Inside the Market’s roundup of some of today’s key analyst actions
Following Wednesday’s release of better-than-expected second-quarter fiscal 2024 financial results and guidance raise, Stifel analyst Martin Landry thinks Dollarama Inc.’s (DOL-T) market share gains “still have a runway,” reiterating his view of the discount retailer as “an appealing investment proposition for investors navigating these volatile times.”
Shares of the Montreal-based company jumped 5.9 per cent to an all-time high after it reported revenue of $1.455.9-billion for the quarter, up 19.6 per cent year-over-year and exceeding Mr. Landry’s $1.395.9-billion estimate. Earnings per share jumped 30.1 per cent to 86 cents, topping the analyst’s expectation by 11 cents.
“Dollarama reported strong Q2FY24 results with a 15.5-per-cent increase in comparable store sales,” said Mr. Landry. “According to management, performance was strong across all categories (i.e. consumables and general merchandise), which suggests that trade down patterns are also creating tailwinds for discretionary categories, a much different dynamic compared to the majority of Canadian retailers. Gross margin increased by 30 basis points year-over-year, exceeding our expectations, while SG&A pressures did not materialize as expected given strong organic growth, making for an exceptional quarter with EPS increasing 30 per cent year-over-year.”
Mr. Landry thinks Dollarama’s momentum “remains strong” in the third quarter, leading him to believe its guidance raise, calling for full-year same-store sales of 10-11 per cent (up from 5-6 per cent previously), “remains conservative.”
“Given that Q3FY24 comparable sales growth are tracking at 10 per cent growth year-over-year, Dollarama’s FY24 guidance suggests flat to negative SSS in Q4FY24, which we view as too conservative,” he added. “Our full-year SSS estimate of 12.5 per cent stands higher than company guidance. Additionally, given the strong organic growth, SG&A expenses are expected to come in at the low end of the guidance as wage increases are being offset by scale benefits.”
“Dollarama expects its FY24 comparable store sales to increase by 10-11 per cent on the back of a strong year last year and higher than the historical growth rate of 4-5 per cent. This outsized growth is not surprising given the macroeconomic environment and trading down patterns, but it raises questions as to how SSS will fare in FY25. In our view, SSS growth is bound to slowdown next year given the moderating inflation, comping of the $4-plus price point rollout and lapping of the strong market share gains achieved over the last two years. While our visibility is limited, we expect FY25 SSS growth to normalize towards the company’s historical range of 4-5 per cent. However, should SSS growth come flat or even become negative it could pressure DOL’s valuation multiple.”
Mr. Landry raised his same-store sales expectation for the remainder of the year, leading him to boost his EPS estimate to $3.38 from $3.15. That represents a 23-per-cent gain year-over-year, which is the best growth rate in his coverage universe. His 2025 rose to $3.82 from $3.54.
“DOL’s shares performed well on the back of these results, up 6 per cent and reaching an alltime high,” he said. “In our view, investors will likely hold on to this winner until at least year-end given the low risk profile of DOL and recent outperformance. Focus will turn towards FY25 and how the company will perform against a difficult comparable.”
“In our view, Dollarama should continue to benefit from trade down patterns. Hence, heading into year-end, DOL’s shares are likely to continue to be a safe heaven for investors given limited alternatives which provide such growth rates combined with low operational risk.”
Maintaining a “buy” rating, he hiked his target for Dollarama shares to $104 from $96. The average target on the Street is $97.65, according to Refinitiv data.
Elsewhere, other analysts making target changes include:
* Desjardins Securities’ Chris Li to $104 from $93 with a “buy” rating.
“We believe the strong 2Q results and FY24 guidance raise show that sales momentum remains in DOL’s favour as consumers continue to seek value,” he said. “3Q-to-date SSSG is still strong at 10 per cent (21-per-cent two-year stack). While the strong share price performance (20 per cent year-to-date) could keep DOL range-bound in the near term, we expect it to remain an outperformer in our coverage, supported by good earnings visibility, sales upside, margin tailwinds and a strong balance sheet.”
