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

Saputo Inc. (SAP-T) is “making the best of a tough situation,” according to Desjardins Securities analyst Chris Li, who is “looking for better days ahead.”

However, following Monday’s Investor Day event, he expects shares of the Montreal-based dairy product producer to remain range-bound for the next several months amid industry challenges, while reaffirming a positive longer-term view “predicated on the attractive long-term earnings growth potential supported by SAP’s renewed focus on organic growth, normalized dairy markets and value-accretive acquisitions.”

“We believe patient investors will be rewarded,” he added.

Mr. Li was one of several analysts on the Street to lower their financial estimates and target price for Saputo shares based on the short-term challenges it’s facing, particularly an ongoing labour shortage south of the border and growing cost pressures.

“We now expect FY22 EBITDA to decline by 4 per cent year-over-year (vs an increase of 2 per cent previously),” he said. “This is in line with management’s view that EBITDA growth in FY22 will be very challenging. We expect meaningful improvement in EBITDA growth in FY23, driven by easy comps, price increases, improving market factors, foodservice recovery and the early benefits of the global strategic plan.”

“Management remains confident in its organic EBITDA target of $2.125-billion in FY25. Out of conservatism, our revised FY25 EBITDA estimate is 8 per cent below management’s target to account for uncontrollable factors. Taking a longer-term view, applying a long-term average multiple of 12.5-times forward EV/EBITDA to our FY25 EBITDA forecast imputes an equity value of $53 per share in 2.5 years. This implies an attractive 21-per-cent average annual return. There is upside from M&A supported by SAP’s solid balance sheet and FCF. The M&A pipeline remains full, including both small and large deal opportunities.”

Maintaining a “buy” rating for Saputo shares, Mr. Li cut his target to $40 from $43 to reflect his lower projections. The average target on the Street is $40.71, according to Refinitiv data.

Others making target changes include:

* Scotia Capital’s Patricia Baker to $42 from $45 with a “sector outperform” rating.

“While we applaud the efforts embedded in SAP’s Global Strategic Growth Plan and anticipate significant value creation as a result; we believe the current market backdrop of sustained labour and supply chain challenges, particularly in the U.S., will see the shares rangebound in the near term,” said Ms. Baker.

* RBC’s Irene Nattel to $43 from $47 with an “outperform” rating.

“While management was clearly cautious on the outlook for F22, we walked away from [Monday’s] event with a high degree of confidence in SAP’s ability to return to growth in F23 and beyond, underpinned by a sustained focus on plant efficiency and profitable sales growth, augmented by the optionality of global M&A,” said Ms. Nattel. “We trim our near-term forecasts against the backdrop of challenging supply chain and labour issues but maintain our view that the SAP story is ripening and offers potential for significant torque as the environment normalizes.”

* National Bank’s Vishal Shreedhar to $39 from $41 with a “sector perform” rating

* TD Securities’ Michael Aelst to $41 from $44 with a “buy” rating.


Though it has been “a tough go” for precious metals thus far in 2021, iA Capital Markets analysts George Topping and Puneet Singh expect both silver and gold prices to rebound due to sustained negative rates globally.

“Gold prices have averaged US$1,800 per ounce this year but sector sentiment has been crushed,” they said in a research note. “The market is buying into the Fed’s narrative that inflation is transitory and the tapering/debt trap can be navigated. The dot plot still forecasts no rate hikes until 2023 while inflation is rising in many industries (higher copper/oil prices, taxes, and labour costs are prime examples). More important, Central Banks, trapped by debt, will allow ‘hot’ inflation without raising rates resulting in a prolonged period of negative real rates. Central Banks around the world know what is occurring and are net buyers of gold, particularly Thailand (+90t), Japan (+80t), and Hungary (+63t), etc.

“We’ve trimmed our precious metals price deck but point out that gold has successfully tested resistance many times this year. The broader market has done well and a pullback is now happening. This could finally be the push gold prices need to break towards the upside. 2021 gold M&A has been hot with three of our names being taken out by Seniors. We expect this to continue and highlight Probe [Metals Inc.] as the most likely candidate to be taken out next.”

While the troubles at at indebted developer China Evergrande have caused a sell-off in global markets and copper prices, the analysts continue to see the metal heading toward an average of US$4.50 per pound in 2022 and US$5 by 2023 “as green investments themes start to play a bigger role in demand.”

“Chinese demand may be a bit softer but will rebound, and developing nations are lagging in reopening and will come back in the following years aiding in [base metal] demand,” he said. “Higher taxes in LAM may also deter investment for future supply. Copper’s cycle is typically shorter than gold’s but if supply can’t keep up with green investments themes, there is the possibility for a longer cycle.”

