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

Seeing a “buy-the-banking-sector moment,” CIBC World Markets analyst Paul Holden raised his rating for Bank of Nova Scotia (BNS-T) to “outperformer” from “neutral” on Tuesday in a research report wrapping up first-quarter earnings season.

“We were relatively optimistic heading into the quarter and actual results were better than expected, supporting our positive thesis on the sector,” he said.

“Drivers of core bank earnings have turned positive sooner than expected, banks are carrying excess credit provisions, capital ratios are at all-time highs, and valuations remain reasonable.”

After the Big 8 posted better-than-expected earnings with an average earnings beat of 26 per cent, Mr. Holden emphasized this is the third consecutive quarter where results exceeded the Street’s projections by more than 10 per cent.

“We would argue that this quarter was more impressive given that not a single bank disappointed on earnings, and PTPP growth came in at 9 per cent year-over-year,” he added. “This supports a broadly positive narrative across the entire sector, underpinned by common macro themes.

“We elected to increase our F2021 estimates by a good margin given the magnitude of the earnings beats and lower-than-expected PCLs. Our F2021 adjusted EPS estimates for the Big 6 increased by 13 per cent on average. Consensus numbers also pushed higher with an average adjusted EPS revision of 13.5 per cent for the Big 6.

For Scotiabank, Mr. Holden said his “more optimistic view” is driven by strong results from its International Banking segment.

“Sequential growth in fee income, stabilization in NIM and lower operating expenses combine to make for a positive earnings outlook,” he said. “Economic recoveries in Chile, Peru, and Colombia seem to be taking hold. Also the Canadian banking segment, wealth management division, and capital markets all delivered solid results. We think F2022 consensus for Adjusted EPS remains too conservative at 10 per cent below pre-pandemic estimates. Our F2022 estimate is 8 per cent higher than consensus. The P/E multiple on F2022 consensus represents a 2-per-cent discount to the group average multiple, which is about right, and accordingly the real upside should come through positive EPS revisions.”

His target for Scotia shares increased to $86 from $83, exceeding the $77.90 average.

Mr. Holden also made these target price changes:

  • Bank of Montreal (BMO-T, “outperformer”) to $122 from $120. Average: $113.17.
  • National Bank of Canada (NA-T, “neutral”) to $89 from $92. Average: $85.64.
  • Royal Bank of Canada (RY-T, “neutral”) to $120 from $128. Average: $120.78.


Citing recent share price appreciation and the lingering risks associated with the Vancouver silo collapse, Raymond James analyst Steve Hansen lowered his rating for Ag Growth International Inc. (AFN-T) by two levels to “market perform” from “strong buy.”

“Further to our previous updates on the broader Ag cycle, we continue to maintain a demonstrably upbeat view over global crop prices and the derivative beneficial tailwinds we foresee for farm equipment spending,” he said.

“That being said, AGI’s strong share price appreciation over the past 8 weeks better reflects these aforementioned macro tailwinds, helping address one of the key factors we felt the market was missing when we upgraded the stock on Jan-14-21. With these fundamentals now better reflected in the current share price, we are left to contemplate the lingering risks and uncertainty still embedded in the silo collapse event last fall, with the precise financial implications still largely unknown. We will continue to monitor accordingly.”

Mr. Hansen maintained a $50 target for Ag Growth shares. The current average is $44.14.


Citi analyst Stephen Trent admitted he was surprised by the “material” share price rally enjoyed by Air Canada (AC-T) that followed its fourth-quarter earnings miss and “cautious” outlook for the first quarter of 2020.

“Although vaccine enthusiasm appears to have supported valuations across the group, investor expectations around potential governmental financial assistance appear to be at least partially priced into the shares,” he said.

In a research note released Tuesday, Mr. Trent reaffirmed the airline’s international long-haul business as his main concern in the near term.

“Considering Air Canada’s pre-pandemic passenger flow, 36 per cent of the carrier’s 2019 traffic flow was on Trans-Atlantic or Trans-Pacific routes,” he said. “This included Toronto-originating flights to London, Frankfurt, Hong Kong, New Delhi and Tokyo among its top routes. Although these routes should eventually rebound, the recovery in international long-haul travel should lag other segments. Moreover, it seems unlikely that high-margin business travel flow should be as significant as it was pre-pandemic.”

