Inside the Market’s roundup of some of today’s key analyst actions
Dye & Durham Ltd.’s (DND-T) “deep pockets and a robust pipe provide ample runway for growth,” according to Robert Young, an equity analyst at Canaccord Genuity.
In a research note released Tuesday, he raised his sales and earnings expectations for the Toronto-based provider of cloud-based software and technology solutions following a recent bought deal of its common shares and a convertible debenture offering as well as its second-quarter results and stronger-than-expected 2022 guidance.
Mr. Young also feels its decision to walk away from its pursuit of English firm Idox PLC after due diligence “underscores the company’s purchase discipline, and given the weakening in the shares since the announcement, there is an argument to be made that management was responsive to shareholder concerns.”
“We viewed the potential acquisition of Idox as modestly accretive and attractive given the Public Sector Software (PSS) business offered potential to consolidate pools of valuable local authority data, which Dye & Durham currently makes available to its customers, while adding deeper registry capabilities,” he added. “That said, we saw less benefit in the other parts of the business. We believe Dye & Durham will remain acquisitive with ample balance sheet strength and a robust pipeline of targets to aggressively chase growth.”
“Although the Idox deal did not materialize, we believe DND has a robust pipeline of targets that range from legal SaaS players to registries. The bought deal proceeds provide ample dry powder that can be used to opportunistically acquire assets as they become available.”
Mr. Young thinks Dye & Durham’s addition to the TSX Composite on March 22 could increase both its liquidity and visibility to investors. He also sees its Investor Day event on April 20 as a potential catalyst, believing it could “shed light” on its M&A strategy.
He raised his 2021 revenue expectation to $190.7-million (from $151.1-million) and EBITDA of $94.3-million (from $69-million). His 2022 revenue estimate increased to $349.8-million (from $312.9-million) with EBITDA of $202-million (from $165.4-million).
Keeping a “buy” rating for Dye & Durham shares, Mr. Young hiked his target to $60 from $53. The average on the Street is $58.75, according to Refinitiv data.
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Though he has an “very constructive view” on the hydrogen industry, Raymond James analyst Michael Glen initiated coverage of Loop Energy Inc. (LPEN-T) with a “market perform” recommendation, looking for near-term clarity on its revenue trajectory.
The Burnaby, B.C.-based company, which produces fuel cell systems for commercial transportation, went public on the Toronto Stock Exchange in late February.
“From a Loop perspective, we will be specifically looking for more clarity over the coming year regarding the trajectory of revenue and ramp in stack/module sales,” said Mr. Glen. “In the near-term, such revenue generation will primarily stem China, with ramping production associated with an MOU for the purchase of 300 fuel cell modules. This order includes buses, trucks, and garbage trucks that will use Loop’s fuel cell stacks, with modules supplied by the In-Power-Loop JV. In September 2020, the first phase of this process was completed when Skywell, a Chinese electric bus manufacturer located in Nanjing, China, received approval from the Chinese MIIT for a bus with a Loop fuel cell module. Additional order volume we will follow is that associated with ECUBES (potential for a 50 module order) and the recently signed agreement for the material handling market with Italy-based Morello Giovanni.”
Mr. Glen acknowledged valuing Loop is “challenging,” pointing to “a number of speculative characteristics and risks to take into consideration.”
“The basis for an investment in the stock is substantially focused on the evolution and technology underlying the use of hydrogen in the heavy transportation market,” he said. “From that perspective, while we have already seen considerable momentum in terms of the efforts to commercialize hydrogen, it is clear that continued momentum will be driven by concerted government investment in the sector (i.e., through infrastructure/ distribution investment, emissions regulation, vehicle subsides), coupled with still substantial investments needed on the corporate side.”
He set a target of $16 per share, which falls $4 below the consensus.
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Score Media and Gaming Inc. (SCR-Q, SCR-T) should be a leader in Canada, according to Credit Suisse analyst Benjamin Chaiken, who also sees “a reasonable case for the company to increase its share in the U.S., neither of which at present we believe is fully reflected in the stock.”
