Inside the Market’s roundup of some of today’s key analyst actions
The impact of COVID-19 “severely impairs” the near-term outlook for Chartwell Retirement Residences (CSH.UN-T), according to Canaccord Genuity analyst Brendon Abrams.
Forecasting a “significant” decline in occupancy levels through 2021, he downgraded his rating for Chartwell to “hold” from “buy” on Tuesday.
"Seniors housing has been one of the asset classes most negatively impacted by the COVID-19 pandemic, as older populations are the most susceptible to the virus and the risk to residents in the event of an outbreak is high," he said. "As such, seniors housing operators, such as Chartwell, have taken extensive measures to protect the safety of their residents, including visitor restrictions and additional cleaning protocols. While necessary, these measures have also led to an increase in operating expenses and declines in occupancy, both of which are likely to continue for some time.
"Reflecting this more challenging outlook, Chartwell’s stock price has underperformed the broader real estate sector, down 36 per cent since the beginning of March, the lowest levels in approximately eight years. This compares with the S&P/TSX Capped REIT Index, which is down 25 per cent over this period."
After seeing its same-property occupancy slid from 88.4 per cent at the end of January to 85.7 per cent at the end of April, Mr. Abrams is now projecting it will decline 2.5 per cent per quarter through the end of 2021. That translates to 81 per cent occupancy by the end of 2020 and 71 per cent by the end of 2021.
"This assumes that, for at least the next 12 months, the pace of move-outs should slow, but will not offset the very limited expected move-ins," he said. "In addition, we forecast Chartwell’s NOI [net operating income] margin will decline by 1 per cent per quarter through the end of 2021, given the high fixed-cost nature of seniors housing and our expectation for declining occupancy levels."
With his downgrade, Mr. Abrams dropped his target for Chartwell units to $9.75 from $13. The average on the Street is $11.82.
“It is impossible to know how long the COVID-19 pandemic will last and when a potential vaccine will be made widely available,” he said. "This creates a tremendous amount of uncertainty regarding when seniors housing operators will return to some resemblance of normalcy, and even at that time, how eager seniors will be to leave their homes in exchange for a shared accommodation environment.
“Therefore, notwithstanding Chartwell’s market-leading position, high-quality portfolio, and strong management team, it is within this context that we are downgrading the stock ... We acknowledge that longer-term and patient investors may be rewarded; however, over the near term we see better opportunities within the real estate sector to deploy capital. Combined with a 7.4-per-cent distribution yield, our target price implies a total return of 25.1 per cent over the next 12 months.”
Though its first-quarter financial results met the Street’s expectations last week, Raymond James analyst Frederic Bastien downgraded his rating Brookfield Infrastructure Partners LP (BIP-N, BIP.UN-T) based on a recent “big valuation bounce.”
"We should stress our actions aren’t meant to raise the alarm bells on this must-own infrastructure stock," said Mr. Bastien, moving it to "outperform" from "strong buy."
"Our downgrade is simply a response to the units’ 75-per-cent spike since our March 24 upgrade to Strong Buy, versus a more 'modest' bounce of 31 per cent for the S&P 500 over the same period."
Last week, Brookfield reported first-quarter funds from operations of US$358-million, matching the consensus projection and 2 per cent higher than Mr. Bastien's forecast.
"Results showed the COVID-19 outbreak only modestly affecting BIP’s Utilities,Energy and Data Infrastructure segments, with Transport managing the shutdown measures reasonably well thanks to its diverse and high-quality asset base," the analyst said. "And while BIP’s payout ratio of 79 per cent remains elevated versus management’s long-term target range of 60-70 per cent, it came in a tad better than our 81-per-cent target."
Mr. Bastien lowered his target for Brookfield Infrastructure stock to US$50 from US$55. The average on the Street is US$48.33.
“The $5 reduction to our target is simple math, as it reflects the completion of the unit split and creation of BIPC [Brookfield Infrastructure Corp.],” he said. “We knew this deal would make Brookfield Infrastructure that much more attractive to U.S. investors, but the widening spread between the stock and unit prices has everyone wondering how this shakes out in the end. We are of the view BIPC will pull BIP in its wake.”
