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

Declaring “there is no company quite like” PrairieSky Royalty Ltd. (PSK-T), Raymond James analyst Jeremy McCrea raised his rating for its shares to “outperform” from “market perform” on Tuesday in the wake of the release of its fourth-quarter financial results.

Between its essentially no leverage position and its ability to see some of the highest ‘value creation’ in the mid-cap space given its limited need for capital/acquisition spending, in our view there should be considerable long-term comfort with investors as it relates to the business,” said Mr. McCrea in a research note. "As such, we believe the company deserves a valuation premium higher than traditional E&P operators.

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“As 4Q production results showed, the company has reversed a downward trend of production declines with volumes also ahead of expectations. We expect this momentum to continue into 2020 as decline rates moderate and spending resumes, as confidence from operators appears to be improving. Although commodity prices will be volatile, the Company has essentially no debt and is currently yielding 5.2 per cent and has a DA-FCF yield of 6.8 per cent. As such, at this current share price, we are moving to Outperform given favourable potential upside vs. downside risk.”

On Monday after the bell, the Calgary-based company reported royalty production for the quarter of 22,203 barrels of oil equivalent per day, exceeding the 21,100 boe/d estimate of both Mr. McCrea and the Street. Funds from operations of 24 cents matched expectations.

The results led Mr. McCrea to raise his 2020 and 2021 financial expectations as well as his target price for PrairieSky shares to $19 from $17.70. The average target on the Street is currently $18.08, according to Bloomberg data.


Canaccord Genuity analyst Aravinda Galappatthige downgraded his rating for Cineplex Inc. (CGX-T) on Tuesday, citing the fact that its shares are now trading at the proposed acquisition price put forth by U.K.-based Cineworld Group PLC.

At the same time, Mr. Galappatthige also lowered fourth-quarter box office estimates, noting blockbusters like Star Wars: The Rise of Skywalker, Jumanji: The Next Level, and Frozen 2 were “unable to generate significantly greater revenue than Q4/18’s slate (i.e. Fantastic Beasts and Aquaman).”

Pointing to “somewhat muted" theatrical revenue, he’s now projecting total revenue for Cineplex of $447-million for the fourth quarter, a rise of 4.5 per cent year-over-year. That falls short of the Street’s consensus of $461-million. He’s expecting earnings per share to fall 9 cents year-over-year to 34 cents.

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Though he expects media segment to “continue to be strong” and is forecasting double-digit revenue growth for its amusement endeavors, Mr. Galappatthige also dropped his 2020 EBITDA and EPS expectations.

Moving Cineplex to “hold” from “buy,” he raised his target to $34 per share from $31 to “reflect the Cineworld acquisition given the ending of the go shop period.” The average on the Street is $34.11.


Premium Brands Holdings Corp. (PBH-T) appears poised to monetize its recent investments, according to Desjardins Securities analyst David Newman.

In a research report released Tuesday, he said he came away from a recent tour of its sandwich production facility in Phoenix and subsequent investor presentations believing the Richmond, B.C.-based company’s 5-year target of $6-billion in sales at a 10-per-cent EBITDA margin “achievable,” with its sandwich, meat snack and seafood businesses “leading the way.”

Mr. Newman also declared the specialty food company is “well on its way to becoming North America’s leading sandwich and charcuterie manufacturer.”

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“We would view 2018 and 2019 as a period of heavy investment in terms of new programs (products, channels, customers and geographies), with PBH increasingly able to leverage its growing platforms,” said Mr. Newman. "Its efforts have been augmented by an active acquisition strategy, which resulted in $753-million during 2018 ($246-million in 2017). While it took a pause in 2019 to digest and focus on its growing initiatives, with $120-million in deals struck during the year, 2020 could represent a break-out year in terms of new programs and products, as well as M&A, with an extremely robust pipeline across all platforms. Of course, 2019 was a tough year in terms of external headwinds, from African swine fever (ASF) to trade wars, as well as some modest internal missteps. The macro outlook was also clouded in early 2020 by the fallout of the coronavirus, a contagious disease that is posing a serious health issue in mainland China (and spreading to other regions). However, as these headwinds (ASF, global trade, coronavirus, etc) fade or become more manageable, we expect PBH to deliver strong top-line growth following its period of heavy investment (2018–19), especially given a groundswell of opportunities.

“To that end, we believe organic growth could reach 8 per cent in both 2020 and 2021, followed by 6 per cent in the following two years; when coupled with M&A, this places PBH squarely on target to achieve its 2023 (five-year) goal of $6-billion in sales. Recall that PBH’s long-term organic growth target is 4–6 per cent (excluding inflation). In the near term, PBH believes it should be able to achieve its 2019 organic growth target of 6–8 per cent as the year wraps up (we are holding just below 5.0 per cent), with projected sales estimated to be $3.65-billion, according to PBH’s full-year guidance, vs our current estimate of $3.644-billion.”