In a research note released Tuesday, he initiated coverage with an “outperform” rating.
“Our Outperform rating is based on the following factors: (1) SCR should be in a leadership position in Canada. We think that the Canadian sports betting total addressable market could reach $4-7-billion, and given SCR is one of the most well-known media brands in the country, we think it has the ability to capture 20-per-cent-plus share in OSB and 5-10-per-cent share in iGaming, representing a potential $500-900-million revenue opportunity; (2) SCR should have lower CAC vs peers in Canada. We believe SCR can leverage its media arm to create a very efficient customer acquisition process, essentially onboarding through the low cost media app and transitioning to OSB/iGaming; (3) We think SCR should have better margins vs peers in Canada, potentially 35 per cent-plus in Canada at maturity, with no land-based casino partner requirements and lower external marketing costs than peers, leveraging its media arm/brand and existing market penetration; and (4) the company is also part of the fast-growing OSB and iGaming market in the United States (with market access in 13 states), and should increase share leveraging the media app for low cost customers acquisition, strong retention, and an integrated betting/media experience which is not widely available,” said Mr. Chaiken.
He set a target of US$49 per share. The average is $29.25 (Canadian).
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Following the release of better-than-expected fourth-quarter 2020 financial results, Canaccord Genuity anayst Yuri Lynk raised his financial expectations for Neo Performance Materials Inc. (NEO-T), pointing to higher volumes in prices in both its Magnequench and Chemicals and Oxides segments.
On Monday, the Toronto-based rare earth metal company reported earnings before interest, taxes, depreciation and amortization (EBITDA) of $12.3-million, down 1 per cent year-over-year but ahead of the $8.6-million projection of both Mr. Lynk and the Street. Revenue jumped 17 per cent to $110.4-million, also topping estimates due to stronger-than-anticipated performance from both its Magnequench and C&O segments.
“Results came in significantly ahead of expectations on the back of a sharp rebound in automotive and industrial end-markets driving higher volumes and prices in the MQI and C&O segments,” he said. “We believe Neo’s ability to capture higher volumes and prices speaks to its wide competitive moat and pricing power. The company is exposed to global megatrends such as the electrification of automobiles, tighter air, GHG, and wastewater emission standards, and industrial automation. A strong management team, $70-million of net cash, and a 2.0-per-cent dividend yield, only add to an already attractive investment case.”
Mr. Lynk noted Neo Performance expects the first quarter of 2021 “to come in strong” with positive trends in volumes continuing.
“However, Neo will now also be benefiting from higher rare earth prices as the increase witnessed in late 2020 accelerated in early 2021 on strong demand from the EV segment,” he said. “Thus, we increase our Q1/2021 revenue estimate to $119.0-million from $86.8-million and our EBITDA estimate to $19.2-million from $11.7-million.
“We updated our model to reflect higher volume and prices. Our 2021 EBITDA estimate goes up to $62.3 million from $45.1-million. Our 2022 EBITDA estimate now sits at $65.7-million versus $50.0-million previously. Recall, last cycle, Neo’s EBITDA peaked at $68-million in 2017. The recovery build into our estimates reflects strong underlying demand for magnetic powders from the automotive industry, particularly EVs. Furthermore, the rare earth supply agreement with Energy Fuels should drive 30 per cent more output from the rare earth separation facility in Estonia at compelling (byproduct) economics.”
Reiterating a “buy” rating for its shares, Mr. Lynk hiked his target to $25 from $20. The average on the Street is $23.50.
Elsewhere, Raymond James analyst Frederic Bastien bumped up his target to $25 from $21 with an “outperform” rating and Scotia Capital analyst Mark Neville increased his target to $26 from $20 with a “sector outperform” rating.
“Our Outperform recommendation on Neo Performance Materials is reaffirmed after [Monday’s] solid 4Q20 print showed the company capitalizing on rebounding end-market demand,” said Mr. Bastien. “With the speed of recovery much faster than projected ... we find ourselves raising our profit forecasts for 2021 and 2022 yet again.”
