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

Desjardins Securities analyst Doug Young likes the setup for Canadian banks heading into fiscal 2022.

In a research report released Tuesday previewing the fourth-quarter earnings season, which begins on Nov. 30 with Bank of Nova Scotia, he raised his financial expectations for the sector, forecasting pre-tax, pre-provision (PTPP) earnings growth of 10 per cent year-over-year on average, driven largely by performances from Canadian P&C banking and wealth management divisions.

Following last week’s announcement from Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, that lifted pandemic-related restrictions that prevented banks and insurers from raising dividends and buying back shares, Mr. Young is also expecting “a round of healthy dividend increases, the setup of NCIBs and stock buybacks of approximately 2 per cent of shares outstanding” during 2022.

“The Big 6 Canadian banks on average are trading just above their 20-year historical average P/4QFEPS multiples, but below their historical average P/BVPS multiples,” he said. “The stocks underperformed in FY20 on the back of the unprecedented economic situation caused by COVID-19; however, they recovered nicely in FY21 from better-than-anticipated credit results and an improved economic outlook. With the accelerated economic reopening well underway, we believe the setup is good for the banks over the next year. That said, there are some near-term headwinds such as normalizing capital markets activity and the potential for a cooling housing market. In addition, it’ll be a tough year-over-year comp for cash EPS in FY22, as FY21 included significant performing loan ACL releases. And COVID-19 risks have clearly not disappeared.”

Mr. Young upgraded his rating for Bank of Montreal (BMO-T) to “buy” from “hold,” citing four reasons: “(1) A more positive outlook for commercial loan growth in Canada through FY22; (2) a noteworthy amount of excess capital; (3) room for a healthy dividend increase; and (4) management’s commitment to managing the NIX ratio lower.”

With his increased financial estimates, he also raised his target prices for the eight banks in his coverage universe with Toronto-Dominion Bank (TD-T) remaining his “top pick.”

In order of preference, his changes are:

  1. Toronto-Dominion Bank (TD-T, “buy”) to $100 from $97. The average on the Street is $93.73.
  2. Bank of Nova Scotia (BNS-T, “buy”) to $90 from $89. Average: $87.67.
  3. Canadian Western Bank (CWB-T, “buy”) to $45 from $44. Average: $42.08.
  4. Royal Bank of Canada (RY-T, “buy”) to $143 from $141. Average: $144.13.
  5. Bank of Montreal (BMO-T, “buy”) to $146 from $138. Average: $144.87.
  6. National Bank of Canada (NA-T, “buy”) to $108 from $103. Average: $104.50.
  7. Canadian Imperial Bank of Commerce (CM-T, “hold”) to $157 from $154. Average: $161.47.
  8. Laurentian Bank of Canada (LB-T, “hold”) remains $48. Average: $46.36.


Seeing “what now appears to be a definitive resolution” to the board dispute at Rogers Communications Inc. (RCI.B-T), RBC Dominion Securities analyst Drew McReynolds raised his recommendation for Shaw Communications Inc. (SJR.B-T), seeing an “attractive risk-adjusted return” to its proposed takeout value.

Explainer: The Rogers family feud: From a butt-dial to a B.C. Supreme Court case, here’s what’s happening inside Canada’s biggest telecom boardroom

“Our primary focus through the family-Board dispute at Rogers was on the timeline for a definitive resolution, acknowledging that any prolonged lack of family-Board alignment could have repercussions for the Rogers-Shaw transaction,” he said. “On November 7, Rogers announced that the company would not seek an appeal of the November 5th B.C. Supreme Court ruling, which made valid, effective, and binding the appointment of five new independent directors while reinstating Edward Rogers as Chairman. We view this resolution as sufficiently adequate for the Rogers-Shaw regulatory approval process to now proceed unencumbered, including the commencement of the CRTC hearing on November 22.”

Raising Shaw to “outperform” from “sector perform,” Mr. McReynolds said the highly publicized dispute did not change hos long-standing view that the Rogers-Shaw transaction should close.

