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

After it finished 2021 on “quite a high note,” National Bank Financial analyst Adam Shine predicts Spin Master Corp. (TOY-T) is poised to see “greater strength than usual” in the first quarter of its current fiscal year.

“TOY appeared to enjoy clean sell-through at retail to close out 4Q22 while building up inventory to not only cope with evolving supply chain issues but also given ongoing demand and expectations for DC-licensed product ahead of this week’s release of The Batman,” he said.

On Monday after the bell, the Toronto-based toymaker reported fourth-quarter financial results that exceeded the expectations of both Mr. Shine and the Street despite pre-releasing revenue results on Feb. 1.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $78.3-million, up 52 per cent year-over-year and above both the estimates of both the analyst and consensus ($61.8-million and $59.4-million, respectively). Adjusted earnings per share of 37 cents was a 160-per-cent jump and also above forecasts (31 cents and 22 cents) as margins topped expectations.

“Despite supply chain issues, TOY successfully got product to retailers amid strong consumer demand for PAW Patrol products as well as licensed offerings,” said Mr. Shine.

“TOY’s revised 2021 outlook called for GPS to grow mid-teens (it was 20.9 per cent), Total Revs to be up slightly above 20 per cent (it jumped 30.0 per cent), and Adj. EBITDA margin to be at the high end of mid-to-high teens (it was 20.3 per cent). Important to note is that the PAW Patrol movie contributed $26-million of distribution revs in 3Q21. The company’s 2022 guidance adjusts for the latter, as TOY expects mid-to-high single-digit growth in GPS and also Total Revs (ex-$26-million) plus Adj. EBITDA margin similar to 2021′s 19.25 per cent ex-$26-million. 1Q22 appears poised for greater strength than usual.”

Touting its “strong” free cash flow and emphasizing its “cash pile continues to grow,” Mr. Shine raised his target for Spin Master shares to $66 from $63, keeping an “outperform” rating. The average is $57.18.

Elsewhere, RBC’s Sabahat Khan raised his target by $1 to $63 with an “outperform” rating.


Toronto-Dominion Bank’s (TD-T) US$13.4-billion acquisition of U.S.-based bank First Horizon Corp. is an “attractive acquisition on paper,” according to National Bank Financial analyst Gabriel Dechaine.

However, the market “took a different view” of the deal, announced Monday before the bell, sending TD shares down 2.3 per cent on the day.

“TD’s US$13.4-billion acquisition of FHN is highlighted by the following: 1) more than 10-per-cent accretion on a fully synergized basis; 2) US$610-million of cost synergies that represent 33 per cent of FHN’s cost base; and 3) a pro forma CET 1 ratio above 11 per cent, compared to TD’s Q4/21 15.2-per-cent ratio. Aside from the financial aspects of the transaction, the main benefit to TD is gaining access to new and attractive markets (e.g., TN, GA, TX) and increasing scale in existing ones (e.g., FL, VA),” said Mr. Dechaine. “Rightly or wrongly, the announcement answers the question every investor asks of us and TD’s management team: how are you going to deploy all that excess capital?”

“In our discussions with investors, there were three main areas of pushback. First, investors cited concern with a ‘11 per-cent-plus’ pro forma CET 1 ratio at close. However, we believe accretive deployment of capital is something to appreciate as banks face earnings pressures from credit normalization. Moreover, we estimate TD’s CET 1 ratio will be comfortably above 12 per cent if/when the deal closes. The three-year timeframe to achieve cost synergies was a disappointment to some. However, considering the challenges FHN itself faced integrating IberiaBank, we believe a timeline that potentially under-promises to over-deliver is preferable. Finally, most investors pushed back on the US$494-million investment TD is making in FHN’s ‘Growth & Enhancement,’ of which 30 per cent is dedicated to employee retention. In our view, this figure should be included in the purchase price and needs additional clarification (i.e., 70 per cent is for other than employee retention).”