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Quisitive Technology Solutions Inc.’s (QUIS-X) proposed acquisition of Mazik Global Inc. is “quite attractive,” according to Desjardins Securities analyst Kevin Krishnaratne.
On Monday before the bell, the Toronto-based Microsoft Solutions Provider announced a definitive agreement to acquired all of the issued and outstanding shares of Mazik, a Chicago independent software vendor, for US$7-million in cash and 6.254 million Quisitive shares.
“Mazik is a strong Microsoft partner having worked with the vendor for 20 years building healthcare-based solutions on top of Microsoft’s Dynamics platform as well as Microsoft’s Healthcare Cloud,” the analyst said. “We believe Mazik is a natural fit for QUIS as it strengthens the company’s ‘triple play’ of Azure, Microsoft 365 and Dynamics, adding particular expertise in some of Microsoft’s more enterprise-level Dynamics modules within finance and supply chain that are more aligned with larger healthcare organizations.”
Seeing opportunities for revenue upside, Mr. Krishnaratne added: “Mazik is among a handful of top-tier Microsoft partners (including Accenture, Cognizant, E&Y) that have developed COVID-19 vaccine-management platforms leveraging Microsoft’s cloud services. Such solutions are being deployed across various regions of the U.S. in order to handle the registration of providers and patients, enable phased scheduling for vaccinations and provide reporting, analytics and forecasting capabilities. We understand that Mazik’s platform, known as VaccineFlow, is built on Power Apps and is currently being used to help with the inventory management of various vaccines, enable the efficient flow of vaccination information and help providers streamline related supply chain operations.”
After raising his revenue and earnings expectations through 2022, he also increased his target for Quisitive shares to $1.90 from $1.75, keeping a “buy” recommendation. The average is $1.61.
Elsewhere, Raymond James analyst Stephen Boland raised his target to $1.80 from $1.10, keeping an “outperform” rating.
“We view this acquisition as a positive for the stock as it enhances QUIS’ position in the healthcare sector while expanding its leading Microsoft solutions provider status in North America,” said Mr. Boland.
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In other analyst actions:
* Following the release of a Feasibility Study on its Castle Mountain Phase 2 (CMP2) project, Canaccord Genuity analyst Dalton Baretto cut his target for Equinox Gold Corp. (EQX-T) to $14 from $14.50 with a “buy” rating, while BMO Nesbitt Burns’ Ryan Thompson lowered his target by a loonie to $19.50, matching the consensus, with an “outperform” recommendation.
“The CMP2 FS presents a bigger project with what appear to be more robust capital and operating cost estimates, albeit with negative economic implications to our already punitive estimates. On the positive front, the new operating design offers higher reserves and expanded production with a lower strip ratio; however, this comes at the expense of substantially higher capex and operating costs,” said Mr. Baretto.
* Scotia Capital analyst George Doumet lowered Jamieson Wellness Inc. (JWEL-T) to “sector perform” from “sector outperform” with a $40 target. The average target is $43.97.
* Wells Fargo analyst Jon Tower raised his target for Restaurant Brands International Inc. (QSR-N, QSR-T) to US$80 from US$75, keeping an “overweight” rating. The average is currently US$66.92.
* Alliance Global Partners analyst Jake Sekelsky cut his target for Americas Gold and Silver Corp. (USAS-N, USA-T) to US$4.50 from US$5.25 with a “buy” rating. The average is US$4.70.
* RBC Dominion Securities analyst Michael Smith raised his Melcor Developments Ltd. (MRD-T) target to $12.50 from $10, exceeding the $8.50 target. He kept a “sector perform” recommendation.
* Alliance Global analyst Brian Kinstlinger raised his target for Enthusiast Gaming Holdings Inc. (EGLX-T) to $14 from $11, keeping a “buy” rating, while Canaccord Genuity’s Robert Young hiked his target to $12 from $8.75 with a “buy” recommendation. The average on the Street is $10.29.
* National Bank Financial initiated coverage of Altius Renewable Royalties Corp. (ARR-T) with a “sector perform” rating and $12 target.
David Leeder