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

Canada’s $179-billion food sector has undergone “significant” changes during the COVID-19 pandemic, said Desjardins Securities analyst Chris Li and Frederic Tremblay, pointing to “drastically reduced” spending on restaurants and increased demand for at-home meals.

“Grocery stores and meal kit providers are clear beneficiaries,” they said in a research report. “Industry forecasts call for a decline of $28-billion in restaurant/bar sales in 2020, which equates to $8-billion in grocery/retail dollar terms. While we believe this is largely reflected in 2020 consensus expectations, we focus on the ‘stickiness’ of consumer behaviour post-pandemic. [We note] several studies that show signs of a permanent migration from restaurants to home cooking. We are also seeing evidence that part of this shift is happening online, with forecasts that online penetration will increase to mid-single digits by the end of 2021 from low single digits and continue to gain traction in the coming years.

“Our CY21 sales forecasts for the Big 3 grocers (Loblaw, Empire, Metro) assume restaurant sales recover to 90 per cent of the pre-pandemic level by next year. There is upside to our forecasts to the extent that the recovery in restaurant sales takes longer than expected. For example, a recovery to only 85 per cent would boost our CY21 earnings forecast by 2 per cent for Loblaw and Metro and almost 5 per cent for Empire. The bigger upside for Empire reflects its limited exposure to the drug retail business.”

Given the “multi-billion-dollar shift from food away from home to food at home” and the acceleration growth of e-commerce for food purchases, the analysts think investors seek ways to gain exposure to these trends should look at meal kit provider Goodfood Market Corp. (FOOD-T) as well as Empire Co. Ltd. (EMP.A-T), which provides the “highest food exposure but balanced against heavy e-commerce ramp-up costs.”

Reiterating his “buy” rating for Montreal-based Goodfood, Mr. Tremblay raised his target to $7.25 from $5.75. The average on the Street is $5.81.

“We also see upside to our sales and profitability forecasts for Goodfood if weakness in the restaurant sector persists and strong momentum in e-commerce continues,” he said.. Recall that the company was already reaching important milestones before the pandemic as its meal kit business turned EBITDA-positive and its addressable market was increased through the introduction of new products, including a major ongoing push in the private label grocery category. Goodfood’s broad reach (dedicated fulfillment centres covering 95 per cent of the population), sales capacity of more than $1-billion, absence of membership and delivery fees, and constantly expanding product offering position it as a very solid participant in the dynamic grocery and meal solutions market.”

Mr. Li kept a “buy” rating and $36 target for Empire, which falls short of the $37.67 consensus.


Aecon Group Inc. (ARE-T) is “capitalizing on Canada’s infrastructure gap,” according to Laurentian Bank Securities analyst Mona Nazir, who initiated coverage with a “buy” rating.

“With over 90 per cent of revenue stemming from Canada, Aecon is a direct beneficiary of dollars invested in infrastructure domestically,” said Ms. Nazir in a research report. “As per Canada’s Infrastructure Report card, the country’s infrastructure is at risk and 10 per cent to 15 per cent of assets are categorized as ‘very poor’ or ‘poor.’ Looking at the Investing in Infrastructure Plan, the 12-year $180-billion budget is backend weighted with the annualized spend increasing from $10-billion-plus annually to $18-billion by 2028.”

Ms. Nazir thinks the Toronto-based construction company has “an innate understanding of the dynamic market,” and she sees its growing Concessions portfolio driving profitability moving forward.

“The Concessions’ division diversifies Aecon’s mix and is an alternative project structuring which the company has a stronghold within,” the analyst said. “High profile wins including Quito Airport, Cross Israel Highway, L.F. Wade International Airport in Bermuda, and Eglinton Crosstown LRT illustrates ARE’s knowledge of large scale dynamic projects. As projects shift from construction to close, it’s the Concessions division that should drive a greater portion of profitability (30-per-cent-plus EBITDA margin vs. 5.5 per cent for Construction).”

Also touting its “solid” balance sheet and financial flexibility, Ms. Nazir sees “significant upside appreciation on valuation alone.”

“Aecon is currently trading at 5.1 times our fiscal 2021 EBITDA estimate and at 6.5 times on a NTM [next 12-month] basis,” she said. “Despite having increased the backlog by 65 per cent to $7-billion from $4.2-billion in 2017, the stock is trading below peer companies. While there are no plans to receive an offer or attract a prospective buyer, looking back, CCCI’s $1.5-billion bid equated to over 9 times EV/EBITDA. With the competitive landscape shrinking and E&C M&A activity to increase by 20 per cent plus, the possibility of a takeover bid offers blue sky potential.”

Mr. Nazir set a target of $20 per share. The average on the Street is 61 cents higher.

“We view the current stock price as an attractive entry point for investors,” she said. “Based on our conservative forecast and valuation, we are initiating coverage of Aecon with a Buy rating, and a 12–18 month target price of $20, with potential for further upside from higher EBITDA growth driven by potential major contract wins, faster than expected upward trend in margin as well as a diverse Concessions portfolio.”


