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

Wells Fargo analyst Roger Read is maintaining his “positive outlook” for the global oil and gas sector for 2023, pointing to its “returns-focused goals and more conservative actions rather than on a strong commodity price outlook.”

“In our view, this matters more because predicting commodity prices presents its own unique challenges and uncertainties. However, expecting and even demanding that management teams behave in a rational manner regardless of the commodity price backdrop presents a more sustainable and dependable investment scenario,” he said.

In a research report released Tuesday, Mr. Read said he expects the sector to deliver positive returns this year, “given the favorable backdrop, ongoing investment discipline, and improved cash return dynamics.”

“Our macro outlook is fairly neutral, but the industry’s 2022 performance went a long way to cementing its reputation towards a commitment to returns over a relentless pursuit of growth,” he added.

However, Mr. Read downgraded Suncor Energy Inc. (SU-T) to “equal weight” from “overweight” based on “the combination of reduced valuation multiple expectations.”

His target for Suncor shares slid to $43 from $51. The average target on the Street is $53.60, according to Refinitiv data.

“We reduced our EBITDA multiple by 10 per cent to 4.5 times from 5.0 times based on the company’s continuing poor operational performances combined with average capital investment performance at best,” the analyst said. “The recent accident at its Colorado refinery implies the company’s operational challenges are no longer limited to the oil sands arena. Our concern is significant accidents occurring across multiple operating segments implies a deeper safety culture shortfall. In our experience fixing culture is exceptionally difficult in the short term.

“Relative to what our downgrade to an Equal Weight rating implies for share price performance, we recognize the potential for activist intervention (Elliott Investments) to drive faster and more meaningful change. However, our concern is the cultural challenges to embrace safety and available uptime run deeper than a new CEO or modest restructuring of the company’s operations. At just 4.5 times our 2024E EBITDA estimate, our EBITDA multiple is discounted versus its peers and historical averages. If SU can deliver on safety improvements then returns should benefit. Activist pressure might become more effective in 2023 given recent events illustrate much still needs to be done.”

Mr. Read also cut his target for shares of Canadian Natural Resources Ltd. (CNQ-T) to $76 from $84, reiterating an “equal weight” rating. The average is $92.52.

“While CNQ offers attractive shareholder returns amid relatively modest capex growth, we maintain a neutral outlook given limited upside to our price target,” he said. “In addition, CNQ’s historically growth via acquisitions approach lends additional risk, in our view. Finally, we remain concerned that ESG issues may limit incremental investors in oil sands oil & gas producers, like CNQ. We believe the 5.0 times EBITDA multiple on our 2024E forecast is appropriate given the company’s recent strong performance and historical track record. Since the upcycle ended in mid-2014, CNQ has outperformed its peers (CNQ up 14.6 per cent; XLE down 15.9 per cent). We attribute this outperformance at least partly to its sector leading cash returns performance. We estimate CNQ’s 2023E/2024E average cash returns will be nearly 6.0 times larger than its average 2013/2014 performance and higher than a majority of its peers.”


Raymond James’ Rick Patel added Lululemon Athletica Inc. (LULU-Q) to the firm’s “Current Analyst Favorites” list, seeing Monday’s 9.3-per-cent selloff following the premarket release of its fourth-quarter results “as an opportunity to own one of the highest quality companies among Global Brands.”

“In our view, LULU continues to have one of the strongest growth algorithms in Global Brands, and while the 4Q gross margin percentage miss is disappointing, we don’t believe it diminishes its long-term growth potential,” he said. “We continue to believe LULU will deliver results in line with its LT plan to double Revenue through 2026. We consider much of LULU’s GM% pressure to be transitory and see the potential to unlock stronger margins as inventories normalize and lower freight costs work through the P&L.”

Mr. Patel maintained a “strong buy” rating for the Vancouver-based company with a US$438 target. The average is US$391.03.

Others making target adjustments include:

* Telsey Advisory Group’s Dana Telsey to US$425 from US$470 with an “outperform” rating.

* Cowen and Co.’s John Kernan to US$488 from US$516 with an “outperform” rating.

* Deutsche Bank’s Gabrielle Carbone to US$422 from US$447 with a “buy” rating.


RBC Dominion Securities analyst Paul Quinn expectsa pretty difficult year” for North American paper and forest products in 2023.

In a research report released Tuesday, he emphasized a “tough” demand backdrop for wood products with rising interest rates having “a negative effect” on the North American housing market. He also thinks new capacity in the pulp and containerboard market could weigh on the sector.

“After a number of years of very strong home price appreciation, affordability was an issue even before rates materially moved higher,” said Mr. Quinn. “We believe that rates will continue to rise over most of 2023 as the Fed tries to corral inflation, but anticipate a cut or two by the end of the year. Unfortunately, that will be too late to save the 2023 home building season, but it may set up 2024 for a rebound in profitability. We are hoping that a difficult 2023 will lead to a number of permanent capacity closures, similar to what we experienced in 2019, with most of the curtailments occurring in BC to balance demand with the declining timber supply.”

