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

Seeing the infrastructure super-cycle “just getting started,” National Bank Financial analyst Patrick Kenny upgraded Brookfield Infrastructure Partners L.P. (BIP-N, BIP.UN-T) to “outperform” from “sector perform” based on reduced execution risk.

“Having already completed its 2023 asset recycling program, management is focusing its efforts for the remainder of the year towards platform integration and asset optimization while preparing to execute its 2024 US$2.0-billion capital recycling program (previously US$1.5-billion per year) highlighting that its asset base remains positioned to be selective across regions and sectors showcasing its unique intrinsic value while capitalizing on the three Ds (digitization, deglobalization and decarbonization),” he said. “Meanwhile, given high interest rates and inflation, lower economic growth with potential prospects of recession, and scarcity of capital, BIP views the current environment as a ‘buyer’s market.’”

Mr. Kenny acknowledged that rising inflation and technological advances, including artificial intelligence, are “impacting the infrastructure industry at large alongside the biggest threat to operating margins, low economic growth.”

“BIP’s growth strategy has tilted more towards investing in platforms with highly executable organic growth backlogs (80-per-cent contracted; inflation indexed), namely the generational investment cycle into data centres,” he added. “Meanwhile, the capital appreciation component is expected to more than offset the lower going-in yields, driving IRRs above its typical 12-15-per-cent target range. Elsewhere, the company is working to grow revenues while decreasing costs through organizational optimization techniques, including the introduction of AI to help bolster returns.”

Ahead of the release of its third-quarter financial results, Mr. Kenny is forecasting funds from operations per unit of 72 US cents, which is 3 US cents below the consensus on the Street but up almost 5 per cent from a year ago. He attributed the gains to “partial contributions from capital recycling and optimization efforts, offset by lower contributions within Midstream/Transport and recent divestitures including AusNet, 12.5 per cent of the U.S. Natural Gas Pipeline Company, and the New Zealand integrated data distribution business (Vodafone).”

After incorporating National Bank’s longer-term interest rate assumptions into his capital cost projections, Mr. Kenny lowered his target for Brookfield Infrastructure shares to US$33 from US$38. The average is US$41.42.

“With the stock down almost 30 per cent since mid-summer following recent delays in commissioning HPC and the recent closing of the Triton acquisition (issuing 21 million BIPC shares), combined with BIP now trading at a 20-per-cent discount to our sum-of-the-parts valuation of US$31, we are upgrading the name,” he concluded.


Concurrently, Mr. Kenny adjusted his cost of capital assumptions for other Canadian pipeline, utility and energy infrastructure stocks in his coverage universe to align with the revised interest rate forecast from National Bank’s Economics & Strategy Group, noting “economic data continues to swirl above the equity investment landscape, supporting a renewed bias towards further near-term rate hikes to curb sticky inflation.

“Despite the GCAN 10-year rate moving up above 4.0 per cent recently, our esteemed colleagues are calling for 100 basis points in rate cuts north of the border through 2024, with the 10- year GCAN rate coming down to 3.65 per cent by Q4/24 and landing at 3.5 per cent by Q3/25,” he said in a note. “As such, we have increased our long-term GCAN 10-year assumption embedded in our cost of capital assumptions across our coverage universe to 3.5 per cent (was 3.0 per cent).”

“Recall, every 50 bps increase to our long-term 10-year GCAN benchmark assumption results in a 10 per cent valuation impact to our Pipeline & Utilities valuations and a 5-per-cent impact across our Midstream & Alberta Power names.”

That led Mr. Kenny to drop his target prices by an average of 8 per cent on Thursday.

“A company’s ability to convert EBITDA into cash on a sustainable basis, which can then be used to fund organic growth prospects (after paying dividends of course), has emerged as a focal point for investors as the current yield curve continues to weigh on valuations — i.e., conceding the end of the ‘free money’ era, and putting the spotlight on a company’s internally funded organic growth outlook,” he said. “That said, with energy infrastructure companies having prioritized the rightsizing of leverage ratios and improving their cash flow quality profiles in recent years, our coverage universe is blessed with robust discretionary free cash flow generation available for funding organic growth.