Andrew Willis: Terms of TD’s First Horizons takeover reflect regulatory scrutiny, staff turnover

Increasing his estimates to reflect First Horizon’s earnings and other adjustments, including pausing of buybacks, Mr. Dechaine raised his target for TD shares to $110 from $108, keeping an “outperform” rating. The average is $109.49.

“We are factoring in minimal cost synergy benefits in 2023 and estimate a deal closing at the start of Q2/23. We are, however, reducing our target P/E multiple to 12.5 times from 13 times to reflect execution risk,” he said.

Elsewhere, Cormark Securities’ Lemar Persaud raised his target to $117 from $111 with a “market perform” rating.


Volatility in the fertilizer market “remains unfettered,” according to Stifel analyst Vincent Anderson.

“Conflict between Russia and Ukraine has already spurred a sharp upward reversal in USGC urea prices, and Black Sea ammonia export disruptions combined with rising European gas costs could keep Tampa ammonia tighter for longer,” he said. “The positive pricing on India and China potash vs. our prior expectations had already significantly de-risked our outlook, while the Russia/Ukraine conflict adds upside even if we believe sanctions will have a limited effect on Russia’s ability to place potash volumes into export markets. Phosphate is set to see greater cost-curve-driven support though the conflict on a whole is likely to add some fundamental tightening as well. The significant supply-side volatility countered with ever-increasing affordability concerns has spurred us to push valuation past 2022 to what we expect (hope) is a more normalized 2023, though cash windfalls in 2022 positively impact price targets.”

In a research note released Tuesday, Mr. Anderson said it is difficult for investors to " fight valuation cycles on commodity companies, almost regardless of near-term upside.”

“While our out-year fertilizer price deck has reset markedly higher from just a year ago, we contend incremental bidders on shares into presumably peak earnings, no matter how much more limited downside has become, are difficult to come by,” he noted. “Absent a more severe correction in prices on affordability (and presuming supply-side issues are largely resolved in the next 6 months), we are derisking our medium-term outlook on shares. But for valuation purposes, the current volatility in fertilizers pushes our valuation out to 2023 vs. blended 2022/23 previously, where we assign a more mid-cycle appropriate multiple and give companies the benefit of the cash windfall expected in 2022 in our enterprise value calculations while not including this year’s outsized earnings directly. These cash warchests should offer ample downside protection, though from a timing perspective we choose to maintain current recommendations until we find greater clarity on supply/demand through the 2022 season.”

With that view, Mr. Anderson hiked his target for shares of Saskatoon-based Nutrien Ltd. (NTR-N, NTR-T) target to US$100 from US$85, reiterating a “buy” recommendation. The average is US$88.04.

“We favor Nutrien for its high-quality and balanced exposure to fertilizer markets, given the firm’s significant assets in potash and nitrogen, as well as its defensive position in crop product retail,” he said. “Nutrien is also unique in its strong pipeline of accretive “tuck-in” retail acquisitions, as well as potential for larger scale M&A transactions in Brazil. Additionally, execution on merger synergies, as well as redeploying capital from recent significant divestments, should be key share-price drivers.”


Seeing its upside as “too big to ignore,” RBC Dominion Securities analyst Nelson Ng upgraded Green Impact Partners Inc. (GIP-X) to “outperform” from “sector perform,” projecting “significant” value creation if it procures its Calgary Future Energy Park development.

“If management successfully develops its Calgary ethanol and RNG project (Future Energy Park or FEP), we estimate that GIP could create over $700 million ($35 per share) of value (in excess of project costs),” he said. “When the project was initially announced in June 2021, management indicated that they would look to sell down a minority stake to fund its equity investment in the project. Using the low end of management’s EBITDA forecast and a pre-tax equity discount rate of 12 per cent, we estimate that GIP could potentially divest a 49-per-cent interest for $345-million (7 times EBITDA valuation). The proceeds would be used to fund GIP’s 51-per-cent equity investment ($184-million), and leaves GIP with $161-million ($8 per share) of cash that can be used to fund other developments.”

