Inside the Market’s roundup of some of today’s key analyst actions
Even though SilverCrest Metals Inc. (SIL-T) reported a significant adjusted earnings beat on Monday that sent its shares surging, Desjardins Securities analyst John Sclodnick downgraded the precious metals producer on valuation concerns.
“We still view SIL as a lower-risk name in the precious metals space but are downgrading to Hold on valuation after it jumped as much as 20% during trading [Monday],” Mr. Sclodnick said in a note to clients. “We also see SIL lacking a meaningful near-term catalyst and expect cash generation to subside in the first half of the year on higher tax payments before free cash flow generation resumes in the second half of the year.”
According to the analyst’s calculations, adjusted EPS was 26 US cents a share, well ahead of the 11 US cents consensus and his estimate of 17 cents. “The beat was largely due to a tax recovery, which accounted for 9 cents of the beat vs our estimate,” Mr. Sclodnick said.
But some of the other reported results didn’t fare as well relative to the Street consensus. Cash flow per share of 21 US cents was 2 cents below consensus, with cash costs running above Mr. Sclodnick’s estimates. Cash costs for the year as a whole were in line with company guidance.
After updating his model with Monday’s results 2024 guidance, which was released in February, Mr. Sclodnick’s price target went to C$9.50, down from C$10.25.
The average analyst price target is C$9.14, according to Refinitiv Eikon data.
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National Bank Financial is reaffirming Fairfax Financial Holdings Ltd. (FFH-T) as a “top pick” after reviewing the company’s full fourth quarter financial statements, released on March 8th, and CEO Prem Watsa’s letter to shareholders.
The bank’s “outperform” rating and C$2,000 price target on Fairfax remain unchanged. The average analyst target is C$1,744.
“Fairfax is our 2024 Top Pick given i) solid operating income outlook, ii) valuation upside, and iii) potential index inclusion catalysts,” said National Bank analyst Jaeme Gloyn in a note to clients.
Fairfax is not part of the S&P/TSX 60 index. But it is close to being added to it by S&P Dow Jones Indices, which reviews the index’s stock holdings on a quarterly basis, based on a proprietary calculation of market capitalization that excludes insiders.
“Overall, we view the [quarterly] results favorably given the combination of 1) 7% q/q increase in book value per share on a 25% return on equity quarter; 2) significant operating income from the P&C insurance beat on a strong combined ratio of ~90%; and, 3) run-rate interest and dividend income of $2.0 billion,” Mr. Gloyn said.
The analyst also said Fairfax management provided “ample commentary” in response to allegations made in Muddy Water’s report in early February against the company. Muddy Waters, which shorted Fairfax stock, claimed the company manipulated asset values. Fairfax denies the allegations.
Mr. Gloyn also provided several takeaways from this year’s CEO letter: “1) Overall, CEO Prem Watsa struck an upbeat tone in his annual letter to shareholders. Notably, the number exclamation points - a sign of excitement - totaled 57 this year (!) which compares to 34 last year and 27 in 2021. 2) Fairfax reiterated they expect sustainable $4 bln in annual operating income (up from $3 bln), consisting of $2 bln from interest and dividend income, $1.2 bln of underwriting profit and $750 mln from associates and non-insurance. We agree with management’s additional commentary on the Q4-23 conference call suggesting this expectation is conservative. 3) We found additional colour on investments in Poseidon (expected to generate $400 mln in net earnings in 2024 and $500 mln in 2025) and Eurobank (~$1.2 bln recurring earnings in 2023 and intiating a dividend in 2024) as confidence inspiring for non-insurance income. 4) Market values of associates and consolidated investments exceed carrying values by ~$1.0 bln (or ~$43 per share), reflecting several businesses carried at single digit multiples of FCF and/or below book value.”
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TD analyst Menno Hulshof downgraded Athabasca Oil Corp. (ATH-T) to “hold” from “buy” citing valuation concerns relative to peers. His price target remains at C$6.
“ATH shares have rallied 54% since our early-December upgrade, outperforming pure-play MEG (+22%) and its oil-weighted peers (BTE/CPG/SCR/WCP; +9% on average). Year-to-date, ATH is the top-performer across our coverage. Assuming US$75/bbl WTI (US$14/bbl WCS heavy differential), ATH is trading at 4.0x 2025E EV/DACF multiple vs. MEG at 4.6x and oil-weighted peers at 2.7x. On 2025E FCF yield, ATH is trading at 16% vs. MEG at 15% and oil-weighted peers at 20%
The average price target on Athabasca is C$5.64.
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TD analyst Craig Craig Hutchison upgraded mining royalty company Altius Minerals Corp. (ALS-T) to “buy” from “hold” on an improving revenue and earnings outlook. His target price went to C$23 from C$22.
“Over the past 12 months, Altius’ portfolio has experienced a number of headwinds, including the loss of royalties from 777, the wind-down of its thermal coal revenues, and declining potash royalties on lower prices. Over the next 12 months, the company’s revenues should stabilize, with potash prices having leveled off, and revenues should start accelerating from 2025, driven by the growth in the company’s renewables portfolio,” the TD analyst said.