“We calculate an average internally funded AFFO growth rate over the next five years of 8 per cent, which is on top of the average current dividend yield of 6 per cent, implying an attractive mid-teens total return profile without assuming any multiple expansion/ recovery on the valuation front. When comparing 2024 EV/EBITDA valuation metrics versus our five-year implied internally funded AFFO growth rates, we highlight Outperform-rated SES, CPX, TA, SPB, GEI and ALA as representing the most attractive investment opportunities for value-based investors.”

His changes are:

  • AltaGas Ltd. (ALA-T, “outperform”) to $31 from $33. Average: $31.86.
  • Atco Ltd. (ACO.X-T, “sector perform”) to $37 from $44. Average: $47.14.
  • Canadian Utilities Ltd. (CU-T, “sector perform”) to $32 from $36. Average: $36.69.
  • Capital Power Corp. (CPX-T, “outperform”) to $48 from $51. Average: $48.55.
  • Emera Inc. (EMA-T, “sector perform”) to $50 from $55. Average: $57.92.
  • Enbridge Inc. (ENB-T, “sector perform”) to $48 from $53. Average: $55.10.
  • Fortis Inc. (FTS-T, “sector perform”) to $58 from $59. Average: $58.19.
  • Hydro One Ltd. (H-T, “sector perform”) to $34 from $37. Average: $38.50.
  • Gibson Energy Inc. (GEI-T, “outperform”) to $24 from $26. Average: $25.
  • Keyera Corp. (KEY-T, “sector perform”) to $33 from $35. Average: $35.62.
  • Pembina Pipeline Corp. (PPL-T, “sector perform”) to $44 from $47. Average: $50.43.
  • Superior Plus Corp. (SPB-T. “outperform”) to $12 from $13. Average: $13.58.
  • TC Energy Corp. (TRP-T, “outperform”) to $52 from $54. Average: $52.58.
  • TransAlta Corp. (TA-T, “outperform”) to $14 from $15. Average: $16.40.


CIBC World Markets energy infrastructure analyst Robert Catellier made a pair of rating changes on Thursday ahead of quarterly earnings.

He upgraded Pembina Pipeline Corp. (PPL-T) to “outperformer” from “neutral” with a $51 target, exceeding the $50.43 average on the Street.

“We feel Pembina’s outlook and upside to our price target outweighs the risk of a TMX deal,” said Mr. Catellier.

He lowered Keyera Corp. (KEY-T) to “neutral” from “outperformer” with a $33 target. The average is $35.62.

“Our downgrade on KEY is strictly driven by our return to target, based on a strong performance year to date. Fundamentals remains strong, with a good free cash flow profile and manageable leverage,” he said.

Mr. Catellier also made these target changes:

  • Enbridge Inc. (ENB-T, “outperformer”) to $56 from $64. Average: $55.10.
  • Gibson Energy Inc. (GEI-T, “outperformer”) to $25 from $27. Average: $25.
  • TC Energy Corp. (TRP-T, “neutral”) to $53 from $60. Average: $52.58.
  • Tidewater Renewables Ltd. (LCFS-T, “outperformer”) to $14 from $15. Average: $14.98.

“We have modified valuations for the pipeline and midstream companies under coverage to reflect higher interest rates, repricing our DCF models with a negative impact to valuations,” he said. “The risk of an economic downturn favours those companies with low-risk business models that support strong dividend profiles and has us favouring Pipelines like ENB and PPL (upgraded with this report). We are also watching producer guidance for signs of 2024 spending levels given improving liquids prices.”

In the same report, analyst Mark Jarvi trimmed his targets for a series of power and utility stocks in his coverage universe.

His changes were:

  • Algonquin Power & Utilities Corp. (AQN-N/AQN-T, “neutral”) to US$7.75 from US$8.75. The average is US$8.36.
  • Atco Ltd. (ACO.X-T, “outperformer”) to $47 from $50. Average: $47.14.
  • Boralex Inc. (BLX-T, “outperformer”) to $39 from $43. Average: $40.83.
  • Canadian Utilities Ltd. (CU-T, “neutral”) to $34 from $37. Average: $36.69.
  • Capital Power Corp. (CPX-T, “neutral”) to $43 from $46. Average: $48.55.
  • Emera Inc. (EMA-T, “neutral”) to $53 from $56. Average: $57.92.
  • Fortis Inc. (FTS-T, “neutral”) to $58 from $59. Average: $58.19.
  • Hydro One Ltd. (H-T, “neutral”) to $37 from $40. Average: $38.50.
  • Innergex Renewable Energy Inc. (INE-T, “neutral”) to $13.50 from $15. Average: $16.84.
  • Keyera Corp. (KEY-T, “neutral”) to $51 from $53. Average: $35.62.