“It has been eight months since GIP announced the FEP project, and management has increased the size and scale of the project, and advanced the development. FEP is a largescale biofuel facility utilizing primarily non-food-grade wheat to produce annually over 300 million litres of ethanol, 3.5 million MMBTu of RNG, and 1.5 million tonnes of carbon-offset credits. Management expects the total project cost to be $900 million (including $150-million in contingencies), and generate $230-250 million in annual EBITDA, reflecting a 3.75-times build multiple. Management expects $180 million (75 per cent) of the total EBITDA will be contracted, which relates to RNG sales and carbon offtake credits.”

Also touting “attractive” near-term development returns and the “large opportunity to participate in [the] ESG decarbonization trend,” Mr. Ng raised his target to $14, up from $10 and above the $11.70 average on the Street.


Seeing it “firing on all cylinders,” BMO Nesbitt Burns analyst Jenny Ma upgraded Plaza Retail Real Estate Investment Trust (PLZ.UN-T) to “outperform” from “market perform.”

“We believe Plaza is currently positioned at an upward inflection point.,” she said. “The grocery/essential-anchored retail sub-asset class has proven itself resilient, and investor demand for this asset class is high, fueling cap rate compression. It is clear that this view has become more agnostic to primary vs. secondary/tertiary markets in Canada, provided there are attractive tenants, covenants, and lease terms in place, as is the case generally for Plaza.”

After “solid” fourth-quarter results and seeing it moving “back to growth mode, Ms. Ma raised her target to $5.65 from $5. The average is $5.13.

“Two years after COVID, we believe Plaza has not only moved past pandemic-related operational challenges, but the stability of its essential-retailer heavy portfolio and proven redevelopment model position it to resume its steady pace of growth,” she said. “Moreover, we believe Plaza is poised to surpass its historical high of $5.28 reached in October 2016, when its forward AFFO [adjusted funds from operations] multiple was 17 times, compared with 14.5 times currently and 17.5 times implied by our new target price.”

Elsewhere, Desjardins’ Michael Markidis raised his target to $5 from $4.75 with a “hold” rating.

“PLZ is emerging from the pandemic in a position of strength with occupancy reaching a multi-year high and a growing development pipeline,” Mr. Markidis said.


A series of equity analysts on the Street chopped their target prices for shares of Aurinia Pharmaceuticals Inc. (AUPH-Q) after its 2022 guidance for its lupus treatment, Lupkynis, fell well short of expectations.

After the bell on Monday, the Victoria-based biotech company reported fourth-quarter revenue of US$23.4-million, up 60 per cent from the previous quarter and above the Street’s forecast of US$22-million. An earnings per share loss of 27 US cents beat the consensus projection by 2 US cents.

However, it guided 2022 net revenue for Lupkynis to be in a range of US$115-million to US$135-million, up between 150-200 per cent year-over-year but 31 per cent below the Street’s estimate.

TSX loses another Canadian biotech as Aurinia sheds domestic listing in favour of Nasdaq

“We now forecast 2022 LUPKYNIS revenue of $128-million in 2022 (prev.: $157-million),” said RBC Dominion Securities’ Douglas Miehm. “We reduce the probability of AUPH’s take-out in our base case scenario from 50 per cent previously to 20 per cent following the aggressive ATM during Q4/21. However, we still believe AUPH remains an attractive take-out candidate in the mid to long term provided its IP position remains unchanged.”

Keeping an “outperform” rating, Mr. Miehm cut his target for Aurinia shares to US$27 from US$31. The average is US$29.67.

“We revise our 2022 revenues lower based on [Monday’s] revenue guidance,” he said. “We now forecast 2022 LUPKYNIS revenues of $128.1-million (including EU revenues of $2.2-million). Additionally, we forecast milestone payment of $30-million in H2/22.”

