Inside the Market’s roundup of some of today’s key analyst actions
Crescent Point Energy Corp. (CPG-T) is “kicking off [its] next season of the recovery with a significantly improved offensive line,” according to Desjardins Securities analyst Chris MacCulloch.
Shares of the Calgary-based company jumped 14.4 per cent on Monday after announcing before the bell an increase to its quarterly dividend to 3 cents per share from 0.25 cents.
Mr. MacCulloch said he was “surprised” by the timing of the news, admitting he was “eagerly anticipating” a normalization of the dividend in early 2022. He called the dividend boost “a soundingly positive development, which provided a well-deserved lift in the stock’s multiple.”
“Well that left an impression! Judging from the market reaction today, there are at least some investors still paying attention to the Canadian oil & gas sector and rewarding companies for good behavior with respect to capital allocation,” he added. “It is an encouraging signal for the sector, with many producers poised to transition from the balance sheet repair phase of the recovery (2021) into capital redistribution mode (2022) via enhanced dividends and share buybacks. From that perspective, CPG was clearly one of the better positioned names on our coverage list, particularly on the heels of its Kaybob Duvernay acquisition earlier this spring, which we viewed as an accretive transaction from both an asset and a free cash flow perspective.”
The analyst expects Crescent Point to continue to take a “prudent approach” to capital allocation given the volatile commodity price environment, however he does see the potential for further dividend increases or share buybacks in the middle of 2022 as it reaches its debt-to-cash flow target.
“For context, we still see CPG generating another $865-million of discretionary FCF next year following [Monday’s] dividend bump at current strip prices, or $640-million after funding a structured debt maturity,” he said. “More importantly, the updated five-year plan suggests that the vast majority of FCF will eventually be redistributed to investors given the company’s relatively flat production profile. It is a shareholder friendly plan designed to feed the appetite of a market hungry for capital returns, and we are glad to see that it was properly recognized.”
Maintaining a “buy” rating for Crescent Point shares, Mr. MacCulloch increased his target to $8.25 from $7.50. The average on the Street is $7.53.
Elsewhere, Stifel analyst Cody Kwong bumped his target to $9.25 from $8.75 with a “buy” rating.
“We believe the clear positive reaction to Crescent Point’s dividend increase is the result of two major factors: 1) the quantum of the dividend increase (a 12-fold uplift, now making it the fourth the highest dividend yield offering within our coverage universe) and 2) a strong signal of the Company’s intention to prioritize return of capital to its shareholders over the long term,” he said. “The preliminary 2022 and 5-year outlook provided was confirmation that FCF optimization was the top corporate priority. With our belief that this latest announcement is but a stepping stone in Crescent Point evolving into one of the most attractive/efficient vehicles for shareholder returns.”
A group of equity analysts on the Street lowered their target prices for shares of New Gold Inc. (NGD-N, NGD-T) after it reduced its 2021 production guidance for its Rainy River mine and increased its cost guidance on Monday.
The Toronto-based company now expects to produce between 405,000 and 450,000 ounces of gold in 2021, down from a range of 440,000 to 490,000 ounces, with all-in sustaining cost of between US$1,415 to US$1,495 an ounce, up 14 per cent from its previous forecast.
“We are not surprised that the company cut production guidance at RR; recall that management had flagged this possibility with the Q2 results in August following grade reconciliation issues in the East Lobe portion of the pit,” said Canaccord Genuity’s Dalton Baretto. “That said, the size of the production cut (and the increase in cost guidance) is larger than we had anticipated. These grade reconciliation issues are unlikely to persist past this year — the East Lobe represents less than 15 per centof mill feed from 2022 onward and other areas of the pit appear to be reconciling well with the block model.
“We believe the longer-term impact is likely to be on NGD’s multiples; recall that NGD has struggled with its operational credibility in the past, and while this perception has dramatically improved under current CEO Renaud Adams, we believe the operational issues at both Rainy River and New Afton could overhang the shares going forward.”
Keeping a “buy” recommendation for New Gold shares, Mr. Baretto cut his target to $2 from $2.75. The average is $2.50.
Other analysts making changes include:
* TD Securities analyst Steven Green to US$1.50 from US$1.70 with a “hold” rating.
* BMO Nesbitt Burns’ Brian Quast to $3.25 from $3.50 with an “outperform” rating.
