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

Industrial Alliance Securities analyst Elias Foscolos thinks the valuation upside associated with the start-up of operations Inter Pipeline Ltd.’s (IPL-T) Heartland Petrochemical Complex in 2022 “materially outweighs downside at these share price levels.”

That led him to raise his rating for its shares to “buy” from “hold” on Tuesday ahead of the Feb. 18 release of its fourth-quarter financial results, which he expects to be “a non-event.”

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Calling the commencement of HPC a “catalyst event,” Mr. Foscolos said: “Markets crave certainty. With that in mind, over the next six months we anticipate constant questions regarding updates related to the HPC, specifically (a) startup date, (b) ramp up during 2022, (c) JV partner search updates, and (d) contracting level. While (a), (b), and (c) are likely to be provided within the next six months, it is likely that (d) may only be disclosed on start-up.”

For the fourth quarter of 2020, he’s projecting earnings before interest, taxes, depreciation and amortization (EBITDA) of $245-million, matching the consensus estimate on the Street. For 2021, he estimates a 4-per-cent year-over-year rise in EBITDA (to $1.013-billion) and sees a 34-per-cent jump in 2022 (to $1.359-billion) with the addition of HRC.

“We believe that valuation upside associated with the start-up of the HPC expected in early 2022 will come into investors’ focus over the next year,” the analyst said. “In our view, this upside materially outweighs the downside risk associated with various contractual and ownership items associated with HPC.”

“While we expect negative FCF [free cash flow] in 2021 with final capital outlays for the HPC, we believe that several tailwinds will provide a clear path to deleveraging starting in 2022. These include a) commissioning of the HPC in early 2022, b) cost and dividend reductions implemented in 2020, c) lower go-forward capital commitments, d) synergies from the Milk River for Empress straddle plants asset swap, and e) normalized frac spreads and pipeline throughput volumes. Once the HPC is in service, we calculate that IPL will be able to generate significant FFO [funds from operations] after dividends, which we expect will be mainly applied to the balance sheet.”

Mr. Foscolos raised his target for Inter shares to $16.50 from $15.50. The current average on the Street is $14.76, according to Refinitiv data.


Desjardins Securities’ Doug Young thinks there’s “clearly a lot of noise right now” around Canadian banks heading into first-quarter earnings season “with lockdowns impacting economic activity across various regions and the pace of vaccine rollouts being slower than anticipated.”

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However, the analyst said he still likes the “set-up” for the banks in 2021 and expects to see year-over-year trends that are similar to those coming out of the previous quarter, including pressure on personal and commercial banking operations being offset by stronger wealth management and capital markets results.”

Mr. Young is projecting a 12-per-cent year-over-year decline in cash earnings per share on average, due to lower net interest margins (NIMs) and higher provisions for credit losses (PCLs).

“We suspect the banks could beat our estimates,” he added. “This would most likely be driven by lower-than-anticipated PCLs, which are impossible to model, and even higher earnings from capital markets vs our estimates. Clearly, these are trends we saw from other financials during 4Q20 reporting.

“The focus then turns to management’s outlook. We’ll be looking for: (1) updated guidance on key financial metrics, eg NIMs, delinquency rates, PCLs or NIX; (2) signs of productivity improvements post the acceleration in digital investments last year; (3) thoughts on when the moratorium on dividend increases or buybacks could be lifted; (4) updates on capital deployment plans; and (5) whether there are signs of noteworthy changes in consumer behaviour or business confidence.”

After slight tweaks to his projections, Mr. Newman made a few target price changes to the Big 8 banks, including Toronto-Dominion Bank (TD-T), which remains atop his pecking order of preference.

His changes were:

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* Toronto-Dominion Bank (TD-T, “buy” rating, No. 1 in his pecking order) to $79 from $77, which is the current consensus.

* Bank of Nova Scotia (BNS-T, “buy” rating, No. 3) to $72 from $70. Average: $71.

* Canadian Imperial Bank of Commerce (CM-T, “hold” rating, No. 6) to $117 from $116. Average: $123.