* National Bank Financial’s Vishal Shreedhar to $104 from $97 with an “outperform” rating.
“We hold a positive view on DOL’s shares given its defensive growth orientation supported by strong cash flows, a solid balance sheet and resilient sales performance,” he said.
* Canaccord Genuity’s Luke Hannan to $94 from $85 with a “hold” rating.
“While we still believe in Dollarama’s long-term growth profile — a result of its lack of meaningful competition, industry-leading profitability and free cash flow generation, and healthy ROIC — we believe the shares are appropriately valued given the context of its near-to-medium-term earnings growth outlook,” said Mr. Hannan.
* Scotia’s George Doumet to $99.50 from $95.50 with a “sector outperform” rating.
“DOL reported another strong quarter- and while it was mainly top line driven, we also got better than expected margin expansion and SG&A containment,” said Mr. Doumet. “The company’s new guidance implies a flat/low-single-digit SSSG exit to the year, which we can argue is conservative. When compared to the mid-point of guidance, we believe we could see higher contributions from gross margins (driven by lower product/transport costs and higher price) and lower SG&A (driven by operating leverage). Net/net our F24 and F25 EPS estimates are up 5 per cent and 4 per cent. Dollarama remains our top defensive idea.”
* BMO’s Tamy Chen to $105 from $95 with an “outperform” rating.
“Overall, DOL continues to resonate as a highly preferred retail destination for Canadians in this high inflationary environment. We expect SSS momentum to continue into FQ3/24 before decelerating in FQ4/24 as DOL laps tougher year-ago comps. We believe there is potential upside to management’s F2024 SSS guidance range of 10-11 per cent; our revised forecast is 12.3 per cent,” she said.
* RBC’s Irene Nattel to $105 from $101 with an “outperform” rating.
“Strong H1 results supportive of our constructive view and investment thesis, and DOL premium valuation,” said Ms. Nattel. “SSS remained exceptionally strong in Q2, up 15.5 per cent, H1 up 16.3 per cent, despite tougher comps, as Canadian consumers gravitate to DOL with its positioning as the leading Canadian value retailer. Overall financial results reinforce operating leverage of the business, focus on productivity and efficiency. While H2 guidance is typically conservative, Q3 to date sustaining strong momentum.”
* CIBC World Markets’ Mark Petrie to $99 from $89 with a “neutral” rating.
“Same-store sales (SSS) growth of 15.5 per cent highlights both DOL’s compelling proposition and consumers’ drive to value,” said Mr. Petrie. “We see SSS growth guidance as more credible at 10-11 per cent, but likely still holding upside even as inflation slows and traffic trends stabilize. Margin discipline is also impressive, though labour pressures are still mounting and we expect negative opex leverage in F2025 will normalize earnings growth to low to mid-teens. Clearly momentum is strong, but we continue to see valuation as capped. Our price target rises to $99 on higher estimates rolled ahead to F2025.”
* TD Securities’ Brian Morrison to $105 from $94 with a “buy” rating.
While he sees Canadian railroads as “stressed and strained” due to the impact of a weaker crop outlook, Raymond James analyst Steve Hansen raised his recommendation for Canadian National Railway Co. (CNR-T) on Thursday.
He said the move to “outperform” from “market perform” comes “after a lengthy period on the sidelines (almost 17 months), with the worst of the freight recession now deemed behind us and the company’s recent share price pullback providing an attractive entry point, in our view.”
Mr. Hansen said the change comes despite a “new emerging headwind.”
“After a difficult summer of acute heat & dryness, Canadian farmers are poised to harvest one of the weakest crops of the past decade, with StatsCan’s latest forecast (August 29) calling for total Principal Field Crops to fall 12.4 per cent year-over-year to 81.1 million metric tons, materially undercutting Agriculture Canada’s (AAFC) prior forecast (still perched at 92.3 million mts),” he said. “In western Canada, specifically, the production outlook appears even more somber, with StatsCan models pointing to 58.7 million mt total production, a 16.4-per-cent year-over-year decline — a key metric often cited by industry. In both instances, this outlook appears to also undercut CN and CP’s published grain plans. While little comfort, the one silver lining is that this year’s crop should easily surpass the drought-induced disaster of 2021 where total production dipped below 70 million mts, the weakest in a decade.”
