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

The recent broad selloff in software and payments stocks has created an “attractive entry point” for Lightspeed POS Inc. (LSPD-T), according to BTIG analyst Mark Palmer.

Calling it a “cloud-based POS leader with accelerating fundamentals and upside from payment,” he upgraded the Montreal-based firm to “buy” from a “neutral” recommendation on Tuesday.

“During the early weeks of the COVID-19 pandemic, LSPD management asserted that the crisis would accelerate demand for cloud-based POS solutions by several years as it had exposed the shortcomings of legacy cash registers and on-premise servers,” said Mr. Palmer in a research note. “That prediction began to be borne out during the balance of 2020 as LSPD’s operating performance impressed despite its emphasis on small- and medium-sized businesses, a group hit particularly hard by the crisis, and on the pandemic-impacted hospitality vertical.

“LSPD added to its exposure in the hospitality and restaurant sectors with its acquisitions of ShopKeep and Upserve, and, as such, we believe the deals made the company even more levered to improvement in the macroeconomic environment as vaccines become more widely distributed and the impact of the pandemic abates. We expect LSPD to post top-line growth in the 40-per-cent context during the next couple of years, an estimate that reflects our view it will be a significant beneficiary of consumers’ return to a more normal footing.”

Mr. Palmer called cross-selling of modules “a key driver” of Lightspeed’s organic growth moving forward, seeing “plenty of room for additional penetrations. He also pointed to momentum in its payments offering and upside optionality stemming from the rollout of the Lightspeed Supplier Network for North American retailers.

The analyst set a target of $97 for Lightspeed shares. The average target on the Street is $101.93, according to Refinitiv data.

“Shares of LSPD have declined by almost34 per cent in just over two weeks amidst a broad selloff in the software and payments space, a retreat that we view as an opportunity for investors to buy into an attractive restaurant and retail point-of-sale (POS) leader with accelerating fundamentals at a reasonable valuation,” he said.


Fundamentals are “quickly improving” for Vermilion Energy Inc. (VET-T), said Raymond James analyst Jeremy McCrea following the release of fourth-quarter 2020 financial results after the bell on Monday that fell in-line with production expectations and exceeded cash flow estimates.

“Our thesis on VET has historically been one of profitability,” he said. “Much of this is due to their international diversification where ‘conventional’ style geology generally has better rates of return than shale/tight oil plays. This high return on capital allowed the company to have a much higher dividend payout, even while holding production and leverage levels steady over the last five years. The rapid decline in commodity prices in 2020 however quickly had Vermilion playing defence given the drop in cash flow. With pricing for both oil and gas now rebounding (including European gas), and the elimination of the dividend, the leverage outlook is quickly improving (i.e., 1.1 times 2022 debt-to-cash flow at strip.

“Although spending and production guidance was unchanged from January (when oil was $55), FCF is now expected at $350-million (at $60 WTI), implying an 11-per-cent FCF [free cash flow] yield. This doesn’t quite explain the full turnaround as declines are moving to 21 per cent (from 25 per cent) and with the increasing balance sheet flexibility, will allow Vermilion to redeploy capital back likely later this year (and reinstate a dividend in 2022). With torque to the share price given the company’s leverage, profitable projects but shareholder sentiment on the name still low, we believe VET could have plenty more upside to the name if commodity prices hold.”

Mr. McCrea maintained an “outperform” rating for Vermilion shares with an $11 target, rising from $8. The average target on the Street is $8.20.

Several equity analysts on the Street raised their target prices for its shares, including:

* CIBC World Markets’ David Popowich to $10 from $7 with a “neutral” rating.

“We would characterize this as a solid print for Vermilion, even if a good portion of the beat (cash tax recovery) is non-recurring,” said Mr. Popowich. “The company undertook dramatic measures to combat weakness in commodity pricing in H1/20, and with a FCF yield of 24 per cent on our 2021 strip estimates Vermilion is now positioned to reap the rewards. Although we believe the stock should continue to do well as commodity prices improve, debt reduction is expected to remain the primary use of free cash flow, and with any return of capital to shareholders likely at least a year away we find it difficult to move off our Neutral rating.”

* Scotia’s Gavin Wylie to $9.25 from $8.50 with a “sector perform” rating.

* BMO Nesbitt Burns’ Ray Kwan to $11 from $7 with a “market perform” rating.

* RBC Dominion Securities’ Greg Pardy to $10 from $9 with a “sector perform” rating.


In response to Monday’s announcement of the $19.25-million acquisition of New Zealand’s Intrahealth Systems Ltd., Desjardins Securities analyst David Newman raised his rating for WELL Health Technologies Corp. (WELL-T) to “buy” from “hold,” seeing the deal as “a retracing back to WELL’s core advantage as a hybrid healthcare provider.”