The rest of his pecking order is:

2. Royal Bank of Canada (RY-T, “buy” and $117)

4. Canadian Western Bank (CWB-T, “buy” and $35)

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5. National Bank of Canada (NA-T, “hold” and $76)

7. Bank of Montreal (BMO-T, “hold” and $100)

8. Laurentian Bank of Canada (LB-T, “hold” and $33)


In response to Monday’s announcement that it has agreed to be acquired by Well Health Technologies Corp. (WELL-T) for US$292.7-million, a group of equity analysts on the Street downgraded CRH Medical Corp. (CRH-T, CRHM-N).

With the deal and CRH shares trading close to his target of US$4 per share, Canaccord Genuity’s Richard Close moved Vancouver-based CRH to a “hold” recommendation from “buy” . The average on the Street is currently $4.81.

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“Since we picked up coverage of CRHM in March 2016, CRHM implemented a growth strategy to compliment the O’Regan hemorrhoid banding product by expanding into anesthesia services to GI-focused ambulatory surgery centers though both inorganic (M&A) and organic (de novo start-ups),” said Mr. Close. “During this time, the company has effectively executed on the growth strategy despite several headwinds that included a CMS rate change, shifting cases from off-contract to on-contract commercial reimbursement, the impact of COVID on volumes in 2020, and most recently the potential loss of a large customer.

“Impressively, CRH has remained active on the M&A front and continues to highlight a strong pipeline of potential acquisitions. Over the years, we have been impressed with CRH’s execution on the growth strategy and most recently efforts to re-accelerate growth in the O’Regan offering. At the end of the day, we will always point to the company’s robust adjusted EBITDA margin (40-per-cent margin projected in 2021) and strong cash flow generation.”

Elsewhere, RBC Dominion Securities’ Douglas Miehm cut CRH to “sector perform” from “outperform” with a $5 target, up from $4.

National Bank Financial analyst Endri Leno moved the stock to “tender” from “outperform” with a $5.10 target, up from $4.25.


Desjardins Securities analyst David Newman called Well Health’s acquisition of CRH Medical a “monster” deal.

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However, he downgraded Well shares to “hold” from “buy,” seeing less upside potential as it plans for its U.S. initial public offering in late 2021 or early 2022.

“In an interview with Cantech Letter, WELL management stated that despite its preference for small acquisitions, occasionally, when it sees a larger mispriced asset with a strategic fit, it will act fast,” he said.

“Benefits include (1) major access to US healthcare, augmented by an aggressive M&A plan (500+ opportunities in CRH’s pipeline); (2) attractive financial and operating profile with strong CF generation; and (3) accretion of 120 per cent to revenue per share and 800 per cent to EBITDA per share. Synergies could be derived from CRH’s public company cost savings ($2-million), shared services infrastructure and digitization/tech-enablement opportunities (eg patient-centric GI-focused app, digital marketing, telehealth and other tools). However, there are concerns over CRH’s recent loss of its largest customer, COVID-19 challenges given its under-digitized operations and integration.”

After raising his 2021 and 2022 earnings expectation, Mr. Newman increased his target for Well shares to $10.50 from $10. The average on the Street is currently $9.

“We raised our target to $10.50 based on 6.5 times our revised 2022 revenue (was 9.0 times) and DCF,” he said. “We believe the multiple should more accurately reflect WELL’s skew toward the clinic business with CRH (vs digital health). WELL is trading at 4.1 times our 2022 estimate vs its clinical peers at 5.0 times, healthcare tech peers at 8.0 times and hybrid peers at 7.5 times.”

Elsewhere, Canaccord Genuity’s Doug Taylor hiked his target for Well shares to $12 from $9 with a “speculative buy” recommendation.

“There are a couple of aspects of this pivotal transaction that investors should view positively (shares traded up 12 per cent since),” said Mr. Taylor. “First, the deal more than doubles WELL’s revenue base and provides instant scale in the U.S. and a much more substantial platform to consolidate around in this market. Second, the transaction is financially highly accretive valuing CRH at 2.7 times 2021 estimated consensus EV/Sales vs. WELL 11 times) and 6.5 times ‘operating EBITDA’ (WELL has only recently crossed into EBITDA profitability). Third, the deal is being financed in large part through a fresh injection of equity into WELL at a premium to its prior trading range (and our prior target); WELL issued $296-million in equity priced at $9.80 per share (25 per cent above 5-day WVAP) led by long-time supporter Li Ka-shing.”


In a research report titled To 2023 and Beyond: A Look at Midstream & Power Growth and Valuations, Scotia Capital analyst Robert Hope made a pair of rating changes on Tuesday.