“We continue to view this transaction as transformative for Rogers, with Shaw’s fiber and fixed infrastructure a strategic necessity for Rogers to remain competitive versus BCE and TELUS on 5G (and future generations),” he said. “Due to this strategic necessity, we see a variety of wireless remedy scenarios that could be put forward to address any regulatory concerns in order to receive the required approvals. While the exact timing of receiving such approvals is unclear, we believe each regulatory process(CRTC, ISED, Competition Bureau) remains sufficiently on track for aH1/22 closing date consistent with the originally announced timeline for the transaction.”

He maintained a $40.50 target for Shaw shares based on the Rogers proposal. The average on the Street is currently $40.25.

“Notwithstanding the Rogers Board dispute, the dealspread has remained stubbornly wide since the transaction was announced on March 15, 2021, which we attribute in part to an extensive regulatory review process, a degree of uncertainty around the timeline for closing, and added political uncertainty in advance of the Canadian federal election on September 20, 2021,” he said. “We derive a standalone value for Shaw of approximately $28, which assumes that the $1.2-billion break fee would be largely offset by future spectrum outlays in 2023 and 2024. Given what we believe is a high likelihood of deal approval by H1/22, and with downside in a no-deal scenario anchored by our standalone value, we believe the risk-adjusted return is compelling within our telecom coverage, warranting an Outperform rating. Furthermore, in the low-probability scenario where the deal does not close, we see other potential strategic suitors for Shaw (such as Quebecor) further limiting the downside in Shaw shares.”


When Loblaw Companies Ltd. (L-T) reports its third-quarter results on Nov. 17, CIBC World Markets’ Mark Petrie is expecting to see signs of a “continued tailwind from more normalized shopping patterns and the broad reopening of the economy, as well as payoffs from more disciplined execution.”

The analyst is now projecting revenue for the quarter of $15.816-billion, up 0.9 per cent year-over-year and above the Street’s forecast of $15.772-billion. He expects adjusted earnings per share to jump 14.1 per cent to $1.46, a penny higher than consensus.

“Loblaw has showcased improved financial performance in H1/F2021, and we believe investors will be focused on retail GM% and cost discipline once again,” said Mr. Petrie. Management noted last quarter it expects sales to be negative across both discount and conventional banners, and we forecast food same-store sales (SSS) of negative 1 per cent (CPI averaged a rise of 2.6 per cent). For Shoppers, we expect frontstore SSS of 4 per cent and flat pharmacy SSS (lapping 10.3 per cent). Below the top line, we forecast retail GM% to expand 92 basis points year-over-year due to favourable business mix and better promo management while we expect continued cost discipline (retail SG&A dollars up 3 per cent year-over-year) to lead to consolidated EBITDA of $1,604-million or 10.1 per cent of revenue, up 45 basis points year-over-year.

“On the call, we will look for updates on: 1) the outlook for inflation into F2022 (multiple CPG companies have noted the potential for another round of price increases), 2) retail excellence initiatives (i.e., store network optimization, merchandising programs and store conditions), and 3) updates to full-year guidance.”

After increasing his enterprise value-to-EBITDA multiple for its Retail segment, Mr. Petrie hiked his target for Loblaw shares to $106 from $96, exceeding the $92.55 average, with an “outperformer” rating.

“Loblaw has a leading market position across diversified but related businesses and a collection of strong assets including its store base, e-commerce, private label and loyalty programs,” he said. “We believe Loblaw is well positioned to benefit from a return to more normalized day-to-day consumer routines and shopping patterns. Furthermore, Loblaw’s renewed focus on retail excellence – a reprioritization of strategic initiatives as well as operating and financial discipline – should result in improved financial performance in fiscal 2022.”


Citing its current valuation, iA Capital Markets analyst Frédéric Blondeau lowered his recommendation for BTB Real Estate Investment Trust (BTB.UN-T) following the release of third-quarter operations that largely fell in-line with his expectations.

