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

A day after it cut his 2021 production guidance in response to a fire at its Tasiast mine in Mauritania that temporarily suspended milling operations, a pair of equity analysts on the Street downgraded Kinross Gold Corp. (KGC-N, K-T).

Though it has now resumed operations, Kinross lowered its guidance to 2.1 million gold equivalent ounces for the year from a previous expectation of 2.4 million ounces.

That led to CIBC World Markets’ Anita Soni to lower her recommendation for the miner’s shares shares to “neutral” from “outperformer” after cutting her production and earnings expectations.

“We remain constructive on Kinross, as the outlook past 2021 remains attractive, but we believe investors have not yet turned the chapter on 2021; nor are they looking solely to 2022 for valuation metrics,” she said. “Kinross has underperformed senior peers by 8-9 per cent since the June 16 announcement [of the fire], while our 2021 CFPS declined by 18 per cent with this guidance revision.”

Ms. Soni reduced her target for Kinross shares to US$8.50 from US$11.25, The average target on the Street is $10.36, according to Refinitiv data.

Elsewhere, National Bank Financial’s Michael Parkin moved it to “sector perform” from “outperform” with a $10 (Canadian( target, falling from $15.

Others making target changes include:

* Raymond James’ Farooq Hamed to US$9.50 from US$11 with an “outperform” rating.

* Credit Suisse’s Fahad Tariq by US$1 to US$7.50 with a “neutral” rating.


Lundin Mining Corp.’s (LUN-T) reduction in its annual production outlook for its Canderlaria mine “creates uncertainty around the ability to ramp up to the full run rate of 190kt,” according to RBC Dominion Securities analyst Sam Crittenden, prompting him to lower his financial expectations through 2023.

“The valuation is attractive following the correction, but it could take time to re-establish investor confidence in the operations,” he said.

On Monday, shares of the Toronto-based miner dropped over 9 per cent after it cut its 2021 production guidance for its complex in Chile to 150,000–155,000 tons of copper from 172,000-182,000 tons (or 14 per cent), citing the need to adjust the near-term mining sequence in Phase 10 of the Candelaria open pit for the second half of the year. Its gold forecast fell by 10 per cent to 85,000–90,000 ounces (from 95,000-100,000 ounces previously).

After reducing his own forecast by 11 per cent to match the guidance, Mr. Crittenden also cut his production estimates for 2022 and beyond by 10 per cent. That led to EBITDA drop of 9 per cent for both 2021 and 2022.

“Candelaria remains Lundin’s most important operation (48 per cent of operating NAV and 46 per cent of 2021 EBITDA),” he said. “[Monday’s] guidance changes were made to slow down mining around a more faulted zone in the pit which also has higher grades. Lundin experienced a pit wall slide in 2017, which caused significant production disruptions, so steps are being taken to reduce the risk of another more significant interruption. While we believe they can operate successfully around the faultzone, this creates uncertainty around the ability to ramp up to the run rate production level of 190kt. Lower grades and ore hardness impacted 2020 results which carried into Q1/2021.”

Keeping a “sector perform” recommendation for Lundin shares, Mr. Crittenden lowered his target to $14 from $18. The average is $15.80.

“We believe the shares have corrected to a more attractive valuation level, Lundin has a strong balance sheet and can likely improve operations going forward,” he said. “However, this could take some time and the ongoing constitutional reform in Chile remains an overhang due to uncertainty around future taxation levels.”

Other analysts making target adjustments include:

* Canaccord Genuity analyst Dalton Baretto to $12 from $15 with a “hold” rating.

“While we certainly understand the operating rationale behind the steps LUN has taken, we believe the market will view this announcement as just the latest in a series of operating hiccups that have plagued the company since September 2020. Management intends to update overall guidance with the Q2 results on July 25, and we believe every effort will be made to make up lost production on a consolidated basis,” said Mr. Baretto

* Scotia Capital’s Orest Wowkodaw to $14 from $15 with a “sector outperform” rating.

