mazar said: "A few trends emerged from CMG’s FQ2/20 results that we really like, including annuity licence growth from all of its operating segments, and a record quarter from Professional Services.

“The latter is particularly positive because it is being driven by increased financial contribution from CMG’s biggest CoFlow customer, Shell, and should be relatively stable going forward.”

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Elevated debt and cash flow volatility associated with its Prince George Refinery bring heightened risk to Tidewater Midstream and Infrastructure Ltd. (TWM-T), said Desjardins Securities analyst Justin Bouchard.

Accordingly, following Wednesday’s release of third-quarter results that largely met his expectations, Mr. Bouchard downgraded his rating for Tidewater to “hold” from “buy.”

“TWM indicated that deleveraging to 3.0–3.5 times net debt/EBITDA by year-end 2020 is the key goal,” he said. “However, this is contingent on meeting 2020 pro forma EBITDA guidance of $205-million ($75-million at PGR); at present, the outlook is supportive of PGR outperformance vs five-year average EBITDA ($40-million over 2013–17). But our perspective is that TWM requires both PGR to consistently perform at elevated utilization rates (with little margin of error) and crack spreads to remain strong over the entire span of 2020; we do not believe that there is sufficient clarity on either condition at this time.”

Mr. Bouchard lowered his target for Tidewater shares to $1.20 from $1.75, which falls below the $1.85 consensus.

“While we are hopeful that the company is able to achieve its deleveraging targets, the added risk over the foreseeable term compels us to adopt a much more guarded posture on the name, at least until we see tangible progress toward the deleveraging goal,” he said. “We have revised our rating.”

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Elsewhere, Industrial Alliance Securities’ Elias Foscolos also raised his target for Tidewater after its quarterly results that fell in-line with his projections.

“Coming into the quarter, we were concerned about leverage and the ability to fund the Pipestone expansion. TWM announced its decision to delay Pipestone 2 until further notice prompting a change in our model,” he said.

With a “hold” rating (unchanged), Mr. Foscolos moved his target to $1.70 from $1.60.

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It’s the “end of an era and the beginning of the next” for Boyd Group Income Fund (BYD-UN-T), said AltaCorp Capital analyst Chris Murray.

Shares of the Winnipeg-based auto body and auto glass repair services company fell over 2 per cent on Wednesday on the release of third-quarter results that largely fell in line with expectations. It was the final reporting cycle for current president and CEO Brock Bulbuck, who is transitioning into the role of executive chair in the next year.

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Seeing Boyd shares as “fairly valued" with a 5.8-per-cent total return to his target, Mr. Murray lowered to “sector perform” from “outperform."

“Management noted that demand remains healthy in most of the Company’s markets, although technician capacity constraints remain a drag on sales going into Q4/19,” he said. "The Company also acknowledged that it has continued to see an impact on sales from the GM strike in Q4/19 and that it faces challenging comps in Q4/19, with 6.8-per-cent same-store sales growth, or 5.2 per cent on a days adjusted basis, in Q4/18. With current Q4/19 same-store sales levels below those seen in H1/19, management sees achieving increased same-store technician capacity as the primary driver in improving growth in same-store sales in the quarter.

“The Company continues to progress with respect to its growth strategy, acquiring 92 locations in 2019 alongside healthy same-store sales growth. The Company continues to pursue growth, both organic and through acquisitions, with acquisition targets spanning both single- and multi-store operators. Management believes the Company is well-positioned, given the strength of its balance sheet, to take advantage of large opportunistic acquisitions, which could accelerate the Firm’s progress towards meeting its goal of doubling the business in the five-year period through 2020.”

Anticipating growth “to continue for some time at historical levels,” Mr. Murray raised his target to $200 from $190. The average is currently $206.04.

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Following the release of weaker-than-anticipated third-quarter results. TD Securities analyst Aaron MacNeil reduced his fourth-quarter and 2020 EBITDA projections for ShawCor Ltd. (SCL-T) by 34 per cent and 29 per cent, respectively.

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With that reduction, he lowered his rating for the Toronto-based oilfield services company to “hold” from “buy.”

On Wednesday, Shawcor shares dropped over 10 per cent a day after it warned 2019 full-year results are likely to fall short of 2018, due to “ongoing weakness" in Western Canada, lower pipe coating and offshore inspection services activity in the Europe, Middle East, Africa and Russia and the ongoing investments in the pipe coating business for idle assets and project pursuits.