Previewing earnings for power companies, Mr. Jarvi said: “The renewables’ Q3 results will be hurt by unfavourable resource conditions, notably weak wind conditions across most of North America, which is commonly associated with El Nino conditions. Softer Alberta power prices temper our Q3 estimates for TA and CPX (tracking to lower end of guidance ranges). Growth outlooks and funding/liquidity will be key items to track this quarter, with NEP having the most pressure to deliver some clarity on how it can survive a higher cost of capital environment.”

For utilities, he said: “Weather/load conditions were favourable in Ontario and Arizona which should boost H and FTS Q3 earnings. Warm weather in Florida is not enough to offset other negative items that EMA faced in Q3 including hurricane-related expenses and hedging headwinds. AQN’s results will likely be soft given weaker Power segment results (weak wind resource).”


Following Tuesday’s close of its $468-million deal for Spanish energy company Repsol’s assets in Canada, CIBC World Markets analyst Christopher Thompson raised Peyto Exploration & Development Corp. (PEY-T) to “outperformer” from “neutral” previously, calling the acquisition a “logical fit ... offering deeper inventory, increased scale, and synergy potential.”

“The acquisition is 45 per cent accretive to net asset value on strip pricing, and 15 per cent accretive to our 2024 free cash flow per share estimate on strip,” he said. “We estimate the assets were purchased for 7.0 times EV/EBITDA, which is dilutive versus Peyto’s pre-acquisition metric of 3.4 times in 2024 on strip, but we believe that the company can demonstrate ample synergies with the underutilized gas processing infrastructure and geographic overlap with existing operations. Net debt to cash flow moves to 1.6 times in 2024 on the CIBC price deck, versus 1.1 times (peers 0.3 times), and we believe management will be focused on improving the balance sheet in the near-term.”

Mr. Thompson now has a $18 target, up from $15 and above the $16.61 average.

“Our revised price target of $18/sh is based on a 2024 estimated EV/DACF multiple of 5.6 times on the CIBC price deck,” he said. “This is ahead of the SMID-cap gas peer average target (ex. LGN) at 5.4x. We upgrade our rating ... given a target return of 35 per cent versus the peer average of 23 per cent. Our revised 2024 estimates see the shares trading at 4.4 times on strip versus peers at 4.5 times (ex LGN).”


A pair of equity analysts on the Street downgraded Canada Goose Holdings Inc. (GOOS-T) on Thursday, citing consumer pressure in both the United States and China.

TD Cowen’s Oliver Chen moved his recommendation to “market perform” from “outperform” and lowered his target to $20 from $30. The average target on the Street is $24.44.

“We are concerned China could get worse before it gets better following weaker results at LVMH... as well as higher savings rates and high youth unemployment,” said Mr. Chen, adding moderation in both markets could squeeze near-term margins as costs remain high and given its investments in its stores and digital business.

He also thinks the Toronto-based company’s wholesale business has seen “incremental pressure over the past couple months,” emphasizing its exposure is higher than luxury peers like Moncler, Gucci and LVMH.

Elsewhere, Wells Fargo’s Ike Boruchow moved the stock to “equal weight” from “overweight” with a $20 target, down from $25.

He sees Canada Goose facing a “highly unfavorable holiday setup globally,” adding a potential warmer and drier winter in the U.S. is likely to hit demand.

Mr. Boruchow also thinks brand momentum also weakening, citing underperformance in social media mentions


Stifel analyst Martin Landry sees Park Lawn Corp.’s (PLC-T) plan to divest of a portfolio of low-margin cemeteries and funeral homes south of the border for US$70-million as a “significant transaction.”

On Tuesday after the bell, the Toronto-based company announced a plan to sell 72 cemeteries and 11 funeral homes in Kentucky, Michigan, North Carolina and South Carolina to Everstory Acquisition Portfolio LLC in a deal expected to close by the end of the calendar year. Those assets generated 10-12 per cent of its trailing EBITDA.