ATB Capital Markets analyst Nate Heywood initiated coverage of a series of TSX-listed energy infrastructure companies on Tuesday.

They are:

* Capital Power Corp. (CPX-T) with an “outperform” rating and $35 target. The average on the Street is $33.30.

“With its improved geographic exposure and growing renewable asset base, Capital Power (CPX) has shifted its competencies to operating a more diversified fleet,” said Mr. Heywood. “The Company continues to focus on diversifying its assets through phasing out coal facilities and replacing the capacity with natural gas and renewable generating assets. We expect Capital Power to further invest in U.S. projects as it expands its geographic footprint. With these changes and a level of stability in its cash flows, we believe the Company can fund an attractive dividend.”

* Northland Power Inc. (NPI-T) with a “sector perform” rating and $35 target. Average: $33.98.

“Northland Power (NPI) is an international power producer with generating assets positioned both on and offshore, offering renewable and natural gas generating capacity,” he said. “The Company is heavily focused on being a leading clean energy producer on a global scale and continues to add large, meaningful projects in strategic markets with early-mover advantages. NPI realizes the majority of its cash flows from large offshore wind farms in the North Sea but has continued its diversification strategies into other attractive markets and technologies.”

* Pinnacle Renewable Energy Inc. (PL-T) with an “outperform” rating and $6 target. Average: $7.

“With global power markets undergoing a transition to renewable generating technologies, Pinnacle (PL) provides a unique service in repurposing wood into pellets as a clean burning generating fuel,” he said. “The Company boasts an impressive position in the global pellet producer market, given its production capabilities and contract backlog. We anticipate the Company’s current backlog, capacity growth prospects, and growing global demand to drive value for its shareholders.”

* TransAlta Corp. (TA-T) with an “outperform” rating and $11 target. Average: $10.06.

“As conventional generating assets such as coal-fired facilities are retired, power producers like TransAlta have heavily shifted focus to bring on more natural gas and renewable generating capacity,” he said. “TransAlta has begun its plan to convert its retiring coal facilities to utilize natural gas, a low-cost, cleaner burning fuel with an abundant supply. On top of these conversions, the Company has a long tenure in renewable generation, with over 100 years of experience. The asset portfolio has significantly grown from its initial hydro plant in 1911 to consist of natural gas, hydro, wind, solar, and coal-transition assets.”

* TransAlta Renewables Inc. (RNW-T) with a “sector perform” rating and $16.50 target. Average: $16.

“With deep roots in renewable power generation, TransAlta Renewables (RNW) houses an intriguing investment profile through projected asset growth (2019-2022 EBITDA CAGR of 4 per cent), conservative leverage (2020 estimated net debt to EBITDA of 1.7 times), and an attractive dividend yield (6.5 per cent),” he said. “The Company is a subsidiary of TransAlta Corporation (TA-T), where TA owns, directly or indirectly, 60 per cent of RNW. The Company is built on a platform of highly diversified assets, with significant geographic reach, and a highly contracted cash flow profile. The focus for growth continues to be in its current operating regions, Canada, the U.S., and Australia, where renewable and natural gas facilities are poised for growth. RNW has historically returned high levels of capital to its shareholders, as cash available for distribution has grown rapidly through asset investments, supporting a 6.5-per-cent dividend yield.”


Citi analyst Alexander Hacking expects second-quarter results to represent the earnings trough for North American miners with the possible exception of gold and iron ore.

In a research report released Tuesday, he thinks investor focus will be on second-half guidance given the recovery in prices and demand and with operating restrictions easing.

"In general, we think the market will have a tolerance for operating misses that are unambiguously attributable to COVID-19," Mr. Hacking said. "Management commentary on June vs April will be relevant, i.e. what was the exit rate heading into 3Q? Provisional pricing will be a tailwind in copper considering this was set at $2.24 per pound at end-1Q. Our preference is for stocks that can potentially outperform the underlying commodity (FCX, FM, and VALE) and stocks exposed to commodities that have yet to recover (HCC)."

Mr. Hacking made a series of changes to his earnings expectations to account for the firm’s commodity price forecasts and changes to second-quarter operating assumptions.

His base metal and iron ore estimates have increased based on a better-than-anticipated rebound in prices. His met coal projections slid based on reduced forecasts.

Mr. Hacking lowered his 2020 and 2021 EBITDA projections for Teck Resources Ltd. (TECK.B-T) by 22 per cent and 23 per cent, respectively.

“2Q adj. EBITDA is estimated at $237-million based on 5.0 million tons of met coal,” he said. “Coal costs are modeled proportionally higher. Provisional pricing will help in copper. Energy is expected to post a similar-size loss to 1Q. Investor focus will be on coal guidance for 2H (how much did shipments improve into June?), QB2 update, Neptune and net debt.”

Maintaining a "neutral" rating for Teck shares, he raised his target to $15 from $10. The average target on the Street is $18.71.