* National Bank’s Michael Parkin to $2 (Canadian) from $2.50 with a “sector perform” rating.
RBC Dominion Securities analyst Irene Nattel thinks Park Lawn Corp.’s (PLC-T) recent $148.5-million share offering “adds - more - dry powder to be redeployed on what we believe to be a robust M&A pipeline at attractive valuations.”
Ms. Nattel acknowledged she was surprised by the equity raise, citing its “clean” balance sheet and “solid” operating results, but she’s taking a positive view of it.
“We remain confident in management’s ability to capitalize on the meaningful valuation delta between its currency and typical industry takeout multiples (6-9 times), remaining disciplined on price while improving acquired operations overtime, and surfacing value for S/H,” she said.
“PLC’s leverage ratio of 1.49 times as at FQ2 - post-closing of the four W’s acquisitions - was well below covenant levels (4 times), implying potential near-term acquisition opportunities above previous expectations. We repeatedly pointed out that PLC appeared to have reached an inflection point, with a path to achieving earnings targets without requiring incremental equity, delivering rising returns to shareholders... with the caveat that substantially larger than forecasted M&A could require additional funds. The equity raise and conversations with management have caused us to revisit our assumptions around the size of near-term M&A opportunities for PLC.”
With her revised M&A expectations leading to higher earnings projections, Ms. Nattel increased her target for Park Lawn shares by $4 to $50 with an unchanged “outperform” rating. The average target on the Street is $41.61.
“Our investment thesis is playing out as anticipated, with solid underlying organic growth augmented by M&A contribution, and, as pandemic impact wanes, higher pre-need call volume and revenue per call for at-need,” she said. “Outperform rating predicated on sector-leading earnings growth, and underpinned by favorable demographic trends and a long tail of consolidation opportunities.”
“PLC is well positioned to take advantage of the valuation delta between its currency and industry multiples, driving forecasted 2020-23 estimated EBITDA CAGR of 23 per cent. PLC valuation remains compelling, in our view, with shares trading less than 12 times our normalized calendar 2022 estimated EBITDA. PLC is included on the RBC CM Small Cap Conviction List.”
Scotia Capital analyst Paul Steep views 2021 as “a transition year” for Altus Group Ltd. (AIF-T) as it “looks to accelerate its cloud transition (both organically and via M&A) and manages through the ongoing impact of the pandemic on various business lines.”
On Monday, the Toronto-based real estate software company released a financial outlook for the second half of the year, expecting “mid-teen year-over-year growth in consolidated constant currency revenues in FY2021 at improved margins.”
However, it warned of “some quarterly variability” for its global Property Tax business due to COVID-19-related disruptions and appeal settlement delays in the U.S. and the U.K. markets.
That sent its shares down by 3.3 per cent in Toronto.
“We remain focused on the cloud transition that Altus has embarked upon with sustained growth and continued efforts to shift the business towards increasing the size of its recurring revenue SaaS and Appraisal Management and Data Solutions,” said Mr. Steep. “Management indicated that Altus Analytics bookings continue to growth with bookings now approaching total bookings levels achieved in FY2020. The company highlighted that its over time revenues are expected to accelerate in the second half of the current fiscal year. Our estimates have been updated to reflect an expectation that the firm’s adjusted EBITDA margins in Altus Analytics will trend upwards sequentially during the remainder of F2021.”
Keeping a “sector perform” rating, Mr. Steep increased his target to $65 from $61. The average is $68.25.
“Longer-term, we see the transition of Altus Analytics to being cloud first as a positive, with potential for the firm to further expand on its data analytics capabilities as it seeks to leverage its operations outside North America,” he said.
Elsewhere, CIBC’s Stephanie Price raised her target to $63 from $58 with a “neutral” rating.
H.C. Wainwright analyst Andrew Fein thinks positive results from the interim analysis of Bellus Health Inc.’s (BLU-T) latest study of its BLU-5937 drug aimed at treating individuals suffering from a chronic cough “bodes well” for its top line in the fourth quarter.
The Laval, Que., company jumped 20.8 per cent on Monday after the premarket announcement, which Mr. Fein thinks will attractive further investor attention.