He also expressed concern over regulatory scrutiny of the Air Canada’s acquisition of Transat AT Inc. (TRZ-T), which he said “reduces our confidence in including this transaction into our estimates.”

“Canadian government support for the country’s airlines seems plausible, even though the form of the aid, the size of the package and potential strictures around the use of proceeds are just some of the factors that are hard to predict. It is also unclear whether competing domestic airlines might demand extra assistance, if authorities allow Air Canada to acquire Transat,” he added.

Mr. Trent reduced his 2021 earnings projection for the company after shifting his capacity growth expectations to next year and also accounting for higher fuel estimates. He’s now forecasting earnings per share of a loss of $5.37, rising from a 14-cent loss. For 2022 and 2023, his EPS estimates slipped to $1.77 and $2.97, respectively, from $3 and $3.50.

However, he hiked his target for Air Canada shares to $26.50 from $21, keeping a “neutral” rating. The average is $26.81.

“We rate AC at Neutral primarily on uncertain short-medium term profitability due to severely depressed passenger volumes stemming from COVID-19 and the related government restrictions on travel from some of its key neighboring nations,” the analyst said. “Valuation looks full, in our view, relative to recent historical trading levels and compared to its large U.S. network carrier peers. Given the higher uncertainty in North American aviation markets, we prefer to have more earnings visibility before getting more aggressive with Air Canada shares.”

Elsewhere, BMO Nesbitt Burns analyst Fadi Chamoun resumed coverage with an “outperform” rating and $33 target.

“Notwithstanding the dark reality of the current demand environment for passenger travel, several reasons drive our optimism and the strong upside we project for AC shares over the medium term, including: (1) worst of the demand destruction is here/behind and the recovery should begin to take shape later this year with potential for strong pent-up demand heading into 2022; (2) structurally lower unit costs; (3) disciplined financial management should allow restoration of sound financial leverage with recovering demand; (4) more muted competitive intensity post-pandemic; and (5) AC’s stronger competitive position,” said Mr. Chamoun.


In response to an 8-per-cent drop in its share price on Monday despite the release of fourth-quarter financial results that beat the Street, Scotia Capital analyst Konark Gupta raised his rating for Cargojet Inc. (CJT-T), believing the “risk/reward has improved to a point where upside risk outweighs downside risk in the medium term while long-term outlook is strong.”

Cargojet reported revenue of $187.1-million and EBITDA of $81.9-million, exceeding the consensus estimates on the Street of $178.9-million and $79.4-million due largely to “robust” domestic and Aircraft, Crew, Maintenance and Insurance (ACMI) traffic.

“The stock had been losing steam for some time and is now down 30 per cent since the Nov. 2020 peak (down 18 per cent year-to-date),” said Mr. Gu[ta. “We believe a combination of factors could be behind this weakness, including Air Canada’s decision to enter the dedicated cargo market, risk to long-term cash flow outlook due to planned $400-million-plus multi-year growth capex without high revenue visibility, recent pressure on growth/momentum stocks, and tough growth comps this year (from Q2). While most of these risks were known heading into the quarter, we think lack of new contract disclosures or any other near-term catalyst drove the incremental weakness [Monday].”

After a “strong” end to 2020, Mr. Gupta thinks this year’s oulook is “likely negative.”

“We have reduced our revenue expectations, particularly for All-in Charter and Domestic, which together with our trimmed margin outlook implies a 14 per cent year-over-year decline in EBITDA,” he said.

“We expect a modest revenue growth in Domestic, a stronger growth in ACMI and a significant decline in All-in Charter. Concurrently, we raised our capex assumption to $250-million to reflect the timing of aircraft feedstock purchases and conversion slot deposits related to the already disclosed multi-year fleet growth plan (five B-767s and at least two B-777s), along with an increase in maintenance capex (more C-checks due to deferrals last year). We expect near break-even FCF this year.”

Moving the stock to “sector outperform” from “sector perform,” he trimmed his target to $220 from $240. The average is $256.33

“We like Cargojet for its dominant market position, high barriers to entry, and resilient business model that position the company well to significantly benefit from positive ongoing and long-term secular e-commerce trends in Canada as well as ongoing shortage of passenger aircraft belly capacity in the international markets,” he said. “Its recent strategic deal with Amazon Canada and industry’s evolving delivery model toward seven days a week could drive material increase in asset utilization and margins over time. The company has significantly reduced its financial leverage since 2019 through strong FCF generation during this pandemic and the recent equity raise, making it more attractive to equity investors.”

