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

Ahead of fourth-quarter earnings season for Canada’s energy sector, Desjardins Securities analyst Justin Bouchard and Chris MacCulloch are “doubling down on natural gas.”

“We continue to favour natural gas–weighted equities vs their oil-weighted counterparts, as we believe that the outlook for NYMEX and AECO prices is very supportive well into 2022,” they said. “In contrast, while the fundamentals for oil have improved since the beginning of this debacle last spring, we are cautiously optimistic given depressed global demand due to COVID-19 and the large supply overhang from OPEC+ spare capacity and elevated inventories, on both the crude and refined product side.”

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In a research report released Tuesday, the analysts reiterated their bullish long-term view on oil, believing “the lack of capital investment in the sector will eventually come home to roost — particularly as oil demand recovers in a post-COVID-19 world.” However, they see less clarity on demand and prices through 2021 and 2022, calling it a “mug’s game.”

“In the near to medium term, our best guess at oil prices can be summed up by the phrase ‘what Saudi giveth, Saudi taketh away’,” they said. “In other words, while OPEC+ (namely Saudi Arabia) continues to manage the market, it could all disappear with the snap of its fingers or a breakdown in group cohesion. Add to that the potential restart of Iranian production, elevated global inventories and poor visibility on global demand, and it makes for an interesting exercise as to where oil prices are going. That said, we are moving our 2021 WTI price deck up to US$50/bbl (from US$45/bbl) while maintaining our 2022 forecast of US$55/bbl.

“On the natural gas side, we would argue that it’s a completely different story: the supply and demand data are readily available, and a level of fundamental analysis can reasonably be applied without significant geopolitical noise, at least within the North American market. To that end, we continue to see a very tight market developing through a combination of lower supply, higher exports (both LNG and pipeline flows to Mexico) and continued support from the power stack. While it is true that weather has been the ‘only’ variable that mattered for the better part of the last decade, we firmly believe that it has now become but one of several critically important factors to consider.”

The analysts made a series of target price changes for stocks in their coverage universe.

For large-cap stocks, Mr. Bouchard’s adjustments were:

  • Canadian Natural Resources Ltd. (CNQ-T, “buy”) to $38 from $33. The average on the Street is $38.15.
  • Cenovus Energy Inc. (CVE-T, “hold”) to $8 from $5.50. Average: $9.43.
  • Imperial Oil Ltd. (IMO-T, “hold”) to $27 from $22. Average: $26.33.
  • Suncor Energy Inc. (SU-T, “buy”) to $31 from $26. Average: $29.63.
  • Tourmaline Oil Corp. (TOU-T, “buy”) to $36 from $35. Average: $28.13.

For dividend-paying stocks, Mr. MacCulloch made these changes:

  • ARC Resources Ltd. (ARX-T, “buy”) to $11.50 from $11. Average: $9.13.
  • Crescent Point Energy Corp. (CPG-T, “hold”) to $4.25 from $3. Average: $3.59.
  • Freehold Royalties Ltd. (FRU-T, “buy”) to $8.50 from $7.50. Average: $7.63.
  • Peyto Exploration & Development Corp. (PEY-T, “buy”) to $6.50 from $5. Average: $4.14.
  • Whitecap Resources Inc. (WCP-T, buy”) to $6.50 from $5.50. Average: $5.90.


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Though he expects its 2022 earnings to decline with lower methanol production attributable to natural gas curtailments in New Zealand, Trinidad and Chile, Citi analyst Eric Petrie sees an “attractive” entry point for Methanex Corp. (MEOH-Q, MX-T).

“Methanol prices should remain supported by higher oil prices, delayed new capacity and demand from MTO plants by year-end 2021,” he said. “There is upside to our target price if management secures a long-term gas supply contract for its Trinidad Titan plant, which we have removed from our estimates. Higher methanol prices and ample gas in the U.S. are supportive for the restart of construction on G3 (1.8mmt) as a decision is expected summer 2021.”

Keeping a “buy” recommendation, Mr. Petrie lowered his target for Methanex shares to US$45 from US$55. The average on the Street is US$40.85.

