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

Believing its “strong” outperformance is warranted, Desjardins Securities analyst Michael Markidis reiterated his bullish stance on the prospects for the Canadian multifamily rental residential sub-sector, advocating investors take an “overweight” position.

“Canadian apartment REITs have rewarded investors with very strong returns this year,” said Mr. Markidis in a research note released late Monday. “We are cognizant of the multiple expansion which has generally occurred in the space; however, we believe it is warranted given the supply/demand imbalances that we see in certain markets.”

The analyst pointed to four arguments in reaffirming his "unwavering" conviction on this call:

- an acceleration in Canadian population growth;

- housing price inflection has slowed "but is still positive;"

- a belief home ownership has peaked;

- the supply curve is not "overextended"

Despite his enthusiasm, Mr. Markidis downgraded his rating for Canadian Apartment Properties Real Estate Investment Trust (CAR.UN-T) to “hold” from “buy” in reaction to its recent “stellar” run. He did raise his target price for its units to $51 from $49. The average target price on the Street is $48.07, according to Bloomberg data.

“To be clear, we see a lot of positives in this name (strong geographic positioning, above-average organic growth profile, emerging development pipeline, favourable market cap and liquidity considerations). Moreover, we believe consensus NAV and FFO estimates are too conservative,” he said. “That said, the stock has had an incredible run (year-to-date total return of 35 per cent) and valuation has stretched to the point where we are no longer comfortable recommending that investors establish a position or add to an existing position.”

Mr. Markidis also initiated coverage of Minto Apartment Real Estate Investment Trust (MI.UN-T) with a “buy” rating and $19 target, which 7 cents higher than the consensus.

“We believe the portfolio, which is heavily weighted to Ottawa and Toronto, is capable of delivering mid-single-digit NOI [net operating income] growth through 2020,” he said. “Investors should also benefit from the strong sponsorship of the Minto Group, which owns a 57-per-cent retained interest. Moreover, MI is the only multifamily residential REIT in our universe trading at a discount to NAV. The gap vs peers should narrow over time.”

Mr. Markidis also raised his target price for the three other REITs in his coverage universe. All hold his “buy” rating.

His changes are:

Boardwalk Real Estate Investment Trust (BEI.UN-T) to $52 from $50. Consensus is $51.73.

InterRent Real Estate Investment Trust (IIP.UN-T) to $12.50 from $11.75. Consensus is $12.02.

Killam Apartment Real Estate Investment Trust (KMP.UN-T) to $17.50 from $16.50. Consensus is $16.65.

“We have implemented mid-single-digit upward revisions to our target prices for BEI, CAR, IIP and KMP,” he said. “For BEI and CAR, the change is solely due to multiple expansion; for IIP and KMP, the upward revision to our spot NAV is also a contributing factor.”

He kept a $28 target for Northview Apartment Real Estate Investment Trust (NVU.UN-T). Consensus is $28.06.


Industrial Alliance Securities analyst Blair Abernethy raised his target price for shares of Descartes Systems Group Inc. (DSGX-Q, DSG-T) after adjusting his financial projections to account for future acquisitions.

“In our view, inorganic growth has played an increasingly important role in Descartes’ business model and revenue growth in recent years,” he said. “On our count, the Company has completed 13 acquisitions in the past 3 years (4 per year), including the larger $107-million MacroPoint and $76-million Data deals. Excluding these larger deals, Descartes acquired 11 companies at an average value of $18-million per transaction. Given Descartes’ financial strength and the pace of smaller acquisitions, despite currently high prices in the marketplace, we now are more comfortable including unannounced future acquisitions in our forecast. At this stage, we will not model in larger transactions ($100-million plus), but only smaller tuck-ins.”

He does not expect any further acquisitions for the remainder of the 2019 fiscal year, however Mr. Abernethy raised his 2020 revenue estimate moves to US$311.5-million (from US$297.6-million), EBITDA to US$107.3-million (was US$100.2-million), and earnings per share to US$1.35 (was US$1.26). He also introduced 2021 estimates for revenue of US$344.7-million and EBITDA of US$120.2-million.