“As suggested, we expect a sharply lower Canadian harvest to ultimately translate into lower year-over-year grain shipments for both CN and CP in 2H23/1H24. Importantly, we expect the bulk of this impact to emerge in 4Q23/1H24 as the current quarter (3Q23) is still enjoying tailwinds from last year’s hefty crop and an early harvest this year. While growth in U.S. originations are expected to help mitigate this pressure, we still expect both CN and CP will post mid-single-digit declines in grain traffic (carload) through 4Q23, with the potential for this headwind to steepen into 1Q24 given the mild winter weather that facilitated outsized grain movements last year.”
Mr. Hansen said traffic volumes for both CN and Canadian Pacific Kansas City Ltd. (CP-T) have “undercut” his expectations thus far in the third quarter, leading him to trim his financial expectations.
“Specifically, CN and CP 3Q23 QTD RTMs [quarter-to-date revenue ton miles] finished week 36 at negative 6.1 per cent and negative 4.5 per cent, respectively, tracking below our prior negative 5.2 per cent and positive 0.3-per-cent estimates,” he said. “At CN, the Forest Products, Coal, and Intermodal segments have all broadly underperformed our prior expectations, offset by better-than-expected strength in Grain and Auto. At CP, Potash, Forest Products, ECP, MetMin, and Intermodal have all broadly underperformed. We have updated our estimates accordingly.”
He maintained a $180 target for CN shares, exceeding the $164.08 average on the Street.
He also reiterated a “market perform” recommendation and $115 target, below the $118.93 average, for CP shares.
“While all Class 1 railroads have underperformed the S&P 500 Index year-to-date, CP stands out as one of the few carriers (alongside UNP) still clinging to positive gains (3.2 per cent),” said Mr. Hansen. “Unfortunately, CP’s associated valuation, still perched at 22.4 times FY2024, is the one issue still keeping us cautious. CN, meanwhile, has fallen 7.3 per cent year-to-date, and remains largely flat over the past two years, opening up an even wider valuation chasm vs. its closest peer, with CP now trading at a near-record premium (5.1 times NTM [next 12 months], 4.3 times FY2024). As much as we truly admire CP’s long-term prospects, we view this spread as excessive given CN’s outstanding network, attractive growth opportunities, and historical track record for creating shareholder value. In this context, with CN shares now trading at a more palatable 18.2x FY24 Street expectations, we are comfortable upgrading our rating back to OP2.”
Pointing to “positive” comments from WildBrain Ltd.’s (WILD-T) management about its ongoing shift in strategic direction as well as a recent decline in share price, Canaccord Genuity analyst Aravinda Galappatthige upgraded his recommendation to “speculative buy” from “hold” previously.
“On the conference call, Josh Scherba, President and CEO since May 2023, provided substantial colour on WildBrain’s strategy going forward. Central to the strategy is the objective of focusing on fewer key brands (Peanuts, Teletubbies, Strawberry Shortcake) and reducing investments in a broader set of titles,” he said. “Moreover, the company is targeting $100-$300-million in asset sales over the next 12 months, mainly through the sale of brands from its library. This approach, in turn, is expected to assist balance sheet de-levering. The company is also focusing on cost management and undertook a restructuring during the summer which is expected to moderate SG&A inflation. In terms of positioning, a key aim of management is for WILD to be seen as the partner of choice for IP owners (toys, gaming) given its extensive infrastructure to build brands (Spark, CPLG, Content production), along the lines of the SEGA partnership.”
“We believe that the level of success of the asset sale process would be catalytic for the stock, as not only would it de-risk the thesis through balance sheet de-levering, but crystallize the underlying value of WILD’s library.”
After the bell on Tuesday, the Toronto-based kids’ and family entertainment company reported revenue of $124-million for its fourth quarter, up 11.5 per cent year-over-year and above both Mr. Galappatthige’s $118-million estimate and the consensus forecast of $122.2-million as its Consumer Products segment gained 24 per cent. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $19.1-million was a gain of 67.2 per cent and also exceeded the analyst’s projection of $16.6-million.