In the wake of Pinnacle Renewable Energy Inc. (PL-T)'s “subdued” outlook, dividend cut and given its “elevated” balance sheet, Desjardins Securities analyst David Newman lowered his rating for its stock to “hold” from “buy" on Tuesday.
“The fibre supply constraints that PL faced in 2019 are likely to worsen this year as COVID-19 and the recession put pressure on housing, lumber demand and prices, and sawmill operations, offset by government incentives and an expected reduction in stumpage fees in 3Q20,” said Mr. Newman in a research note released before the bell.
“As a result of curtailed production by its key fibre suppliers, management expects to rely more on harvest residuals for the remainder of 2020, which could curb production volumes at its BC facilities (wet coarse fibre requires more drying capacity). In response, PL has increased fibre inventories at its BC facilities by 103 per cent year-over-year, allowing for more control over its fibre quality and cost (benefits are expected to be realized later in the year). Management expects a muted impact from the sawmill curtailments in Alabama, given ample wood fibre supplies.”
After the bell on Monday, the Prince George-based company reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the first quarter of $4-million, well below Mr. Newman’s $8-million projection, with an EBITDA margin of 3.6 per cent (versus 8.5 per cent).
“While revenue and volumes exceeded our forecast, 1Q20 faced numerous challenges, including higher production costs (high-cost and third-party pellets), CN Rail service disruptions ($2.1-million EBITDA impact), a five-day shutdown at the Aliceville facility and some impact from COVID-19,” the analyst said.
Pinnacle also announced it was reducing its annual dividend by 75 per cent to 15 cents from 60 cents.
"At the end of 1Q20, PL had sufficient available liquidity of $57-million (excluding delayed draw). However, its net debt/EBITDA was an elevated 7.7 times," said Mr. Newman.
The analyst lowered his target for Pinnacle shares by a loonie to $8.50. The average on the Street is $9.72.
Elsewhere, National Bank’s Robert Merer cut Pinnacle to “sector perform” from “outperform” with a $8 target, down from $13.
Industrial Alliance Securities analyst George Topping recommends investors accumulate shares of GT Gold Corp. (GTT-X), seeing them as “cheap and undervalued” ahead of upcoming key market catalysts.
In a research report released Tuesday, he initiated coverage of the Vancouver-based miner with a "buy" rating.
“Jurisdictionally, the company is located in a top tier location inside the more accessible area of the Golden Triangle in B.C., wellserved by infrastructure and a mining friendly First Nations community,” he said. "Porphyry Au-Cu deposits are some of the largest scale mines in the world and Saddle North is shaping up to be of similar scale or better butstill well underexplored along the 3km anomaly. Saddle South’s high-grade Au-Ag veins add to the upside of what could be a full complex one day.
"After years of curtailed exploration, there aren’t enough sizeable, shovel ready, predominantly gold deposits to go around, thus producers will turn/are increasingly turning to Au-Cu style deposits for their copper kicker, multi-cycle life, and scalability."
The analyst views GT as a “clear” takeover target for a senior producers, suggest Newmont Corp. (NGT-T) is the “clear-cut suitor” given its initial $17.6-million private placement investment as well as is recent $8.3-million investment, which raised its stake to more than 15 per cent.
“Newmont’s strategic investment is a sign of approval for the project and the recent increase shows that the senior producer is bullish on the progress made,” said Mr. Topping. “Executive Chairman Ashwath Mehra is the second-largest holder with a sizeable 10.7 per cent of stock. With around 12 per cent total held by insiders, we conclude that management and shareholders’ interests are aligned. We note, industry veteran Ross Beaty owns 9 per cent stock (not listed on Bloomberg).”
He added: “Although Newmont owns a Right of First Offer (ROFO) on the Tatogga property, we would expect other senior producers to make it competitive. Newcrest owns 70 per cent of the Red Chris mine next door. Most senior gold producers appreciate gold/copper porphyries as the copper provides lower AISC [all-in sustaining cost] and copper-related cash flow still garners a gold multiple.”
Mr. Topping set a $3 target for GT Gold shares. The current average on the Street is $2.52
“Led by a team of experienced geologists and endorsed by top resource funds, management continues to build the resource and advance technical work,” he said. “Key catalysts include the inaugural inferred resource (mid-year) and preliminary economic assessment (PEA; end of year).”
