Inside the Market’s roundup of some of today’s key analyst actions
Expecting a “strong” 2020, BMO Nesbitt Burns analyst Jackie Przybylowski raised First Quantum Minerals Ltd. (FM-T) to “outperform” from “market perform” in a research note released Thursday.
“We expect First Quantum will see strong positive momentum over the next few months as strong performance at Cobre Panama is expected to result in improved 2020 guidance, particularly to throughput and unit costs,” she said.
Ms. Przybylowski increased her target for First Quantum shares to $16 from $15.50. The average target on the Street is $15.83.
Separately, Ms. Przybylowski cut Teck Resources Ltd. (TECK-B-T) to “market perform” from “outperform”
“Teck could show disappointing 2020 guidance in Q1/2020 at two of Teck’s key operating areas: First, we expect QB2′s capital budget could be raised after its budget review is completed in December,” the analyst said. “Also, Teck noted that production at its coal division will be low in 1H/2020 as it brings forward its major outages.”
She maintained a target of $37, which exceeds the $33.12 consensus.
Despite Harvest Health & Recreation Inc.'s (HARV-CN) third-quarter financial results demonstrating “solid” sequential growth, Industrial Alliance Securities analyst Nav Malik lowered his rating for its stock on Wednesday, citing “the risk profile” of the cannabis industry.
“While tighter conditions for accessing capital may impact the pace of growth, we continue to believe Harvest remains a solid operator with licenses in place to build one of the largest footprints in the U.S. cannabis industry,” said Mr. Malik, moving the Arizona-based company to “speculative buy” from “buy.”
On Wednesday, Harvest shares jumped 6.6 per cent with the release of its earnings before the bell.
It reported proforma revenue of $95-million, up 22 per cent from the previous quarter and in line with Mr. Malik’s $98-million. EBITDA improved to a $10.9-million loss from a $12.4-million deficit in the previous quarter.
At the same time, Harvest reduced its 2020 revenue guidance to a range of $700-million to $1-billion from $900-million to $1-billion previously.
“The reduction and broader range reflect a tighter and more uncertain environment for capital in the cannabis industry. We reduced our 2020 estimates which are at the lower end of guidance,” said Mr. Malik.
Based on those changes, he dropped his target for Harvest shares to $7 from $19. The average on the Street is $16.22.
Elsewhere, Canaccord Genuity analyst Matt Bottomley reduced his target to $13 from $19 with a "speculative buy" rating (unchanged).
Mr. Bottomley said: “As one of the leading operators in the space, we believe this discount is overdone and believe that continued positive progress on its financing initiatives could result in a significant valuation re-rating for the stock.”
Rogers Sugar Inc. (RSI-T) ended the year “on a soft note,” said Desjardins Securities analyst Frederic Tremblay following Wednesday evening’s release of weaker-than-anticipated fourth-quarter results.
"4Q FY19 was another difficult quarter, in particular in the maple products segment, where competition and short-term challenges (inefficiencies, capacity constraints) associated with footprint optimization continue to compress margins," he said. "RSI is a show-me story in FY20 as the company will have to handle a smaller beet crop and must efficiently complete its maple optimization efforts."
After the bell, the Vancouver-based company reported adjusted EBITDA of $22.2-million, falling short of Mr. Tremblay's $24.3-million.
“Following five consecutive years of sugar volume increases, RSI is guiding for a slight decline in FY20 due to deferred exports (caused by a smaller beet crop),” he said. “Excluding this factor, we estimate that volume would have increased 1 per cent year-over-year thanks to momentum in the consumer category. The early termination of the beet harvest due to severe weather appears likely to weigh on FY20 margins (eg inefficiencies, higher distribution costs), but a better sales mix, lower energy costs and the non-recurrence of commissioning issues should help.”
“In the context of persistent competitive pressures and deceleration of growth in the maple products market, we view solving short-term operational inefficiencies associated with the ongoing footprint optimization efforts as key for RSI. Management continues to expect that full benefits from this footprint transition (low-cost production and ample capacity) will start to be realized after 2Q20. We note that a goodwill impairment of $50.0-million was recorded due in part to changes in the competitive environment and lower growth expectations since the acquisition of LBMT and Decacer in 2017.”
Maintaining a “hold” rating, Mr. Tremblay trimmed his target to $4.75 from $5.25. The average is $5.10.
With its US$608-million acquisition of New York American Water, Algonquin Power & Utilities Corp. (AQN-T, AQN-N) “continues to pursue its long-running strategy of acquiring bite-sized regulated utilities at reasonable premiums," said Industrial Alliance Securities analyst Jeremy Rosenfield.
After the bell on Wednesday, Algonquin announced the deal for the "established" water utility, and Mr. Rosenfield said the potential high single-digit rate base growth "flows well" for the company.
“Among a variety of commitments as part of the transaction, AQN has pledged no impact to existing service, ongoing community/charity involvement, no change in customer rates, no changes to NYAW management, employees, or staffing levels for a minimum of two years from close, no changes to operating structure (including NYAW headquarters in Merrick, NY), and an affirmation of NYAW’s US$214-million in planned system investment through 2024,” he said. “If maintained, the investment would support 8-9 per cent per year rate base growth over the period (in line with AQN’s broader overall high single-digit growth profile, ex-NYAW).”
