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

After a “very challenging” 2022, RBC Dominion Securities analyst Drew McReynolds predicts growing macro-economic concerns and higher interest rates will continue to “negatively impact” the performance of Canadian media stocks.

“Until there is greater visibility as to whether a soft or hard landing scenario emerges, we expect the group to remain under pressure,” he said.

Thomson Reuters Corp. (TRI-N, TRI-T) was the only company in his coverage universe to finish with a positive total return on a trailing 12-month basis, rising 13 per cent. The remainder of the companies all underperformed the 3-percent total return for the S&P/TSX Composite.

“We attribute the widespread pullback mainly to the emergence of an advertising recession in Canada beginning in H2/22 driven by supply chain disruption and inflation, recession concerns and the impact of higher interest rates on valuations,” said Mr. McReynolds. “With few places to hide in this environment, Thomson Reuters, WildBrain (flat), Transcontinental (down 20 per cent) and Stingray (down 21 per cent) have proven the most resilient on a relative basis within our coverage. The stocks most impacted in this environment on a TTM basis are media technology stocks VerticalScope (down 69 per cent) and Enthusiast Gaming (down 66 per cent) on the back of meaningful exposure to digital advertising and e-commerce.”

With RBC forecasting a “mild” recession in 2023, Mc. McReynolds’s investment strategy skews toward “defensive and/ or oversold under most macro/interest rate scenarios.”

‘While there are few places to hide in an economic slowdown or outright recession, we do see some interesting opportunities at current levels where we either expect earnings to prove more resilient versus what is currently being priced into the stock, or where we believe the stock has over-shot to the downside under most economic scenarios and therefore looks mispriced,” he said. “For VerticalScope, we continue to view current levels as largely “trough on trough” with the stock trading at an EV/EBITDA multiple of 6.2 times on FTM [forward 12-month] EBITDA of $29-million versus what we believe on a normalized basis (i.e., in the absence of cyclical headwinds) would be a 12.0-15.0 times multiple and FTM EBITDA of $40-million-$50-million. We see the pullback in Boat Rocker at 4.5 times FTM EV/EBITDA as overdone particularly given independent content company peers that trade at an average of 8.7 times and what should be relatively resilient content and distribution revenues. For Cineplex, with valuation at 7.6 times FTM EV/EBITDA and further box office normalization in 2023, we view current levels as an attractive and timely entry point.”

Continuing to “see value at current levels,” McReynolds cut his Cineplex Inc. (CGX-T) target to $12 from $13 with an “outperform” rating, due to reductions to his attendance and EBITDA margin assumption . The average on the Street is $12.21.

“We believe earnings visibility for Cineplex is steadily improving following a 2-year period of major industry disruption,” he said. “Specifically, we are encouraged by: (i) the prospect of a full year of normal operations in 2023; (ii) early indications that consumer demand and the effectiveness of an evolving theatrical release window remain largely intact relative to pre-COVID-19 trajectories; (iii) management’s expectation of returning to pre-COVID-19 consolidated EBITDA margin levels; and (iv) a balance sheet that should strengthen given adjusted EBITDA growth and outright debt repayment alongside the continued support of lenders. We believe current levels provide an attractive and timely entry point reflecting: (i) 2023E EV/EBITDA multiple of 7.6 times versus Cinemark at 7.7 times and a pre-COVID-19 FTM EV/EBITDA range of 7.5–10.5 times; (ii) sequential box office improvement in 2023 following a still choppy box office in 2022; and (iii) the general resilience of theatrical exhibition as an out-of-home entertainment option during slower economic environments.

Believing Thomson Reuters Corp. (TRI-N, TRI-T) offers “both growth and defensive attributes,” he raised his target for its shares to US$125 from US$116 with an “outperform” rating. The average target on the Street is US$118.24.