“We see growth slowing for most names as there have been few new projects announced in the last 24 months,” he said. “This is a theme that likely continues in 2021 even with the rise in commodity prices. On a 2021-2023 basis we see growth converging to 6 per cent for the pipeline and midstream names, which is in line with our utility coverage. While valuations have improved through 2020 and into 2021 they still remain well below pre-COVID levels (10 per cent lower). We see some upside for valuations, but we don’t expect them to return to pre-COVID levels.”

“Enbridge is our favourite Pipeline name, Keyera is our favourite midstreamer and we continue to see upside in TransAlta.”

Mr. Hope lowered Pembina Pipeline Corp. (PPL-T) to “sector perform” from “sector outperform” with a $37 target. The average on the Street is $38.33.

“Over the past few months Pembina’s shares have outperformed its peers as its valuation rebounded from arguably oversold levels in the fall,” he said. “Looking forward, we see limited positive catalysts aside from an improving macro picture. We don’t expect there to be any meaningful project announcements, the benefit of rising NGLs is limited in 2021, and the share buyback isn’t likely to kick in until H2/21. We also believe that the narrative for 2021 could be driven by potential negative catalysts including: 1) Alliance and Ruby re-contracting risk; and 2) the growth outlook for Conventional Pipelines stepping down due to the competing Keyera KAPS pipeline project. As such, we move to Sector Perform.”

Seeing “attractive growth with upside,” Mr. Hope raised Keyera Corp. (KEY-T) to “sector outperform” from “sector perform” with a $29 target, up from $24 and exceeding the $27.83 average.

“We upgrade Keyera to Sector Outperform given: 1) a strong growth outlook out to 2023/2024; 2) improving environment for its legacy assets; and 3) attractive absolute and relative valuation,” he said. “Keyera trades at a discount to the group on a EV/EBITDA basis. Looking forward, we believe that Keyera could narrow this gap as the market gets more comfortable with its growth outlook. There could be further upside if the company secures additional Liquids Infrastructure projects or Marketing returns are higher than expected.”

Mr. Hope also made these target changes:

* TransAlta Renewables Inc. (RNW-T, “sector perform”) to $20 from $19. Average: $20.38.

* TransAlta Corp. (TA-T, “sector outperform”) to $13.50 from $12. Average: $12.80.

* Capital Power Corp. (CPX-T, “sector perform”) to $40 from $37. Average: $38.46.


The market is currently providing ImmunoPrecise Antibodies Inc. (IPA-X) “full value” for its contract research organization (CRO) and revenue generating partnerships, according to Industrial Alliance Securities analyst Chelsea Stellick.

Accordingly, given a “mere” 1-per-cent return to her target price for the Victoria-based company’s shares, she lowered her rating for its shares to “hold” from “buy” following its US$21.7-million bought deal financing and after adding its in-house biopharmaceutical subsidiary, Talem Therapeutics, to her valuation model.

“During a conference near the end of 2020, IPA CEO Dr. Jennifer Bath said, ‘We actually expect Talem to overtake the revenue on the CRO side … to take over the top line’ due to the high value of out-licensing deals as candidates move into clinic trials,” she said. “We deem this a reasonable expectation since a single large deal with a pharma partner can bring hundreds of millions in upfront, milestone and royalty payments over several years for a commercially successful therapeutic.

“Talem is trustworthy. IPA boasts 14 of the top 20 pharma companies globally as customers for its CRO business, which provides the credibility needed to get on their partnership radar. Moreover, Talem has already partnered with Janssen Research and Development (subsidiary of JNJ-N, Not Rated), Twist Biosciences (TWST-O, Not Rated), LiteVax (Private), and Eindhoven University of Technology. Moreover, Talem has collaborations to use platform technologies from Genmab (GMAB.CO, Not Rated) and Zymeworks (ZYME-O, Not Rated) which add to its internal capabilities.”

Ms. Stellick maintained a $20 target, matching the current average on the Street.