Concurrent with note, Mr. Singh made a pair of rating changes upon assuming coverage of a trio of base metals producers on Tuesday.

He upgraded First Quantum Minerals Ltd. (FM-T) to a “speculative buy” recommendation from “hold,” seeing the Vancouver-based company “on its way to a better balance sheet and becoming unhedged.” His target for its shares rose to $35 from $32.70, exceeding the $34.04 average on the Street.

“Newly elected Zambian President Hichilema is pro-business,” he said. “Zambia is stricken with debt and needs copper producers to increase production to climb out of it. In the past, Zambia has been unfavourable as the previous regime played hardball with miners by pushing to seize assets. Increased taxes could be something the new regime looks at too, but at the same time many miners including First Quantum are owed a VAT refund,so we believe Zambia will look to be more accommodative in order to push miners to grow operations in the country. First Quantum owns the Sentinel (15-per-cent NAV) and Kansanshi (13-per-cent NAV; awaiting clear fiscal guidance from Zambia to approve its S3 expansion) mines in Zambia. First Quantum has been a long-standing Hold as country risk combined with its weak balance sheet were too risky to bear as Cobre Panama (54-per-cent NAV) started up production. There’s still risk from Law No. 9 in Panama increasing taxation but we’re comfortable upgrading the shares to Speculative Buy at this stage because the corporate focus is now shifting to a period of deleveraging the balance sheet and unwinding hedges (FM is highly sensitive to copper prices and being truly unhedged would increase sensitivity).”

Conversely, citing uncertainty at its Candelaria mine and the potential impact of the election in Chile, Mr. Singh lowered Lundin Mining Corp. (LUN-T) to “hold” from “buy” with a $12.50 target, down from $20 and below the $14.09 average.

“Candelaria (52-per-cent NAV, Chile) is having grade and throughput issues leading to a cut in near-term guidance at the mine,” he said. “LUN also signalled it will cut guidance in 2022/23. In Chile, we believe if the current regime stays in power it would likely quash the proposed bill to increase taxes on miners. However, a leftist party is leading the polls (general election in Nov/21). We like LUN’s recently instituted performance dividend, and LUN’s peer-leading balance sheet gives its new CEO something to play with if LUN chooses to add another copper asset similar to Chapada (26-per-cent NAV, Brazil) to the mix. However, for the time being, we prefer HBM/FM over LUN as it remains unclear if Candelaria’s issues are longer term in nature and the upcoming election outcome is uncertain.”

Mr. Singh called Hudbay Minerals Inc. (HBM-T) his preferred name in the group, pointing to its “misrepresented” valuation. He raised his target to $14 from $12.90, keeping a “buy” rating. The average is $13

“The Peru political overhang has rendered Hudbay way too cheap at just 2 times 2022 cash flow per share,” he said. “The market is ignoring cash flow boosters from Pampacancha and New Britannia and missing the exploration success the Company has had. It’s in the best interest of Peru to work with mining companies on a deal that would be amenable for both parties. Too high of a tax bill would deter investment from a country that relies heavily on mining. We note, Constancia does have a tax stability agreement until 2031 in place..”

Mr. Singh also cut his target for Agnico Eagle Mines Ltd. (AEM-T, “strong buy”) to $120 from $144

Mr. Topping made these target changes:

  • Osino Resources Corp. (OSI-X, “buy”) to $2.50 from $2.60. Average: $2.62.
  • Probe Metals Inc. (PRB-X, “buy”) to $2.90 from $3.70. Average: $3.26.
  • Sabina Gold & Silver Corp. (SBB-T, “buy”) to $3.25 from $3.70. Average: $3.71.
  • Wesdome Gold Mines Ltd. (WDO-T, “strong buy”) to $16 from $16.50. Average: $14.35.
  • Regulus Resources Inc. (REG-X, “buy”) to $1.90 from $2.20. Average: $2.40.


After Opsens Inc. (OPS-T) received approval from Health Canada on Monday to commence the first in-man study with its SavvyWire transcatheter aortic valve replacement (TAVR) device, Raymond James analyst Rahul Sarugaser thinks the Quebec-based company could be a “natural” acquisition target by U.S. giant Edwards Lifesciences Corp. (EW-N).

He called SavvyWire a “disruptive” technology and a “transformative” opportunity for the company, expecting increased interest ahead of potential clearance from the U.S. Food and Drug Administration early in the second half of 2022.

