Inside the Market’s roundup of some of today’s key analyst actions
Echelon Wealth Partners is projecting positive performance at Cogeco Communications Inc. (CCA-T) on strong U.S. subscriber growth.
Analyst Rob Goff raised the Montreal-based company’s price target to $106 from $98 and maintained a “buy” rating. The median analyst estimate is C$98.50.
“American Broadband Services is Cogeco’s high growth segment where revenue in FQ319 increased by 5.4 per cent year-over-year in constant currency mainly due rate increases in August 2018, growth in internet and telephony services and acquisition of south Florida fibre network previously owned by FibreLight. Earnings before interest, tax, depreciation and amortization (EBITDA) is up 4.4 per cent year-over-year in constant currency due primarily to organic growth with the FiberLight acquisition a small contributor,” Goff said in a note. “We highlight internet net adds increased by +14.1K where the growth was supported by organic customer adds and the south Florida fibre network acquired from FiberLight.”
He added that, “Revenue for Canadian Business Services decreased by 1.0 per cent as a result of decrease in video and telephony customer base in FQ418 and FQ119 following the transition to a new customer management system. The decrease was partly offset by rate increases and higher net pricing from consumer sales. We are encouraged by improvement in EBITDA which was up 3.6 per cent due to lower operating expenses with savings put at roughly $3.5-million from rationalization moves in Canada during the first half of the year. Canadian revenue/EBITDA reported at $325.8-million/$178.8-million versus our $324.0-million/$172.1-million versus consensus $329-million/$178-million. Improved subscriber momentum after a tough LTM would be a clear positive.”
“With $22.30 per share of EBITDA, CCA shares offer aggressive valuation leverage with a $2 per share move representing a modest 0.4x multiple change in a target F2019 enterprise-value/EBITDA valuation. Alternatively, a modest 2.0 per cent/$22.2-million reduction in EBITDA equates to a PT reduction of $3.50.
An international tribunal of arbitrators ruled in Cameco Corp.’s (CCO-T) favour, but RBC Capital Markets said that the amount of damages that Japanese utility company Tokyo Electric Power Co. (TKECF) must pay is lower than expected.
Analyst Gary Ho lowered the uranium producer’s price target to C$14.00 from C$15.00 and maintained his “buy” rating.
“We think the TEPCO arbitration decision was disappointing as the damages awarded to Cameco were well below our expectations. However, we think the TEPCO contract dispute had unique circumstances that are not applicable to Cameco's other contracts nor does the ruling indicate that contracts themselves are no longer viable,” Ho said.
The tribunal ruled that utility Tokyo Electric Power did not have the right to leave a supply agreement with the uranium producer, Cameco said on Monday. The adjudicators awarded Cameco US$40.3-million, less than the US$682-million in damages it had proposed.
“We do not believe that the TEPCO ruling should be viewed as a concern regarding the future of uranium contracting or Cameco's contract portfolio” because the Saskatoon-based company’s customers will likely need to continue purchasing uranium. He also said that “TEPCO's situation is unique as it is the owner/operator of the Fukushima reactors with significant financial liabilities related to the accident,” and the tribunal may have taken that into account.
“Cameco’s previous contract termination dispute that went to arbitration was also ruled in the company’s favour and the award was based on the implied value of the contract (as we had expected with the TEPCO contract). We think the prior ruling is just as, if not more, applicable to any future potential contract termination disputes as the TEPCO dispute was somewhat unique.”
Nearly one month after Slack Technologies Inc. (WORK-N) went public, its future valuation is already reflected in the current share price, according to Credit Suisse.
Analyst Brad Zelnick initiated coverage of the San Francisco-based company with a US$40 price target and “neutral” rating. The median analyst estimate is US$43.
“We initiate coverage with a neutral rating as we appreciate Slack’s transformative approach to collaboration and vibrant software ecosystem, but believe its future success is largely reflected in the current share price. While we respect Slack’s category leadership and disruptive team-centric platform, we see the current valuation balancing much of its future success and risks, most notably [Microsoft Corporation] competition,” Zelnick said in a note.
“We believe Microsoft Teams is a very strong competitor, especially given its pricing and Office 365 integrations. Our CIO survey indicates top-down driven purchasing decisions favor Microsoft Teams, and IT buyers perceive low switching costs.”
He added that, “We estimate Slack’s addressable market at US$39-billion today, suggesting Slack is just 2 per cent penetrated with ample runway for growth. We believe this addressable market could be as large as US$61-billion long term, if the company successfully penetrates the global knowledge workforce. We also find Slack’s products attractively priced given its business-centric workflow, user engagement and satisfaction metrics.”