“IPA has undergone a top to bottom transformation in the last few years, which resulted in rapid value creation by leveraging its core competencies,” she said. “Talem Therapeutics is on its way to becoming a biopharma business in its own right, with synergies from being a wholly owned subsidiary of IPA’s CRO business. We add Talem to our updated model, resulting in no change to our $20.00/share target price. We believe the market has largely priced in IPA’s successful transformation with more than a 160-per-cent return since we initiated coverage in August 2020. Since peaking at $26.25 per share in December 2020, IPA has oscillated around our target of $20.00 per share.”


Touting the potential stemming from a “large” and untapped total addressable market, Canaccord Genuity analyst Tania Gonsalves initiated coverage of MindBeacon Holdings Inc. (MBCN-T) with a “buy” recommendation on Tuesday.

“MBCN offers one of Canada’s first and only digital mental health platforms with both synchronous (telephone, video) and asynchronous (text) therapy,” she said. “Sales were up 86 per cent year-over-year in the first nine months of 2020 driven by (1) the jump in mental illness caused by the pandemic and (2) a shift to virtual treatment. Based on the long-term impact of historic pandemics and naturals disasters, we expect these new higher rates of mental illness to remain.

“Moreover, as payers realize the benefits of virtual therapy, we expect reimbursement to expand. Taken together with MBCN’s pristine balance sheet post-IPO ($70.0-million cash and $0.6-million debt), which will go toward supporting new growth verticals, we forecast high double-digit growth to persist over our forecast period.”

She set a target of $17 for shares of the Toronto-based company, which began trading on the TSX in late December. The current average is $14.33.


Calling it a “top operator in an industry with material barriers to entry,” Raymond James analyst Stephen Boland initiated coverage of Pollard Banknote Ltd. (PBL-T) with an “outperform” recommendation, emphasizing the organic growth and demand in the instant ticket market.

“Since lotteries are government operated, there is a material requirement for integrity and security,” he said. “Many of the Request for Proposals (RFPs) require at least 10 years of experience in the industry. As Pollard is a pioneer in the industry, it has customer relationships going back to mid-1980s. Typical contracts are 2-5 years in length, with multiple options for extensions.”

“Pollard has adapted to changes in the industry with the advent of the iLottery channel. This is a growing channel, especially in the U.S., where individuals can purchase instant and draw tickets online, subject to restrictions. We believe further U.S. states could enter this channel in the future.”

Mr. Boland also noted Pollard has completed seven significant acquisitions that have expanded its product lineup and geographic reach since 2007. That followsyears of relying almost exclusively on organic growth. He expects “opportunistic” moves will continue moving forward.

“Investors need to be aware that Pollard is 66.7 per cent owned by Pollard Equities which is controlled by the Pollard family,” he said. “We believe the positive for investors is the company has rarely issued equity and instead, has relied on free cash flow to manage its debt. However, after a series of acquisitions, we believe the net debt to EBITDA of 2.0 times is close to the top end of management’s comfort range. The current room on the existing credit line would not support another large acquisition.”

The analyst set a target of $41 per share. The current average is $38.67.


Desjardins Securities analyst Gary Ho made a pair of target price adjustments in his fourth-quarter preview report for TSX-listed asset managers.

“Share prices for the group were down slightly in 4Q20 but have outperformed so far in 1Q21. We believe supportive equity markets in 2021 and momentum in industry retail net flows (with expenses held in check) provide a decent tailwind for the group,” he said.

Mr. Ho’s changes were:

  • IGM Financial Inc. (IGM-T, “buy”) to $41 from $38. The average on the Street is $38.
  • CI Financial Corp. (CIX-T, “hold”) to $20 from $19. Average: $20.69.


TD Securities analyst Graham Ryding lowered First National Financial Corp. (FN-T) to “hold” from “buy” with a $46 target, up from $42 and above the $43.60 average.

Mr. Ryding also made the following target price changes:

  • Atrium Mortgage Investment Corp. (AI-T, “buy”) to $14 from $12. Average: $12.83.
  • Home Capital Group Inc. (HCG-T, “buy”) to $38 from $35. Average: $35.57.
  • Equitable Group Inc. (EQB-T, “buy”) to $130 from $110. Average: $119.13.
  • Timbercreek Financial Corp. (TF-T, “hold”) to $9 from $8.50. Average: $9.21.

TD’s Sam Damiani raised Firm Capital Mortgage Investment Corp. (FC-T, “buy”) to $14.50 from $13.50. Average: $13.75.