However, Wildbrain shares fell 3 per cent in Wednesday trading after its 2024 outlook disappointed investors “due to the impact of the Hollywood strikes and a cooling in greenlighting of new projects by streamers.”
“The company is guiding to lower year-over-year revenues in F2024 due to lower Content production and distribution revenue,” said Mr. Galappathige. “In terms of adj. EBITDA, management expects it to be slightly higher than F2023. This compares with our pre-quarter expectation of mid-single digit revenue and adj. EBITDA growth in F2024.”
“We have lowered our forecasts for F2024 to reflect management guidance, in particular to reflect the $10-15-million impact to adj EBITDA from the WGA/SAG strikes. This also includes a notable slowdown by streaming platforms in greenlighting new projects. This is partially offset by recent cost reduction initiatives. We have also rolled out F2025 estimates, which reflect a moderate rebound from the strike-impacted trough in F2024. In terms of FCF, we have a slight decline in F2024 to reflect rising interest rates and its impact on WILD’s unhedged long-term debt (US$100M). Based on these estimates, we see the leverage ratio easing from 4.16 times in F2023 to 3.87 times by the end of F2024.”
While “encouraged” by ongoing strength in its Consumer Products division despite macroeconomic headwinds, including retailers working down inventory levels, Mr. Galappathige maintained a target of $2.50 for Wildbrain shares. The average target on the Street is $3.08.
Others making changes include:
* National Bank Financial’s Adam Shine to $2 from $2.50 with a “sector perform” rating.
“WILD expects moderately lower revs in f2024 & slightly higher Adj. EBITDA, as it sees strong growth in CP [consumer products] but a decline in CPD [content production and distribution] as Hollywood strikes lead to a slowdown in greenlighted productions,” he said. “The latter will cause a $10-$15-million EBITDA shortfall in CPD to be mitigated by 15-20-per-cent growth in other parts of the company. We had forecast revs up 7.5 per cent to $576-million (consensus estimate $570-million) and Adj. EBITDA up 13.7 per cent to $109-million (consensus estimate $107-million) which we contracted to $506-million and $100-million, respectively. It remains to be seen when the strikes get resolved, as WILD continues to work on growing its production pipeline, pursuing partnerships, and leveraging more of its own IP. WILD sees flat FCF in f2024.”
* Benchmark’s Daniel Kurnos to $4 from $6 with a “buy” rating.
“This would have likely been viewed as a non-event to perhaps modestly negative given the extreme focus on free cash flow and debt load but commentary that revenue would be modestly down year-over-year in FY24 now takes center stage, even with adjusted EBITDA expected to be modestly higher,” said Mr. Kurnos. “Management called out the dual Hollywood strikes as causing a significant reduction in greenlit content, thereby driving Content and Production revenue down by more than the expected growth in the Consumer Products segment. Given the timing and magnitude of contracts, we cannot help but think investors will likely be skeptical of the rationale, especially when coupled with the library impairment charge and higher EBITDA forecast, with time unfortunately the only cure. Having said all that, while we are reducing our price target to account for all the noise in the media landscape, we believe there is still substantial value in WildBrain’s content portfolio, with significant runway for the Consumer Products segment, especially in APAC. And, if management can find a way to reduce leverage through non-core asset sales, the public trading multiple should reinflate.”
* RBC’s Drew McReynolds to $2.50 from $3 with a “sector perform” rating.
“In the wake of the CEO transition concurrent with Q3/23 results, we see the company entering another new phase to capitalize on new growth opportunities within an evolving global content industry,” said Mr. McReynolds. “We continue to have a high degree of confidence in management execution and see potential upside in the shares as the company’s 360-degree strategy potentially takes another step-up in F2025 and beyond. While our rating on the stock balances growth and execution with elevated leverage and relative returns within our media coverage, we believe visibility on renewed growth and de-levering through F2025 continues to improve.”