“We view Thomson Reuters as a high-quality core holding with both growth and defensive attributes,” said Mr. McReynolds. “We believe the company has the ability to deliver average annual total returns of approximately 10-15 per cent over the longer term and has entered a new phase of 8-12-per-cent annual dividend growth underpinned by a step-up in FCF generation post-Change Program beginning in 2023. While we see more limited near-term upside in the stock given current valuation (FTM EV/EBITDA of 19.8 times versus a recent historical range of 14-23 times) against the backdrop of rising macro headwinds in 2023 and consequently a likely trimming of the 2023 outlook, we believe the stock at current levels can still deliver double-digit annual total returns longer-term reflecting a resilient asset mix, forecast 12-per-cent NAV CAGR [net asset value compound annual growth rate (2022-2025) and attractive capital return program.”


Heading into fourth-quarter earnings season in the Canadian technology sector, National Bank Financial’s Richard Tse and John Shao see “potential downside bias” for commentary around financial guidance for the year ahead.

In a research report released Thursday, the equity analysts also predicted more companies will undertake restructuring (particularly some of the more recent IPOs) as they pivot their narratives towards profitable (more disciplined capital allocation) growth.”

“We expect balance sheets for some companies to be the focus of investor attention given the challenging macro backdrop with limited (attractive) financing potential,” they said.

The analysts pointed to five companies with potential upside from the Q4 results: Coveo Solutions Inc. (CVO-T); Kinaxis Inc. (KXS-T); Nuvei Corp. (NVEI-T); Shopify Inc. (SHOP-T) and Tecsys Inc. (TCS-T)

Stocks with potential downside risk are: E Inc. (EINC-T); Farmers Edge Inc. (FDGE-T); Q4 Inc. (QFOR-T) and Real Matters Inc. (REAL-T).

Mr. Tse made a series of target price adjustments to stocks in his coverage universe. His changes are:

* Altus Group Ltd. (AIF-T, “outperform”) to $65 from $60. Average: $63.75.

Analyst: “In the short term, we see some risk to the stock given the Tax headwinds noted above. We view any weakness in the stock care of those headwinds would be an opportunity to wade in given the continued execution on the bigger valuation driving segment, AA. We also see potential option value from a move to incorporate more automation into the Company’s Property Tax segment.”

* Constellation Software Inc. (CSU-T, “outperform”) to $2,750 from $2,350. Average: $2,472.61.

Analyst: “We continue to like CSU for its defensive attributes (recurring revenue and cash flow) and heightened growth profile given the accelerated pace of capital deployment. We reiterate our Outperform rating on CSU with a revised price target of C$2,750 (was C$2,350) to reflect an increase in capital deployment capacity.”

* Farmers Edge Inc. (FDGE-T, “sector perform”) to 25 cents from 30 cents. Average: $1.28.

Analyst: “All in, a lack of execution coupled with an overhaul of the entire executive management (C-Suite) team and a high burn rate with a weakening balance sheet has us sticking to the sidelines. We see considerable risk here.”

* MDF Commerce Inc. (MDF-T, “sector perform”) to $4 from $3. Average: $4.45.

Analyst: “Short term, we see potential for a slowdown in government procurement (given the current economic backdrop) could weigh (negatively) on Periscope’s transaction-based revenue (33 per cent of Periscope’s total revenue) in the short term. Longer term, we continue to believe that acquisition has potential to re-rate the stock (upwards) given the possible consolidation play in a disparate market.”

* Q4 Inc. (QFOR-T, “outperform”) to $3.50 from $5. Average: $4.33.

Analyst: “We see risk to Q4′s upcoming FQ4 results in light of the soft capital markets backdrop ... While we continue to like the name, particularly in light of the current valuation, we’ve become increasingly cautious.”

* Real Matters Inc. (REAL-T, “sector perform”) to $5 from $6. Average: $5.57.

Analyst: “While we continue to see long-term potential in REAL (particularly given its continued market share gains) given its unique platform which supports some of the most prominent lenders in North America, we believe the stock will likely mark time given a challenging outlook for both origination and re-fi volumes.”

* Telus International Inc. (TIXT-N/TIXT-T, “outperform”) to US$38 from US$50. Average: US$26.55.