“The valuation is attractive when compared with WELL’s past EMR [electronic medical records] deals (3.5–4.0 times revenue), especially with Intrahealth being its 10th and largest EMR acquisition to date,” he said.

Mr. Newman pointed to a trio of benefits from the deal: an expansion of its EMR addressable market and “firmly positioning it as an international operator with a multi-product business;” the ability to market Intrahealth’s Profile EMR product alongside its own OSCAR offering; and the benefit integrating Intrahealth to the marketplace, “paving the way for third-party developers to have the digital health apps available for both OSCAR Pro and Intrahealth.”

The analyst maintained a $10.50 target for the Vancouver-based company’s shares. The average on the Street is $11.53.

“We are upgrading ... given the United Digestive resign by CRH, stronger digital health SaaS revenue with high-margin recurring revenue, Intrahealth’s attractive valuation and a potential U.S. listing,” Mr. Newman said.


Scotia Capital analyst George Doumet thinks Primo Water Corp.’s (PRMW-N, PRMW-T) guidance for 2021 is conservative, seeing “upside from operating leverage to a quicker than expected recovery in the commercial segment and earlier than expected synergy capture (pulled earlier from 2022).”

In a research note released Tuesday, he raised water solutions provider to “sector outperform” from a “sector perform” recommendation, believing it has “done a commendable job navigating the pandemic.”

“Looking ahead, during and beyond our forecast, PRMW has laid out a growth algorithm that we find both impressive and achievable,” said Mr. Doumet. “It is the following: (i) grow the top line 5-per-cent organically, (ii) generate 20 to 30 basis points of adj. EBITDA margin from operating leverage and improved efficiencies, and (iii) add $5-million to $10-million in adj. EBITDA from bolt-on M&A. This coupled with a healthy FCF generation (41-per-cent/46-per-cent FCF conversion estimated in 21/22) should lead to significant b/s deleveraging with 2021 and 2022 exit leverage estimated in the mid-3s and low-3s, respectively. We believe this leaves ample opportunity for continued buyback activity and larger scale M&A, with ample options outside of ReadyRefresh (i.e. possibly in the filtration space).”

Mr. Doumet raised his target to US$18.50 from US$17. The average is US$18.68.

“PRMW shares have materially lagged the recovery of its Route Based Peers,” he said. “As a result, today the valuation differential is more than double its historical average. We simply believe this valuation gap is too wide, especially in the context of PRMW generating similar FCF conversion and growth rates (and less pronounced declines during the pandemic) compared to its peers (see next page). Furthermore, at current levels, we believe PRMW shares are (maybe too quickly) pricing in an almost nil probability of a potential ReadyRefresh acquisition down the road . For all the above reasons, we are upgrading shares of PRMW to Sector Outperform.”


Raymond James analyst Farooq Hamed expects production to rebound for precious metals producers in 2021, however he seems “limited growth thereafter.”

In a research report reviewing fourth-quarter earnings season, he said: “In general, the precious and base metals producers in our coverage continued to generate positive FCF in 4Q20 however at lower levels than in the previous quarter due to lower quarterly average gold prices for the precious metals producers and generally lower sequential production for the base metals producers. As a result of the positive FCF, net debt continued to contract for the majority of producers.”

Mr. Hamed thinks 2021 production guidance reflects year-over-year growth, calling it “a return to ‘normal’ operations after 2020 was marked by downtime caused by Covid-related shutdowns and labor action.”

However, he said multi-year outlooks are mixed, noting: “Amongst the gold producers, we expect flat to slightly increasing production over the next three years with notable near-term growth from existing operations expected from KGC and OGC with IAG expecting an uptick in 2023

as Cote Gold enters production.”

After updating his financial and valuation models, he trimmed his target prices for precious metals stocks in his coverage universe. His changes are:

  • Agnico Eagle Mines Ltd. (AEM-N/AEM-T, “outperform”) to US$78 from US$90. The average on the Street is US$87.15.
  • B2Gold Corp. (BTG-N/BTO-T, “outperform”) to US$7 from US$8. Average: US$7.43.
  • Calibre Mining Corp. (CXB-T, “strong buy”) to $2.75 from $3.25. Average: $3.25.
  • IAMGOLD Corp. (IAG-N/IMG-T, market perform) to US$4.50 from US$5.50. Average: US$4.72.
  • Kinross Gold Corp. (KGC-N/K-T, “outperform”) to US$11 from US$13. Average: US$11.91.
  • New Gold Inc. (NGD-N/NGD-T, “market perform”) to US$2 from US$2.25. Average: US$2.22.
  • OceanaGold Corp. (OGC-T, “outperform”) to $2.75 from $3.50. Average: $3.16.
  • Yamana Gold Inc. (AUY-N/YRI-T, “market perform”) to US$6.50 from US$7.50. Average: US$7.26.