RBC Dominion Securities analyst Nelson Ng thinks shares of Algonquin Power & Utilities Corp. (AQN-N, AQN-T) are likely to remain rangebound until greater clarity on the sale of its renewable energy business appears.
In early August, the Oakville, Ont.-based company announced its intention to a sell the division with the proceeds used to reduce debt and fund stock buybacks. The announcement came alongside the departure of Arun Banskota as chief executive officer with former Emera boss Chris Huskilson taking over.
“Transitioning to a utility pureplay feels like the right strategy to pursue, but the timing is not ideal due to the unfavourable environment for renewable valuations, leading to uncertainty and execution risk,” said Mr. Ng. “We estimate that AQN can generate 48 cents per share of EPS in 2025 as a utility pureplay, assuming that its Renewables division and 42-per-cent interest in Atlantica Sustainable Infrastructure are divested by the end of 2024. This would imply an elevated payout ratio of 90 per cent, meaning that there would be no dividend increases for several years.
“The development pipeline could be a key value driver. Over the past year, three regulated U.S. utilities have divested their Renewables divisions, and we estimate that the valuation range realized was 9-12 times EBITDA. Since AQN has a sizeable development pipeline of over 6 GW, compared to its operating portfolio of 2.7 GW (gross), we believe the value bidders ascribe to the development pipeline can be a key driver of value.”
Mr. Ng thinks a “strong” balance sheet should be a top priority for Algonquin moving forward.
“S&P indicated that the credit rating downgrade threshold for AQN would improve to 11-per-cent FFO [funds from operations] to Debt (from 14 per cent currently) if the company transitions to a pureplay regulated utility,” he said. “We estimate that the company will target a debt level of about 13% to reflect the company’s high payout ratio, funding requirements for growth capex, and our expectation that the rest of the subordinated debt (50-per-cent equity credit) will eventually be replaced with conventional debt (increases debt ratios). We estimate that most of the sales proceeds will be allocated to debt reduction, and the share buyback will total $1.4 billion, more than offsetting the additional 77 million common shares outstanding in June 2024 with the conversion of the mandatory convertible debt.”
Reducinghis earnings per share projection for 2024 by 2 US cents to 57 US cents to reflect higher interest expense expectations, Mr. Ng lowered his target for its shares to US$8 from US$9 with a “sector perform” rating to “a reduction in the value of AQN’s renewable assets due to the elevated interest rate environment and uncertainties ahead with respect to execution risk.” The average is US$9.15.
“AQN shares are currently trading at 15 times our estimated 2025 EPS potential, which is largely consistent with North American peers,” he said.
Stifel analyst Cole Pereira reiterated his bullish view on North American Oilfield Services “even with the recent out-performance due to improving commodity prices and a demonstrated resiliency in pricing and unit economics.”
“In our view, the recent out-performance has been driven by (1) improving crude oil prices due to OPEC production cuts, and (2) a demonstrated resiliency in pricing, margins and unit economics through 2Q23 reporting despite year-to-date activity declines in the United States,” he said in a research report released Thursday.
“Since reporting 2Q23 results, our coverage universe is up 11 per cent on average, and ... stocks exhibiting strong FCF characteristics and returning capital to shareholders have outperformed and vice versa.”
Mr. Pereira said he expects continued outpeformance, preferring those stocks with above-average free cash flow and shareholder returns.
“We continue to favour OFS companies with resilient EBITDAS profiles, strong FCF generation and a focus on shareholder returns,” he said. “TCW and CEU are the best performing OFS stocks year-to-date, and are second and fourth best since reporting 2Q23 results. Both pay a dividend and have either completed or committed to fully utilizing their 10-per-cent NCIBs ... TCW has seen the largest year-to-date improvement in its 2024E EV/EBITDAS multiple (up 20 per cent to 3.7 times) as a result of its shareholder return progress, while EFX has seen the largest YTD reduction (down 20 per cent to 3.9 times) following a delay in its positive FCF and shareholder return timelines ... Canadian activity remains more stable, but has bifurcated, while U.S. activity likely has more upside in 2024 given a higher proportion of private E&Ps and resilient pricing and unit economics. While we continue to prefer large-cap names, the relative under-performance of small-caps could indicate they have a higher degree of upside longer-term.”