“WORK currently trades at 25.3x EV/CY20E revenues relative to high-growth software peers at 20.7x. Risks include competition from Microsoft and failure to grow adoption at enterprise customer base.”
OrganiGram Holdings Inc.’s (OGI-X) third-quarter results showed strong movement into the Canadian recreational market with a top-three market share, even as revenue and profit dipped.
Analyst Matt Bottomley reduced the cannabis producer’s fiscal year 2019 gross revenue and adjusted earnings before interest, tax, depreciation and amortization estimates to $121-million from $152-million and to $38-million from $58-million, respectively, with a forecast annualized return of 32.6 per cent.
“For the quarter, the company reported net revenues of $24.8-million, which represented a quarter-over-quarter decrease of 7.8 per cent while coming in a bit behind our forecast of $26.3-million. Management noted that it saw solid growth in both Alberta and Atlantic Canada during FQ3; however, with transient production and processing headwinds and with Ontario’s significant pipeline fill in Q2/19, fewer shipments were made into the province, resulting in a lower top-line sequentially. With these issues aside and its first sales in Quebec hitting the books subsequent to period-end, we anticipate OGI’s top-line to reaccelerate in FQ4,” Bottomley said in a note.
“In FQ3, the company saw its cash cost to cultivate increase to $0.95 per gram (up from $0.65) as a result of temporary changes in growing protocols after performing pilot studies to increase long-term cultivation efficiencies. However, we note that even this elevated level is still at the low-end of the industry average and the company highlighted that production yields have already returned to their historical highs subsequent to quarter end. As a net result, the company reported FQ3 adjusted earnings before interest, tax, depreciations and amortization of $7.7-million (down quarter-over-quarter from $13.3-million but higher than our forecast of $7.0-million) as OGI remains the most profitable licensed producer in the Canadian industry.”
Bottomley also said that the Moncton-based company is gearing up to market edibles and other gadgets. “The company continues to prepare for the introduction of additional derivative products into the Canadian market (expected this December). OGI is placing a particular focus on vape pens and chocolate edibles and has already secured a number of potentially valuable relationships, including partnerships with TGS International, LLC., PAX Labs and the Feather Company Ltd., and has developed proprietary rapid onset technology for cannabis beverages.”
Canaccord maintained its price target at $10.50 and a rating of “speculative buy. The median analyst estimate is $12.90.
Tucows Inc. (TC-T) could see “short-term pain for longer-term gain” as it plans to extend service with Verizon and Sprint while ending its agreement with T-Mobile, according to Echelon Wealth Partners.
Analyst Gianluca Tucci lowered the telecommunications company’s price target to US$100 from US$125 and maintained a rating of “buy.”
“Tucows announced it will be adding service over the Verizon network to its product offerings later this year, extended its Sprint network provisioning agreement through Sept 2020, and informed T-Mobile it will not renew its agreement effective Dec 2019, with a one-year runoff period,” he said, adding that, “These are structurally positive changes for Ting Mobile despite its near-term impact to guidance. Its contract with Verizon carries better rates, coverage, guarantees and other terms that had negatively impacted Ting Mobile’s past performance.”
“Along with yesterday’s news, Tucows revised its 2019 financial guidance primarily reflecting the short-term impact on Ting Mobile. Tucows’ updated 2019 guidance includes adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of US$47.9-million (versus EWP of US$53.3-million pre-announcement) and cash EBITDA of US$52.0-million. This compares to Tucow’s original 2019 guidance of US$57.4-million in adj. EBITDA and US$62.0-million in cash EBITDA. The three primary drivers for the US$10-million hit to EBITDA guidance are Ting Mobile under-performance, carrier migration costs, and excess carrier penalties, each accounting for roughly one-third of the $10-million decrease.”
Tucci added that, “We continue to believe the next major growth catalyst for TC lies in its fibre business. Today’s 7,700 fibre customers add roughly US$7.7-million in run-rate gross profit. We believe we could see fibre customers and homes passed of approximately 10-15,000 and 40-50,000, respectively, by 2019-end, which would yield US$10-15-million in incremental annual run-rate gross profit.”
In other analyst actions:
Barclays downgraded Barrick Gold to "equal’ weight with a price target of US$18.
Desjardins downgraded Boyd Group to a “hold” with a price target of C$190.
TD downgraded Cascades to “hold” with a price target of C$13.50.
CIBC downgraded Finning International with a price target of C$27.
Eight Capital downgraded Turquoise Hill to “neutral” with a price target of C$3.