“After relatively strong years for pulp & containerboard pricing, new capacity could disrupt supply-demand balances over the coming year. Over the last quarter, linerboard, medium and pulp prices have peaked and are starting to come under some pressure. We expect this to last through Q123 for containerboard and all through 2023 for market pulp. We think the paperboard market will also loosen at the margin as new capacity comes online.”

With that tough backdrop, he said his “best ideas for 2023 are “unique ones,” noting “North American paper remains very tight and the same can be said in Europe and South America.”

He named three companies:

* Sylvamo Corp. (SLVM-N) with an “outperform” rating and US$60 target. The average on the Street is US$59.

“The global leader in UFS paper production stands to benefit from this imbalance and the addition of a Swedish mill (Nymolla) in early January will be a welcome contributor,” he said.

* Louisiana-Pacific Corp. (LPX-N) with an “outperform” rating and US$75 target. Average: US$66.89.

“While we have long believed in Louisiana Pacific’s transformation story, we were joined by Berkshire Hathaway in late 2022 with its 8.1-per-cent position in the stock. We expect LP to continue to grow its Siding business throughout 2023 as repair & renovation spending continues to track well,” he said.

* Vancouver-based Doman Building Materials Group Ltd. (DBM-T) with an “outperform” rating and $8 target. Average: $6.46.

“Lastly, small cap Doman Building Materials is a name that we recently upgraded,” he said. “Decent R&R markets plus a longer tail of deck and fencing demand following strong housing starts over the last few years should provide stable cash flows and more than adequate coverage of its high dividend (9.0-per-cent yield).

Beyond Doman, Mr. Quinn named three other companies has his “top Canadian ideas.” They are:

  • Canfor Corp. (CFP-T, “outperform”) with a $30 target. Average: $31.50.
  • Cascades Inc. (CAS-T, “outperform”) with an $11 target, down from $12 previously. Average: $10.11.
  • Interfor Corp. (IFP-T, “outperform”) with a $35 target. Average: $35.33.

Mr. Quinn downgraded Rayonier Advanced Materials Inc. (RYAM-N) to “sector perform” from “outperform” with a US$8 target, down from US$9 but above the US$5.15 average.

He also made these target changes:

  • Canfor Pulp Products Inc. (CFX-T, “outperform”) to $7 from $8. Average: $5.90.
  • Clearwater Paper Corp. (CLW-N, “sector perform”) to US$40 from US$45. Average: US$46.
  • Mercer International Inc. (MERC-Q, “sector perform”) to US$13 from US$14. Average: US$16.


Elsewhere, seeing the Street’s expectations as “very optimistic,” CIBC World Markets’ paper and forest products analyst Hamir Patel downgraded a pair of companies in his coverage universe on Tuesday. They are:

* Conifex Timber Inc. (CFF-T) to “underperformer” from “neutral” with a $1.50 target, down from $1.75 and below the $1.83 average on the Street.

* Mercer International Inc. (MERC-Q) to “neutral” from “outperformer” with a US$13 target, down from US$16, which is the current average.

“For Mercer, we no longer see sufficient upside to justify a higher rating than our Neutral stance across other lumber and pulp equities,” said Mr. Patel. “While MERC has a strong track record of accretive growth, the weakness in the European lumber market and a less generous EU energy sales cap price over December 2022 – June 2023 is likely going to weigh on earnings (see our recent marketing takeaways note). For Conifex, we expect the small-cap name to underperform its peers this year given its comparably weaker balance sheet and 100-per-cent exposure to the highest cost operating region (B.C.).”

He also made these other target adjustments:

  • Acadian Timber Corp. (ADN-T, “neutral”) to $16 from $17. Average: $17.40.
  • Canfor Pulp Products Inc. (CFX-T, “neutral”) to $4.75 from $6. Average: $5.90.
  • Interfor Corp. (IFP-T, “neutral”) to $27 from $32. Average: $35.33.
  • Richelieu Hardware Ltd. (RCH-T, “outperformer”) to $46 from $47. Average: $50.50.
  • Stella-Jones Inc. (SJ-T, “outperformer”) to $57 from $54. Average: $56.43.
  • Western Forest Products Inc. (WEF-T, “neutral”) to $1.25 from $1.50. Average: $1.52.

“Heading into 2023, we remain cautious on the outlook for wood product pricing and demand given the ongoing housing recession and continued affordability constraints likely to weigh on demand for most of the year,” he said. “At the same time, double-digit declines in home prices and inflationary pressures are likely to weigh on consumers’ willingness to embark on major home renovation projects this year after excess home investments during the pandemic.