After the bell on Monday, the Montreal-based REIT reported funds from operations of 9.2 cents per unit, which missed his 10.2-cent estimate. However, its net operating margin of 56.6 per cent topped the analyst’s 56.0-per-cent forecast.

“The financial performance was momentarily impacted by the cash balance and consequent timing of acquisitions,” said Mr. Blondeau.

“We expect BTB to acquire $10-million and $50-million in property during the remainder of 2021 and in 2022, respectively.”

Trimming his financial estimates through 2022, he moved the stock to “hold” from “buy” with a target of $4.40, down from $4.50. The average is $4.41.

“As a reminder, we upgraded BTB to a Buy rating on November 11, 2020, when the unit was trading at $3.09 per unit,” Mr. Blondeau said. “We believe the unit performance over the same period is largely explained by management’s ongoing leadership and portfolio resilience despite volatile market conditions.”


Firm Capital Apartment Real Estate Investment Trust’s (FCA.U-X) “discount” valuation provides an investors with an “attractive” entry point, according to Echelon Capital analyst David Chrystal.

He initiated coverage of the Toronto-based multi-family property operator with a “buy” recommendation on Tuesday, seeing its portfolio provide exposure to “exceptionally strong” U.S. Sunbelt markets as locations in the U.S. Northeast that are in the “mid-stage of a post-COVID rebound.

“We expect a recovery in these markets to be a catalyst to narrowing the current valuation gap,” said Mr. Chrystal.

“Nearly 40 per cent of FCA’s asset base (net) is located in urban markets in the US Northeast, where the impact of COVID on apartment fundamentals was most severe (in particular New York City). Demand fell sharply, driving vacancy higher and rents and apartment values lower. Since bottoming out in January 2021, New York City rents have increased by 30 per cent, surpassed pre-COVID highs, and continue to trend higher. We expect that as leases at current market rents take effect, FCA’s cash flows and NAV will increase.”

The analyst sees Firm Capital possessing an investing philosophy “built for all weather,” noting: “FCA offers investors a unique opportunity to participate in multiple levels of the capital stack, including (1) outright ownership; (2) high-torque common equity in joint ventures; (3) lower risk preferred equity in joint ventures; and (4) mortgage and preferred capital lending. The flexibility to invest across the capital stack allows management to seek opportunities in various market conditions, where outright ownership may provide lower risk-adjusted returns.”

Mr. Chrystal set a target of $8.50 per unit, which represents a potential 12-month total return of 34.4 per cent. It matches the current consensus on the Street

“The impact of COVID on the U.S. apartment sector (broadly) was relatively minor and short-lived, with the exception of several high-priced urban markets,” he said. “Private asset values continued to increase, bad debt was a non-issue in many markets, and rents that were largely flat in 2020 have grown at an unprecedented rate year-to-date. US REIT valuations largely reflect the rapid recovery in fundamentals, and the sector currently trades at an 8% premium. FCA currently trades at a steep discount to NAV, which we believe is in part attributable to its Northeast US exposure, where fundamentals are lagging the broader market recovery, and bad debt remains relatively elevated owing to eviction regulations that remain in place. We believe that the current discount valuation is an attractive entry point given that (1) over 60% of the REIT’s net asset base is located in Sunbelt markets, and (2) with rents above pre-pandemic levels in all of the REIT’s core markets, we expect that asset values will rebound, driving NAV higher.”


Raymond James analyst Stephen Boland thinks it is an “ideal time” for investors to own Propel Holdings Inc. (PRL-T), seeing the Toronto-based online financial technology company entering into a “period of high Combined Loans and Advances growth with an associated increase in revenue.”

“Despite some concerns regarding the credit performance of sub-prime borrowers in times of economic uncertainty, studies have shown this segment of the lending market outperforms the prime and near-prime segments in terms of delinquencies (on a relative basis),” he said.

