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

With its valuation near an all-time low and seeing it poised to “return to growth mode,” Stifel analyst Martin Landry raised his recommendation for Guru Organic Energy Corp. (GURU-T) to “buy” from “hold” previously.

“Our previous HOLD rating was predicated on two main points (1) expectations of declining revenues, reducing investors’ appetite and (2) our view that shares were fairly valued given absent growth and large cash burn,” he said. “We believe these issues have reversed/abated and are upgrading GURU to a BUY rating.”

On Wednesday, shares of the Montreal-based dropped 7 per cent following the release of its second-quarter financial results, which saw in-line revenue results and a better-than-expected EBITDA results.

“Strong revenue growth in Canada was offset by a difficult comparable in the U.S., limiting overall growth,” said Mr. Landry. “EBITDA loss of $2.5-million came in better than our expectations of a loss of $4.5-million driven by lower OPEX, reducing year-over-year cash burn. Since transitioning its Canadian distribution to PepsiCo in October 2021, GURU’s revenue growth has been lumpy, impacted by pricing differences and destocking/replenishments, blurring actual performance at retail.”

“We expect GURU’s revenues to return to a growth mode in Q3FY23 and beyond. GURU continues to slowly gain market share in Canada converting consumers to its healthier alternative. In addition, GURU has an easier comparable for Q3FY23 as sales last summer were impacted by a labor shortage at PepsiCo which translated into out-of-stock positions at retail. We expect revenue growth of 10 per cent year-over-year in H2FY23, with potential upside on successful product activation and marketing campaigns.”

The analyst noted GURU’s valuation has contracted “significantly” over the last 12 months from a high of 6.5 times forward sales estimates to 1.4 times currently based on his fiscal 2024 forecast.

“In our view, the contraction in GURU’s valuation multiple offers investors a good entry point with limited downside risk from current levels,” he said.

“GURU has a cash balance of $41 million as at April 30, 2023. We believe that GURU has ample cash to fund its operations for at least the next 24-30 months, providing management with flexibility and time to act on its long-term strategy and replicate in the rest of Canada, its strong market share in Quebec.”

Seeing the success of the recent launches of GURU Guayusa and GURU Theanine as a “testament to GURU’s product development and should contribute to market share gains over time,” he increased his target for its shares to $3.75 from $3.15. The average target on the Street is $4.17.

Elsewhere, CIBC World Markets’ John Zamparo cut his target to $3 from $3.25, keeping a “neutral” recommendation.

“GURU’s recent product innovations—Theanine Fruit Punch and Guayusa Tropical Punch—have been the fundamental drivers of recent sales growth, and we expect the company will modestly accelerate its innovation efforts moving forward,” said Mr. Zamparo. “We now forecast a slight return to sales growth this year and estimate 19 per cent next year. A return to growth is encouraging, but ultimately, we expect a lack of profitability, likely through F2025, will restrict many investors, even if spending on brand-building efforts are probably the right long-term decision for the business.”


While it possesses a “strong” balance sheet, the growth catalysts are “still unclear” for Aurora Cannabis Inc. (ACB-T), according to ATB Capital Markets analyst Frederico Gomes

Shares of the Edmonton-based company dropped 9.1 per cent on Wednesday following the premarket release of its third-quarter 2023 financial results, which the analyst said “showed continued progress on cost control but a lack of growth.”

Revenue rose 3.8 per cent from the previous quarter to $64-million, narrowly missing both Mr. Gomes’s $65-million estimate as well as the Street’s expectation of $64.8-million on lower-than-expected medical and consumer cannabis sales. Adjusted EBITDA was positive for a second consecutive quarter at $0.3-million, but it also fell below projections ($2.6-million and $3.8-million, respectively).

“Management guided to positive FCF by the end of calendar 2024, mostly through an additional $40-million in annualized cost savings,” said Mr. Gomes. “We view the guidance as a sign that ACB is getting closer to a right-sized cost structure, but we are wary of the still-long runway (seven quarters) to reach positive FCF and the prospect of continued cash burn in the interim (the Company burned $27.6-million during the quarter.”