However, citing recent headwinds, he lowered his expectations for its fourth-quarter results, scheduled for a March 12 release. His adjusted EBITDA estimate fell to $72-million from $73-million, which sits below the consensus on the Street of $74-million. His adjusted earnings per share projections slid by 3 cents to 69 cents, versus a 75-cent consensus.

At the same time, he increased his full-year expectations, noting: “We expect SF’s organic growth of 8 per cent to be driven by accelerating growth in the meat snack and sandwich businesses, an easing of African swine fever and trade challenges, and various greenfield projects. In PFD, we expect strong organic growth to be driven by its growing seafood business (also a potential US$1-billion business in time, especially driven by its lobster business and margin expansion), offset by the short-term effect of the coronavirus.”

With those changes, he hiked his target for Premium Brand shares to $108 from $100, keeping a “buy” rating. The average on the Street is $97.67.


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Raymond James analyst Steve Hansen initiated coverage of EnWave Corp. (ENW-X) with an “outperform” rating on Tuesday, seeing it “poised to demonstrate very robust revenue/EBITDA growth throughout our forecast horizon.”

Mr. Hansen said his rating for the Vancouver-based tech company is “primarily underpinned by outsized growth at the firm’s wholly owned NutraDried subsidiary and, to a lesser degree, sustained growth in the company’s proprietary equipment sales division.”

After several years of modest progress, EnWave has undergone a significant transformation over the past 12-18 months that, we believe, sets the company up for sustained growth for many years to come," he added. "Specifically, we highlight strategic additions to the company’s management team, bolstered operational capabilities, recently implemented growth programs, and a materially bolstered balance sheet — initiatives that collectively provide a solid foundation to further scale its two key platforms in our view.”

He set a target price of $2.50. which he notes represents a 72-per-cent return from Friday’s closing price. The average on the Street is $2.48.

“While EnWave shares have historically traded in tandem with the firm’s reported revenue progression (TTM), we note this relationship has significantly broken down in recent months - a divergence that, we believe, presents an attractive entry point opportunity given our financial outlook,” the analyst said. “While difficult to isolate, we attribute the bulk of EnWave’s recent share price decline to the swift deterioration in outlook for the Canadian cannabis industry - one where EnWave has admittedly increased revenue exposure over the past two years. However, as our revenue projections suggest, we continue to see outsized revenue growth going forward, primarily driven by the firm’s NutraDried division.”


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Following Monday’s release of weaker-than-anticipated third-quarter results, Canaccord Genuity analyst Raveel Afzaal sees limited upside in shares of Just Energy Group Inc. (JE-T, JE-N) even in a take-out scenario.

Before the bell, the Mississauga-based natural gas and electricity retailer reported EBITDA of $38-million, down 40 per cent year-over-year and well below the projections of both Mr. Afzaal ($49-million) and the Street ($52-million). He attributed the miss largely to weaker-than-anticipated margins.

With the results, Just Energy lowered its 2020 EBITDA and free cash flow guidance, while Mr. Afzaal also warned that it may an additional debt convenant amendment.

“On December, the company amended its senior debt to EBITDA covenant ratio from 1.50:1 to 2.00 for Q3/F20,” he said. “The ratio was expected to revert back to 1.5 times in Q4/F20. Based on the revised guidance, we believe the ratio will likely be 1.7 times or higher in Q4/F20.”

Also expecting “relatively flat” 2021 earnings, Mr. Afzaal lowered his target for Just Energy shares to $1.50 from $2.25, keeping a “hold” rating. The average on the Street is $2.44.

“Our F21 EBITDA estimate of $166-million implies OPEX (excluding Selling expenses) to Gross Profit of 39 per cent,” he said. “Crius was targeting 31 per cent in F2019 (45 per cent in 2018) before it was acquired by Vistra. If we assume JE is able to optimize its cost structure similar to Crius, it would imply JE’s EBITDA at $216-million. Further, Vistra estimated 20 per cent incremental EBITDA synergies for the Crius acquisition. Using the same math on JE would imply fully synergized potential EBITDA of $260-million. Crius was acquired for 4.0 time EV/synergized EBITDA. For JE, this would imply a potential take-out price of $0.30 per share, $2.00 per share and $3.75 per share using 4.0 times, 5.0 times and 6.0 times EV/EBITDA, respectively. For our valuation purposes, we use fully synergized EBITDA of $250-million and acquisition multiple of 5.0 times to estimate a potential take-out price of $1.70/sh.”