“The robust growth in the portfolio has been driven by an expansion of products, distribution channels, and facilitating access to credit in additional U.S. States. All are contributing to a 91-per-cent CAGR [compound annual growth rate] in Combined Loan and Advance Balances from 2018 to 2Q21. Combined Loan and Advance Balances have increased to $80-million, up from $13-million over that time period.”

Expecting “robust” growth over the next 18 months and the announcement of a quarterly dividend before the end of 2021, Mr. Boland initiated coverage with an “outperform” rating and $15 target, becoming the first analyst on the Street to publicly cover the stock.

It began trading on the Toronto Stock Exchange on Oct. 20 following an initial public offering.

“We are assuming 62-per-cent growth in revenue in 2022 compared to 2021,” he said. “As the business scales, the impact to net income accelerates, as well. We are estimating net income increases to $34.9 million in 2022 up from $6.2 million in 2021.”


In other analyst actions:

* Scotia Capital analyst Mark Neville increased his ATS Automation Tooling Systems Inc. (ATA-T) target to $63 from $54 with a “sector outperform” rating, while National Bank Financial analyst Maxim Sytchev raised his target to $60 from $54 with an “outperform” rating and Stifel’s Justin Keywood bumped up his target by $2 to $58.50 with a “buy” recommendation. The average is $59.10.

“The proposed acquisition of SP Industries appears to be highly strategic – i.e., gives ATS exposure to fast growing, regulated markets via a business with proven technologies, a strong brand and market position, blue-chip customers, and a recurring revenue base,” said Mr. Neville. “It also appears to be highly synergistic, with management speaking to seven ‘linkages’ to ATS – i.e., via Comecer, ATS Life Sciences, IWK, Illuminate, PA, BioDot, and cultural fit. While the purchase multiple was fair/full (it was a competitive process), in our opinion, it’s reasonable as product-based business can trade at 20 times plus EBITDA. While leverage will increase to 3 times pro forma (management’s estimate; we’re closer to 2.5 times but that assumes growth in the acquired and underlying business), the company generates at lot of cash and anticipates deleveraging at approx. 1 times p.a. That said, in our opinion, external financing (i.e., equity) wouldn’t be a bad idea as the company continues to cite a healthy M&A funnel – and if you’re stock reacts well (up 6%per cent intraday) to paying 15 times LTM EBITDA (12 times with synergies), the market clearly likes what you’re doing in terms of M&A.”

* Canaccord Genuity analyst Matthew Lee cut his target for Bragg Gaming Group Inc. (BRAG-T) shares to E$21 from $30 with a “speculative buy” rating. The average is $23.63.

“While we don’t expect to see meaningful revenue contributions from markets like Canada, Italy, and the UK in the near term, given the success the company is seeing in the Netherlands (25-per-cent market share within one year), we believe the long-term potential for growth in these markets is substantial,” said Mr. Lee. “We maintain our Speculative BUY rating on BRAG given our expectation for robust growth and increasing market penetration but lower our target to $21 to reflect the broader sell-off in comps over the last six months.”

* MKM Partners analyst William Kirk cut his Canopy Growth Corp. (WEED-T) target to $28 from $51 with a “buy” rating. The average is $20.74.

* Mr. Kirk also lowered his Curaleaf Holdings Inc. (CURA-CN) to $22 from $23, below the $27.28 average, with a “buy” rating, while Canaccord Genuity’s Matt Bottomley trimmed his target to $22 from $24 with a “buy” recommendation and Stifel’s Andrew Partheniou cut his target to $31 from $33 with a “buy” rating.

“On Monday evening, Curaleaf reported Q3/21 financial results that came in shy of our expectations with only modest incremental top-line growth and sequentially lower gross margin and adj. EBITDA profiles,” said Mr. Bottomley. “Although somewhat soft vs. our expectations, we believe the company is still strongly positioned heading into 2022. However, Q3/21 nonetheless highlights the risk that quarter-over-quarter fluctuations could still be in the mix going forward given the capital investment and the ramping of sizable infrastructure required to service an industry that is still in a fairly high state of growth.”