“Management guided to flat cannabis net revenues and adj. gross margin quarter-over-quarter in Q1/FY24 and noted that the quarterly SG&A run-rate would remain below $30-million. Additionally, management plans to (i) achieve an additional $40-million of annualized cost efficiencies, (ii) repay the remaining $80-million outstanding in convertible debentures by the end of FY2024, and (iii) achieve positive FCF by the end of calendar 2024.”

With the revenue miss and a “lack of growth drivers,” Mr. Gomes lowered his near-term estimates for Aurora with his full-year adjusted EBITDA projection sliding to $8.8-million from $16.6-million.

Maintaining a “sector perform” recommendation for its shares, he trimmed his target to $1.50 from $1.80. The average on the Street is $1.54.

“With $135-million in pro-forma net cash, we think that ACB is well positioned to weather current market challenges, and we view the ongoing cost-cutting initiatives favourably,” he said. “However, we remain cautious on the name given (i) the cash burn of $27.6-million during the quarter, (ii) the still-long runway (seven quarters) to becoming FCF positive implied by guidance, and (iii) the lack of visible near-term growth catalysts.”

Elsewhere, Canaccord Genuity’s Matt Bottomley lowered his target to 80 cents from $1.50 with a “hold” recommendation.

“Overall, the quarter was largely flat in nature with the company seeing continued modest declines in what we consider to be its more core cannabis operations, while the company still remains 12 to 18 months away from expected free cash flow generation,” said Mr. Bottomley.


Resuming coverage following the completion of a $173-million equity offering, National Bank Financial analyst Cameron Doerksen thinks Exchange Income Corp. (EIF-T) has “excellent visibility on organic growth and the proceeds from the financing will be deployed towards supporting recently won new business.”

“PAL Airlines signed an agreement in late May to operate up to six Dash 8-400 turboprops on behalf of Air Canada, which will require an initial $75 million capital outflow but will provide PAL with guaranteed revenue and cash flow streams over the next five years,” he said. “Carson Air was recently awarded a 10+ yearcontract to provide all the fixed wing medevac coverage for the Province of British Columbia. The contract will require a $200-million investment in new aircraft with the full financial impact to EIC likely not being felt until 2025.”

Mr. Doerksen said the equity issuance will not only help support Exchange Income’s growth capex needs but also provide “more flexibility” to complete M&A activities.

“The company has announced two deals so far in 2023 and we understand that management continues to evaluate several other potential acquisition opportunities,” he said. “On our updated forecasts, which do not include any unannounced M&A, we see the company’s senior debt ratio (excluding converts) at a comfortable 2.1 times at year-end 2023.”

While he trimmed his earnings per share forecast to account for the share issuance, Mr. Doerksen maintained his $67 target and “outperform” recommendation. The average is $66.65.

Elsewhere, a trio of analysts adjusted their targets after resuming coverage:

* Scotia Capital’s Konark Gupta to $65 from $66 with a “sector outperform” rating.

“We believe the new contracts require $260-million-$290-million capex over the next 18 months, providing at least $30-million-$35-million in incremental annualized EBITDA as well as indirect growth potential through redeployment of existing assets,” said Mr. Gupta. “Given the transactions are relatively neutral to our leverage ratio forecasts, we believe EIF remains well-positioned to pursue more accretive growth opportunities. Further, the incremental EBITDA growth, over and above EIF’s annual targets, could pave the way for a dividend hike soon, given the cash flow payout ratio remains below 60 per cent. We have updated our model to reflect the new contracts and equity raise, which result in a slight reduction in our target.”

TD Securities’ Tim James raised his target by $1 to $68 with a “buy” rating.

* RBC’s James McGarragle to $70 from $66 with an “outperform” rating.


Calling the potential sale of its Pipeline and Pipe Services business a “significant” near-term catalyst, Stifel analyst Ian Gillies initiated coverage of Mattr Ltd. (MATR-T) with a “buy” recommendation on Thursday, seeing it “getting smaller to get better.”