Analyst: “We continue to see Telus International as a high quality large cap service name in our coverage universe. While the market backdrop may provide for some short-term challenges, we continue to believe the Company is on an outsized growth trajectory.”


Raymond James analyst Frederic Bastien and Bryan Fast see their Infrastructure & Construction (I&C) coverage universe “entering a possible recession (or soft landing) in generally good shape.”

That optimism comes after an “underwhelming” performance in 2022, which saw 12 of the 18 stocks they cover, which also includes select property services providers, “faring much worse than the TSX.”

“The year was a tale of two halves,” they said. “1H22 saw valuation concerns cause multiple compression across sectors, and inflation hit labour intensive businesses (DXT, FSV) particularly hard. Engineering consultancies (STN, WSP) also suffered early in the year, but then firmed up when it became clear the growing demand for essential manufacturing, reliable energy and resilient value chains will keep them busy well into the future. 2H22 performance was more positive, as most firms under coverage generate very little business from the I&C segments most vulnerable to elevated interest rates, including residential and commercial. What the rapid pace of rate increases did, however, is drag the price discovery battles between buyers and sellers of commercial real estate, and lure yield-seeking investors away from real assets. This explains why BEP, BIP and CIGI were big outliers during the period. Another one was ARE, which cautioned that four legacy fixed-price projects were at risk of incurring additional costs.”

For 2023, the analysts think the group has “diversified their revenue streams by discipline, end-market and geography, and many can count on stronger balance sheets to see them through tougher times. Moreover, weaker links are no longer part of the equation due to takeovers, bankruptcies or research coverage realignment, which partly justifies the positive bias behind our stock recommendations.”

“We offer high-conviction ideas for each of the I&C sub-groups: FSV, STN, FTT, BDT and BDI,” they said. “FirstService is entering the year fresh off acquisitions and with structural advantages in the highly-fragmented market for restoration and mitigation work, while Stantec is riding strong tailwinds and yet trades at a reasonable valuation. Finning is coming off an impressive year and should maintain momentum supported by key end markets. On the small-cap side, we selected Bird Construction because of its strong financial position, record backlog, and improved risk profile. Last, Black Diamond Group, a radically transformed small-cap stock is deploying rental assets into receptive end-markets, and capitalizing on inflation.”

The analysts raised targets for these seven stocks:

  • Alta Equipment Group Inc. (ALTG-N, “outperform”) to US$19 from US$17. The average is US$20.75.
  • Finning International Inc. (FTT-T, “outperform”) to $42 from $39. Average: $40.63.
  • FirstService Corp. (FSV-Q/FSV-T, “outperform”) to US$165 from US$160. Average: US$144.38.
  • North American Construction Group Ltd. (NOA-T, “outperform”) to $24 from $22. Average: $23.20.
  • SNC Lavalin Group Inc. (SNC-T, “outperform”) to $36 from $33. Average: $35.75.
  • Stantec Inc. (STN-T, “strong buy”) to $90 from $80. Average: $77.27.
  • WSP Global Inc. (WSP-T, “outperform”) to $205 from $190. Average: $181.36.

Conversely, they cut targets for their “most interest-sensitive names.” They are:

  • Brookfield Renewable Partners LP (BEP-N/BEP.UN-T, “outperform”) to US$37 from US$42. Average: US$38.82.
  • Brookfield Infrastructure Partners LP (BIP-N/BIP.UN-T, “outperform”) to US$45 from US$47. Average: US$42.97.
  • Colliers International Group Inc. (CIGI-Q/CIGI-T, “strong buy”) to US$150 from US$160. Average: US$134.86.


“As affordability improves,” CIBC World Markets analyst Hamir Patel upgraded a trio of lumber stocks on Thursday.