Elsewhere, Canaccord Genuity analyst Doug Taylor cut his target for Cargojet shares to $200 from $250 with a “hold” recommendation.

“Investors appear to be looking further into 2021 for new tailwinds as some of the more acute pandemic-related demand has cooled,” said Mr. Taylor. “While some volumes, particularly for dedicated charter, continue to subside, we believe there remain strong opportunities with additional international and ACMI routes as e-commerce is expected to remain elevated post-pandemic and demand for wet leases persist. To that end, the company is expanding its domestic and international scale with additional B767s and is in negotiations for B777s as passenger bellyhold capacity remains weak.

“While we maintain a strong growth outlook for the company as a scalable model to address these opportunities, we expect slightly lower margin capture with prices moderating on the other side of the pandemic.”

Other analysts making target price adjustments include:

* BMO Nesbitt Burns’ Fadi Chamoun to $245 from $270 with an “outperform” rating.

“We still like CJT the story, however, as demand is expected to remain strong from e-commerce and a recovering industrial economy while capacity remains in short supply,” said Mr. Chamoun. “Disciplined capital investment and management’s focus on debt repayment remains supportive of valuation.”

* ATB Capital Markets’ Chris Murray to $225 from $275 with an “outperform” rating.

“. We see the quarter as in-line however believe that higher interest rates will weigh on companies with premium valuations. We continue to expect solid growth from the Company over the coming years as e-commerce demand is sustained and new aircraft are added and see [Monday’s] sell-off as offering an attractive entry point,” said Mr. Murray.

* Scotia Capital’s Konark Gupta to $220 from $240 with a “sector perform” rating.

* National Bank Financial’s Cameron Doerksen to $231 from $254 with an “outperform” rating.

* CIBC World Markets’ Kevin Chiang to $245 from $265 with an “outperformer” rating.


CAE Inc.’s (CAE-T) US$1.05-billion purchase of L3Harris Technologies Inc.’s military training business is a “turning point” for its Defence business, according to Benoit Poirier of Desjardins Securities.

“CAE paid 13.5 times EV/2020 EBITDA for the transaction (immediately accretive from a multiple standpoint as CAE was trading at 16.3x prior to the announcement), which is fair considering the strategic nature of the deal: (1) opportunity to double defence business in the U.S., the largest global market; (2) solidifies the margin profile of the Defence segment by increasing its exposure to products revenue; and (3) unlocks significant cross-selling opportunities with CAE’s existing defence business globally,” said the analyst.

Mr. Poirier thinks the deal, announced Monday before the bell, adds balance to CAE’s business mix outside of the Civil segment, “thereby reducing the cyclicality of the overall business.” He projects adjusted earnings per share accretion of 10 per cent in fiscal 2023 and 11 per cent in 2024.

“While we do not expect CAE to realize more M&A within its defence segment in the mid-term, we note that the fragmented nature of the industry could unlock attractive growth opportunities in the long term,” he said.

Keeping a “hold” rating for CAE shares “given the limited potential return of 5 per cent,” Mr. Poirier raised his target to $40 from $36. The average on the Street is $38.78.

“We prefer to remain on the sidelines given the recent stock price performance and limited upside to our target,” he said.

Elsewhere, Canaccord Genuity analyst Doug Taylor raised his target to $38 from $34 with a “hold” rating (unchanged).

“Any retreat from historic valuation highs may provide an opportunity to add to CAE positions as the company continues to execute well and takes advantage of its relatively strong performance to build share in its targeted markets,” he said.

Others making changes included:

* BMO Nesbitt Burns’ Fadi Chamoun to $42 from $36 with an “outperform” rating.

“As painful as the pandemic has been on demand in aviation, it appears to have also accelerated opportunities for CAE to consolidate its position in both the civil aviation and defense markets, which we believe offer the possibility for the company to emerge on a stronger competitive footing post-pandemic and with a higher level of profitability,” said Mr. Chamoun.

“We believe that this downturn has also validated CAE’s robust recurring revenues business model.”