* National Bank Financial analyst Michael Parkin raised his Centerra Gold Inc. (CG-T) to $12.50 from $12.25, exceeding the $10.83 average, with an “outperform” rating.

* CIBC World Markets analyst Stephanie Price raised her Dye & Durham Ltd. (DND-T) target to $46 from $44, keeping a “neutral” rating. Others making changes include: BMO’s Thanos Moschopoulos to $55 from $50 with an “outperform” rating and Canaccord Genuity’s Robert Young to $60 from $55 with a “buy” recommendation. The average is $53.40.

“Dye & Durham reported strong FQ1 results, with adjusted EBITDA 22 per cent ahead of expectations,” said Ms. Price. “Guidance was also raised based on the TM Group acquisition, but did not include U.K. synergies given the ongoing CMA review. While DND posted solid results in the quarter, we remain uncertain whether DND can continue to execute using the same M&A model that has been so successful to date, with the company levering up post the strategic review, its most recent acquisition in the midst of a U.K. competition review, and the housing market showing signs of slowing.”

* National Bank Financial analyst Jaeme Gloyn cut his ECN Capital Corp. (ECN-T) target to $6.50 from $12.50 with an “outperform” rating. The average is $10.11.

* CIBC’s Jamie Kubik lowered his Enerflex Ltd. (EFX-T) target to $10 from $12, below the $12.14 average, with a “neutral” rating.

“We are adjusting our expectations for Enerflex’s EBITDA generation in the coming quarters following a more fulsome review of its Q3/21 disclosures,” said Mr. Kubik. “Management was pretty clear in its conference call last week that margin weakness is likely to persist for multiple quarters in its Engineered Systems segment, and while we believe there is an element of added precaution in management’s commentary, we have moderated our near-term margin expectations for Q4/21 and Q1/22 to allow for a more nascent recovery occurring in H2/22. The negative revisions drive down our expectation for 2022 EBITDA generation and, as such, we revise our price target lower in concert.”

* Raymond James analyst Bryan Fast raised his Finning International Inc. (FTT-T) target to $43 from $40, exceeding the $42 average, with an “outperform” rating.

“We continue to point to the valuation disconnect between Finning and peer Toromont as support for our positive view on the name,” said Mr. Fast. “On a relative basis, Finning’s stock is now trading at a 8.6-times point discount to Toromont, vs. the historical average at 3.6 times. “Though we remind investors it is a mistake not to own Toromont’s shares because of an expensive relative valuation, the premium is still well above long-term levels. In what we view as a conducive environment for Finning (key commodity price strength, reopening of economies, healthy backlog) we see further potential upside, particularly as the company realizes the benefits from an improving macro backdrop and operational leverage after improvements in the business in recent years.”

* Credit Suisse analyst Mike Rizvanovic raised his Great-West Lifeco Inc. (GWO-T) target to $41 from $40, keeping a “neutral” rating. The average is $40.90.

* Mr. Rizvanovic also increased his target for Sun Life Financial Inc. (SLF-T, “outperform”) to $78 from $74, while he lowered his Manulife Financial Corp. (MFC-T, “neutral”) target to $26 from $27. The averages are $76.19 and $29.80, respectively.

* CIBC’s Dean Wilkinson increased his InterRent Real Estate Investment Trust (IIP.UN-T) target by $1 to $19.50 with a “neutral” rating. Others making changes include: Desjardins Securities’ Michael Markidis to $21 from $20 with a “buy” rating; BMO’s Joanne Chen to $20 from $18.75 with a “buy” rating; Canaccord Genuity’s Mark Rothschild to $19.50 from $18.50 with a “hold” rating; RBC’s Matt Logan to $21 from $19.50 with an “outperform” rating and TD Securities’ Jonathan Kelcher to $21 from $20 with a “buy” rating. The average on the Street is $19.80.