“Slightly” reducing his North American activity forecasts to “reflect a lower-than-expected trough in the U.S. rig count and a reduction in shallow-basin activity in Canada,” Mr. Pereira made four target price changes on Thursday.
He raised his targets for these stocks”
* Ensign Energy Services Inc. (ESI-T) to $4 from $3.25 with a “hold” rating. The average on the Street is $4.79.
* Pason Systems Inc. (PSI-T) to $15.50 from $15 with a “hold” rating. Average: $16.43.
* Trican Well Service Ltd. (TCW-T) to $6.50 from $6 with a “buy” rating. Average: $5.94.
Conversely, he trimmed his target for Cathedral Energy Services Ltd. (CET-T) to $1.80, below the $1.87 average, from $1.90 with a “buy” rating.
“Top ideas are TCW, PD, CEU, EFX and CET ... we favour Trican, Precision Drilling, CES Energy Solutions and Enerflex,” the analyst said. “TCW remains a best in class OFS name, while CEU also screens as another attractive, stable OFS company with a shareholder returns focus. We continue to view PD as a higher-torque idea with meaningful FCF generation and material exposure to a recovery in U.S. land drilling. While Enerflex had a challenging few weeks since 2Q23 results, our long-term thesis is unchanged, and we see material upside from current levels. Cathedral Energy Services remains our top small-cap pick, as we view the company as well positioned to continue consolidating the North American directional drilling market.”
Touting it as a “new growth name in the gold space,” Stifel analyst Ingrid Rico initiated coverage of Allied Gold Corp. (AAUC-T) with a “buy” recommendation on Thursday.
The Toronto-based company, led by Yamana Gold Inc. founder Peter Marrone, began trading on the TSX on Monday after raising $267-million in the country’s largest mining initial public offering since 2010.
“Coming out of a go-public transaction and boosting management bench strength, Allied Gold is well set to become an emerging intermediate Africa gold producer with a sustainable annual production base of approximately 370k ounces and, importantly, a pipeline of organic growth — from expansions and a permitted, development project in a new frontier country with excellent geological opportunity,” she said. “We see a path to more than 600k ounces per year over the next three years and doubling production over the next six years.
“We see Allied Gold becoming the growth name in the space offering investors valuation re-rate as the company de-risks organic growth, delivers on cost optimizations driving near-term increasing cash flows, and, over the mid-term, builds on its existing portfolio, which provides the foundation for further consolidation/M&A. Allied has bench strength with a team that has proven capable of executing on a growth strategy.”
Ms. Rico set a target of $8 for shares.
Elsewhere, National Bank gave Allied an “outperform” rating and $8.50 target.
Desjardins Securities analyst Doug Young said he sees Intact Financial Corp.’s (IFC-T) $650-million acquisition of Direct Line Insurance Group’s (DLG) brokered UK commercial business as “slightly positive” after resuming coverage following a common share issuance.
“While this was not the big Canadian insurance or global specialty-insurance manufacturing acquisition that most were expecting, the deal is accretive, makes strategic sense and, more importantly, increases IFC’s scale in the UK commercial lines market as well as the chances of a disposition of its UK personal lines business (a strategic review of this business is expected to be completed in 4Q23),” he said.
“The deal gives IFC scale in UK commercial lines, making it the #3 player in the market with approximately 7-per-cent market share. It also strengthens the small & medium-sized enterprise (SME) and mid-market platforms, while broadening its distribution network and expanding its product offering.”
Expressing concerns about “low” accretion numbers and a “complex” deal structure, Mr. Young maintained a “buy” recommendation and $225 target for Intact shares after introducing his 2025 estimates.
Elsewhere, others resuming coverage include:
* Scotia Capital’s Phil Hardie with a $222 target, up from $218 with a “sector outperform” rating.