“Overall, given the material reduction to our near-term estimates, we view the update as negative for the shares. Moreover, after a very challenging 2020 and a slow start in Q1/21, this update is likely to further compound the current operating overhang on the shares,” said Mr. Wowkodaw.

* Deutsche Bank analyst Abhi Agarwal to $15 from $17.50 with a “buy” rating.

* BMO Nesbitt Burns’ Jackie Przybylowski to $16 from $17 with an “outperform” rating.

* Raymond James’ Farooq Hamed to $15 from $16 with a “market perform” rating.


North American Construction Group Ltd.’s (NOA-T) gain of a US$2.75-billion landmark flood mitigation project in the United States as part of a consortium with two partners enhances its revenue visibility and “further validates” its diversification strategy, said Canaccord Genuity analyst Yuri Lynk.

On Monday, the Acheson, Alta.-based company announced the project victory with partners Acciona and Shikun & Binui, which centres on the operations and maintenance for a 30-mile river diversion channel around the Fargo-Moorhead-West Fargo metro area and will carry storm water from the Red River away from population centres.

Its shares soared over 12 per cent in Toronto on the news.

“With 30 per cent of the construction JV, NACG anticipates its revenue share will be $600-million over the life of the contract,” said Mr. Lynk. “While the contract’s term is 29 years, NACG’s scope will be particularly weighted towards the first four years of the contract. We believe construction represents 60 per cent of the total contract value, with the remainder corresponding to O&M services. We thus believe the project should contribute $150-million to NACG’s revenues annually over four years starting in Q2/2022, although this will not be reflected in the company’s top line as the project will be accounted for using the equity method. Joint-venture EBITDA associated with this contract should thus be at least $30-million per annum from 2022 through 2025.”

“The consortium was selected among four shortlisted teams in a tender process that took five years. Thus, we see NACG’s win as recognition of its expertise and ability to deliver in earth works and construction, in addition to the traction witnessed in securing work in mining end markets outside the oil sands. We update our model to reflect the award.”

Though he kept his 2021 EBITDA forecast of $195-million, Mr. Lynk increased his 2022 projection to $228-million from $203-million and introduced a 2023 estimate of $241-million.

That led him to raise his target for NACG shares to $25 from $21 with a “buy” recommendation (unchanged). The average on the Street is $23.20.

“Our BUY rating on NACG is predicated on its dominant competitive position in the oil sands, which we view as a source of reliable cash flow over time,” the analyst said. “NACG has a number of exciting bid opportunities outside the oil sands that not only enhance the company’s growth profile but also lower its operational risk via geographical and customer diversification. A healthy balance sheet, a strong and aligned management team, and modest valuation multiple round out an already attractive investment case, in our view.”

Meanwhile, Raymond James’ Bryan Fast raised his target to $24 from $20 with an “outperform” rating.

“[Monday’s] announcement marks a meaningful project award and an important step in North American Construction Group’s (NACG) path to diversification. We estimate, the construction phase of the project could represent 10 per cent of corporate revenue,” he said. “We upgraded NACG to Outperform earlier this year after the company weathered the depths of the pandemic and emerged well positioned to take advantage of an improving macro backdrop. Recently we highlighted potential project wins representing important catalysts as the company continues down the path of diversifying end markets (targeting 50 per cent of 2022 EBIT from non-oil sands markets). We believe this project win is evidence of the company’s ability to meet those targets.”

BMO’s John Gibson increased his target to $24 from $21, keeping an “outperform” rating.

“NOA continues to execute on its diversification initiatives, and we expect the company could announce some additional awards and/or raise its dividend in the next few months,” he said.


Though he calls Neighbourly Pharmacy Inc. (NBLY-T) “a highly compelling growth story,” Desjardins Securities analyst Chris Li sees its current valuation as “fair.”

