Inside the Market’s roundup of some of today’s key analyst actions
Nuvei Corp.’s (NVEI-Q, NVEI-T) deal to be taken private appears reasonably valued based on precedent transactions and relative to comparables, according to National Bank Financial analyst Richard Tse.
Accordingly, following Monday’s announcement of a definitive agreement to be acquired by private equity firm Advent International with Nuvei chair and chief executive Phil Fayer, Montreal-based private equity firm Novacap and pension giant Caisse de dépôt et placement du Québec (CDPQ) for US$34 per share, Mr. Tse moved his recommendation to “tender” from “outperform” previously, believing “the potential for a competitive bid is low given a non-solicitation covenant on the part of Nuvei and a meaningful ‘break fee’ of $150-million.”
“Investors following our research may recall that Nuvei was one of the names we called out as a potential takeout candidate in our 2022 note entitled ‘Are Value Focussed Buyers Telling Us Something’,” he said.
“Bottom line, we believe the transaction represents fair value as noted above under the assumption that Nuvei was expected to grow in the mid-teens this fiscal year with mid-to-high-30s EBITDA margins. We expect the deal to close on schedule (i.e., late 2024 / Q1 of 2025) given: (1) unanimous approval by the multiple voting shareholders; (2) a premium valuation to its closest peers (12.0 times vs peer average 11.0 times); and (3) sizeable break fee (US$150-million) coupled with a non-solicitation clause.”
Mr. Tse moved his target for Nuvei shares to US$34 from US$30 to reflect the deal. The average target on the Street is US$33.37, according to LSEG data.
Meanwhile, other analysts making rating changes include:
* Scotia’s Kevin Krishnaratne to “sector perform” from “sector outperform” with a us$34 target, down from US$35.
* KBW’s Sanjay Sakhrani to “market perform” from “outperform” with a US$34 target, up from US$31.
Elsewhere, Canaccord Genuity’s Joseph Vafi bumped his target to US$34 from US$40 with a “buy” rating.
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Citing “a slower growth outlook based on competitive pressures in core wireless and wireline operations, particularly in Quebec and challenging comps in media,” BMO Nesbitt Burns analyst Tim Casey downgraded both BCE Inc. (BCE-T) and Quebecor Inc. (QBR.B-T) to “market perform” recommendations from “outperform” on Tuesday.
“We expect it will impact both wireless and wireline revenue and consolidated EBITDA through 2025,” he said in a pair of reports released before the bell. “We expect the impact of competitive pressures will be reflected in both wireless and wireline service revenues and consolidated EBITDA. We expect operating conditions in Quebec to remain very challenging given price competition in legacy wireline from Quebecor. Rogers FWA products and (eventually) MVNO wireless options from Cogeco will impact the market at the margin but will be an incremental negative.
“Our loading assumptions are relatively unchanged as we expect robust conditions to remain in 2024. The government recently outlined plans to slow immigration beginning in 2025. The new rules are targeted to return to 1-per-cent growth of 0.5 million per annum (vs. 3.2 per cent in 2023). This policy should be viewed in the context of a federal election in 2025.”
After reducing his forecasts across the sector, Mr. Casey cut his target for BCE shares to $46 target from $54. The average target on the Street is $54.29.
“While some of this is priced into the stock given a share price down 12 per cent year-to-date, we do not foresee a fundamental catalyst to revise estimates higher in the near term,” he said. “We are lowering target price multiples across the sector.”
His Quebecor target is now $33, falling from $42 and below the average of $39.02.
He also lowered his targets for these companies:
* Rogers Communications Inc. (RCI.B-T, “outperform”) to $65 from $80. Average: $74.83.
“• For Rogers, we expect the pressure will be reflected in lower cable revenue and EBITDA. We think wireless operations will continue to reflect Rogers operating momentum,” he said.
* Telus Corp. (T-T, “outperform”) to $24 from $26. Average: $26.19.
“We are trimming our Q1 estimates based on timing issues related to capex spend and a recovery in margins at TIXT. Our full-year outlook is for modest negative revisions as competitive intensity remains elevated in 1H24. We believe TELUS’s cash flow will be less impacted than peers based on business mix and regional exposure,” said Mr. Casey.
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Investors expect to see slowing growth for Dollarama Inc. (DOL-T) when it reports fourth-quarter 2024 results on Thursday, according to Desjardins Securities analyst Chris Li, who thinks the Street’s attention will centre on its 2025 outlook.
“We and consensus expect FY25 EPS growth to slow to 12 per cent from more than 25 per cent in the past two years as market conditions normalize and DOL laps outsized double-digit SSSG [same-store sales growth,” he said. “While DOL’s premium valuation in a slowing growth environment poses some near-term risk, our positive long-term view is based on structural industry tailwinds and the strength/resilience of DOL’s business model across all economic cycles.”