“When we downgraded the LumberCos on October 3, 2022, we pointed to significant downside risk to estimates. While consensus estimates on CFP/IFP/WFG subsequently declined by 30 per cent and the Canadian LumberCos have underperformed the TSX Composite by almost 10 per cent over the last three months, we see limited fundamental catalysts to start the new year. Street numbers are still looking wildly optimistic for the year ahead given the weak demand backdrop. Richelieu is our preferred housing-leveraged name in a recessionary-type environment with its strong balance sheet and history of accelerating share gains and capturing M&A opportunities in prior downturns. In the building products space, we also have Outperformer ratings on ADENTRA (specialty distributor with share gain and M&A upside) and Stella-Jones (benefitting from multi-year double-digit pole growth). In the pulp/packaging space, our Outperformer-rated names include CCL (diversified global packaging platform) and Winpak. We view Winpak as a defensive name for a recessionary environment (90 per cent of sales tied to food/beverage packaging), with strong margin visibility and above-market growth prospects.”


After the Canadian telecommunications sector had a “solid showing” in 2022, Canaccord Genuity analyst Aravinda Galappatthige thinks this year “could be different.”

“On one hand, one can argue that the inherent defensive traits of the Telecom sector could be helpful against a potentially soft economic backdrop, in turn driving the case to be overweight the sector through 2023 as well,” he said. “However ... we see the prospect of moderating wireless returns through the year due to a recent uptick in promotions/discounting and likely a more intense competitive environment going forward, lapping of stronger comps and easing year-over-year tailwinds from international roaming. In fact, we see ARPU [average revenue per user] growth reverting back toward 0 per cent and potentially going negative by year end. While volumes would be assisted by immigration, rebounding churn can impact profitability as well. In wireline, promotional activity is already elevated and B2B is still soft. On another note, it is clear that Telecom balance sheets would be more levered than they had been for over 15 years, owing to M&A and spectrum auctions, potentially discouraging more risk-averse investors. In fact, we see Rogers, Quebecor, TELUS and BCE heading into the 3.8GHz auction in late 2023 with leverage ratios north of (and in some cases well north of) 3 times net debt/LTM [last 12-month] EBITDA.”

Mr. Galappatthige thinks there’s “a strong case to overweight” Telus Corp. (T-T) as the new year begins, naming it his “sector pick for the year ahead, owing to its notably superior growth credentials (we are looking for double-digit EBITDA growth in 2023), a sharp upswing in FCF starting 2023 on the back of a step down in capex, attractive yield and dividend growth, and generally solid execution.”

Keeping a “buy” recommendation for Telus shares, he raised his target by $1 to $34. The average on the Street is $32.87.

“In our view, the underperformance of the stock in Q4/22 further adds to its attractiveness as we believe it was partly the result of fund flows out of the stock toward Rogers/Shaw-driven catalysts,” said Mr. Galappatthige.

Citing “the recent run up in Shaw’s share price after the Competition Tribunal ruling in favour of Rogers-Shaw deal,” the analyst downgraded his recommendation for Shaw Communications Inc. (SJR.B-T) to “hold” from “buy” with a $40.50 target (unchanged). The average is $40.35.

While trimming his 2023 forecast to factor in his “view of moderating wireless strength and looming macro headwinds,” Mr. Galappatthige raised his target prices for the remainder of the sector’s stocks. His changes are:

* BCE Inc. (BCE-T, “hold”) to $63 from $62. Average: $66.05.

“we believe that investors should be looking for entry points throughout the year with an eye on long term interest rates. On top of the significant step up in FCF in 2023, we expect near double digit FCF growth going into 2024 (and possibly beyond) as BCE’s capex profile further moderates alongside the maturation of its fibre rollout. We also see the prospect of the Enterprise business eventually turning, especially as IoT revenues continue to grow and Enterprise level 5G (e.g., Private Networks, MEC) reaches materiality from a financial standpoint. However, in the near term we believe that low reported growth and still high interest rates could stifle upside to the stock.,” he said.

* Cogeco Communications Inc. (CCA-T, “hold”) to $74 from $72. Average: $91.25.

“In terms of the valuations, CCA now trades at 5.4 times F2023 estimates (FCF yield of 10 per cent) which very much represents the low end of its historic valuation band. We suspect this could be due to a number of reasons including the selloff in U.,S. cablecos, elevated leverage post Ohio acquisition and some integration issues leading to subscriber losses of late, and generally weaker internet sub trends in Canada. In particular, as BCE’s fibre deployment extend deeper into the 905 zones, we would need to watch the competitive dynamic even more closely. All that said, we do believe there are some near- to medium-term catalysts for the stock that we will be monitoring closely. These include a) management’s expectations of stabilization in ABB subs from Q2/F23 onwards, b) network expansion capex in Canada and U.S. that could resume subs growth on both sides of the border, and c) wireless optionality via the MVNO route given its spectrum holdings in GTA.,” he said.

