Inside the Market’s roundup of some of today’s key analyst actions
Canaccord Genuity analyst Brendon Abrams believes a large Edmonton apartment portfolio transaction highlights strong investor demand and valuations in the city - and that has positive read-throughs for Boardwalk REIT (BEI-UN-T) and Mainstreet Equity Corp. (MEQ-T)
Avenue Living, a Calgary-based investor with a portfolio of more than 10,000 multifamily suites, announced the acquisition of a 1,500 suite apartment portfolio in Edmonton for $275 million, equating to a price per suite of about $180,000.
Boardwalk REIT and Mainstreet Equity both have significant exposure to Edmonton.
“On a price per suite basis, the portfolio acquired by Avenue Living represents a substantial premium to the IFRS (International Financial Reporting Standards) values for Mainstreet and Boardwalk’s Edmonton portfolios,” Mr. Abrams said in a note.
As of fiscal Q2/21, the IFRS value of Mainstreet’s Edmonton portfolio (28% of the firm’s fair value) was $618 million, or $135,000 per suite. Mainstreet currently trades at a total enterprise value per suite of $156,000.
As of Q1/21, the IFRS value of Boardwalk’s Edmonton portfolio (34% of the firm’s total net operating income) was $2.2 billion, or $166,800 per suite. Boardwalk currently trades at a total enterprise value per suite of $152,000.
“The transaction highlights that investor demand for multifamily assets in Alberta remains strong, notwithstanding certain headwinds facing the region, as we believe most are looking towards an eventual economic re-opening and higher immigration levels, both of which should be positive for apartment fundamentals. In addition, availability of low-cost CMHC-insured debt remains extremely attractive for acquirors,” the analyst said.
To account for this, Mr. Abrams raised his price target on Mainstreet, which he continues to rate as a “buy”, to C$115 from $102. Boardwalk REIT’s target went to C$45 from $40, although he continues to rate the firm as a “hold.”
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Citi analyst Sergio Matsumoto downgraded Domino’s Pizza Inc. (DPZ-N) to a “neutral” rating - the equivalent of a hold - citing valuation concerns after the stock’s 22% rise this year.
“DPZ’s consensus forward P/E ratio of 34x is 17% above historical and its premium over the restaurant sector median widened to 24%, similar to levels at the onset of the pandemic,” Mr. Matsumoto said in a note.
“We believe DPZ’s current price fully reflects the recovery in the carryout channel, representing 35% of US sales mix, as well as market share gains during 2020 vs. competitors Pizza Hut, other chains, and independent shops.”
Despite the downgrade in rating, he raised his price target on Domino’s to US$480 from $435 to reflect higher EPS estimates and the stock’s current trading range. The average analyst price target is US$447.12, according to Refinitiv Eikon data.
He believes that the restaurant sector has other more compelling investments, including Restaurant Brands International Inc. (QSR-T), which Citi is overweighting in a so-called pair-trade with Dominos. “Stocks in quick-service burgers and casual dining concepts are relatively undervalued. QSR’s top line should recover significantly from mobility increase at Tim Hortons and Burger King,” he said.
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Scotia analyst Benoit Laprade upgraded Cascades Inc (CAS-T) to “sector outperform” from “sector perform” after the forestry company divested its European operations for about C$461-million.
“We believe this transaction is a positive development for the company as it monetizes an often overlooked (and under loved) asset at an attractive premium to its market value (and above the value we ascribed in our sum-of-the-parts target), while simplifying the corporate structure and investment thesis, and strengthening the balance sheet,” Mr. Laprade said in a note.
The deal will see Cascades sell its 57.6% stake in Reno De Medici S.p.A. to Apollo Global Management Inc. for an all-cash price of €1.45 per share, or approximately €315.3 million. The selling price represents a 24% premium to RDM’s 90-day volume weighted moving average share price.
The transaction is expected to be completed in the third quarter of 2021 and is subject to customary closing conditions.
Post closing, Cascades plans to hike its quarterly dividend, with an annual yield target of 3%-3.5% yield. Mr. Laprade believes that could mean a 50% increase to the dividend, to 12 cents per share.
He raised his price target on the stock to C$20.50 from C$18.50.
Elsewhere, Desjardins Securities raised its price target to C$19 (from C$16) and upgraded its rating to “buy” from “hold.” “We are pleased with the monetization of the European Boxboard division, which we viewed as Cascades’ least core segment due to the lack of synergies with the rest of the business,” said Desjardins analyst Frederic Tremblay. “In addition to sharpening Cascades’ focus on the core North American packaging and tissue operations, the transaction will increase its financial flexibility to continue growth/modernization projects and to return capital to shareholders.”
The average analyst target is C$19.21.
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Scotia analyst Phil Hardie jacked up his one-year price forecast for shares in Fairfax Financial Holdings Ltd (FFH-T) after its Indian digital insurance subsidiary, Digit, announced an equity financing agreement that values the investment at $3.5-billion. The transaction is expected to result in an increase of $1.8-billion, or $61 per share, in the value of Fairfax’s stake.
“This development further underpins our thesis that 2021 is going to be a big year for Fairfax, as it benefits from both, a virtuous cycle in its insurance business, and what is likely to remain a favourable environment for value investing,” Mr. Hardie said in a note. “Aside from the expected investment gains on Digit in Q3/21, we also expect sizeable investment gains from FFH’s equity portfolio in Q2/21, along with a notable increase in the fair value of its non-insurance consolidated investments and investments in associates that do not get reflected in its book value due to their accounting treatment.”