“Mattr has made a strategic decision to improve its financial metrics by selling businesses that are lower return or do not fit the company’s strategic goals,” he said. “The company’s strategic goal is to be the #1 or #2 in specific value added products while also delivering improved margins and a more stable cash flow stream. We expect the company to announce a divestment of its PPS segment by mid-2023. We estimate the sale will bring in gross proceeds of $233-million (2Q23 estimated EV: $1.322-billion).”

“Our model contemplates a year-end PPS asset sale. In 2024, we forecast revenue to be $954-million, EBITDA of $187-million and EPS of $1.29. The more important question is how the business compares relative to the trailing five-year average. When comparing 2024 to the prior five-year average, the business showcases significantly stronger ROE (up 595 basis points to 10.3 per cent), ROCE (up 1368 bps to 12.2 per cent), gross margins (up 537 bps to 34.9 per cent) and EBITDA margins (up 887 bps to 19.6 per cent) while the balance sheet will move into a net cash position.”

Mr. Gillies expects the Toronto-based company, formerly known as Shawcor prior to a rebrand earlier this month, to be added to the S&P/TSX Composite in the September 2023 rebalance “or potentially as early as the June 2023 rebalance,” and he sees its new management team “driving strong shareholder returns.”

“From January 1, 2010 to February 28, 2021, Mattr’s share price declined 82.6 per cent compared to the S&P 500 rising 241.8 per cent,” he said. “Since Michael Reeves was inserted as President in March 2021 and began pursuing this new strategy aggressively, Mattr’s share price has risen 229.7 per cent compared to the S&P 500 at 11.2 per cent.”

Projecting earnings per share growth could reach 20-25 per cent over the next five years, he set a target of $21 per share. The average is $18.22.


IA Capital Markets analyst Ronald Stewart expects the expansion of Orezone Gold Corp.’s (ORE-T) Bomboré gold mine in Burkina Faso to be “a game changer.”

Touting its resource and reserve upside, he initiated coverage of the Vancouver-based miner with a “strong buy” recommendation on Thursday.

“Orezone successfully built and commissioned the 90-per-cent-owned Bomboré gold mine in Burkina Faso on time and under budget during the COVID pandemic,” said Mr. Stewart. “The mine produced 41.3K oz gold at all-in-sustaining costs (AISC) of $926/oz in its first full quarter of production. It’s been an impressive start to be sure, but what has us even more excited is the planned expansion study that will include a new resource, reserve, and life-of-mine (LOM) plan. We expect to see material upgrades in both the contained gold ounces in the reserves and LOM forecast production. In Canadian parlance, it is known as a double double and should attract gold investors looking for sweet and savoury return,”

The analyst said he expects Orezone to to continue to beat production expectations over the next few quarters, though he warned production might “slightly drop” during the rainy season in the summer.

“The next major event to consider is the expansion plan scheduled for release in the third quarter,” he said. “We expect that both investors and producers will be compelled to consider ORE as an emerging intermediate West African gold producer.”

He set a target of $4 per share, exceeding the $2.48 average on the Street.

“In our opinion, there is considerable value upside to Orezone’s share price based on the success of the start-up and current production forecast,” he said. “We expect that the expansion study will highlight step change in value. While investor uncertainty over the security situation in Burkina Faso will likely linger, if Orezone can continue to achieve its production targets and maintain its lower-quartile costs profile concerns may fade. We think our timing is ideal for investors to take a close look at our investment thesis and consider accumulating an equity position in the Company.”


Despite being a “challenging” year for oilfield services equities “given volatility in commodity prices and capital markets,” Stifel analyst Cole Pereira reiterated his “positive view” for the sector, seeing its stocks as oversold.

“Canadian activity in particular remains very strong, with the year-to-date WCSB rig count up 9 per cent year-over-year while the Montney rig count is up 22 per cent and the U.S. land rig count has declined 12 per cent year-to-date ... We review factors impacting share price performance, and come away with a preference towards resilient EBITDAS profiles, elevated shareholder returns and higher Canadian exposure,” he said.