* TD Securities’ Tim James to $40 from $34 with a “hold” rating.


Brookfield Renewable Partners L.P. (BEP-N, BEP-UN-T) is “mastering the art of delivering attractive returns,” said RBC Dominion Securities analyst Nelson Ng after recent calls with CFO Wyatt Hartley.

“The company remains confident in achieving its target of 12–15 per cent after-tax returns on capital deployed, which management believes will be in the range of $0.8–1.0-billion per year,” he said. “A good example is the 845 MW Shepherds Flat wind farm in Oregon, which BEP and its institutional partners acquired at a base return of 7 per cent. To potentially more than double the return, management would repower the facility (25-per-cent generation improvement), which would be self-funded by the facility, access transmission lines to sell power into the more attractive California market after the contract period, and potentially sell down a minority interest.”

Mr. Ng said Brookfield reiterated its funding plan does not include common equity, noting it has US$3.3-billion in current liquidity and also sees capital recycling as a key element in their objectives.

“Management would be open to utilizing equity for larger strategic transactions (e.g., TerraForm Power minority interest acquisition),” he said. “We note that Brookfield Asset Management plans to raise at least $7.5 billion for a new climate-focused fund (Global Energy Transition Fund). BEP plans to co-invest along with the fund, and it typically takes 25-per-cent ownership interest in its investments. We believe the company’s ability to co-invest along with the fund provides an advantage in pursuing larger, complex transactions with higher return potential, compared to some of its peers.”

Though he said the recent extreme weather in Texas is unlikely to have material impact, Mr. Ng cut his 2020 and 2021 funds from operations estimates to US$1.48 and US$1.64, respectively, from US$1.42 and US$1.57, citing lower management fees due to a lower share price.

Keeping a “sector perform” rating, the analyst cut his target to US$48 from US$55, pointing to “a moderation in value allocated to the growth platform in light of the market correction in the renewables sector.” The average on the Street is US$44.01.


Versabank’s (VB-T) focus on technology is “paying off,” according to Acumen Capital analyst Trevor Reynolds.

In a research report released Tuesday, he initiated coverage of the London, Ont.-based company with a “buy” rating, emphasizing its “conservative” risk management strategy, which he sees resulting in “a best-in-class leverage ratio and no meaningful loan losses since inception.”

“VB lays claim to the first fully digital branchless bank in Canada,” said Mr. Reynolds. “As such, it should not be a surprise that technology and security have been a focus since inception, and remain the driving force. VB was ahead of its time with President and CEO David Taylor leading investment in the future of banking before it became clear to the rest of the market. VB now boasts a state-of-the-art software platform for banking and IT security. Approaching 50 per cent of the company’s staff are software developers with the most prominent being Gurpreet Sahota, Blackberry’s former principal architect of cybersecurity. VB’s branchless model and state-of-the-art financial technology, which is targeted to and then integrated with underserved markets (POS loans, Insolvency Market, Insta-Mortgage, Versa Vault) has resulted in a peer leading NIM profile. It is noteworthy that the world’s response to COVID-19 has only accelerated the need for and the importance of digital banking.”

He set a target of $19.50 for its shares, which falls 50 cents below the average on the Street.

“VB is a Canadian Schedule 1 Bank that leverages inhouse developed fintech software to earn an industry leading net interest margin (NIM) while maintaining a best-in-class history of zero loan losses,” said Mr. Reynolds. “The Bank’s B2B model is branchless and includes no retail operations. VB sources low cost deposits from an extensive network of partners while deploying risk adjusted loans to commercial real estate and a rapidly expanding point of sale (POS) market where partners provide instant financing for big ticket purchases (modern layaway) such as hot tubs, vehicles, cosmetic surgery, and home improvement ... Growth moving forward will be driven by low cost insolvency deposits (currently 0 per cent), continued growth in POS loans, and new innovative deposit (VCAD) and loan (instant mortgage) products. VB is also actively leveraging its strength in cybersecurity through DRT Cyber which began generating revenue in Q1.”


Calling its Silver Sand project in Bolivia a “unique primary silver asset,” Laurentian Bank Securities analyst Jacques Wortman initiated coverage of New Pacific Metals Corp. (NUAG-T) with a “hold” recommendation on Tuesday.