“The purchase price represents an approximately 8.0 times TTM [trailing 12-month] adjusted EBITDA multiple,” said Mr. Landry. “Assuming the assets divested had limited growth potential and margin upside, we view the valuation received as appealing. It is certainly supportive of PLC’s current valuation, which stands at 8.1 times on a forward basis. It also points to valuation upside on the company’s remaining assets which theoretically have a higher margin profile, potentially stronger growth prospects and higher cash generation.”

“This announcement does not come as a surprised given that Park Lawn’s management had previously hinted at the possibility of selling these ‘legacy’ assets. According to management, these properties, primarily cemeteries in rural markets, had limited margin upside potential given the relatively small scale of their operation. Additionally, these assets’ smaller scale resulted in less stable margin profiles and created unwanted volatility in profitability. To put this in perspective, in Q2/23, these businesses had a 400 basis points negative impact on PLC’s consolidated field margins.”

While Park Lawn expects to redeploy the proceeds into larger and higher volume businesses which should carry higher profit margins, Mr. Landry lowered his near-term estimates to reflect the divestiture.

“We have also adjusted our forecasts for the two small acquisitions announced by PLC post its Q2/23 results, which are expected to contribute to roughly US$685k of EBITDA annually,” he said. “The aforementioned results in a 16-per-cent decrease in our 2024 revenue estimates, and a 9-per-cent decline in our 2024 adjusted EBITDA estimates. Our 2024 EPS estimates is reduced by 10 per cent to US$0.96.”

“On the positive side, this transaction should result in higher margins which should facilitate comparison to other publicly traded companies. It should also reduce leverage to 2.7 times down from 3.1 times previously. The valuation received, at 8 times EBITDA, is also supportive PLC’s current valuation and support our case for higher valuation for PLC’s remaining businesses.”

With those changes, his target for Park Lawn shares slid to $30 from $32 with a “buy” recommendation, touting its “experienced management team with [a] strong track record” in an “appealing” and potentially “lucrative” industry. The average target on the Street is $29.75.

Touting the potential for earnings per share at an annual rate of 20-per-cent-plus through 2026, Mr. Landry added: “We see significant growth potential for PLC driven by 3-per-cent to 4-per-cent organic growth and a strong M&A pipeline. The death care industry remains poised for consolidation, with an estimated 75 per cent of the $22 billion North American industry being shared amongst independents or smaller consolidators. This dynamic creates an opportunity for PLC to consolidate the industry given its access to capital markets.”


Given “slowing industry top-line trends against more challenging sequential comparisons,” RBC Capital Markets analyst Christopher Caril expects the focus of third-quarter earnings season for North American fast food and casual dining companies to be on traffic trends as well as expansion plans for the remainder of the year and beyond.

“A number of additional factors have also weighed on the group more recently, including broader consumer health/macro concerns, higher interest rates, and the potential long-term impact from weight-loss drugs,” he said. “Valuation appears to be largely reflecting these fears — with our coverage now trading at just below 19 times forward (FY2) EPS, or roughly 4 times turns below the trailing three-year average —but with that in mind, we remain selective across the group, with our favorite names Outperform-rated QSR [Restaurant Brands International Inc.] and DPZ [Domino’s Pizza Inc.].”

For Toronto-based Restaurant Brands (QSR-N, QSR-T), Mr. Carril sees its valuation “remaining attractive” ahead of the Nov. 3 release of its quarterly results, pointing to ongoing growth initiates for Burger King south of the border and Tim Hortons in Canada.

“We expect investor focus will remain on the company’s and franchisees’ progress toward improving the health and profitability of QSR’s systems, along with brand momentum and development,” he said. “For TH Canada, we believe that continued execution against the current iteration of the Back to Basics strategy — focusing on the quality of the brand’s food and beverage offerings, along with increasing digital engagement — should support continued solid comp performance during the 3Q (we model TH Canada comp growth of 8.0 per cent, vs. consensus of 7.9 per cent). Additionally, potential to further expand the PM daypart business and cold beverage platform mix via menu innovation remain key opportunities for sustainable, long-term growth.