“Our price discount is also raised to 17 per cent on greater competition as methanol prices sit above the cost curve near $260 per ton according to management,” he said. “As a result, our target price declines to $45, based on unchanged 7.5 times forward EV/EBITDA, and excludes any production contribution from Titan. If MEOH is able to secure a long-term gas contract for the Titan plant (870kt), all else equal, our valuation would be $4 higher, assuming 70-per-cent utilization in 2021.”


Scotia Capital analyst Phil Hardie downgraded Fiera Capital Corp. (FSZ-T) to “sector perform” from “sector outperform” with a $12 target, up from $11.50. The average is $12.83.

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Mr. Hardie also made these target changes:

  • CI Financial Corp. (CIX-T, “sector perform”) to $22 from $21. Average: $20.44.
  • IGM Financial Inc. (IGM-T, “sector perform”) to $40 from $38. Average: $37.56.


Though he warned that fourth-quarter results for precious metals companies are typically more volatile given they include earnings, updated guidance and updated reserves and resources, Credit Suisse analyst Fahad Tariq thinks the sector is likely to end 2020 “on a high note.”

“Given these different moving parts, there are varying degrees of ‘surprise’ potential depending on whether the company has already pre-released Q4 production (KL, GOLD, AUY, EDV, CG, NGD, EGO, and IAG) and/or already disclosed 2021 guidance (GOLD, NEM, AEM, KGC, KL, AUY, AGI, EDV, EGO, and IAG),” he said.

“We generally expect strong production in Q4 as mines have returned to normal operations (for most companies this happened in Q3/20), though this will be partially offset by 2 per cent lower gold prices quarter-over-quarter. That said, there are pockets of continued COVID-19 operational impacts such as Yamana’s Cerro Moro mine in Argentina which the company noted is facing government-imposed travel restrictions and reduced worker rosters (a negative read-through for Newmont’s Cerro Negro mine in our view). On the cost side, we expect continued incremental COVID-19 costs in 2021 – we expect direct (health and safety) costs to be modest (AEM indicated $10 per ounce) but indirect costs could be meaningful depending on operational delays which are company-specific (e.g. KGC indicated higher cash costs year-over-year due to deferred stripping, we think 5 per cent higher year-over-year).”

Heading into earnings season, which kicks off Feb. 10, Mr. Tariq thinks valuations “look attractive,” prompting him to make a series of target price changes:

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His changes included:

  • Agnico Eagle Mines Ltd. (AEM-N/AEM-T, “outperform”) to US$88 from US$90. The average on the Street is US$92.93.
  • Alamos Gold Inc. (AGI-N/AGI-T, “neutral”) to US$9.75 from US$10.25. Average: US$11.52.
  • Barrick Gold Corp. (GOLD-N/ABX-T, “outperform”) to US$29 from US$30. Average: US$32.55.
  • Centerra Gold Inc. (CG-T, “neutral”) to $15.50 from $16. Average: $19.08.
  • Eldorado Gold Corp. (EGO-N/ELD-T, “underperform”) to US$11.50 from US$13. Average: US$15.42.
  • Endeavour Mining Corp. (EDV-T, “outperform”) to $42 from $45. Average: $50.09.
  • Franco-Nevada Corp. (FNV-N/FNV-T, “neutral”) to US$140 from US$145. Average: US$153.51.
  • Kinross Gold Corp. (KGC-N/K-T, “neutral”) to US$8.50 from US$9. Average: US$12.37.
  • Kirkland Lake Gold Ltd. (KL-N/KL-T, “neutral”) to US$46 from US$48. Average: US$51.50.
  • Wheaton Precious Metals Corp. (WPM-T/WPM-N, “neutral”) to $62 from $64. Average: $81.24.
  • Yamana Gold Inc. (AUY-N/AUY-T, “outperform”) to US$7 from US$7.50. Average: US$7.51.