“Supported by modest rent growth and a meaningful occupancy improvement, InterRent REIT’s strategy is clearly working,” said Mr. Logan. “While the impact of robust September leasing activity was not fully reflected in FFOPU and SPNOI, we expect this will become more visible in Q4. This momentum, together with continued rent growth, provides a positive set-up for 2022 — particularly if borders fully re-open and immigration resumes. Big picture, we continue to see the business as well positioned to deliver above-average growth over a multiyear horizon.”

* CIBC’s Hamir Patel raised his Hardwoods Distribution Inc. (HDI-T) target to $59 from $51 with an “outperformer” rating. Others making tweaks include: Acumen Capital’s Nick Corcoran to $70 from $60 with a “buy” rating and Canaccord Genuity’s Yuri Lynk to $74 from $66 with a “buy” rating. The average is currently $63.30.

“HDI remains our top pick in the building and forest products space,” he said. “We are increasing our price target ... on higher estimates. ... With 70 per cent of the company’s sales derived from housing end-markets, HDI is well-positioned to benefit from the multi-year period of elevated North American housing activity we are forecasting on the back of low mortgage rates and favorable demographic trends. At the same time, we believe HDI (#1 hardwoods distributor) is well-positioned to pursue additional accretive acquisitions in the fragmented non-structural architectural building products distribution industry (including potential Novo-scale targets).”

* RBC’s Sabahat Khan lowered his target for Mav Beauty Brands Inc. (MAV-T) to $1.50 from $3 with a “sector perform” rating, while Acumen Capital’s Nick Corcoran cut his target to $2 from $3.50 with a “hold” rating and Canaccord Genuity’s Matthew Lee trimmed his target by $1 to $2 with a “hold” rating. The average is $2.92.

“MAV Beauty Brands Inc. reported Q3/21 results that were below RBC and consensus forecasts. The lower-than-expected results reflected a shortfall on the top-line and on margins. Looking ahead, we have lowered our forecasts to reflect our outlook for softer top-line growth and weaker margins given elevated costs,” said Mr. Khan.

* Mr. Khan raised his Recipe Unlimited Corp. (RECP-T) target to $23 from $22 with a “sector perform” rating. The average is $26.50.

“Recipe Unlimited Corporation reported Q3 results that were in line with RBC and consensus forecasts. We maintain our cautious view at this time given the uncertain outlook for restaurant traffic over the winter months and potential for supply chain/labor challenges to impact results over the near term,” he said.

* CIBC’s Todd Coupland lowered his Thinkific Labs Inc. (THNC-T) target to $18 from $20, below the $19.61 average, with an “outperformer” rating, while Canaccord Genuity’s Robert Young cut his target to $16 from $17.50 with a “buy” rating.

“Thinkific’s Q3 results were slightly better than expected,” said Mr. Coupland. “The quarter benefitted from improving new paying customer adds in August and September and ARPU expansion as paying customers upgraded to higher subscription plans. Guidance for Q4 was in line with expectations. Looking forward, Thinkific expects growth will return to pre-pandemic rates realized in 2019 or 63 per cent. We have revised our 2022 forecast and now expect a growth of 62 per cent. Given planned go-to-market investments and the full launch of Thinkific Payments, we expect our forecast will be achieved. Thinkific’s shares are attractive, and should be purchased on further weakness.”

* RBC’s Geoffrey Kwan cut his TMX Group Ltd. (X-T) target to $157 from $159, reiterating a “sector perform” rating. The average is $154.57.

“Q3/21 adjusted EPS was below our forecast with the shortfall coming from various line items. Bigger picture, fundamentals remain overall positive with capital raising activity and derivative trading remaining strong and Trayport providing solid growth, partly offset by moderating equity trading revenues. The integration of the AST Canada acquisition will take time, but should have a positive impact on earnings over time,” said Mr. Kwan.

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