“On BK US, we expect investors to be focused on the brand’s ability to maintain underlying demand momentum in the 3Q (following improvement in underlying order counts trends in 2Q) as it continues to execute against its ‘Reclaim the Flame’ strategy. Based on our recent industry checks, we are modestly increasing our 3Q BK US comp estimate (to 6.0 per cent, from 5.0 per cent, and vs. consensus of 7.7 per cent).”

Maintaining an “outperform” recommendation for the company’s shares, Mr. Carril trimmed his target by US$2 to US$86. The average on the Street is US$79.68.

“We continue to view QSR as our top pick among the global franchised fast food group,” he said. “We see potentially improving Burger King US trends, accelerating development, and shifts in capital allocation (toward growth investments and reduction in leverage) driving stock performance. Relative valuation for QSR remains compelling (approximately 14 times 2024 estimated EBITDA, versus global peer average of 16 times), in our view, particularly as we are taking a more cautious stance on the overall group.”


Calling it a “pure-play USA lithium story,” Eight Capital analyst Puneet Singh initiated coverage of Lithium Americas Corp. (LAC-N, LAC-T) with a “buy” rating on Wednesday, emphasizing its strategic partnership with General Motors and seeing it “primed” for funding from the U.S. Department of Energy.

On Oct. 3, the former Lithium Americas Corp. was split into two independent public traded companies: Lithium Americas and Lithium Americas (Argentina) Corp. (LAAC-N, LAAC-T). Lithium Americas is focused solely on the 100-per-cent-owned Thacker Pass project located in Nevada, which is the largest-known lithium resource in the United States.

“We expect funds flow to prefer LAC over LAAC (LAAC-N, “buy” rating, Target $14.50) out of the gate given the near-term DOE catalyst,” he said. “We would expect a fully-funded LAC to also be on the takeout radar for majors and thus start with a Buy rating.”

Mr. Singh set a target of US$16.50, exceeding the US$13.80 average on the Street.

In a separate note, he trimmed his target for Lithium Americas (Argentina) Corp. to US$14.50 from US$36 following the spin-out completion, keeping a “buy” rating.

He called it “now a conventional producing brine-focused story” and emphasized ramp-up problems at its 44.8-per-cent-owned Cauchari-Olaroz project in Argentina.

“Labour shortages and changes to Argentina’s import policy slowing the customs process with respect to imported equipment have been noted as the culprits for the initial production delays,” said Mr. Singh. “Despite these issues, Cauchari-Olaroz is anticipated to produce 5ktpa of technical-grade lithium carbonate this year, with the first shipment having already left site. The purification circuit required to upgrade the carbonate from technical to battery grade is currently being commissioned.”

“We think the ramp-up issues are reflected in the current share price. LAAC is trading at a lower market cap than LACto begin (LAC-N, Buy, Target $16.50; market cap: $1.3-billion; construction stage). For LAAC, most of the upfront capex has been spent, and the Company has a strong balance sheet and a supportive partner. In the background, post-split, we think LAAC looks attractive to an acquirer.”


In other analyst actions:

* Goldman Sachs’ Kate McShane lowered Boyd Group Services Inc. (BYD-T) to “sell” from “neutral” with a $225 target, falling from $240 and below the $280.92 average.

* Previewing its Nov. 8 earnings release, Desjardins Securities’ Gary Ho cut his Alaris Equity Partners Income Trust (AD.UN-T) target to $19.50 from $21, reiterating a “buy” rating. The average is $20.96.

“We expect 3Q to be slightly ahead of guidance given its TSY [The Shipyard LLC] deployment in August. ECR remains healthy (1.6 times) and the stronger US$ should benefit AD’s BVPU and 4Q outlook. While we trimmed our target ... on lower multiples given the contraction in peer valuation and the higher rate environment, we maintain our Buy rating and recognize that the recent check-back in the share price presents a buying opportunity (while clipping 10-per-cent yield to wait).”

* Canaccord Genuity’s Luke Hannan increased his target for Parkland Corp. (PKI-T) to $50 from $44 with a “buy” rating, while ATB Capital Markets’ Nate Heywood bumped his target to $48 from $44 with an “outperform” rating. The average is $45.42.