“Intact announced two key developments that we view as a major step forward to generate outperformance in the U.K,” he said. “These included 1) an agreement to acquire Direct Line’s Brokered Commercial Lines operations, and 2) the announcement that Intact was considering a range of strategic options for its U.K. Personal Lines platform that include a potential sale. Collectively, these actions likely see Intact doubling down on areas where the company outperforms and refocusing on what is likely to be a higher multiple commercial lines business and away from the lower multiple U.K. personal lines. We believe these moves will result in greater certainty of achieving a sustainable mid-teens ROE while also reducing earnings volatility and ultimately supporting a valuation premium.
“The acquisition is relatively small from an overall perspective but is expected to have a material impact on the UK&I segment results. We believe the transaction is strategically well-aligned and financially attractive. The deal also likely provides investors with a strong indication that management is ready, willing and able to deploy capital through M&A to accelerate its strategy and enhance its competitive positioning and growth prospects.”
* CIBC’s Paul Holden with an “outperformer” rating and $225 target (unchanged).
“The acquisition of the U.K. brokered commercial lines business and potential sale of U.K. personal lines is a positive mix change and sets a path for further capital deployment into U.K. commercial. We believe the stock has been weak of late due to wildfires and resulting claims losses. The ROE profile of the business does not change, in our view, and we believe weakness should be bought,” he said.
In other analyst actions:
* Believing an “industrial shift supports accelerating organic growth, re-rate,” Echelon Partners’ David Chrystal initiated coverage of Pro Real Estate Investment Trust (PRV.UN-T) with a “buy” rating and $6.50 target. The average is $6.41.
“Since founding PROREIT in 2013, management has grown the portfolio from a single $6-million asset to 129 assets with an IFRS value in excess of $1-billion,” he said. “Recent growth has focused on increasing its industrial footprint while pruning non-core office and retail assets. Given the secular strength of industrial fundamentals and wide mark-to-market opportunity within the portfolio, the REIT’s organic growth should benefit from this shift. As management continues to execute on its capital recycling program, we believe the organic growth outlook will continue to improve and justify multiple expansion.”
* BMO’s Kevin O’Halloran reinstated coverage of First Majestic Silver Corp. (FR-T) with a “market perform” rating and $8.25 target. The average on the Street is $11.77.
“While we have a constructive view of the company’s operations overall, we view FR shares as appropriately valued with elevated P/NAV multiples compared to peers,” he said. “Opportunities for production growth and cost improvement in our view are balanced with a moderately elevated cost profile and uncertainty at the company’s Jerritt Canyon property. With silver’s increasing share of revenues and modestly above-average operating leverage, FR shares provide strong leverage to silver, in our view.”
* Mr. O’Halloran also reinstated MAG Silver Corp. (MAG-T) with an “outperform” recommendation and $23.50 target. The average is $23.60.
“MAG’s 44-per-cent-owned Juanicipio project, operated by 56-per-cent partner Fresnillo, declared commercial production on June 1 and is ramping up to nameplate production by the end of Q3,” he said. ”We expect MAG shares to re-rate to higher multiples as Juanicipio completes its ramp up and begins cash flow distributions to the JV partners. Exploration at MAG’s other projects has the potential to generate further positive catalysts.”
“BN’s shares trade at a 30-per-cent discount to NAV, substantially wider vs. historical and we think largely driven by investor concern regarding BN’s Real Estate portfolio, some of it legitimate and some appear to be overdone,” said Mr. Kwan. “Outside of the underperforming parts of BN’s Real Estate book, we think BN’s various segments are performing for the most part very well. Consequently, we think BN’s Investor Day presentation focused on a few themes that support this view and perhaps could be described by a certain Twisted Sister song: (1) Insurance could be a significant driver of value creation; (2) investor concern regarding Real Estate is overdone, particularly in BN’s Core portfolio, which seems to be performing well as well as BN’s LP investments in the BSREP Flagship Real Estate funds; and (3) carried interest should grow significantly in the coming years, which should benefit BN’s valuation. BN is our #3 best idea and we maintain our Outperform rating, but due to recent declines in the share price of its publicly traded investments, our target is reduced.”
* Updating his forecast to account for the increase in uranium price and a “positive” demand outlook, Raymond James’ Brian MacArthur increased his Cameco Corp. (CCO-T) target to $56 from $52 with an “outperform” rating. The average is $53.89.