“Today, most valve-placing guidewires used in TAVR procedures are sold by Medtronic (MDT-N) and Boston Scientific (BSX-N), but these companies don’t sell the lion’s share of the valves used in TAVR, driving a collective 33 per cent of the 2021 TAVR market,” said Mr. Sarugaser. “The other 66% of the TAVR market is owned by Edwards Lifesciences (EW-N), driven almost exclusively by sales of its valves. We highlight that EW does not currently market a guidewire to place its own valves, so, today, cardiologists tend to primarily use MDT or BSX guidewires to place EW’s valves. As these devices are typically sold in bundles, we speculate that EW would be a natural acquirer of OPS’s TAVR guidewire technology, as this would provide the US$75-billion market cap company a means toward consolidating its two-thirds share of the soon-to-be $8-billion TAVR market; (other TAVR market incumbents are surely keeping a close eye on OPS’s SavvyWire progress as well).”

Maintaining an “outperform” rating for Opsens shares, Mr. Sarugaser hiked his target to $6 from $2.75, exceeding the average on the Street of $3.79.


Scotia Capital analyst Michael Doumet views GDI Integrated Facility Services Inc.’s (GDI-T) recent acquisitions of a pair of U.S.-based companies “positively,” emphasizing it’s “putting a little dry powder to work.”

On Sept. 16, the Lasalle, Que.-based company announced deals to acquire Enginuity LLC, a Pennsylvania-based design/build mechanical contractor and service provider, and Fuller Industries LLC, a Kansas-based chemical and cleaning products manufacturer. The companies combined to produce US$60-million in revenue over the last two months.

“The acquisitions bolster the company’s U.S. growth strategy by expanding its Technical Services and supporting additional Janitorial growth (with the production of its own chemical and cleaning products,” said Mr. Doumet.

“We expect the deals to add sales and EBITDA of approximately $78-million and $5.5-million (7-per-cent margin) in 2022. According to the release, (i) Enginuity’s EBITDA margin ‘is in line’ with that of Ainsworth and (ii) Fuller’s EBITDA margin ‘is expected to be in line with and potentially higher’ than GDI’s overall business as manufacturing volumes increase.”

Mr. Doumet increased his 2022 and 2023 EBITDA projections for GDI, maintaining a “sector outperform” rating and $65 target for its shares. The average on the Street is currently $68.43.

“We estimate pro forma leverage will increase to 1.1 times at the end of 2021 (from 0.9 times) and to 0.6 times by the end of 2022 (from 0.4 times),” he said. “This leaves plenty of dry powder: we estimate GDI can deploy upwards of $450 million to fund additional M&A, which could add more than $10 to our one-year target price from M&A.”


PI Financial analyst Phil Ker upgraded his financial model for GoGold Resources Inc. (GGD-T) with the expectation it will release a maiden resource estimate for its Los Ricos North project in Mexico in the coming weeks.

“Exploration success at Los Ricos North (LRN) has established multiple zones of mineralization across the property,” he said. “Based on our new assumptions, we are now modelling an operating scenario underpinned by 125Moz AgEq of in-situ reserves. Under our DCF analysis, we see NAV accretion versus our previous valuation which utilized applied EV/oz metrics on an assumed property wide resource.”

Maintaining a “buy” rating and reiterating it as his “top pick” for 2021, Mr. Ker raised his target for the Halifax-based company’s shares to $4.75 from $4.15. The average is $3.99.


In other analyst actions:

* Following Monday’s release of updated reserves and resources and a new plan for its Aurizona mine in Brazil, Canaccord Genuity analyst Dalton Baretto trimmed his Equinox Gold Corp. (EQX-T) target to $10 from $10.50 with a “buy” rating, while Scotia Capital’s Ovais Habib cut his target to $14.25 from $14.50 with a “sector outperform” recommendation. The average is $14.54.

“A generally robust update, with significant increases in both 2P reserves and M&I+I resources. We highlight the Piaba Underground in particular, where a sizable maiden reserve was bolstered by significant new and incremental M&I and Inferred resources,” said Mr. Baretto.

He added: “Given the 11-per-cent implied return to our target price, as well as the substantial growth and gold leverage inherent in the company, we maintain our BUY rating on EQX.”

* CFRA analyst Matthew Miller lowered Gildan Activewear Inc. (GIL-T) to “hold” from “buy” with a $51 target, down from $47 but above the $42.25 average.

* National Bank Financial analyst Michael Robertson initiated coverage of Green Impact Partners Inc. (GIP-X) with an “outperform” rating and $11.25 target. The average target is $13.85.

* JP Morgan analyst Ricardo Rezende raised his Canacol Energy Ltd. (CNE-T) target to $8.50 from $5, keeping an “overweight” rating. The average is $5.75.

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