Accordingly, he initiated coverage of the Toronto-base company, which went recently went public on the Toronto Stock Exchange, with a “hold” recommendation.

Mr. Li thinks Neighbourly, which is currently Canada’s third-largest pharmacy chain operator, distinguishes itself from its larger peers, Shoppers Drug Mart and Rexall, in two ways: Two-thirds of its pharmacies are in communities with a population of less than 100,000 people, which he says are “typically underserved and subject to less intense,” and it brings in the majority of its revenue from prescription medication (70–80 per cent) rather than confections, food, over-the-counter drugs and health and beauty aids.

“Neighbourly’s strategic focus on smaller communities and prescription medication supports greater patient loyalty and less competition in our view, resulting in predictable and recurring revenue and cash flow,” he added.

Seeing a “robust” pipeline of M&A opportunities, Mr. Li thinks acquisitions are likely to remain the company’s most important growth driver. Neighbourly has acquired and integrated 142 pharmacies through 27 transactions since its founding in late 2015 with 70 locations coming in the last two fiscal year.

“Given the highly fragmented nature of the Canadian pharmacy market, with approximately 60 per cent of pharmacies being independently owned, there are many opportunities for Neighbourly to leverage its expertise and financial position to consolidate and grow. The company has identified 3,600 potential acquisition targets, including single stores and larger, multi-store opportunities,” he said.

“Neighbourly has two key competitive advantages when it comes to M&A: (1) scale, and (2) a strong track record of successfully integrating acquisitions.”

Noting potential risk to its valuation if the pace of M&A slows or there’s a significant increase in takeout prices, Mr. Li set a target of $27.50 per share. The average is $28.88.

“Since its IPO on May 25, NBLY shares are up 50 per cent and trade at 18.1 times 12-month-forward EBITDA vs a 15 times average for other consumer growth (organic/M&A) companies in our coverage,” he said. “While we believe the premium is supported by NBLY’s compelling EBITDA growth (30-per-cent CAGR FY21–25), predictable revenue stream, strong FCF conversion and scarcity value, our $27.50 target assumes a moderation in valuation to 17.1 times EBITDA (FY23). There is upside from a faster pace of M&A above the 25 pharmacies per year budgeted by NBLY, which are funded with FCF and existing debt capacity while keeping leverage at 2.5 times EBITDA. We believe NBLY’s premium valuation serves as a strong M&A currency and increases its flexibility for larger deals. Applying the current valuation to FY23 EBITDA implies an upside target valuation of $31.”


iA Capital Markets analyst Frédéric Blondeau calls Artis Real Estate Investment Trust’s (AX.UN-T) plan to sell its GTA industrial portfolio a “home run.”

On Monday, the Winnipeg-based REIT announced it has entered into an agreement to sell its 28 properties in the region, totaling over 2.5 million square feet of leasable area, for total considerations of $750.0-million. The price tops the REIT’s most recently reported IFRS fair value of $550.7-million by 36.2 per cent.

Saying the deal brings “top value,” Mr. Blondeau said: Although the implied capitalization rate was not disclosed, we would have to believe that the disposition price should translate into a sub-3-per-cent capitalization rate. In addition, the buyer opted to remain private, although we would think its hould be one of the recently active institutional investors within the Canadian Industrial Real Estate market. Lastly, on the back of the transaction, we expect management to focus on further improving the balance sheet.• The transaction is expected to close in Q3/21.”

Keeping a “buy” recommendation for Artis units, he raised his target to $13.50 from $13. The average is $12.13.

Others making target changes include:

* CIBC’s Dean Wilkinson to $12.50 from $12 with a “neutral” rating.

“While we are not surprised to see a large industrial portfolio disposition (such is certainly in line with management’s guidance), the sub 3-per-cent effective cap rate achieved on the transaction was more favourable than we would have expected, and speaks to the extremely high demand for industrial assets at this time,” said Mr. Wilkinson. “Indeed the agreed upon sale price, which is 36 per cent above the portfolio’s IFRS carrying value, would suggest that the remaining industrial assets (which would represent an estimated 32 per cent of pro-forma NOI) could also fetch a significant premium to their book value upon disposition (if they were so disposed, although not our base assumption).”