“Shawcor’s announcements to reduce its facility footprint and to delay the international expansion of its composite pipe products are both logical moves given the current outlook for energy and positive for near-term financial performance,” said Mr. MacNeil. "However, management’s longer-term outlook commentary has consistently suggested that significantly improved financial performance is just around the corner. Shawcor has historically garnered a premium valuation due, in part, to widely-held expectations for growth in offshore capital spending that should result in significantly improved financial performance including improved fixed cost absorption and margins.

“In general, we believe that energy services companies that have attracted premium, growth-based valuations, but have fallen short of short term expectations have quickly seen this premium materially reduced. While we note that Shawcor has already experienced multiple erosion in 2019-to-date, we expect this to continue as 2020 expectations are reset to feature a more modest year-overyear improvement in financial performance. We note that SCL trades at multiples well above our coverage group averages for 2019 and 2020.”

After lowering his own financial expectations, Mr. MacNeil dropped his target for Shawcor shares to $21.50 from $26. The average is $16.43.

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Canaccord Genuity analyst Derek Dley sliced his target price for Charlotte’s Web Holdings Inc. (CWEB-T) following “another building quarter” that resulted in softer-than-anticipated results.

Before the bell on Wednesday, the Colorado-based cannabidiol company reported revenue and EBITDA of $25-million and $0.7-million, respectively, falling short of Mr. Dley’s expectations ($31-million and $7.1-million).

Alongside the disappointing results, the company also lowered its 2019 revenue guidance to $95-100 million from the low end of $120-170 million. Mr. Dley had previously projected $123-million.

“The big question mark looking at near-term results is whether the FDA will provide any additional clarity relating to ingestible sales,” said the analyst. “Within the bulk of Charlotte’s Web’s FDM [food/drug/mass] channel, most of the company’s retail partners are only taking on topical products, which represent only 10-15 per cent of sales at retailers where Charlotte’s Web’s entire product suite is offered. We believe any incremental clarity from the FDA would be a major catalyst for the space and for Charlotte’s Web in particular. The company is currently in 6 per cent of total FDM outlets in the U.S., demonstrating the long runway ahead of Charlotte’s Web. We believe some FDM partners will begin to sell ingestible products in 2020 regardless of FDA clarity, however the bulk of partners are likely to wait on the sidelines until clarity is given.”

“We have lowered our revenue and margin estimates to account for the company’s revised guidance and expectation for elevated costs in the near term and rolled forward our valuation to be based on our 2021 EBITDA estimates. We are comfortable assigning a premium valuation to Charlotte’s Web given the $325-million potential upside from the sale of CBD ingestibles in the FDM channel, which we currently do not have included in our estimates.”

With a “buy” rating (unchanged), Mr. Dley dropped his target to $17 from $29. The average is currently $20.46r. (MAV-T) to “neutral” from “outperformer," despite the release of in-line quarterly results.

“We believe Charlotte’s Web represents the most attractive investment in the hypergrowth CBD space," he said. "The company boasts an industry leading brand, the largest network of retail partners, robust EBITDA margins due to vertical integration, and a best-in-class management team. As a result, we are comfortable assigning a premium valuation to Charlotte’s Web.”

Elsewhere, Cormark Securities analyst Kyle McPhee downgraded Charlotte’s Web to “market perform” from “buy” with a $12.50 target, sliding from $33.50.

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Pointing to a lack of visibility on its outlook moving forward due to a loss of shelf space for its Renpure line of products, CIBC World Markets analyst Mark Petrie lowered MAV Beauty Brands Inc. (MAV-T) to “neutral” from “outperformer," despite the release of in-line quaterly results.

“Renpure’s significant shelf space loss is the key issue for 2020,” he said. "Renpure’s core business remains solid but the more-premium, repositioned product launched at mass has largely been discontinued, which we estimate impacts revenues in excess of 15 per cent. While the company stresses that it is pivoting its strategy towards more attractive price points and sizes, the growth outlook for this brand is challenged as competition for shelf space is fierce.

“Marc Anthony and Cake continue to perform quite well but are offset by Renpure next year. Along with the quarter the company announced the acquisition of The Mane Choice in the textured hair market. The acquisition multiple - assuming difficult-to-hit 2021/2022 earn-outs aren’t triggered - is good (6.6 times last 12-month EBITDA), and growth has been strong in a healthy segment. This deal diversifies the portfolio and brings new growth opportunities. Structuring earn-outs is prudent given the Renpure issues and protect downside, but are also material at 1.5 times the initial purchase price.”

Mr. Petrie dropped his target to $4.50 from $8. The average is $5.67.