He added: “We believe Aurinia Pharmaceuticals is well positioned for future growth from its recently FDA-approved drug, voclosporin (brand name LUPKYNIS). We believe the lupus nephritis market is under-penetrated, with only one other FDA-approved therapy (BENLYSTA, approved in Dec. 2020) and no EMA approved therapy for the condition. Additionally, the established treatment paradigm consists of off-label medication and has significant room for improvement given complete remission rates only in the mid-teens. The Ph. III trial for voclosporin demonstrated a statistically significant improvement in patient outcomes when added to the current standard of care, with a renal response rate of 41 per cent. Following a 2021 launch in the US and 2022 launches in the EU and Japan, we believe LUPKYNIS can achieve peak global sales of $1-billion-plus.”

Others making target changes include:

* Bloom Burton’s David Martin to US$23 from US$26 with a “buy” rating.

“We have (again) adjusted down our near-term forecasts for Lupkynis due to COVID-19, but continue to believe based on physician feedback, that the drug will ultimately become a blockbuster,” said Mr. Martin.

* Cowen and Co.’s Ken Cacciatore to US$30 from US$35 with an “outperform” rating.

* SVB Leerink’s Joseph Schwartz to US$30 from US$35 with an “outperform” rating.


Seeing it reaching a “massive” inflection point, Echelon Partners analyst Rob Goff initiated coverage of VSBLTY Groupe Technologies Corp. (VSBY-CN) with a “speculative buy” recommendation, touting its execution on its current pipeline on projections and seeing “additional upside exists where current marquee deployments lead to scaled expansion into additional markets.”

“VSBLTY is approaching a massive inflection point, where execution on existing project deployments will see triple-figure top-line growth for three consecutive years spanning 2021-2023, while that trajectory ‘slows’ to an 58-per-cent CAGR [compound annual growth rate] from 2022-2027,” he said. “Additionally, gross/EBITDA margins are set to showcase SaaS economics, as an increasing unit deployment cadence brings both increasing recurring monthly revenue and growth, while the Company’s existing low-margin hardware sales transition from leader to laggard.”

Mr. Goff thinks the Vancouver-based company, which provides digital retail solutions, including QR codes and mobile applications, offers “clear potential” to exceed its current $110-million market capitalization, citing “the scope of environments its innovative artificial intelligence (AI)-powered software is helping to revolutionize.”

“VSBLTY’s total addressable market (TAM) is targeted to exceed $300-billion within four years, while its global marquee partners help the Company scale and de-risk groundbreaking deployments,” he said.

Mr. Goff, currently the lone analyst on the Street covering the stock, set a target of $1.75 per share.

“Our PT offers upside against execution toward our three- and five-year baseline adjusted revenue/EBITDA forecasts of $63.5-million/$9.0-million and $131.3-million/$35.0-million, respectively,” he said. “Our baseline scenario derives roughly 85 per cent of its revenues from the deployment of existing contracts, where we conservatively exclude VSBLTY’s 10-per-cent equity participation in its marquee partnership structure Austin GIS, a potentially transformational infrastructure-as-a-service (IaaS) entity offering the Company additional upside to realize considerable enterprise value. Furthermore, we see the addition of many large-scale deployments across its retail and burgeoning security pipeline that are not in our forecasts, which could support another layer of upside beyond our PT.”


In other analyst actions:

* Canaccord Genuity analyst Carey MacRury cut his target for Agnico Eagle Mines Ltd. (AEM-T) to $84, below the $86.67 average, from $90 with a “buy” rating, while TD Securities’ Greg Barnes reduced his target to US$62 from US$65 with a “buy” rating.