Though he warned of “significant” headwinds in the upcoming quarters, Desjardins Securities analyst David Newman said he’s maintaining “a favourable long-term outlook” toward Premium Brands Holdings Corp. (PBH-T), pointing to “a cornucopia of growth opportunities, complementary business model, deep M&A pipeline post pandemic and a pristine balance sheet.”
On Monday, the Vancouver-based company reported first-quarter adjusted EBITDA of $64-million, exceeding the projections of both the analyst ($59-million) and the Street ($61-million). It's Specialty Foods segment posted organic volume growth of 15.9 per cent, well above Mr. Newman's 5.8-per-cent forecast.
However, citing the "uncertainties associated with the COVID-19 pandemic," Premium Brands withdrew its 2020 guidance, which included projected revenue of between $3.975-$4.075-billion and projected adjusted EBITDA of between $320-$360-million.
"Overall, while COVID-19 has had a slightly positive impact on revenue and EBITDA in 1Q20, PBH xpects it to have a significantly negative impact on 2Q (generally its busiest quarter; business usually picks up month over month from April–June) and the remainder of 2020," said Mr. Newman. "In particular, COVID-19-related headwinds in 2020 include: (1) the shutdown or restriction of service in the foodservice industry, air travel and the cruise line industry; (2) the shutdown of the fresh deli and seafood cases at many grocery retailers, as well as reduced consumption of seafood sold live (both domestic and exports); (3) supply chain disruptions caused by the temporary closures of some suppliers’ facilities and some of PBH’s production facilities; and (4) additional operating costs resulting from enhanced health and safety protocols (changes in plant operating processes, enhanced personal protection equipment, and enhanced sanitization and safety processes)."
"Some risk mitigants are: (1) the high degree of automation and smaller size of its plants, which could facilitate social distancing and management oversight; (2) PBH’s entrepreneurial culture which pushes decision-making to the frontline; and (3) its decentralized business model, which includes 65 regional production facilities across North America that provide redundancy and flexibility in navigating COVID-19 disruptions. Production can be easily switched between facilities or to a third party in case of a disruption/lockdown at a specific plant(s)."
Maintaining a “hold” rating for Premium Brands shares, Mr. Newman lowered his target for its shares to $85 from $87. The average on the Street is $90.67.
“While PBH should emerge from the pandemic a stronger company (pent-up consumer demand, ready-to-go facilities and workforce, more robust M&A pipeline and strong liquidity war chest), we maintain our Hold–Average Risk rating over the near term given the recent strong bounce in the share price despite not having felt the full brunt of COVID-19/recession,” he said. “The forecast should be negatively impacted by significant challenges in PBH’s foodservice and c-store channels (QSR sandwich business, PFD with most restaurants closed at this juncture, lower c-store foot traffic, seafood (exports, restaurants and cruise lines)), coupled with the increasing costs associated with COVID-19 safety concerns, supply chain disruptions and PBH’s efforts to ready itself for the post-pandemic world (retaining employees, providing bonuses to front-line workers, continued investments in capacity expansions at certain facilities, etc).”
Meanwhile, Industrial Alliance Securities' Neil Linsdell cut his target to $97 from $104 with a "buy" rating (unchanged).
Mr. Linsdell said: “Despite the uncertainty of how 2020 will unfold and the expectation for a significant impact in Q2, we remain optimistic in the Company’s longer-term resiliency. Shutdowns and restrictions will likely have lingering impacts on the foodservice industry, particularly fine dining and the airline and cruise line industries. We can also expect enhanced disinfecting and safety protocols, meaning added costs, being with us for at least months and perhaps years. Other concerns such as supply chain disruptions are likely going to have a minor impact and be short-lived. Overall, Premium Brands remains well positioned, with a solid balance sheet capable of absorbing further stress should this pandemic draw out for many months.”
Impressed by the “strong” performance of its downstream segment, RBC Dominion Securities analyst Greg Pardy called Imperial Oil Ltd.'s (IMO-T) first-quarter results a “good start.”
On May 1, Imperial reported cash flow per share of 81 cents, well ahead of Mr. Pardy's 55-cent estimate due in large part to its downstream performance. That business posted earnings of $402-million, versus the analyst's $206-million outlook.