Concurrently, Raymond James’ Brian MacArthur trimmed his target for Barrick Gold Corp. (GOLD-N, ABX-T) to $31.50 from $34 with an “outperform” rating. The average is US$31.51.

“Barrick has a controlling interest in numerous high-quality gold mines and copper assets that allows it to generate strong cash flow,” he said. “The no-premium deal with Randgold provided more tier one assets and free cash flow, but also increased Barrick’s jurisdictional risk given Randgold’s large African portfolio. The creation of the Nevada JV with Newmont consolidated management at the world’s largest gold complex and provided the opportunity to create meaningful synergies.”


BTIG analyst Camilo Lyon initiated coverage of a group of Canadian Securities Exchange-listed cannabis stocks on Tuesday.

They include:

  • Cresco Labs Inc. (CL-CN) with a “buy” rating and $23 target. The average on the Street is $21.36.
  • Green Thumb Industries Inc. (GTII-CN) with a “buy” rating and $73 target. Average: $49.69.
  • Trulieve Cannabis Corp. (TRUL-CN) with a “buy” rating and $102 target. Average: $68.62.
  • Curaleaf Holdings Inc. (CURA-CN) with a “buy” rating and $35 target. Average: $25.14.


Mullen Group Ltd.’s (MTL-T) acquisition of Mississauga-based APPS Transport Group Inc. is likely to be a “starting point” to pursue “further growth in the GTA and round out its less-than-truckload network,” according to Raymond James analyst Andrew Bradford.

In the wake of Monday’s announcement of the deal for an undisclosed price, he thinks it “removes any concern that Mullen was missing-out on the frenzy of trucking M&A so far in 2021 and sets it up for further growth.”

“Mullen’s less-than-truckload (LTL) acquisitions fall into two buckets: strategic acquisitions that provide new platforms for Mullen in new geographies, or tuck-ins that leverage off existing platforms,” the analyst said. “The acquisition of APPS Transportation Group lies in the first bucket: a strategic acquisition that creates a firm foothold in Canada’s most important LTL market that can be launching point for accretive tuck-in acquisitions in the future.

“Strategic acquisitions come with higher multiples but with opportunities to expand beyond the acquisition. The rub is to follow through with the tuck-ins, but this is a program that Mullen has executed with success, most notably via the strategic acquisition of Gardwine. Gardwine expanded its reach into Eastern Canada through Manitoba and Northern Ontario. After acquiring Gardwine at what was initially a fairly high multiple, MTL then used tuck-in acquisitions, cost improvement, and efficient organic capital to improve the retrospective acquisition metrics and made Gardwine one of its most important business units.”

Keeping an “outperform” rating for shares of the Alberta-based company, Mr. Bradford increased his target to $12.50 from $12.25. The average is $12.42.

“Mullen will play from the same play-book with APPS. APPS’ largest terminal is in Mississauga, Ontario with additional terminals across Western Canada. The terminals in the west fit nicely into Mullen but the key to the acquisition is the GTA terminal,” he added.

Elsewhere, TD Securities’ Aaron MacNeil bumped up his target to $16 from $15, keeping a “buy” rating.


In other analyst actions:

* Scotia Capital initiated coverage of DRI Healthcare Trust (DHT.UN-T) with a “sector outperformer” recommendation and $19 target, while RBC Dominion Securities gave it an “outperform” rating and $15 target.

* BMO Nesbitt Burns analyst Jackie Przybylowski lowered her Turquoise Hill Resources Ltd. (TRQ-T) target by $1 to $17, keeping a “market perform” recommendation. The current average is $20.12.

* Credit Suisse analyst Manav Gupta hiked his Canadian Natural Resources Ltd. (CNQ-T) target to $52 from $42, exceeding the $41.70 consensus, with an “outperform” rating.

* RBC Dominion Securities analyst Matt Logan raised his target for Artis REIT (AX.UN-T) by a loonie to $13 with an “outperform” rating. The average is $12.04.

* CIBC World Markets analyst John Zamparo increased his Recipe Unlimited Corp. (RECP-T) target to $19 from $15 with a “neutral” rating. The average is $19.13.

“In our view, spring patios and increased vaccinations may bring Recipe some respite, but we don’t expect meaningful recovery (ex-wage subsidies) until Q3, when we project RECP will reach 85 per cent of 2019 EBITDA,” he said. “Meanwhile, investors already have an eye on 2022, as do we, and management’s prudent balance sheet stewardship virtually eliminates liquidity concerns. Our price target increases ... but we believe the stock appropriately prices in recovery, so our rating remains Neutral.”

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