Mr. Hutchison is forecasting $30 million of free cash flow in 2024, which could support further share repurchases, dividend increases, and/or new royalty acquisitions.
He also sees a couple of potential near-term catalysts for the stock.
“A key catalyst for Altius, in our view, would be a positive arbitration settlement surrounding the application of its 1.5% NSR on AngloGold Ashanti’s ‘Expanded Silicon Project’, and surrounding satellite deposits, which currently hosts an estimated ~17Moz of gold. Silicon has the potential to be a significant multi-decade producing royalty, which Altius could either maintain, monetize, or swap for a base metals royalty with another royalty company.
A second potential catalyst is the Kami project in Labrador, he said. “Kami (3% gross smelter return) has the potential to be Altius’ single largest royalty, should the iron ore project get sanctioned by Champion. Champion is reviewing partnership options for the project and, if successful, this could be a significant catalyst, in our view, to surface value for Altius.”
The average price target is C$23.47.
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BMO analyst John Gibson downgraded STEP Energy Services (STEP-T) to “market perform” from “outperform” after disappointing quarterly results and a cautious outlook by the oilfield services company. His price target was dropped to C$4.50 from C$7.50.
Adjusted EBITDA of $18 million was well below BMO’s $32 million estimate and consensus of $30 million. EBITDA margins compressed significantly to 9 per cent due to some significant work deferrals in the quarter, the analyst noted.
“Post quarter, our 2024 and 2025 EBITDA estimates move to $207 million and $211 million, respectively ($222 million and $227 million prior),” Mr. Gibson said in a note. “STEP’s valuation continues to sit at an inexpensive level of ~1.5x 2025 EV/ EBITDA, while leverage has moved to an impressive 0.5x. Pressure pumping work can be lumpy quarter to quarter given the project-oriented nature of the business. That said, given STEP’s mixed outlook into 2H/24, combined with our preference for some of its Canadian only peers (namely SHLE/TCW), we are downgrading the shares.”
Mr. Gibson said 2024 has begun stronger for the company, and that the company is now able to aggressively pursue buying back shares due to significant balance sheet improvements.
The average price target is C$6.41.
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ATB Capital Markets has bolstered its price target on Boyd Group Services Inc. (BYD-T) ahead of the company’s fourth quarter results on March 20. Its target went to C$350 from C$300, which reflected updated estimates, primarily for foreign exchange fluctuations, with unchanged assumptions for same-store revenue growth and margins.
“Shares have moved higher with the market, but valuations have also begun to normalize back toward pre-COVID levels, with expectations firming for consistent margin performance driven by cost catch-up with insurance partners, leverage on scale, and internalization of new scanning and calibration services,” said analyst Chris Murray.
“We continue to see significant growth ahead for Boyd shares and would continue accumulating into the quarter,” he added. ATB continues to rate Boyd “outperform”.
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ATB Capital Markets analyst Martin Toner raised his price target on Galaxy Digital Holdings Ltd. (GLXY-T) to C$17 from C$13 to reflect a stronger-than-expected rally in cryptocurrency prices. He continues to rate the stock “outperform.”
“Over the past two months, the price of Bitcoin (BTC) has seen a significant appreciation, rising nearly 64% YTD. GLXY benefits from the increase in BTC price through numerous levers, such as increased trading volume, lending activity, assets under management, and mining revenue. Another source of value creation is appreciation in GLXY’s book value, of which a significant portion is made up of digital assets held by the company on its balance sheet,” Mr. Toner said in a note.
The company reports earnings on March 26.
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Scotiabank analyst Mario Saric trimmed his price target on Allied Properties REIT (AP-UN-T) after it made a couple of office real estate purchases.
Allied announced acquisitions of 400 West Georgia in Vancouver and 19 Duncan in Toronto from real estate developer Westbank.
“We see both positives (mix of short-term and longer-term) and challenges (short-term),” the analyst said.
“We think portfolio and earnings quality moves up, but so does financial leverage, while our estimates fall, but not enough for us to be overly concerned about the distribution (our revised 2024E-2025E adjusted funds from operations payout ratio = 96%-97%), which we still consider sustainable in 2024 pending expected occupancy gains. Net-net, we still think a mid-teen total return compounded annual growth rate through 2025-2026 is achievable, but we don’t see many controllable catalysts in 1H/24, which remain skewed to the macro (i.e., soft Landing, private deal flow picking up). We still believe its 10%+ distribution yield = majority of near-term return profile,” Mr. Saric.
He rates the stock “sector outperform”, but notes that “if our investment horizon was 3-6 months (instead of 12 months), a “sector perform” rating is likely more apt.”
His price target was cut to C$21.75 from C$22.25.
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In other analyst actions:
Ballard Power Systems Inc (BLDP-Q) CIBC cuts price target to US$3.75 from US$5 and reiterates “neutral” rating. It said the price target cut reflects “uncertainties around hydrogen adoption and Ballard’s timeline of becoming profitable.”
Carvana Co (CVNA-N): Jefferies raises target price to US$85 from US$30 and upgrades rating to “hold” from “underperform”
Darcy Keith