“We believe valuation remains attractive, with the stock trading at a 34% discount to its closest peers and at a roughly 10% discount to book value,” he added.
Mr. Hardie raised his price target on Fairfax to C$780 from C$685. He reiterated a “sector outperform” rating.
While more conservative in its forecasts, BMO also raised its price target in light of the transaction, to C$650 (from C$600).
The average analyst target is $696.07.
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BMO analyst Fadi Chamoun initiated coverage on Chorus Aviation Inc. (CHR-T), a regional aviation specialist providing commercial passenger and charter services and aircraft leasing solutions, with an “outperform” rating and $5.75 price target.
“While the company’s capacity purchase agreement with Air Canada provides stable margins and cash flow, CHR can leverage multiple growth opportunities outside of the CPA in cargo and special missions through its subsidiary, Voyageur,” Mr. Chamoun said.
“On the leasing side, CHR should benefit from cyclical opportunities from the recovery in air travel alongside growing its share of the regional aircraft leasing market.”
The average analyst target is $5.54.
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CIBC analyst Sumayya Syed initiated coverage on Cominar REIT (CUF-UN-T) with a “neutral” rating and C$11.50 price target.
The lukewarm rating mostly reflected the near-term challenges faced by the REIT.
“The pandemic interrupted the REIT’s progress towards stabilizing operations, bringing into sharper focus some of the softer spots such as retail and suburban office. The challenges in these segments are largely offset by the stronger aspects of the portfolio: the mark-to-market opportunity in industrial rents, the stability of the large government office tenant base, and embedded intensification potential. We believe there is potential value to unlock in the portfolio, and the valuation discount can narrow through deleveraging or unit buybacks. Our Neutral rating, however, reflects our view of muted near-term portfolio and market fundamentals,” the analyst said.
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CIBC’s Sumayya Syed also initiated coverage on Melcor REIT (MR-UN-T), deciding on a “neutral” rating and $7.25 price target.
“As a pure play on Western Canada, Melcor has expectedly been impacted by the erosion in commercial property fundamentals in the region. While acquisitive growth was paused, the REIT’s strategic alliance with Melcor Developments offers a captive growth pipeline, should there be an improvement in the REIT’s cost of capital. Trading at 8.2x FFO and ~14% below NAV, we view the REIT’s valuation as fair, particularly in the context of larger, diversified peers that are trading at an average ~20% NAV discount,” the analyst said.
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Canaccord Genuity analyst Mark Rothschild initiated coverage on Dream Impact Trust (MPCT-UN-T) with a “buy” rating and C$9 price target.
Dream Impact Trust is an open-ended trust with a portfolio of real estate investments that is diversified between income-generating commercial properties in the Greater Toronto Area and development and redevelopment projects, which are primarily residential-focused and concentrated in the GTA and Ottawa.
In October 2020, Dream Impact, then called Dream Hard Assets Alternatives Trust, announced a shift in strategy, becoming Canada’s first and only publicly traded vehicle focused exclusively on impact investing. Under its current strategy, the Trust focuses on investment opportunities that create positive social or environmental outcomes while meeting its return requirements.
“In the near term, there does not appear to be an obvious catalyst for the unit price, and development assets are rarely fully valued in the public markets. However, we believe there are several factors that should drive the unit price higher over the next year,” Mr. Rothschild said in a note.
Among them: expectations for increased investor demand for impact investing vehicles, and the opportunity to invest alongside experienced developers with the potential to create significant value over the next several years.
The analyst also notes the unit price trades at a 26% discount to his net asset value estimate of $8.92. “Further, we believe our NAV estimate is conservative as it does not include the value of additional density at Lakeshore East, a project in downtown Toronto that has received zoning approvals for up to 1.25 million sf of development,” he added.
The average analyst price target is $8.33.
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In other analyst actions:
* 3M Co (MMM-N): Credit Suisse cuts target price to US$212 from US$210 and lowers rating to “neutral” from “outperform”
* Apple Inc (AAPL-Q): JP Morgan raises target price to US$170 from US$165
* Dominion Energy Inc (D-N): Scotiabank raises target price to US$92 fromUS$88 and raises to “sector outperform” from “sector perform”
* Domtar Corp (UFS-N,UFS-T)): TD Securities cuts target price to US$55.50 from US$56 and revises Its rating to “tender” from “hold”
* Tesla Inc (TSLA-Q): JP Morgan raises target price to US$160 from US$155 while maintaining an “underweight” rating.
* Altagas Ltd (ALA-T): TD Securities raises target price to C$29 from C$25
* Aritzia Inc (ATZ-T): TD Securities raises target price to C$44 from C$36
* Canfor Pulp Products Inc (CFX-T): TD Securities cuts target price to C$9 from C$11.5
* Docebo Inc (DCBO-T): TD Securities raises target price to C$90 from C$75
* Equitable Group Inc (EQB-T): Raymond James raises price target to C$161 from C$148
* Kinaxis Inc (KXS-T): TD Securities raises target price to C$190 from C$175
* Lightspeed Pos Inc (LSPD-T): TD Securities raises target price to C$130 from C$110
With files from Reuters.
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Darcy Keith