For the quarter, Mr. Li is projecting adjusted earnings per share of $1.05, falling in line with the consensus expectation. That comes off sales growth of 5 per cent, which is narrowly lower than the Street’s 5.5-per-cent estimate and down from 15.9 per cent in the fourth quarter of 2023.
“The focus will be on its FY25 outlook,” he said. “Key expectations include: (1) SSSG of 4.0 per cent vs 12 per cent in FY24 and consensus of 3.7 per cent. Our 4-per-cent SSSG is based on 1.5-per-cent unit price inflation (down vs 5–7 per cent in the past couple of years based on our estimates) and 2.5 per cent from ongoing trade-down and mix (ie increasing penetration of $4.25–5.00 price points launched in summer 2022). (2) Gross margin of 44.8 per cent (30 basis points year-over-year) vs consensus of 45.0 per cent, with the modest increase largely driven by lower freight/logistics costs in 1H. (3) SG&A expense rate of 14.8 per cent (20bps year-over-year), driven mainly by an increase in store labour costs. (4) 65 net new store openings (70 in FY24). (5) Capex of $210-million vs $190–200-million in FY24 (ex $88-million of property purchase). Ex the impact of an extra week, our FY25 EPS of $3.88 implies 12-per-cent year-over-year growth, down from more than 25 per cent in the past couple of years as market conditions normalize.”
While slowing growth is a concern, Mr. Li said his most recent in-store survey, which includes an analysis 350 items across 10 categories in Toronto and comparison to Walmart and Amazon, reiterated Dollarama’s strong position.
“Competition remains rational, with DOL maintaining its compelling value proposition (40–50 per cent lower vs WMT and AMZN on price per unit) and $4.25+ products enhancing the treasure hunt experience with new products in core destination categories (toys, kitchen, HABA, etc),” he said. “This is critical to DOL sustaining solid SSSG in FY25 and beyond.”
While he raised his 2024 and 2025 earnings and revenue projections, Mr. Li reaffirmed a “buy” recommendation and $107 target for Dollarama shares. The average is $105.09.
“Our positive view is based on DOL’s mix of defensive and growth attributes in an uncertain economic environment,” he concluded.
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“Another solid quarter [is] on deck” for Agnico Eagle Mines Ltd. (AEM-N, AEM-T), according to Citi analyst Alexander Hacking, who raised his estimates ahead of the release of its first-quarter results to account for a higher gold price forecast from the firm’s global commodities team.
“Citi expects average prices may trend higher over the next 3-6 months to $2,300 per ounce,” he said. “We see the market as supported well above $1,925/oz and in a bullish wildcard scenario, would call for $3,000/oz gold in a 12-month context. Positive factors include: Fed pivot, official sector demand, and alternate fiat demand.”
Mr. Hacking expects Agnico’s operating results to be “strong” but falling line with its guidance for production and costs. He’s currently projecting earnings per share of 58 US cents, which is 2 US cents higher than the consensus on the Street.
“We do not expect any significant corporate update,” he added.
Based on a “significant” increase to Citi’s gold price assumption, the analyst raised his 2024 EBITDA estimate by 3 per cent to US$4.1-billion and his 2025 projection by 32 per cent to US$3.7-billion.
He reaffirmed a “buy” recommendation and US$65 target for Agnico shares. The current average is US$66.95.
“AEM remains our top pick in Americas gold given its superior operating track record vs NEM and GOLD in recent quarters,” he said.
“Agnico is an excellent company in our view, with high quality assets and a strong operational track record. The company has demonstrated superior execution over the past decade. The acquisition of Kirkland Lake added low cost ounces in good jurisdictions. We currently see more upside than downside in the stock.”
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Eight Capital analyst Puneet Singh thinks lithium prices finally appear to be “bouncing off a bottom after a lengthy slide.”
In a research report released Tuesday titled Lithium: It’s Always Darkest Before the Dawn…, he acknowledged investor sentiment and headlines “seem to only be negative,” however he emphasized electric vehicle sales remain robust “regardless of the narrative.”
“Speaking with clients, as lithium prices fell sharply through the end of 2023 and equities sputtered along with it, we believe investor sentiment towards the sector reached the level of being ‘overhated,’” he said. “With the recent bounce off the trough in carbonate/hydroxide prices, partial short covering took place across the sector. Currently, battery grade lithium carbonate is trading at US$15,175/t (up 12.4 per cent year-to-date), battery grade lithium hydroxide is trading at US$13,950/t (up 19.2 per cent YTD), and spodumene (SC6) is trading at US$940/t (down 1.6 per cent YTD).