“With housing affordability improving and a significant removal of B.C. lumber industry capacity from Canfor, we are upgrading the three major lumber companies (Canfor, Interfor and West Fraser) to Outperformer (from Neutral),” he said. “When we moved to the sidelines on the group on Oct. 3, 2022, we pointed to significant downside risk to estimates. Since then, mortgage rates have pulled back 65 basis points to 6.18 per cent (after peaking at 7.37 per cent in mid October); consensus EBITDA estimates on CFP/IFP/WFG for 2023 have subsequently declined by 45 per cent; and the Canadian LumberCos have underperformed the TSX Composite by an average of 7 per cent. While we still believe sell-side consensus estimates are overly optimistic for 2023/24 (we are 40 per cent/20 per cent below the Street), we expect the improving housing affordability narrative and B.C. supply shuts to drive the stocks higher.”

Mr. Patel’s changes were:

* Canfor Corp. (CFP-T) to “outperformer” from “neutral” with a $29 target, up from $25. The average is $31.50.

* Interfor Corp. (IFP-T) to “outperformer” from “neutral” with a $31 target, up from $27. Average: $35.33.

* West Fraser Timber Co. Ltd. (WFG-T) to “outperformer” from “neutral” with a $130 target, up from $120. Average: $132.


Credit Suisse analyst Andrew Kuske raised his target prices for a group of Canadian utility stocks on Thursday.

“As partly outlined in our Canadian Infrastructure 2023 Outlook and related Global Infrastructure Outlook works, we increased our preference for the Utilities subsector to the second (of three) spots in the Canadian coverage universe with several underpinning,” he said. “One of the critical factors revolves around the interest rate dynamics with short-end rates projected to move higher before declining in H2 2023 across many developed markets. In addition, the current term structure in Canada and the US is that of an inverted yield curve (some further and more up to date commentary on these factors appears in a recent West Fraser Timber note - Upgrade to Outperform (from Neutral); Views on Value with Highlighted Headwinds). In general, these factors are historically positive for Utility performance – a sector that already faces several thematic positives amidst a rather jittery market with levels of economic and market uncertainty. With that backdrop, this report provides thoughts into the Q4 results season along with rolling our targets onto 2024 anchors.”

His changes are:

  • Atco Ltd. (ACO.X-T, “neutral”) to $51 from $48. The average is $49.07.
  • Canadian Utilities Ltd. (CU-T, “neutral”) to $40.50 from $38.50. Average: $37.81.
  • Emera Inc. (EMA-T, “neutral”) to $55 from $54. Average: $58.60.
  • Fortis Inc. (FTS-T, “neutral”) to $61 from $57. Average: $57.38.
  • Hydro One Ltd. (H-T, “neutral”) to $40 from $36. Average: $37.04.


Following the release of “solid” fourth-quarter financial results, Desjardins Securities analyst Gary Ho sees “several catalysts on the horizon for AGF Management Ltd. (AGF.B-T).

Before the bell on Wednesday, the Toronto-based firm reported earnings per share of 35 cents, excluding $2.5-million in severance costs. That exceeded both Mr. Ho’s 27-cent estimate and the 28-cent forecast from the Street.

“Strong net sales of $251-million (vs our $226-million), outperforming the industry’s net redemptions of $28-billion,” said Mr. Ho. “Momentum continued into 1Q, with $62-million retail net inflows quarter-to-date (led by global equities and fixed income); this bodes well for the upcoming RRSP season.

“Stellar three-year fund performance of 30 per cent (vs 40-per-cent target) [is] a testament to AGF’s disciplined investment approach.”

Saying he “favours AGF’s setup for 2023,” the analyst added: “We foresee a few near- or medium-term positive catalysts: (1) retail net flows trending at or above industry; (2) redeployment of capital for organic growth, to seed new private alt strategies and for share buybacks; (3) growth in fees/earnings from its private alt platform; (4) potential dividend increase with 1Q23 results; and (5) DSC ban benefiting FCF and EPS.”

Maintaining a “buy” recommendation for AGF shares, Mr. Ho raised his target to $10 from $9.25. The average is $9.46.

Elsewhere, seeing a “more balanced risk-reward profile,” RBC’s Geoffrey Kwan upgraded AGF to “sector perform” from “underperform” and increased his target to $9.50 from $7.50.