“However, the U.S. OFS activity outlook screens as eerily similar to 2012-2013, where the U.S. rig count declined 12 per cent in 2012 and was effectively flat through 2013, though the equities generated meaningful upside during the latter. We expect there could be a similar medium-term trade opportunity in U.S. exposed names, and would highlight PD for this trade. Our Canadian rig count forecasts are unchanged while our U.S. rig count forecasts decline by 6 per cent in 2023 and 9 per cent in 2024.

That led Mr. Pereira to reduce his target prices for eight of the 14 stocks in his coverage universe on Thursday. His changes are:

  • Calfrac Well Services Ltd. (CFW-T, “buy”) to $8.50 from $9. The average target is $8.80.
  • Cathedral Energy Services Ltd. (CET-T, “buy”) to $1.80 from $1.90. Average: $1.89.
  • Ensign Energy Services Inc. (ESI-T, “hold”) to $2.50 from $3. Average: $4.67.
  • Pason Systems Inc. (PSI-T, “hold”) to $14 from $15.50. Average: $16.92.
  • PHX Energy Services Corp. (PHX-T, “buy”) to $9.50 from $11. Average: $9.
  • Precision Drilling Corp. (PD-T, “buy”) to $118 from $130. Average: $124.28.
  • Stampede Drilling Inc. (SDI-X) to 40 cents from 45 cents. Average: 53 cents.
  • Western Energy Services Corp. (WRG-T, “hold”) to $3 from $3.15. Average: $3.08.

“Top names in order remain 1) TCW [”buy” and $5.50 target] 2) EFX [”buy” and 16.50 target] and 3) PD, while CET remains our top small-cap pick,” he said.

“TCW remains a best-in-class OFS name given its strong management team, 100-per-cent Canadian exposure and significant shareholder returns focus with its 5.0-per-cent dividend yield and having reduced its share count by 11 per cent since the end of 2021 (2.7 times 2024 estimated EV/EBITDAS). EFX continues to screen as a differentiated investment given its earnings profile has minimal exposure to North American drilling and completions activity, with line of sight for material debt reduction and an increase in shareholder returns as the year progresses (4.0 times 2024E EV/EBITDAS). PD’s shares have declined 42 per cent year-to-date while our 2023 EBITDAS forecast is only down 2 per cent, as a softer U.S. outlook has been largely offset by the strength of its Canadian business, with the stock our favourite name for a trade on U.S. activity being oversold (3.1 times 2024E EV/EBITDAS).”


Scotia Capital analyst Phil Hardie thinks the enhanced trading liquidity brought by TMX Group Ltd.’s (X-T) recent stock splIt is “likely to help crystalize value.”

“We think TMX’s recent five-for-one stock split is likely to enhance trading liquidity and, over time, ultimately help to surface greater shareholder value,” he said. “The last split was over 18 years ago – in April 2005, TMX announced a two-for-one stock split effective May 17, 2005. Daily trading volumes have improved significantly from the lows during the Maple lock-up period (August 2012 – August 2016), with the stock price roughly tripling from the Maple deal price. That said, despite the company’s transformation and roughly $8-billion market cap, we believe it remains on the peripheral for many investors.

“The stock has experienced some volatility but performed relatively well over the last year, stock rising by roughly 10 per cent versus the S&P/TSX Financials Index which is down roughly 3 per cent over the same time period. TMX continues to demonstrate its ability to outperform other financials through volatile periods, and we believe investors are increasingly recognizing the stock for its resilience. We think the next leg up for TMX will be gaining recognition for its growth potential.”

Maintaining a “sector perform” recommendation, he reduced his target to $32 from $161 with the split. The average is $30.94.


In other analyst actions:

* Acumen Capital’s Jim Byrne upgraded Sylogist Ltd. (SYZ-T) to “buy” from “hold” and increased his target to $8.50 from $6.50. The average on the Street is $9.75.

* Following its Capital Markets Day event on Tuesday, Scotia Capital’s Justin Strong cut his Ballard Power Systems Inc. (BLDP-Q, BLDP-T) target to US$6 from US$6.75 with a “sector perform” rating. The average is US$6.92.