* Mr. Heywood cut his targets for Capital Power Corp. (CPX-T, “sector perform”) to $44 from $47, Northland Power Inc. (NPI-T, “outperform”) to $32 from $38 and TransAlta Corp. (TA-T, “outperform”) to $17 from $19. The averages are $48.55, $34.43 and $16.40, respectively.

“The energy infrastructure Q3/23 reporting period is set to begin on October 30, 2023,” he said. “Ahead of the reporting period, we have revised some of our estimates to capture market pricing fundamentals, asset performance, and other macro trends. Our most notable EBITDA increases for Q3/23 are for AltaGas, Keyera, and Parkland. We are currently calling for a beat to consensus from Parkland (7 per cent), Pembina (3 per cent), and TransAlta (4 per cent). With our quarterly revisions we have raised our price target for Parkland and taken our price targets lower for Capital Power, Northland Power and TransAlta.”

* Following a recent tour of its properties in the United States, Scotia Capital’s Himanshu Gupta trimmed his target for Granite REIT (GRT.UN-T) to $88 from $91 with a “sector outperform” rating. The average is $95.50.

“We came back incrementally positive on GRT and reiterate our SO rating,” he said. “We were impressed with the quality of the portfolio, selection of sub-markets and emphasis on tenant quality. We think GRT has a well-established operating platform across U.S. (and in Canada and Europe) and noticed ‘bench strength’ of the management team.”

“Despite weaker macro and higher bond yields, we stick to the basics and note that GRT can generate superior AFFOPU [adjusted funds from operations per unit] growth at a lower leverage and yet trades at a valuation similar to REIT sector.”

* TD Securities’ Brian Morrison raised his Spin Master Corp. (TOY-T) target to $51 from $50 with a “buy” rating. The average is $53.29.

“We are slightly below Q3/23 consensus, but in line with Spin’s annual guidance,” said Mr. Morrison in an earnings preview. “With the challenging consumer discretionary environment, we believe the holiday season is likely to arrive late this year. As such, we forecast a greater proportion of replenishment/GPS to take place in Q4/23 than in prior years. We do anticipate a strong EBITDA margin performance supported by Paw Patrol Movie distribution revenue, a heightened proportion of Digital Games/Entertainment contributions, and lower y/y freight costs. This should support Spin maintaining its 2023 annual guidance metrics that implies EBITDA of $405-$410-million.”

“Spin is one of our preferred names within our Consumer Discretionary coverage. The addition of M&D [Melissa & Doug], more efficient balance sheet, growth outlook for its Digital Games segment, growing entertainment properties, and heightened proportion of “recurring revenue” should, in our view, narrow the valuation discount to its peers.”

* TD Securities’ Graham Ryding raised his TMX Group Ltd. (X-T) target by $1 to $32, keeping a “hold” recommendation. The average is $32.75.

“Despite soft equity-related activity, TMX’s diversified business model has defensive merits, in our view,” he said. “We expect derivatives and Trayport to remain the key growth drivers over the medium term, while capital formation will likely remain cyclical. The balance sheet at 1.9 times debt/EBITDA remains well-positioned for deals, in our view.”

* RBC’s Brad Heffern cut his target for Tricon Residential Inc. (TCN-N, TCN-T) to US$9 from US$10 with a “market perform” rating. The average is US$10.16.

With a file from Reuters

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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 20/02/24 3:58pm EST.

SymbolName% changeLast
Alaris Equity Partners Income Trust
Algonquin Power and Utilities Corp
AltaGas Ltd
Atco Ltd Cl I NV
Boralex Inc
Boyd Group Services Inc
Canada Goose Holdings Inc
Canadian Utilities Ltd Cl A NV
Capital Power Corp
Emera Incorporated
Enbridge Inc
Fortis Inc
Gibson Energy Inc
Granite Real Estate Investment Trust
Hydro One Ltd
Innergex Renewable Energy Inc
Keyera Corp
Lithium Americas Corp
Lithium Americas Argentina Corp
Northland Power Inc
Parkland Fuel Corp
Park Lawn Corp
Pembina Pipeline Corp
Peyto Exploration and Dvlpmnt Corp
Restaurant Brands International Inc
Superior Plus Corp
Spin Master Corp
TC Energy Corp
TMX Group Ltd
Transalta Corp
Thomson Reuters Corp
Tidewater Renewables Ltd

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