“Investors will be paying close attention to 2021 guidance for the companies that have not yet announced guidance, and in particular what it means for FCF generation,” he said. “FCF and capital allocation remain the main focus areas for investors that we have spoken to, and investors are increasingly recognizing that valuations for gold equities are attractive, even when comparing to roughly six months ago when gold prices were around the same levels. Likewise, management teams continue to prioritize returning capital to shareholders (e.g. NEM renewed its $1-billion buyback program for 2021, GOLD will announce a formal dividend framework in its Q4 release, and many companies have indicated room for higher dividends). The average P/NAV multiple for our coverage is currently 1.02 times vs. 1.83 times historically (10-year average), and the average P/CF multiple is currently 7.3 times vs. 9.0 times historically, suggesting an attractive entry point.”


Calling its acquisition of Genesys Membrane Products (GMP) “compelling,” Desjardins Securities analyst Frederic Tremblay thinks H2O Innovation Inc.’s (HEO-X) three-year plan is “off to a solid start.”

On Monday, the Quebec City-based company announced the purchase of the remaining 76 per cent of GMP, a Madrid-based specialty chemicals company. It previously acquired a 24-per-cent stake in a November 2019 deal.

“The transaction price is based on a multiple of 6 times EBITDA, well below the 8–10-times range we would typically expect for acquisitions in the highgrowth, high-margin Specialty Products segment,” said Mr. Tremblay. “Furthermore, the purchase price will be paid over several years (an initial amount of $2.4-million was paid at closing). The acquisition will be funded internally and should have no material impact on HEO’s leverage (0.9 times net debt to EBITDA).”

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“Through this acquisition, HEO strengthens (1) its expertise in specialty chemicals, (2) its local presence in Latin America, (3) its client relationships in the mining industry, (4) its cross-selling potential, and (5) its earnings outlook. Overall, we are pleased to see management’s continued emphasis on strengthening and growing the high-margin Specialty Products segment and view the acquisition of GMP as a strong initial step toward achieving the objectives of the three-year strategic plan.”

After increasing his revenue and earnings expectations for 2021 and 2022, Mr. Tremblay raised his target for H2O shares to $3.50 from $3.25, maintaining a “buy” rating. The average target is $3.14.

“In our view, the acquisition of GMP ticks all the boxes (eg consistent with the strategy, valuable expertise, complementary footprint, strong margin profile and attractive purchase price),” he said.

Elsewhere, Industrial Alliance Securities’ Naji Baydoun bumped his target to $3.70 from $3.50 with a “buy” recommendation.

“The GMP acquisition (1) increases HEO’s recurring revenue profile, (2) improves overall portfolio margins, and (3) will strategically add additional capabilities that support further long-term growth in select markets. We expect HEO’s healthy balance sheet to support further tuck-in M&A, which could provide further upside to our current forecasts,” said Mr. Baydoun.

Acumen Capital’s Nick Corcoran moved his target to $3.50 from $3 with a “buy” rating.

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“We view the acquisition of GMP as positive. The acquisition improves the overall margin profile and accelerates top-line growth,” he said.


Bragg Gaming Group Inc. (BRAG-T) “offers an attractive combination of growth and profitability in the iGaming space while exposing investors to the rising tides of legalization worldwide,” according to Canaccord Genuity analyst Matthew Lee, calling it “a one-stop shop for iGaming operators.”

In a research report released Tuesday, he initiated coverage of Toronto-based online gaming solution provider with a “speculative buy” rating, believing its “high-quality content library and full-service model are key differentiators.”

“Bragg’s B2B offering reaches online casinos across a variety of geographies, primarily in Europe, and allows smaller licensed operators to give their users a world-class online experience without a significant tech stack investment,” said Mr. Lee. “We believe Bragg will continue driving organic growth by adding new iGaming clients within its current footprint and by taking advantage of its scalable model to expand its presence in North America, South America, and Africa. Furthermore, with a fortified balance sheet ($46-million net cash) and increasingly valuable equity, we believe Bragg can grow through accretive acquisitions, which would serve the tripartite purpose of increasing its product suite, improving margins, and accelerating its North American expansion.”