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Though he sees a potentially “attractive” valuation, Laurentian Bank Securities analyst Furaz Ahmad warned execution is “key” for IPL Plastics Inc. (IPLP-T) upon resuming coverage of with a “buy” rating on Tuesday.

“While the company has struggled since the IPO, we believe the company’s operations will stabilize in 2020, leading to a positive re-rating of the stock,” he said. We believe IPL has a long runway for both organic and acquisition related growth going forward, given the company’s strong position in the markets it operates in.

IPL is well-positioned to benefit from several key underlying trends across its three operating segments. 1) LF&E: increased penetration with regional governments in waste management and recycling; 2) CPS: further penetration of in-mould labeling (IML) in North America; and 3) RPS: increased penetration in the agriculture market to convert wood and cardboard containers to plastic bins as well as a resumption of the company’s automotive bin contract. These factors underpin our organic growth estimates of 2.2 per cent in 2020 and 2.2 per cent in 2021."

Mr. Ahmad set an $11 target for shares of the Montreal-based company, which falls short of the $12.50 consensus.

“Our $11.00 price target is based on a target valuation multiple of 8.0 times 2021 EV/EBITDA, which is at a discount to the overall peer group, which trades at 10.6 times 2021 EV/EBITDA,” he said. “We believe that an approximately 2.5-times discount to the peer group is justified as IPL is now a ‘show-me’ story. It is our view that in order to justify a higher multiple, IPL needs to deliver consistent results that are in-line with expectations and show progress towards the 2021 financial targets set by the company at the time of the IPO.”


CIBC World Markets analyst Mark Petrie called Restaurant Brands International Inc. (QSR-N, QSR-T) a “diversified meal of cash flow, growth and valuation” following Monday’s release of its earnings report.

In many respects, the Q4 results typify what RBI has to offer – though Tim’s same-store sales (SSS) decelerated further, EBITDA was flat, supported by distribution revenue; Popeyes’ SSS growth went parabolic, but even more importantly, net restaurant growth (NRG) hit an all-time high and appears poised for further acceleration; BK remains solid, with International a material contributor and with a healthy outlook," he said. "Overall, we view QSR as a welldiversified and resilient growth story, carrying an attractive valuation with latent balance sheet flexibility.”

Mr. Petrie noted Tim Hortons’ same-store sales results “marked an all-time low,” adding: "The expansion of the loyalty program has been a more material headwind than expected, or more accurately, the various initiatives management had put in place to offset an expected headwind have fallen flat. A new new plan is in place to stabilize the business, and though we again believe the core messages are appropriate (in short, back to basics, but with a tech overlay), execution is paramount.

“But if Tim’s Q4 results highlighted anything, it is that SSS growth is not as crucial for Tim’s as it is for nearly any other restaurant business. In most cases, a healthy SSS result is needed to 1) sustain healthy franchisee profitability and 2) attract new franchises to the system. And while these cannot be discounted for Tim’s, neither are of particular near-term concern. So while we would certainly be more comfortable with a better SSS result, we still view Tim’s as a cash cow regardless.”

Believing the results had “minimal net impact," Mr. Petrie maintained an “outperformer” rating for RBI shares, but he lowered his target to US$78 from US$80 due to sector sentiment. The average on the Street is US$76.16.

“We continue to view QSR as a diversified growth story with resilient cash flows and an under-leveraged balance sheet,” he said.


In other analyst actions:

* Believing it offers investors “attractive returns at current prices,” Noble Capital Markets analyst Michael Heim initiated coverage of InPlay Oil Corp. (IPO-T) with an “outperform” rating and $1 target. The average is $1.38.

“The energy industry continues to suffer from low pricing. In response, many companies have cut back drilling to reduce capital expenditures," he said. "InPlay has followed suit by pledging to keep expenditures within its operating cash flow. InPlay is different than many of its peers, however, in that it continues to increase its production levels and its reserve base even with these cutbacks. It has done so by dramatically reducing the costs associated with drilling and operating wells. Reduced costs position the company well to weather the current downcycle in energy prices while still being well positioned to benefit should energy prices rise.”

* TD Securities analyst Cherilyn Radbourne cut Brookfield Infrastructure Partners LP (BIP-N, BIP-UN-T) to “hold” from “buy” with a US$57 target, down from US$58. The average target on the Street is US$56.91.

* Alliance Global Partners analyst Aaron Grey initiated coverage of Harvest Health & Recreation Inc. (HARV-CN) with a “buy” rating and $8 target. The average is $11.59.

* Mr. Grey also initiated coverage of Curaleaf Holdings Inc. (CURA-CN) with a “buy” rating and $14 target, which falls below the $15.70 average.

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