“Bellus has another shot at a positive stock inflection point stemming from the top-line data from the Phase 2 BLUEPRINT study of BLU-5937 in chronic pruritus due to atopic dermatitis (AD),” he said. “It remains clear that patient options addressing pruritis stemming from AD remain limited, temporary, and riddled with long-term side-effects for patients with chronic pruritus associated with atopic dermatitis. Most recently in 2Q21, a Phase 2 study using difelikefalin for chronic pruritus failed to meet its primary of worst-itch NRS change from baseline and secondary endpoint of 4-point responder analysis in the ITT patient population, marking another failure in the field while highlighting the unmet medical need. We also highlight that while Dupixent represents a newer approval for AD, it comes at highcost to patients’ lives and wallets and does not directly address chronic pruritus. While recent data from Lilly’s (LLE, not rated) lebrikizumab and others have showed promise toward the treatment of AD, the efficacy of the treatments remains imperfect and does not address the impact on quality-of-life, which BLU-5937 aims to address.”
Mr. Fein thinks the clinical data “further derisks” BLU-5937, while eliapixant, from competitor Bayer AG, also derisks the class of AD treatments as a whole.
That led him to raise his target for Bellus shares to $14 from $10 with a “buy” recommendation. The average on the Street is $9.36.
“Our sentiment toward BLU-5937 remains firm, and we reiterate that regardless of [Merck’s] gefapixant being first to market, we still view BLU-5937 as highly differentiated based on safety alone, with interim analysis supporting limited taste-related adverse events with no serious AEs,” he said.
In other analyst actions:
* TD Securities analyst Cherilyn Radbourne downgraded Canadian National Railway Co. (CNR-T) to “hold” from “buy.”
* Scotia Capital analyst Phil Hardie raised his Onex Corp. (ONEX-T) target to $107 from $102 with a “sector outperform” rating. The average is $109.20.
“Amid dramatically improved operating and market conditions since 2020, Onex has successfully surfaced value on a number of existing investments and deployed capital into new ones,” he said. “The company has found success in its two recent IPOs in PowerSchool and Ryan Specialty Group, with both adding a combined nearly $9.00 per share to the company’s NAV since their IPO. We have revised our Forward NAV forecast to reflect their consensus target prices, and as a result, have increased our target price,” he said.
* Stifel analyst Martin Landry trimmed his target for Flow Beverage Corp. (FLOW-T) to $8.50 from $10 with a “buy” rating.
“We continue to see an appealing long-term growth story with FLOW underpinned by a structural shift in consumer behavior towards sustainable and environmentally friendly solutions,” he said. “While investors still appear hesitant to jump onboard, we expect that strong execution in coming quarters should rebuild investors’ trust in management.”
* National Bank Financial analyst Don DeMarco raised his Artemis Gold Inc. (ARTG-X) target to $9.75 from $9.50, keeping an “outperform” rating, while Stifel’s Ian Parkinson raised his target by $3 to $12.50 with a “buy” rating. The average is $11.84.
“ARTG provided feasibility study details for the Blackwater project,” said Mr. Parkinson. “Most importantly, we see i) a 30-per-cent increase in gold production over the first five years, and ii) a streamlined Phase II expansion to potentially pull forward production. We are increasing our target price from $9.50 to $12.50 per share via a 1.0 times NAV multiple due to i) increased confidence in cost estimates, and ii) improved line of sight to first production. With the feasibility study comes greater confidence and this is main driver to our PT change. With the early works permit in hand, we see construction commencement in ~mid 2022. Blackwater represents a long life, low cost project of scale located in a premier jurisdiction and comes at a compelling valuation of just 0.43 times spot P/NAV. ARTG is a well funded low risk developer and should re-rate materially as it advances towards first gold.”
* BMO Nesbitt Burns analyst Brian Quast hiked his target for Rupert Resources Ltd. (RUP-X) to $10 from $6.50 with an “outperform” rating. The average is $7.64.
* BMO’s John Gibson moved his Trican Well Service Ltd. (TCW-T) target to $3.75 from $3.50, exceeding the $3.42 average, with an “outperform” rating, while Raymond James analyst Andrew Bradford bumped his target to $3.70 from $3.50 with a “strong buy” rating.
“Despite its premium valuation relative to its CDN peers, Trican remains our preferred pressure pumping name in Canada given its high spec fleet and strong balance sheet, which continues to act as a differentiator with regard to winning new work,” said Mr. Gibson.