Maintaining a “hold” rating for the stock, his target jumped to US$33 from US$29. The average is US$35.53.

“We continue to watch for catalysts that include accretive acquisitions, large retailer project wins, and improved organic revenue growth driven, in part, by cross selling and newly acquired products,” the analyst said.


Planet 13 Holdings Inc. (PLTH-CN) is better positioned to capitalize on the potential of Las Vegas and Nevada markets than any other marijuana producer, according to Beacon Securities analyst Doug Cooper.

“Of the states to legalize recreational cannabis thus far, Nevada has posted the highest first year sales of any state to date,” he said. “Its sales of $530-million dwarf first year sales in Colorado ($303-million) as well as Washington and Oregon ($259-million and $241-million respectively). On a per capita basis, Nevada’s strength is much more apparent at $177 versus $54 for Colorado, $59 for Oregon and $37 for Washington. Even California in its first-year is trending towards ~$50. We believe this speaks to the massive tourist market that is coming for the ‘Vegas Experience’ that is significantly boosting per capita figures.

“Combining the local and tourist markets, we believe Nevada can be a $3-billion per annum market. Interestingly, the market could, in fact, become much larger than that. In its first year, the government generated $70-million of tax revenue, which already makes cannabis more lucrative from a tax perspective than alcohol (which generated $49-million in levies last year). Given the increased tax potential, as well as its desire to cater to tourist demands, there is strong government support to change existing laws to allow for on-site consumption. This could happen as soon as year-end.”

Mr. Cooper called the next three months a “major inflection point” for the fortunes of the Nevada-based company, which began trading on the OTCQB Venture Market on Monday. It is scheduled to open the Planet 13 Superstore in November, which it claims will be among the world’s largest cannabis dispensaries and located just off the Las Vegas Strip.

“P13 is not starting from a stand-still as it has a current dispensary (Medizin) approximately 10 kilometers from the Strip (and thus catering mostly to locals) that is generating run-rate revenue/EBITDA of $20-million at 20 per cent,” he said. “While the Medizin license will be transferred to the SuperStore, the company has applied for an additional license and should hear the results in early December. What this means, in our opinion, is that P13’s revenue and EBITDA is set to explode in FY19 as it participates in the parabolic growth of the Nevada cannabis market through a full year of contribution from both the SuperStore and Medizin (assuming it is granted a second license) as well as Q4/FY19 potential contribution from an on-site consumption lounge (assuming it is legalized and P13 secures a license).

“We believe the company has the ability to generate $40-million of EBITDA in FY19, not including any contribution from a potential on-site consumption lounge. With such revenue and earnings, as well as its strategic position in one of, if not the best state/city for cannabis, making it a prime acquisition candidate for one of the large multi-state operators (MSOs), we believe the shares of P13 should command a premium valuation.”

Currently the only analyst covering the stock on the Street, Mr. Cooper initiated coverage with a “buy” rating and $8 target.


Nevada Copper Corp. (NCU-T) sits in a “unique” position with its Pumpkin Hollow copper project fully permitted and financed in “one of the best mining jurisdictions in the world,” said RBC Dominion Securities analyst Sam Crittenden, who initiated coverage with an “outperform” rating.

“We believe copper production can reach 96Kst/year by 2023 following ramp up of the open pit which could be further expanded to take production over 127Kst/year,” he said. “This is the type of scale that could be the flagship asset within a mid-tier producer and also represents an attractive takeover candidate.”

“Copper is one of our favourite commodities in the medium & long-term as we forecast growing deficits after 2020, aligned with the timing of commercial production from Pumpkin Hollow. With relatively high cash costs, our bullish view on copper is a key part on why this project makes sense in this market. The smaller open pit design to focus on higher grades also improves the economics with lower risk.”

Mr. Crittenden set a target price of $1 for its shares, matching the current consensus.

“NCU shares are currently trading at 0.4 times price-to-NAV versus its base metal peers at 0.6 times and the historical average for pre-producing base metal miners of 0.8 times,” he said. “We expect a re-rating of the shares as the company moves through the construction phase and into production at Pumpkin Hollow. We also see potential for NCU as a take-out target.”