“With disappointing execution, impaired credibility, and a portion of the Renpure strategy needing a reset, confidence into 2020 is difficult to muster,” he said. "As a result, we feel compelled to apply a lower target multiple on MAV, despite the fact that we are already using a material discount to industry peers. Moving to 7 times (was 8 times) leaves MAV well below peers (most beauty peers are in the mid-teens), but in line with the other negative outlier in the group, Sally Beauty. Though we have cut our multiple and earnings estimates, it is not a massive stretch to foresee a circumstance where MAV shares can generate significant upside. Profitability is below one-time guidance but is still strong; cash flows have been below expectations but Q3 could prove a turning point; Cake and Mane Beauty each have strong momentum and significant upside. And as noted, the multiple is low vs. peers. Particularly given the substantial debt burden, the upside torque on the share price is meaningful should execution improve and credibility re-built. But at this point, visibility is simply too challenged to give MAV the benefit of the doubt.

“While $4.50 presents significant upside from a $3.03 share price, we believe the significant amount of uncertainty increases the riskiness of the investment, and as a result we do not view this upside as significantly enticing to recommend the shares. As a result, we downgrade MAV.”

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Though he’s “disappointed by the volatility expected in near-term trends,” Credit Suisse analyst Michael Benetti still sees Canada Goose Holdings Inc. (GOOS-T) as attractively valued in comparison to its luxury apparel peers.

Shares of the Toronto-based company plummeted almost 11 per cent after it warned of a decline in wholesale revenues and the impact of Hong Kong tensions.

“Despite increasingly negative sentiment into the print, F2Q headline numbers were better than expected (revenues 27.7 per cent vs Street 16 per cent),” said Mr. Binetti. “But the top-line beat was largely on the wholesale side (wholesale revs up 22 per cent vs Street 7 per cent, DTC [direct-to-consumer] revs up 47 per cent vs Street 46 per cent) — with GOOS citing earlier shipments at the request of customers (which we clearly saw in our intra-qtr checks),” he said. "We were disappointed that this earlier shipment timing resulted in guide for wholesale revs to be down –mid-teens in F3Q. So while the company seems well on track to hit its high single-digit wholesale target for the year, F4Q is typically less than 10 per cent of annual wholesale revs—likely resulting in less opportunity for upside to the year after declines in 3Q. On top of that, 2H will see incremental rev headwinds on DTC from a deteriorating HK macro—which we think is the primary driver for the lack of a FY20 rev guide raise (GOOS now has 2 stores open in HK that were supposed to be among the best performing stores). Our sense is that guidance now assumes almost no rev in 2H from either store—with GOOS describing HK as “nearly at a standstill the past 1-2 weeks”.

After trimming his 2020 earnings per share projection to $1.71 from $1.77 due largely to Hong Kong, Mr. Binetti cut his target to $62 from $72, keeping an “outperform” rating. The average target is $60.35.

“The stock today is trading at just 27 times implied FY20 EPS guide ($1.71 or 25 per cent year-over-year),” the analsst said. “On GOOS’ 3-year targets for at least 25-per-cent EPS growth, that implies a PEG of just 1 times (vs luxury brands avg of 2 times and high quality global brands like NKE/LULU at 1.8 times today). There are clearly new risks (like Hong Kong…which should abate at some point). But we think valuation is too low for a brand with significant global runway, where demand is still significantly outpacing supply (most of our wholesale checks tell us GOOS is still restricting quantities).”

Meanwhile, RBC Dominion Securities’ Kate Fitzsimons reduced her target to $62 from $75 with an “outperform” rating.

Ms. Fitzsimons said: "While GOOS’s stock performance has been volatile this year on the recalibration of expectations after a few years of very positive revisions, the maintaining of the 20-per-cent/25-per-cent top/bottom line outlook suggests GOOS’s growth story is further along. That said, looking out over the next 3 years, we expect the GOOS business can approach $1.4-billion by FY22 (vs. $1-billion in FY19), with nothing on the call indicating that underlying brand heat or momentum was changing beyond quarter-over-quarter timing shifts and external factors. Certainly, 2Q results demonstrate GOOS’s brand strength and momentum across channels and geographies.

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In other analyst actions:

Berenberg analyst Donald McLee initiated coverage of Maple Leaf Foods Inc. (MFI-T) with a “hold” rating and $24. The average is $32.25.

Accountability Research Corp analyst Harriet Li raised Barrick Gold Corp. (ABX-T) to “buy” from “hold” with a $27 target, rising from $25 and above the $26.74 average.

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