“In our view, the three key aspects of the NUAG story that make it unique are: 1) the size and grade of the maiden Silver Sand resource, 2) the scope of operations that the resource base could potentially support, and 3) the potential to make new discoveries at the resource area and regionally,” he said. “We believe that these characteristics contribute to the relatively high, and full, market valuation. We intend to revisit our assumptions, valuation, and multiples when the Preliminary Economic Assessment (PEA) is released in Q3/21. In our view, a potential key risk to unlocking the value at Silver Sand is Bolivian country risk.

“Based on our conceptual model assumptions, we believe Silver Sand has the potential to produce 12 million ounces of silver annually for 13 years, with production starting in F2027. This would make the project a leading global primary silver producer, with significant additional exploration upside.”

Mr. Wortman set a target of $6.50 per share, falling just below the $6.87 consensus.


In other analyst actions:

* TD Securities analyst Tim James raised his Chorus Aviation Inc. (CHR-T) target to $6 from $5.50 with a “buy” rating. The average is $4.97.

* Scotia Capital analyst Jeff Fan raised his target for Telus Corp. (T-T) to $34 from $32, keeping a “sector outperform” rating. The average on the Street is $28.46.

* Scotia’s George Doumet cut his target for Colliers International Group Inc. (CIGI-Q, CIGI-T) by US$1 to US$125 with a “sector outperform” recommendation. The average is US$116.

* Scotia’s Mark Neville increased his target for Neo Performance Materials Inc. (NEO-T) to $20 from $17 with a “sector outperform” rating. The average is $18.82.

* Canaccord Genuity analyst Brendon Abrams raised his Boardwalk Real Estate Investment Trust (BEI.UN-T) target to $40 from $34 with a “hold” rating, while Scotia Capital’s Mario Saric lowered his target to $41.50 from $41.75 with a “sector perform” rating. The average is $42.45.

“BEI ended 2020 with another solid beat vs. consensus (a bit below us), resulting in a 2020 FFOPU that exceeded guidance by 2 per cent, no small feat considering what the world has gone through,” said Mr. Saric. “Historically beats lead to unit price outperformance , but that was not the case in 2020 (lagged by 10 per cent). BEI withheld 2021 guidance pending greater visibility (on top line revenue; perhaps pending elimination of government financial assistance for individuals). We were hoping for a bit more incentive reduction (Exhibit 3-5), but it is trending in the right direction and it was good to hear occupancy ticking up through January and into February. Bottom-line, BEI remains the value play within the multi-family space, but is now within striking distance of peers following an 8-per-cent year-to-date move. We see a bit more balanced reward-risk equation as a result (still attractive mid-teen NTM Total Return potential though).”

* CIBC World Markets analyst Dean Wilkinson lowered his target for Morguard Corp. (MRC-T) to $165 from $175, falling below the $172.50 average. He kept an “outperformer” rating.

“MRC reported an operationally in-line quarter. While 2020 was a tough year given the company’s exposure to the hotel, office, and retail segments (which have all seen an outsized impact from the ongoing pandemic), the successful rollout of vaccines across Canada would ostensibly result in the removal (or at the very least loosening) of pandemic-related restrictions such as lockdowns and travel restrictions, which in turn should result in a swift rebound in operating performance across all these asset classes (especially hotels) – a dynamic that indeed does appear to be taking hold in the more economically sensitive segments of the REIT universe (i.e., the ‘recovery trade’) . We believe that materially improving operating metrics represent a clear catalyst for a narrowing in MRC’s deeply discounted,” said Mr. Wilkinson.

* CIBC’s David Popowich raised his Tamarack Valley Energy Ltd. (TVE-T) target to $2.50 from $2.25, maintaining an “outperformer” rating, while Desjardins Securities’ Chris MacCulloch bumped his target to $3 from $2.25 with a “buy” recommendation. The average is $2.54.

“We are increasing our target ... following its solid 4Q financial results and 2020 reserves update, both of which crushed expectations,” said Mr. MacCulloch. “The company has considerable momentum following the recent acquisition of the Clearwater assets, where it has posted above-type-curve results from its first three wells. We also highlight the tailwind from strengthening oil prices, which results in a compelling free cash flow profile and aggressive balance sheet deleveraging.”

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