With shares of Alaris Royalty Corp. (AD-T) up over 20 per cent since it reported second-quarter results on July 23, Raymond James analyst Brenna Phelan feels its “more favourable outlook” has already been priced into its stock.

However, Ms. Phelan did raise her target price in the wake of Friday’s announcement that it has contributed US$46-million to a new partner, Body Contour Centers LLC and has committed to contribute an additional US$45-million to two future tranches dependent on BCC achieving certain financial targets.

“BCC is the largest private plastic surgery practice in the U.S. with more than 50 locations,” she said. “BCC is 10 years old and is growing rapidly, with its location count doubling over the last two years. The contribution will be used to fund growth and provide partial liquidity to existing equity holders.

“The BCC distribution yield is 14 per cent and distributions are subject to a 6-per-cent collar based on same clinic sales. BCC will represent 8.5 per cent of Alaris’ partner revenue and Alaris estimates an earnings coverage ratio of 1.2x-1.5 times on this investment. BCC has the option to pay a portion of its distribution, subject to a maximum of 2 per cent of the aggregate contributed capital to BCC in any given year as payment in kind (currently $920,000, or 14 per cent of the US$6.4-million annual distribution receivable). This feature is consistent with management’s stated intention to explore taking some common equity to ensure its offering is competitive. We note that this may introduce more volatility in results.”

Ms. Phelan added: “Subsequent to its most recent contribution … to Body Contour Centers, Alaris’ run-rate payout ratio is 92 per cent, removing uncertainty around the safety of its dividend. We have increased our 2019 EBITDA estimate to reflect this new partner and expected further contributions.”

With her EBITDA forecast now at $95.544-million (up from $90.714-million), her target price rose to $20 from $18, keeping a “market perform” rating. The average is $20.67.

“Our $20.00 target price is based on 9.0 times our 2019 EBITDA estimate,” said Ms. Phelan. “Our target multiple is above Alaris’ one-year average EV/EBITDA multiple of 8.6 times, and above its current multiple of 8.5x, reflective of our modestly more favourable view on recent news. We continue to believe that a few consecutive strong quarters and further capital deployment announcements will be needed to support a return to a higher valuation more in line with longer-term averages.”


Calling 2019 “the next turning point” for Walmart Inc. (WMT-N), BMO Nesbitt Burns analyst Kelly Bania initiated coverage of the U.S. retail giant with an “outperform” rating.

“We believe Walmart is uniquely positioned among U.S. retailers for potential long-term e-commerce profitability given its significant investments in its infrastructure and third-party marketplace, which we estimate is higher margin than first party," she said.

“Given this potential, we believe investors will increasingly value WMT shares excluding e-commerce losses, which between Flipkart and U.S. could total $1.20-1.50 to EPS.”

Ms. Bania set a target of US$110, which exceeds the consensus of US$103.55.

Separately, she initiated coverage of Target Corp. (TGT-N) with a “market perform” rating and US$88 target, which falls 17 cents below the average on the Street,

“We see risk to expectations for a flat EBIT margin outlook given multi-year pressures from digital fulfillment cost headwinds and wage costs, which we estimate could outweigh supply chain improvements,” said Ms. Bania.

“Ongoing margin pressures could keep valuation more limited compared to discount store peers, such as OP-rated WMT and OP-rated COST [Costco Wholesale Corp].”


In other analyst actions:

Bank of America Merrill Lynch initiated coverage of Vermilion Energy Inc. (VET-T, VET-N) with a “buy” rating and $54 target. The average on the Street is $56.69.

The firm also initiated coverage of Encana Corp. (ECA-T, ECA-N) with a “buy” rating and $19 target, which exceeds the consensus of $16.99.

Barclays analyst James Durran initiated coverage of Spin Master Corp. (TOY-T) with an “overweight” rating and $65 target. The average is $63.20.

New Street Research analyst Pierre Ferragu upgraded Apple Inc. (AAPL-Q) to “reduce” from “sell” with a US$165 target. The average is US$232.12.

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