“We believe Cameco provides investors with lower-risk exposure to the uranium market given its diversification of uranium sources,” he said. “These sources are supported by a portfolio of long-term contracts that provide some downside protection in periods of depressed spot uranium prices, while maintaining optionality to higher uranium prices. In addition, the company has multiple operations curtailed that can be brought back should uranium prices increase. Although the 2021 tax court decision applies only to the 2003, 2005, and 2006 tax years, we view it as a positive for CCO given we believe it will be relevant in determining the outcome for other years and reduces risk related to the CRA dispute.”
* In response to the release of its third-quarter results on Wednesday, CIBC World Markets’ Scott Fletcher raised his Dye & Durham Ltd. (DND-T) target to $28, exceeding the $26.43 average, from $25 with an “outperformer” rating, while Raymond James’ Stephen Boland raised his target to $25 from $23 with an “outperform” rating.
“Dye & Durham reported FQ4 results that narrowly exceeded the upper end of guidance while slightly topping the low end of the guidance range on Adjusted EBITDA,” said Mr. Fletcher. “Revenue in the quarter was 3 per cent below our above-guidance estimate as improving quarter-over-quarter housing transaction revenue appears to have been offset by slightly lower-than-expected non-housing transaction revenue. While housing transactions remain a substantial piece of DND’s business (58 per cent of FQ4 revenue), ARR growth has been strong as new go-tomarket efforts and M&A have focused on adding recurring revenue. Looking forward, management is targeting 20-25-per-cent growth in Adjusted EBITDA in 2024, split 50/50 between organic and acquired growth. With Canadian housing showing signs of stabilizing over the summer and strong momentum in ARR growth, we retain our Outperformer rating.”
* Following “strong” quarterly results, Canaccord Genuity’s Robert Young increased his Haivision Systems Inc. (HAI-T) target to $6.50 from $4.75 with a “buy” rating. The average is $6.
“Product revenue growth of 29 per cent year-over-year was primarily driven by a pulled forward programmatic defense order worth $2.5-million (from FQ4), strength across combined Aviwest bonded 5G cellular + Makito deployments, and solid momentum in Command 360,” he said. “Haivision continues to see steady demand for live sports, Command 360 implementations, along with a large opportunity in NA for its Aviwest PRO Series transmitters. Management raised its revenue guide to $135-140-million from $130-135-million for F2023 with double-digit adj. EBITDA margin guide (unchanged) for the full fiscal year. Management also reiterated its long-term target of adj. EBITDA margins of 20 per cent through GM expansion to low 70% over time and disciplined opex with restructuring in FQ3 likely to benefit FQ4 and F2024 margins. Haivision’s strong quarter, improved balance sheet, growing margin profile, and reasonable valuation keeps us BUY rated.”
* CIBC’s Mark Petrie cut his North West Company Inc. (NWC-T) target by $1 to $38, keeping a “neutral” rating, while BMO’s Stephen MacLeod raised his target to $40 from $39 with a “market perform” rating. The average is $38.75.
“North West reported a Q2/23 beat and 3-per-cent dividend bump, which drove a rally in the stock (up 15 per cent [on Wednesday]),” said Mr. MacLeod. “Sales growth was driven by 4.7-per-cent SSSG and new stores; EBITDA up 14.7 per cent year-over-year. Gross margins are expected to normalize H2/23E compared to prior year inflation-impacted margins. Inflationary & macro pressures introduce near-term earnings uncertainty and cost reduction remains a key priority; management remains optimistic on the medium-term outlook. We rate North West Market Perform, but think the stock could appeal to income-oriented investors (4.5-per-cent yield).”
* Following a visit to its flagship Corvette project in the James Bay Region of Quebec, Canaccord Genuity’s Katie Lachapelle raised her target for Patriot Battery Metals Inc. (PME-X) to $17 from $16.75 with a “speculative buy” rating. The average is $19.05.
“We came away impressed by the sheer scale and mineral prospectivity of PMET’s property, and with a better understanding of the project’s development path going forward,” she said.