Believing its 2020 reserves show a “pathway to profitability,” Raymond James analyst Jeremy McCrea raised Crew Energy Inc. (CR-T) to “outperform” from “market perform” with a $1.50 target, up from $1 and above the 72-cent consensus.

“There are two ways to resolve balance sheet issues,” he said. “Slowly pay down debt or grow into it with profitable investment projects. Following the initial announcement of the 2-year spending plan in December calling for 50-per-cent production growth, Crew backstopped the strength of its upcoming drilling plans with one of its most encouraging reserve reports in recent years. Overall PDP FD&A costs came in at $2.35 per boe [barrel of oil equivalent] with PDP F&D at $6.85 per boe. Buried in these figures was also negative proved technical revisions of 6.9 mboe, which for context, was 85 per cent of the reserves that were produced in 2020 as well. Going forward, if Crew can continue to show well cost reductions of 25 per cent as seen with its recent well pad, there is more and more evidence Crew is emerging from the challenges it has faced over the last few years. With commodity prices also greatly improving lately, all of this gives Crew a line of sight to significantly improving leverage metrics (1.5 times D/EBITDA at US$57 WTI; $2.50 AECO). Although there remains high risk with the name still, we think the upside potential is quite compelling at these valuation levels.”


In other analyst actions:

* After its fourth-quarter results beat the Street, Desjardins Securities analyst Benoit Poirier raised his target for TFI International Inc. (TFII-T) to $108 from $102, keeping a “buy” rating, while Scotia’s Konark Gupta bumped up his target to $109 from $106 with a “sector outperform” recommendation. The average is $99.46.

“TFII reported solid 4Q20 results across the board,” Mr. Poirier said. “Management’s strong operational track record gives us confidence in its ability to unlock shareholder value with the transformative acquisition of UPS Freight. Meanwhile, we are encouraged by the strong operational results posted by TFII in 4Q, thanks to very strong market conditions.”

* In the wake of reporting fourth-quarter results that fell slightly ahead of expectations and the acquisition of a royalty package for $45-million after market on Monday, Canaccord Genuity analyst Anthony Petrucci raised his PrairieSky Royalty Ltd. (PSK-T) target to $13.50 from $12.50 with a “buy” rating, while CIBC World Markets’ Jamie Kubik increased his target to $14 from $13.50 with a “neutral” recommendation. The average is $12.39.

* Scotia’s Benoit Laprade raised his target for Canfor Pulp Products Inc. (CFX-T) to $6.50 from $6 with a “sector perform” rating. The average target is $8.40.

* Mr. Laprade lowered his target for KP Tissue Inc. (KPT-T) to $13 from $13.50 with a “sector perform” recommendation. The average is $12.92.

* RBC Dominion Securities analyst Geoffrey Kwan hiked his target for TMX Group Ltd. (X-T) to $151 from $148, keeping a “sector perform” rating. The average is $144.57.

* RBC’s Walter Spracklin raised his target for CCL Industries Inc. (CCL.B-T) to $77 from $67 with an “outperform” rating. The average is $69.

* Wells Fargo analyst Jon Tower raised his target for Restaurant Brands International Inc. (QSR-N, QSR-T) to US$75 from US$74 with an “overweight” recommendation. The average is currently US$66.21.

* Laurentian Bank Securities analyst Mona Nazir raised his target for Russel Metals Inc. (RUS-T) to $28 from $22 with a “buy” rating. The average is $25.29.

* Canaccord Genuity analyst Carey MacRury cut his target for Barrick Gold Corp. (ABX-T) to $40 from $42, keeping a “buy” rating. The average is $32.87.

* Mr. MacRury also lowered his Kinross Gold Corp. (K-T, “buy”) target to $16 from $17 and Wheaton Precious Metals Corp. (WPM-T, “buy”) to $78 from $82. The averages on the Street are $16.88 and $80.99, respectively.

* TD Securities analyst Kasia Trzaski cut Pinnacle Renewable Energy Inc. (PL-T) to “hold” from “buy” with a $12.50 target, exceeding the $11.82 average, while , while Cormark Securities’ Brent Watson cut the stock to “tender” from “buy” with a $11.30 target, down from $12.50.

* TD Securities’ Brian Morrison lowered his target for shares of Dollarama Inc. (DOL-T) to $64 from $66 with a “buy” recommendation. The average is $59.93.

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