“Our reduced target price is largely a function of 8-per-cent lower production expected in 2023, combined with 4-per-cent higher cash costs, resulting in an 11-per-cent reduction in our 2023E EBITDA estimate,” said Mr. MacRury. “Our NAV estimate is 2 per cent lower. In our view, the production guidance likely reflects some conservatism with a chance to reset the bar for new Agnico going forward post the Kirkland merger. Agnico remains one of our top picks among the senior gold producers with a solid track record of operating performance, strong balance sheet, and low geopolitical risk. We believe the new Agnico has the potential to be a go-to gold mining name for generalists looking for lower-risk gold exposure, with additional value coming from potential synergies. AEM currently trades at 0.85 times NAV and 5.9 times 2022 EBITDA, in line with senior gold producer peers at 0.83 times and 5.4 times but well below its historical multiples. In our view, AEM should trade at a premium to the senior group (which it historically has).”

* CIBC World Markets analyst Scott Fromson raised his target for Automotive Properties REIT (APR.UN-T) to $17 from $16.50, exceeding the $14.85 average, with an “outperformer” rating, while Desjardins Securities’ Kyle Stanley bumped his target to $14.50 from $13.75 with a “hold” rating.

“After a muted year on the acquisition front in 2021, APR has ramped up capital deployment thus far in 2022,” Mr. Stanley said. “Over a series of transactions, it has leveraged its balance sheet to acquire $64-million year-to-date of automotive assets. Our target moves to $14.50 (from $13.75) on the back of incorporating post-3Q21 deal flow and updated NAV work; however, we maintain our Hold rating given (1) APR’s relatively modest FFOPU growth profile, and (2) it trades at a 17-per-cent premium to NAV (vs net-lease peers at a 4-per-cent premium.”

* Barclays analyst Gaurav Jain cut his Canopy Growth Corp. (CGC-Q, WEED-T) target to US$9 from US$14 with an “equalweight” recommendation. The average is US$11.65.

“Amongst the major Canadian manufacturers, Canopy continues to report the lowest gross margin and highest SG&A, suggesting that the breakeven point for Canopy’s Canadian business is much higher than peers, which is why the company is struggling to compete in the value segment of the market,” he said. “Canopy’s SG&A needs to be cut drastically: Per our analysis, even if Canopy were to increase its gross margin from 13 per cent to 28 per cent (average of Tilray, Organigram and Auxly), it will need to almost triple its sales to break even, while Tilray, Organigram and Auxly are already breakeven or close to breakeven. This suggests CGC needs to drastically cut its SG&A - indeed our back-of-the-envelope calculation suggests that CGC’s Canadian SG&A should be $150-million (vs the $300-500-million today - CGC doesn’t disclose geographical split of SG&A) to compete against the other companies.”

“Canopy is in a tough spot and its management needs to take drastic actions. We believe that Canopy’s exclusivity with Constellation Brands has a lot of value, which is why we maintain our EW, but reduce PT to $9. Our preferred stock in the cannabis space is Scotts Miracle Gro (OW, $165 PT).”

* CIBC’s Kevin Chiang raised his target for Chorus Aviation Inc. (CHR-T) to $6.25 from $6, keeping an “outperformer” rating. The average is $5.68.

* TD Securities analyst Steven Green raised his Eldorado Gold Corp. (EGO-N, ELD-T) target to US$12.50 from US$11.50. The average is US$15.80.

* Scotia Capital analyst Jason Bouvier cut his target for Enerplus Corp. (ERF-N, ERF-T) to US$15 from US$15.20, maintaining a “sector perform” rating, while TD’s Aaron Bilkoski also lowered his target to US$15 from US$15.20 with a “buy” recommendation. The average is US$16.20.

“Enerplus remains a top pick among North American conventional producers. Its core Bakken asset generates strong IRRs, will deliver modest growth, and offers significant running room. Continued divestiture of non-core assets should further highlight the strength of its core assets relative to its peers,” said Mr. Bilkoski.

* Scotia’s Michael Doumet raised his Intertape Polymer Group Inc. (ITP-T) target to $38 from $37, below the $38.83 average, with a “sector perform” rating.