“Q4/22 results were good with retail net sales ahead of our forecast and normalized EPS a penny ahead of our forecast and ahead of consensus,” he said. “Despite industry net redemptions, AGF’s net sales performance has been more resilient than we expected. Furthermore, overall investment performance is good vs. peers based on 1-year quartiles. While we remain slightly cautious on our near-term outlook for our asset manager coverage, we see the risk-reward profile as more balanced and consequently we upgrade the shares.”

Others making target changes are:

* Scotia’s Phil Hardie to $9.25 from $8.5 with a “sector perform” rating.

“Our key take from AGF’s Q4 results is that they demonstrated solid operating momentum despite a challenging backdrop, which we believe will position it well to accelerate earnings and AUM growth when market conditions improve,” he said. “In that context, AGF remains a top “Beta Play” idea when markets reach an inflection point to support a sustained rebound.”

“AGF shares have staged a significant rally in recent months with the stock now trading above its historical average, likely reflecting solid operating momentum and embedded optionality related to the redeployment of excess capital. Shares continue to trade at a wide discount relative to peers and offer an attractive 5-per-cent dividend yield, but we remain on the sidelines given a challenging and uncertain market outlook.”

* Barclays’ John Aiken to $9 from $8 with an “equal-weight” rating.

“AGF reported earnings that were once again ahead of expectations on the back of a higher contribution from its Private Capital business. Sales continue to outpace peers and positive flows were maintained past quarter end,” said Mr. Aiken.

* CIBC’s Nik Priebe to $9 from $8 with a “neutral” rating.

* BMO’s Tom MacKinnon to $9.50 from $8.50 with a “market perform” rating.


In other analyst actions:

* Seeing production and cash flow growth ahead, CIBC’s Cosmos Chiu upgraded OceanaGold Corp. (OGC-T) to “outperformer” from “neutral” with a $4 target, up from $3 and above the $3.47 average.

“Amongst its peers, we now see OceanaGold as a producer well positioned to deliver organic growth at a high FCF yield, with Didipio expected to contribute another year at full production rates, and production from the Haile underground expected to begin contributing meaningfully in the fourth quarter of 2023.” he said. “We currently estimate consolidated production of 518koz in 2023, representing growth of 11 per cent over our 2022 estimate of 466koz, and we model a 2023 FCF yield of 11 per cent at spot prices, well above the peer group average of 1 per cent for 2023.”

* Believing its key catalysts are already priced in to its shares, Mr. Chiu downgraded Dundee Precious Metals Inc. (DPM-T) to “neutral” from “outperformer” with a $10 target, below the $11.94 average.

“Dundee Precious Metals shares have performed well year to date, up 40 per cent in the first month of 2023,” he said. “However, after the release of the Ada Tepe updated technical report and announcement of the high-grade deposit at the Čoka Rakita prospect in Serbia, we see limited further upside for the stock, with key catalysts now priced in. The Ada Tepe asset has a short mine life remaining, and any exploration upside from the Čoka Rakita prospect is expected to be long-dated, with additional work on the Timok feasibility study paused to focus on further exploration. We also anticipate the Loma Larga feasibility study will be a neutral to negative update, given expected capex inflation and ongoing permitting delays. As such, we have revised our model to account for longer-dated starts at these projects, and we are downgrading.”

* Wells Fargo’s Ike Boruchow cut his Canada Goose Holdings Inc. (GOOS-N, GOOS-T) target to US$35 from US$30 with an “overweight” recommendation. The average is US$20.19.

“Following positive comments from BRBY, CFR & UHR out of China—the question of ‘how to play the China reopen theme?’ has continued to come up. We flag NKE/TPR as most exposed to the region, with GOOS/FTCH the most underappreciated China plays,” he said.

* CIBC’s Kevin Chiang raised his target for Parkland Fuel Corp. (PKI-T) to $44 from $43, maintaining an “outperformer” rating. The average is $39.36.

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