“Imperial expects COVID-19 to weigh on its second-quarter of 2020, and will look to mitigate impacts,” he said in a note released Tuesday. “At Kearl, the company has advanced & extended its 2Q turnaround to 8-weeks (early May to late June), taking one of two trains off-line. Second-quarter Kearl production is targeted at 106,500 barrels per day (net). Elsewhere, a turnaround at the Mahihkan plant at Cold Lake will last from early May to the end of June, with an expected production impact of roughly 15,000 bbl/d. Imperial continues to expect 2020 average annual production of about 140,000 bbl/d at Cold Lake. At Syncrude, a turnaround at one of three cokers will begin in the second-quarter with production of 45,000 – 50,000 bbl/d (180,000-200,000 bbl/d gross) expected.”
Though he trimmed his full-year expectations for 2020 and 2021, Mr. Pardy raised his target for Imperial shares to $23 from $21 with a “sector perform” rating (unchanged). The average is $20.88.
“Imperial’s strengths remain its balance sheet and modest sustaining capital requirements, as it navigates through unprecedented oil market conditions,” he said.
Citing a “softer” outlook and “creeping” leverage following weaker-than-anticipated first-quarter results, Canaccord Genuity analyst Doug Taylor cut his financial expectations and target price for shares of Maxar Technologies Ltd. (MAXR-N, MAXR-T).
After the bell on Monday, Colorado-based Maxar, which is the parent company of MacDonald, Dettwiler and Associates Ltd., reported revenue of US$381-million, below the projections of both Mr. Taylor (US$421.1-million) and the Street (US$416.3-million). EBITDA of US$77-million also fell short of estimates (US$109-million and US$104.6-million, respectively).
Facing high operating costs due to COVID-19 and lower revenue than previously anticipated from its Space Infrastructure business, the company trimmed its full-year EBITDA forecast to US$370-$410-million from US$400-$440-million.
After lowering his estimates in response to the outlook, Mr. Taylor cut his target to US$13 from US$20, keeping a "hold" rating. The average target on the Street is US$16.25.
“This reflects our concerns around the company’s free cash flow burn and leverage as it navigates through the COVID19 uncertainty,” he said.
Echelon Wealth Partners analyst Frederic Blondeau continues to see long-term value for Artis Real Estate Investment Trust (AX.UN-T).
However, in the wake of the release of first-quarter operating results that fell below his expectations, Mr. Blondeau lowered the Winnipeg-based REIT to "hold" from "buy," waiting for further visibility on the short-term impact of the COVID-19 pandemic on its Office and Retail segments.
"We do not expect any net acquisitions for the remainder of 2020 and in 2021, while we expect the REIT to dispose of an additional $250-million in property in 2020, essentially following management’s guidance in that regard. Obviously, execution risk remains significant," he said.
Mr. Blondeau lowered his target to $10 from $13.50. The average is $10.93.
In other analyst actions:
* Scotia Capital analyst Konark Gupta trimmed his target for Bombardier Inc. (BBD.B-T) shares to 35 cents from 65 cents, keeping a “sector underperform” rating. The average on the Street is 77 cents.
“We lower our target price .... as cash burn was wider than expected in Q1 and mgmt guided to a similar burn in Q2, which also missed our prior expectations,” said Mr. Gupta. “Despite a multi-billion dollar cash burn expected this year, we believe BBD should have sufficient liquidity throughout the year given cash proceeds from pending asset sales and availability on credit facility with a temporary covenant relief. However, the pending Alstom deal (closing in 1H/21) has become more critical as BBD won’t likely have enough liquidity on its own to repay next year’s debt maturities, unless it manages to get government aid or push out debt maturities again. We maintain our Sector Underperform rating as the already stretched balance sheet faces more pressure over the next several quarters due to COVID-19, increasing the risk for equity investors. There could be further downside risk to our estimates and valuation, which assume timely closing of all asset sales at original terms and BBD recovers then grows EBITDA at the continuing bizjet operations to $800-million.”
* Jefferies initiated coverage of TC Energy Corp. (TRP-T) with a “hold” rating and $68 target. The average on the Street is $71.37.
* National Bank Financial analyst Cameron Doerksen lowered BRP Inc. (DOO-T) to “sector perform” from “outperform” with a $40 target, rising from $38. The average is $33.