“TP shares are fundamentally inexpensive,” said Mr. Doumet. “Following a 3Q21 EBITDA miss of 2 per cent, its shares have declined almost 20 per cent (peer group is down 3 per cent year-to-date). Our take is following: the market is treating ITP as though its profits have peaked (shares trades at a 13-per-cent discount to its historical EV/EBITDA). We don’t think that’s the case. Like most packaging names, we chalk up the anticipated negative comps in 4Q21 and 1Q22 to supply chain issues. Profit growth should inflect in the 2H22 as price/cost spreads expand, supply chains ease, and additional capacity ramps, carrying positive momentum into 2023E – and positioning ITP, once again, as one of the fastest organic growers in the space. Double-digit FCF yield is a rarity in the packaging space, particularly in the context of it achieving superior organic growth, having a large portfolio of sustainable products, and having well-capitalized B/S.”

* CIBC’s Anita Soni cut her Kinross Gold Corp. (KGC-N, K-T) target to US$7 from US$8.25, below the US$8.42 average, with a “neutral” rating.

* CIBC’s Dean Wilkinson raised his target for Morguard Corp. (MRC-T) to $180 from $175 with an “outperformer” rating. The average is $185.

“Fundamentals are improving and the company reported growth in book value per share of 8 per cent,” he said. “MRC continued to make gains in its asset management platform, and at year-end had total assets under management (both owned and managed) of $19.6-billion, while full-year management and advisory fees grew 8 per cent. The operating environment and growth outlook are improving across all the company’s segments, particularly in the hotel segment where performance continues to rebound as travel returns and the most recent wave of the pandemic subsides. Meanwhile, tenant demand for industrial remains robust and many geographies are continuing along in their economic re-openings which should support growth in office and retail. MRC is trading at a 16-per-cent discount to its historical average valuation on a consensus NAV basis (which has largely mirrored book value). As the company continues to deliver operationally, this gap could narrow throughout the year.”

* Barclays analyst J. David Anderson increased his Pason Systems Inc. (PSI-T) target to $16 from $14 with an “overweight” rating. The average is $15.54.

“4Q results were strong (record market share, record revenue per industry day), and management provided a bullish outlook with momentum expected to continue into 2022 despite margin headwinds the next few quarters as the company invests to realize future revenue gains,” he said.

* Raymond James analyst Michael Shaw raised his Pembina Pipeline Corp. (PPL-T) target by $1 t $44.50 with a “market perform” recommendation. The average is $44.79.

“Pembina’s 4Q results underscore the positive macro backdrop that also underpins its 2022 outlook. Core Pipeline and Facilities volumes were strong in 4Q (outside of Ruby and certain heavy oil pipelines), supported by favorable commodity prices, producers financial strength, and their increased drilling activity,” he said. “In addition to a strong end of 2021 in the infrastructure segments, Pembina had benefited from very accommodative marketing dynamics in the second half of the year. All of this resulted in a record end to 2021 and is positioning PPL well to reach the upper end of its $3.35- to $3.55-billion 2022 guidance range.

“Nonetheless, in our view, the macro backdrop for Pembina’s infrastructure segments and the promising marketing outlook for the first half of 2022 is already reflected in its valuation. Pembina is currently priced at 11.1 times our estimated 2023 EBITDA and 11.5 times our 2022 estimate (excluding the EBITDA contribution from the Ruby pipeline) – in-line with is valuation in recent years. With the equity fairly-priced in our view, we continue to rate Pembina as Market Perform.”

* Scotia’s Phil Hardie trimmed his Power Corp. of Canada (POW-T) target to $48.50 from $49, exceeding the $47.04 average, with a “sector perform” rating.

* CIBC’s Bryce Adams hiked his Teck Resources Ltd. (TECK.B-T) target to $50 from $42 with a “neutral” rating. The average is $50.42.

* Scotia Capital’s Trevor Turnbull raised his Torex Gold Resources Inc. (TXG-T) target to $25, above the $24.22 average, from $24. He kept a “sector outperform” recommendation.

Follow David Leeder on Twitter: @daveleederOpens in a new window

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