“Investment positives include a solid portfolio of mining assets including the world’s second biggest export met coal business; a strong balance sheet; increased capital returns in recent years; and a good record on ESG relative to peers. Negatives include risk of lower met coal demand in future; a history of questionable capital allocation; and dual class share structure,” the analyst said.

Mr. Hacking raised his 2020 EBITDA estimate for First Quantum Minerals (FM-T) by 6 per cent while maintaining his 2021 expectation.

“2Q adj. EBITDA is estimated at $358-million based on 156,000 tons of copper,” he said. “Cobre Panama production is expected to be 22,000 tons, or 25-30-per-cent utilization rate since April 6. Power sales into the Panama grid will help to offset $4-6-million per week of closure costs. Zambia operations have largely been able to maintain production and we do not expect surprises. The main key for the call – unless resolved in the meantime – will be forward looking guidance on CP given current uncertainty on the restart schedule. Investor focus will also be on total net debt and any update on discussions over monetizing assets.”

With a “buy” rating (unchanged), he hiked his target to $14.10 from $11, exceeding the consensus of $12.41.

“On balance, we see more upside than downside at current levels,” Mr. Hacking said.


Industrial Alliance Securities analyst George Topping sees GT Gold Corp. (GTT-X) as undervalued given the potential of its Saddle North project in British Columbia, which he anticipates will draw significant interest from senior producers.

On Monday after the bell, the Vancouver-based miner released its first mineral resource estimate for the property, located in the Golden Triangle region of northwestern B.C.

Mr. Topping called the total resource projection “huge” and “what senior producers want.”

“With around 20Moz AuEq total resources and still open, Saddle North’s size will be attractive to suitors,” he said.

“Senior gold producer Newmont (NEM-N) has already secured its capped 14.9-per-cent stake. Although Newmont owns a Right of First Offer (ROFO) on the Tatogga property, other senior producers will be interested. Newcrest (NCM-A) 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 and copper-related cash flow still garners a gold multiple.”

Maintaining a “buy” rating for GT Gold shares, he raised his target to $4.50 from $3. The average is $2.85

“GT Gold’s share price is up 58 per cent since we launched coverage (May 12). A PEA based on this resource is anticipated at year-end with a slew of drilling results before then. We maintain our Buy rating but increase our target,” he said.


Scotia Capital analyst Mario Saric said Minto Apartment Real Estate Investment Trust (MI.UN-T) “ranks well on the things we think matter, but the positives are captured.”

With that view, he initiated coverage with a “sector perform” rating.

“Although we expect no growth in 2020, we see a strong recovery in 2021 adjusted funds from operations per unit and same property net operating income growth (11 per cent and 5.7 per cent, respectively),” he said. “Canadian REITs that deliver superior per-unit growth (NAVPU, SPNOI, AFFOPU) tend to outperform over time, with MI ranking in the second quartile based on our forecasts.”

Mr. Saric set a $23 target. The average is $24.22.

“A forecast 18-per-cent total return is below the 25-per-cent Apartment peer average and the 38 per cent for our coverage universe,” he said. “We believe a unit price leading to a 25-per-cent total return for MI’s highquality portfolio warrants a more positive recommendation (sub-$19.00), all else equal. We are the second “hold” on MI (of eight covering analysts).”

“MI trades like a defensive stock, while a flattening yield curve on a better economy should drive the unit price higher.”

Meanwhile, Mr. Saric initiated coverage of Slate Retail Real Estate Investment Trust (SRT.UN-T) with a “sector perform” rating and US$8.50 target. The average on the Street is US$7.45.


Though it possesses a large potential market and “good secular opportunity,” Nikola Corp.‘s (NKLA-Q) execution and adoption risks can’t be overlooked, according to RBC Dominion Securities analyst Joseph Spak.

He initiated coverage of the battery-electric and hydrogen fuel-cell truck maker with a “sector perform” rating on Tuesday, emphasizing it’s “difficult to value.”

“Of late, market has shown demand for sustainable/alternative transportation, particularly hydrogen,” said Mr. Spak. “NKLA’s stock skyrocketed amid enthusiasm, aided by limited free-float. As meaningful revenue/EBITDA/CF further out, NKLA is difficult to value and can remain a story stock untethered to traditional valuation/fundamental metrics.”

He set a US$46 target, falling short of the US$62.50 average on the Street.


In other analyst actions:

  • Though ongoing drilling at its Dixie project in Red Lake, Ont. “continues to deliver high-grade intercepts,” Canaccord Genuity analyst Kevin MacKenzie downgraded Great Bear Resources Ltd. (GBR-X) to “hold” from “speculative buy,” citing the current return to his target of $17.25 (unchanged). The average on the Street is $15.75.
  • Alliance Global Partners analyst Aaron Grey initiated coverage of Organigram Holdings Inc. (OGI-T) with a “buy” rating and $4 target. The average is $4.58.
  • Guggenheim analyst Dana Flanders lowered Bellus Health Inc. (BLU-T) to “neutral” from “buy”

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