* BMO Nesbitt Burns’ Jenny Ma to $13 from $12.50 with an “outperform” rating.

* Scotia Capital’s Mario Saric to $12.50 from $11.75 with a “sector perform” rating.


Stifel analyst Stephen Soock thinks the management of Aya Gold & Silver Inc. (AYA-T) has done “an excellent job” in executing a turnover plan for its Zgounder mine in Morocco over the past year.

“In short order they have turned a top tier deposit into a world-class operation, creating significant shareholder value along the way,” he said following recent discussions with its management.

“The two existing processing plants are operating near capacity with greatly improved uptime and silver recoveries compared to 9 months ago. Given the strong performance, we see it as likely that they will continue to operate after a new 2,000 tpd mill comes online in 2023. In addition to providing extra capacity, this will also allow the operation to optimize recovery and process plant throughputs.”

Expecting Aya to increase its ownership from its current 85-per-cent stake to at least 95 per cent by funding its expansion, Mr. Soock increased his target to $10.25 per share from $8.40, reiterating a “buy” recommendation. The current average is $9.74.

“The team has brought modern mining best practices into effect to maximize the value of the current infrastructure. The ongoing drill program should result in 100Moz resource before the end of the year, highlighting the quality and scale of the deposit,” he said. “These two elements should provide the mine a base from which to quadruple the production run rate by mid-2023, optimizing the value of the asset and driving significant free cash flow. Aya also holds other highly prospective mineral licenses along the South Atlas Fault in Morocco, many of which host past producing mines and historical resources, but have not been evaluated with systematic modern techniques. These provide a valuable pipeline of organic growth opportunities and provide a platform for Aya to grow into a multi-asset producer.”


Raymond James analyst Craig Stanley initiated coverage of a pair of Canadian mining stocks on Tuesday.

Calling it a “free cash flow machine” and emphasized its consistent dividend payout, he gave Silvercorp Metals Inc. (SVM-T) a “market perform” rating and $8.75 target. The average on the Street is $9.63.

He gave Westhaven Gold Corp. (WHN-X) an “outperform” rating with a $1.10 target. He’s currently the lone analyst covering the Vancouver-based company, which is focused on its 100-per-cent-owned Bridge Group Belt properties in the south central British Columbia.


Calling it a “dividend play with a soft spot for growth,” ATB Capital Market analyst Martin Toner initiated coverage of Softchoice Corp. (SFTC-T) with an “outperform” rating and $28 target on Tuesday.

The Toronto IT services company began trade on the TSX on May 27.

“Softchoice is a fast-growing, profitable Company, which we believe will be attractive to yield- and quality-seeking investors who want to participate in the move to the cloud,” he said. A generational change in enterprise information technology (IT) is underway and we believe Softchoice is an excellent way for investors who require yield, or are valuation sensitive, to participate.”

Elsewhere, TD Securities’ David Kwan gave it a “buy” recommendation and $28 target, calling it “a market leader with a large growth opportunity.”


In other analyst actions:

* After hosting its senior management team for investor meetings, Scotia Capital analyst Robert Hope raised his target for AltaGas Ltd. (ALA-T) to $29 from $25 with a “sector outperform” rating. The average is currently $25.97.

“The meetings highlighted the numerous reasons we like the shares, including: (1) improving returns from existing assets; (2) significant visibility into 8-10 per cent annual utility rate base growth; (3) torque to increasing energy activity in western Canada; (4) a self- funding model; and (5) attractive relative valuation,” he said. “AltaGas continues to be our favourite utility name. We increase our target price ... as we now believe the company deserves a valuation at least in line with its peers’. We believe that further valuation expansion could be driven by additional clarity on its growth outlook and continued strengthening of the balance sheet.”