Mr. Lee thinks Bragg’s content assets and turnkey products place it in a strong position to compete globally, noting it has utilized a combination of proprietary offerings and exclusive supply deals to build a portfolio of over 10,000 games for clients to select from for online casinos. He said it’s “difficult for competitors to replicate.”

“Bragg’s second key differentiator is its wide suite of turnkey products beyond content rights and industry-leading turnaround speed (integration can occur in as little as three weeks), which allows its casino partners to quickly and effectively launch and maintain a full-scale iGaming platform,” he added.

Seeing expansion both in the U.S. and Canada as a “key medium-term growth tenet” and believing it’s “well positioned to take advantage of industry consolidation,” Mr. Lee set a target of $3 per share.

“While the economics of Bragg’s business strike us as very attractive and the long-term fundamentals appear sound, we rate BRAG a SPECULATIVE BUY largely to reflect the uncertainty around near-term regulatory changes in Germany and the potential for a stricter legal mandate across Europe,” he said. “However, as mentioned, our base case involves strong revenue growth (30 per cent excluding the German regulatory impact) and robust profitability. As these factors come to fruition, we expect that the Bragg investment thesis will be meaningfully de-risked, which should further strengthen the case for BRAG shares.”


Calling it “a digital mental healthcare platform in its early innings but with strong momentum,” Credit Suisse analyst Jailendra Singh initiated coverage of MindBeacon Holdings Inc. (MBCN-T) with an “outperform” rating, seeing it “established in a rapidly growing market” and possessing a scalable platform with a “valuable mix shift.”

“Canada-based MindBeacon is a digital mental healthcare platform that is addressing the significant and growing issue of mental health,” he said. “The COVID-19 pandemic has only exacerbated the mental health issues that Canada and the world face. A key component of the gap in care stems from a lack of access to healthcare providers and a simple lack of education and awareness of the resources that are available to consumers. MBCN serves to address this gap by offering consumer mental health therapy through a digital, scalable platform offering access to a network of qualified healthcare providers.”

“MBCN offers asynchronous (i.e., text-based chat) and synchronous (i.e., phone/video) options, but we expect a large majority of future growth to come from asynchronous. Asynchronous revenues made up 24 per cent of revenue in 2019, but we expect the mix to shift to 75 per cent in 2021. This shift delivers two valuable components: (1) providers can conduct more visits and handle multiple cases simultaneously and (2) asynchronous is delivered at a fraction of the cost relative to synchronous.”

Mr. Singh set a $15 target for shares of the Toronto-based company, which began trading on the TSX in late December, exceeding the $14.33 average.


In other analyst actions:

* Scotia Capital analyst Konark Gupta raised his target for Cargojet Inc. (CJT-T) to $240 from $230 with a “sector perform” rating, while BMO Nesbitt Burns’ Fadi Chamoun raised his target to $270 from $265 with an “outperform” recommendation. The average is $263.

* Scotia’s Benoit Laprade raised his West Fraser Timber Co. Ltd. (WFG-T) to $101 from $85 with a “sector outperform” rating, while TD Securities’ Sean Steuart hiked his target to $86 from $64. The average is $107.60.

* RBC Dominion Securities analyst Drew McReynolds increased his target for Stingray Group Inc. (RAY.A-T) to $9 from $8 with a “sector perform” rating. The average is $8.14.

* TD Securities analyst Derek Lessard raised his target for Dorel Industries Inc. (DII.B-T) to $16 from $14.50, which is the current consensus.

* National Bank analyst Dan Payne raised his Crew Energy Inc. (CR-T) to 90 cents from 75 cents, keeping a “sector perform” recommendation, while Raymond James’ Jeremy McCrea raised his target to $1 from 90 cents with a “market perform” rating. The current average is 72 cents.

* JP Morgan analyst Phil Gresh raised his Cenovus Energy Inc. (CVE-T) target by a loonie to $9 with an “underweight” rating. The average is $9.43.

* ATB Capital Markets analyst Chris Murray hiked his Stantec Inc. (STN-T) target to $53 from $49 with an “outperform” rating. The average is $49.05.

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