“We are starting to receive more inbound inquiries about lithium, which leads us to believe that sentiment is starting to shift. However, we believe the old commodity adage ‘the best cure for low prices is low prices’ needs to play out further. The sector needs prices to trade sideways for the time being for supply to be pressured into being shuttered. We believe companies will come to a decision on supply cuts post Q2/24 earnings if prices sustain their low levels, and this would spur lithium sentiment to return in earnest in H2/24. We see supply cuts as the most likely scenario but our demand projections are conservative. Better-than-expected Chinese passenger EV sales could also push for a tighter supply/demand balance. In 2024, we forecast battery grade lithium carbonate prices averaging US$16,000/t, battery grade lithium hydroxide prices averaging US$15,530/t, and spodumene (SC6) prices averaging US$1,125/t.”
With his expectation of supply cuts shifting the market back into a deficit as early as the second quarter of this year, Mr. Singh recalibrated his valuation multiples for stocks across his coverage universe. That led to several target price reductions:
- American Lithium Corp. (LI-X, “buy”) to $4 from $5. The average on the Street is $6.39.
- Critical Elements Lithium Corp. (CRE-X, “buy”) to $2 from $4. Average: $3.58.
- E3 Lithium Ltd. (ETL-X, “buy”) to $7 from $8.50. Average: $7.15.
- Lithium Americas Corp. (LAC-N/LAC-T, “buy”) to US$13.50 from US$16.50. Average: US$10.94.
- Lithium Americas (Argentina) Corp. (LAAC-N/LAAC-T, “buy”) to US$14 from US$14.50. Average: US$13.44.
- Standard Lithium Ltd. (SLI-X, “buy”) to $6 from $12. Average: $6.60.
He maintained a $20 target and “buy” recommendation for Patriot Battery Metals Inc. (PMET-T). The average is $16.60.
“We expect PMET (top lithium pick) to be a relative outperformer as it continues to add value through exploration,” said Mr. Singh. “We expect LAC to be preferred over LAAC until it proves to the market it’s past its ramp-up issues at Cauchari. Prior to the pullback in lithium prices, ETL was an outperformer in 2023 as it started up its field pilot plant. ETL’s PFS results are coming soon and a return to news flow could potentially spark a recovery. We see deep value in CRE (in the penalty box until partnership announcement), LI (Nasdaq minimum bid requirement overhang) and SLI (the use of its ATM is an overhang until a partnership is announced) as all trade at 0.11-0.15 times P/NAV but all three likely need a recovery in sentiment and the removal of overhangs before investors return.”
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In other analyst actions:
* Canaccord Genuity’s Aravinda Galappatthige cut his Boat Rocker Media Inc. (BRMI-T) target to $3 from $3.50 with a “buy” rating. Other analysts making changes include: TD Cowen’s Vince Valentini to $2 from $2.75 with a “buy” rating and RBC’s Drew McReynolds to $4 from $5 with an “outperform” rating. The average is $3.13.
“Q4/23 results were slightly better than expected while a still strike-impacted 2024 adjusted EBITDA outlook was ahead of our forecast. Factoring in more conservative growth assumptions for 2025, our price target decreases from $5 to $4. We continue to see value in the stock alongside what we believe is upside potential to our 2025 forecast,” said Mr. McReynolds.
* Following Monday’s announcement that its refinery in Burnaby, B.C., returned to normal operations on March 29, BMO’s John Gibson reduced his Parkland Corp. (PKI-T) target to $55 from $57 with an “outperform” rating. The average is $54.45.
“We are updating estimates to reflect higher-than-expected downtime in Q1/24. Post update, we are decreasing our target price to $55 ($57 prior), which reflects a modestly lower target multiple for the company’s refining operations (4.0 times now vs. 4.5 times prior),” said Mr. Gibson. “We continue to believe strong upside lies in the shares pending PKI can execute on its short- and longer-term targets, particularly given incremental cost savings this year, although risk lies in its 2024 guide. We reiterate our Outperform rating.”
* JP Morgan’s Sebastiano Petti lowered his Rogers Communications Inc. (RCI.B-T) target to $81 from $90 with an “overweight” rating. The average is $74.32.
* CIBC’s Kevin Chiang raised his TFI International Inc. (TFII-N, TFII-T) target to US$175 from US$167 with an “outperformer” rating. The average is US$164.
“On the back of comments we heard from various freight transportation companies during this past conference season, we have adjusted our estimates for TFII to reflect a softer environment in its P&C and TL segments relative to our original expectations,” he said. “Our Q1 EPS moves to $1.27 from $1.61 and below consensus which currently sits at $1.45. We expect TFII to guide to 2024 EPS of $7.00-$7.25 when it reports first quarter results. While the cyclical recovery continues to be pushed out, TFII remains one of our top picks given its company-specific growth levers, our positive outlook on the LTL segment, and the potential around splitting the company into two which would remove the Holdco discount. We also remain optimistic that the broader freight cycle is on the verge of an upcycle.”
David Leeder