* Expecting its “strong growth momentum” to continue and support additional upside for investors, Scotia’s Phil Hardie increased his Trisura Group Ltd. (TSU-T) target to $173 from $158, keeping a “sector outperform” rating. The average is $180.

“We view Trisura as a unique and diversified specialty insurance platform that provides a high-growth business with an attractive growth profile,” said Mr. Hardie. “Its unique hybrid platform should enable it to generate a more consistent and capital-efficient earnings stream than traditional insurers, resulting in a superior ROE and risk profile.

“We expect average EPS growth of 55 per cent over the next two years as Trisura draws on growth levers that include (1) replication of the U.S. hybrid fronting model into the U.S. admitted markets and further momentum in the non-admitted segment; (2) expansion of the highly profitable Canadian Surety business south of the border; (3) a favourable pricing environment; and (4) increased U.S. underwriting capacity from reallocation of surplus capital and optimization of its capital structure.”

* After coming off research restriction following the close of its US$40-million acquisition of Green Roads, Stifel analyst Andrew Partheniou raised his target for The Valens Co. (VLNS-T) to $5.75 from $3.75 with a “buy” rating. The average is currently $4.44.

“We ... see a company that has fortified its operations with the entry into the U.S. CBD industry through a leading brand, the launch of its first flower products at aggressive prices and a $46-million equity financing that results in a proforma cash position of $70-million (excluding earnout),” he said. “In short, VLNS has executed on what management has promised, proving its suitable comps are with Tier 1 LPs, in our view.”

* After assuming coverage, CIBC World Markets analyst Chris Thompson raised the firm’s target for Birchcliff Energy Ltd. (BIR-T) to $5.75 from $3.50, reiterating an “outperformer” rating. The average on the Street is $4.77.

“Our favourable view on BIR is based on a number of factors including its strong incremental results at Pouce Coupe South, its free cash flow generation, and the quality of its land base with liquids optionality and owned infrastructure,” he said. “Catalysts that could drive outperformance include initial rates at 14-28 that are consistent with 04-04, execution of the five-year plan which includes discipline in debt reduction over growth, and the return of free cash flow to shareholders in the form of a dividend increase once debt levels reach sustainable levels, which we believe could occur in 2022.”

* CIBC’s Robert Catellier resumed coverage of Brookfield Infrastructure Partners LP (BIP-N, BIP.UN-T) with a US$60 target, up from US$55, and an “outperformer” rating (unchanged). The average is US$59.90.

“Since we last wrote, the company has reported solid results for both Q4/20 and Q1/21, beating consensus FFO/unit in both quarters,” he said. “Performance was led by strong organic growth and capital recycling. Q1/21 was particularly strong with 20-per-cent year-over-year funds from operations growth, including 8 per cent organically due to inflationary tariff increases, and strong contributions from new investments. Favorable weather events also led to strong performance in the Midstream segment from the storage and other assets.

“Looking forward, the company appears to be well positioned to benefit from economic expansion as economies recover from the pandemic. The company has inflation-linked revenues and businesses with positive correlation to GDP growth.”

* BMO Nesbitt Burns analyst Joel Jackson raised his Nutrien Ltd. (NTR-N, NTR-T) target to US$70 from US$65 with a “outperform” rating. The current average is US$68.38.

“While upside scenarios are being realized currently, ag is still strong, Retail is resilient, nitrogen floors/ceilings have lifted, and potash strength seems set to continue this year with the challenges being faced by several large competiton,” said Mr. Jackson.

* BMO’s Joanne Chen raised her Summit Industrial Income REIT (SMU.UN-T) target to $18.50 from $16.75 with an “outperform” rating. The average is $17.53.

Editor’s note: In an earlier version of this article, Stifel analyst Stephen Soock was incorrectly identified. It has been updated.

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