The analyst feels the transaction valuation reflects an appropriate water premium, adding: “AQN has noted that it expects to finance the acquisition using a combination of debt and equity, consistent with the Company’s current investment grade credit profile. We have included an assumption for incremental equity within our financial estimates, although we would note that AQN has recently discussed the opportunity to engage in asset monetization to source equity for growth. Even with modest equity, we would nonetheless expect the acquisition to contribute 2-4-per-cent accretion to our longer-term EPS estimates. Based on the incremental contribution, we are slightly increasing our price target. Note that AQN continues to trade in line with its U.S. mid-cap utility peers, although generally speaking, water utilities tend to trade at higher valuation multiples; to the extent that NYAW enhances AQN’s asset appeal to investors, AQN could benefit from some valuation multiple expansion down the river.”
Maintaining a “buy” rating for Algonquin, Mr. Rosenfield raised his target to $20 from $19. The average on the Street is now $18.41.
“AQN remains the most well-balanced growth and income investment option in our coverage universe, supported by the company’s (1) diversified business model (regulated utilities & non-regulated power), (2) strong near-term organic growth (8-10 per cent per year EPS and FFO/share growth, and 13 per cent-plus per year FCF/share growth through 2023), (3) attractive dividend growth (10 per cent per year through 2021), (4) international investment opportunities (via the AAGES joint venture and equity stake in AY), and (5) upside from additional growth initiatives that are not included in forecasts,” the analyst said.
Meanwhile, Raymond James analyst David Quezada maintained a "strong buy" and $16 target.
Mr. Quezada said: “This acquisition marks AQN’s fourth addition to the regulated utility footprint in recent quarters (New Brunswick Gas, St. Lawrence Gas and Bermuda Electric being the others) — something we believe is emblematic of the company’s entrepreneurial approach to the business and something that supports sector leading 10-plus-per-cent EPS growth. While these acquisitions have been relatively small on average relative to AQN’s size we note they total roughly $1.5-billion of total capex – something that absolutely moves the needle for the company. Accordingly, we maintain AQN as a top pick in our sector and continue to recommend investors add to positions.”
Raymond James analyst Farooq Hamed thinks the re-start of OceanaGold Corp.'s (OGC-T) Didipio gold and copper mine in the Philippines following a licensing dispute with local government. will now take longer than he initially projected.
“At Didipio, while we still expect the FTAA to be renewed given it has received support from the Department of Natural Resources (DENR) and Mining and Geosciences Bureau (MGB) and is awaiting sign-off from the Office of the President, given the prolonged period of slow progress, we are now modeling a re-start of operations in 3Q20,” said Mr. Hamed. “With a longer holiday season in the Philippines we would not be surprised if the sign-off from the office of the President is not addressed until 1Q20. We expect this to be followed by some negotiation with the Provincial Governor who is currently enforcing an illegal blockade of the mine and finally a ramp up period at the mine. At Waihi, the transition from the Correnso Veinto Martha UG is expected to leave three quarters without production from Waihi in 2020 with re-start in early 2021.”
After reducing his 2020 earnings per share estimate by a penny to 21 cents, Mr. Hamed lowered his target to $4.50 from $5, keeping a “strong buy” rating. The average on the Street is $4.28.
“We believe OGC underperformance year-to-date has been driven primarily by the delay in the renewal of the FTAA at Didipio and subsequent mine shutdown,” he said. “We continue to expect Didipio to receive the FTAA renewal given it has received support from the MGB and DENR. The company has been in discussions with the Office of the President for the final sign-off on the FTAA renewal which we believe would be a major catalyst for the stock price. We acknowledge that given longer observance of the holiday season in the Philippines that if the renewal is not granted in the coming weeks there is a higher likelihood that it could be deferred into 2020.”
Los Andes Copper Ltd. (LA-X) “is well positioned to advance the clean copper project to a constrained market,” said Paradigm Capital analyst David Davidson.
Calling its Vizcachitas project in Chile "a low-risk, moderate-grade copper story" in "the most prominent copper-producing country in the world," he initiated coverage of the Vancouver-based company with a "speculative buy" rating.
“At the current share price of $0.32, we view Los Andes as being undervalued based on the potential of the Vizcachitas project,” he said. "This undervaluation comes as no surprise given the current macroeconomic uncertainty, with the prevailing U.S.-China trade war and the lack of investment across the mining space. That said, we expect the lack of capital invested over the previous years will soon demand a renewed interest quality (copper) exploration names.
“While all development companies are accompanied with multiple risk factors ... we consider Vizcachitas an attractive project for a number of reasons: Chile is a mining friendly jurisdiction that offers reduced environmental and permitting risk; it is surrounded by operating majors; the development capital required for infrastructure is minimized — an important factor considering initial capex estimates can be major deterrents for explorers and developers; and the ore body holds low levels of deleterious elements, which will result in more cost-efficient processing methods and cleaner copper concentrate.”
Mr. Davidson set a target of $1.15, which falls below the consensus of $1.31.
In other analyst actions:
CIBC World Markets analyst Robert Sedran raised Royal Bank of Canada (RY-T) to “outperformer” from “neutral” with a target of $120, rising from $109. The average is $110.47.