“Overall, we were left feeling more confident in the company’s ability to execute on its competitive positioning, cost reduction and diversification strategies. That said, the story is still a work in progress with improved financial performance still expected in the medium-term. Net-net, our investment thesis has shifted more positive but not materially so,” he said.

* ATB Capital Markets’ Martin Toner increased his target for Blackline Safety Corp. (BLN-T) to $4.50 from $4 with an “outperform” rating. The average is $4.89.

* BoA Global Research’s Heather Balsky cut her price objective for Canopy Growth Corp. (CGC-Q, WEED-T) to 85 US cents from US$1. The average is US$1.52.

* In response to its $1.5-billionre deal to acquire the South Texas Gateway Terminal, Credit Suisse’s Andrew Kuske raised his Gibson Energy Inc. (GEI-T) target to $26.50 from $25.50 with an “outperform” rating, while Stifel’s Cole Pereira increased his target to $29 from $26 with a “buy” rating. The average is $25.23.

“We view this acquisition as a positive for GEI as it creates a new platform of tangible growth for the company, while improving its contract profile, meaningfully growing DCFPS, and maintaining a strong balance sheet,” said Mr. Pereira.

* CIBC’s Kevin Chiang raised his Mullen Group Ltd. (MTL-T) target to $16, below the $16.73 average, from $15.50 with a “neutral” rating.

“In Q1/20, MTL shifted its reporting format to three new segments – LessThan-Truckload (LTL), Logistics & Warehousing (L&W) and Specialized & Industrial Services (S&I). Subsequently, it added a fourth pillar, the U.S. & International Logistics segment, on the back of its acquisition of HAUListic (originally known as QuadExpress) back in 2021. As MTL noted back in early-2020, the change in the segment reporting structure more accurately reflected its strategic direction. In this report, we evaluate MTL’s big push to grow its LTL network. Our main takeaway is that this has proven to be the correct strategy. We have increased our price target from $15.50 to $16.00 to reflect MTL’s recent acquisition of B&R. We have a positive long-term outlook on MTL,” said Mr. Chiang.

* Eight Capital’s Anoop Prihar initiated coverage of NextSource Materials Inc. (NEXT-T) with a “buy” rating and $4 target. The average is $7.

* With the Wednesday post-market announcement of the issuance of a 60-year, $500-million green bond offering, ATB Capital Markets analyst Nate Heywood trimmed his Northland Power Inc. (NPI-T) target by $1 to $44, maintaining an “outperform” recommendation. The average is $40.97.

“Despite the higher interest rate, the notes are strategic for the Company’s near-term funding plan for progressing with its renewable development pipeline and are in line with its previously announced funding strategy,” he said. “The near-term funding strategy includes securing $2.2-billion of liquidity for near-term funding requirements from FCF, capital recycling and hybrid securities. The $2.2-billion is in addition to the $12.5-billion non-recourse debt requirement required to fund the Oneida, Baltic Power, and Hai Long projects. NPI shares have continued to trade lower since mid-May and the Q1/23 reporting period. Looking forward, we continue to expect positive project development announcements (financial close, additional secured funding/financings) for major projects, with Hai Long and Baltic Power milestones being constructive for the stock.”

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 29/05/24 3:02pm EDT.

SymbolName% changeLast
Aurora Cannabis Inc
Ballard Power Systems Inc
Blackline Safety Corp
Calfrac Well Services Ltd
Canopy Growth Corp
Cathedral Energy Services Ltd
Enerflex Ltd
Ensign Energy Services Inc
Gibson Energy Inc
Guru Organic Energy Corp
Mattr Corp
Mullen Group Ltd
Nextsource Materials Inc
Northland Power Inc
Orezone Gold Corp
Pason Systems Inc
Phx Energy Services Corp
Precision Drilling Corp
Stampede Drilling Inc
Sylogist Ltd
TMX Group Ltd
Trican Well
Western Energy Services Corp

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