* Quebecor Inc. (QBR.B-T, “buy”) to $33 from $30. Average: $33.33.

“We also think QBR is a worthwhile bet at current prices,” he said. “We believe that the near 12-per-cent FCF yield is quite meaningful given the historic stability of its operations in Quebec. The pending addition of the Freedom/Shaw wireless assets offers up the requisite growth/upside component to the thesis. We nonetheless recognize that investors are likely to be circumspect around risks related to its non-Quebec wireless venture, particularly with respect to cash burn as they likely increase capex at Freedom, and also retaliatory risks from incumbents. While the ultimate success (or lack of) of Videotron in the three provinces would not be determined for many years, what we do know is that Quebecor has a solid foundation to gain a robust starting position due to the fact that a) the acquisition price was low, which in turn limited the impact on the balance sheet b) the highly attractive backhaul arrangements struck with Rogers eases their near-term capital requirements and c) the beneficial bundling arrangement (with Rogers) allows them to adopt their familiar strategies outside Quebec.”

* Rogers Communications Inc. (RCI.B-T, “buy”) to $68 from $63. Average: $70.58.

“We note that Rogers has been gradually ticking up synergy expectations, with the $1B now entirely comprised of opex savings (previously included revenue and capex savings). Given the extended time Rogers had to line up the integration and rationalisation processes, it is possible that the company revises up synergy expectations which would be viewed positively. Furthermore, Rogers is likely to benefit from the ongoing strength in wireless fundamentals perhaps for the next couple of quarters. Finally, we believe that there could be some incremental upside to the stock upon closing of the Shaw Cable acquisition. On the flip side, we believe that investors may react to the combination of a 4.5 times levered balance sheet coupled with downward estimate revisions, be it driven by competitive action or an economic downswing. We note that Rogers sub-base has historically been more sensitive to the macro vs BCE/TELUS.,” he said.


Goldman Sachs’ Jordan Alliger cut Canadian National Railway Co. (CNR-T) to “sell” from “neutral” on Tuesday, citing valuation concerns as he sees it unduly elevated versus its U.S. peers.

“We think there should be a reversal in stock price outperformance that saw CN heavily outperform the U.S. counterparts in 2022,” he said. “The potential exists for significant grain tailwind becoming a headwind later in 2023 while U.S. rails could see potential EPS upside as volumes re-accelerate post the slowdown, leading to the possibility of chunkier OR [operating ration] improvement relative to our estimates post the 2022 margin retrenchment.”

Mr. Alliger cut his target to $150 from $153. The average is $160.57.


In a research note previewing 2023 in the utilities sector, CIBC World Markets analyst Mark Jarvi made a pair of rating changes.

He lowered Innergex Renewable Energy Inc. (INE-T) to “neutral” from “outperformer” previously. His $20 target for its shares is 48 cents lower than the average.

“We currently tilt more defensive and we do not see enough risk-adjusted upside to our target,” said Mr. Jarvi. “Our biggest concern on the name is funding. Despite a solid development pipeline, we believe INE will have a slightly harder time than some peers turning asset growth into per share cash flow growth and NAV/share value creation, given potential external equity needs in a challenging market.”

Conversely, he upgraded Clearway Energy Inc. (CWEN-N) to “outperformer” rating from “neutral” with a US$37 target, up from US$36 but below the US$38.14 average.

“We believe it offers an attractive 20-per-cent total return potential to our target with lower risks than many peers. CWEN has a very strong funding position (no equity needs for now), has a clear line of sight to asset additions with a deep pipeline at its sponsor, and we have high conviction it can deliver 7-8-per-cent dividend growth through 2026,” said Mr. Jarvi.

His target adjustments included:

  • Atco Ltd. (ACO.X-T, “outperformer”) to $51 from $50. Average: $48.64.
  • Boralex Inc. (BLX-T, “outperformer”) to $49 from $44. Average: $47.69.
  • Canadian Utilities Ltd. (CU-T, “neutral”) to $38 from $37. Average: $37.56.
  • Capital Power Corp. (CPX-T, “neutral”) to $52 from $50. Average: $52.31.
  • Emera Inc. (EMA-T, “neutral”) to $55 from $54. Average: $57.91.
  • Fortis Inc. (FTS-T, “neutral”) to $57 from $55. Average: $57.13.
  • Hydro One Ltd. (H-T, “outperformer”) to $39 from $36. Average: $36.61.
  • TransAlta Renewables Inc. (RNW-T, “neutral”) to $13.50 from $15. Average: $14.38.

“Within the Power & Utility sector there was a fairly wide divergence in individual performance through a choppy/challenging 2022,” he concluded. “Companies that offered stability, delivered on strategy and had strong funding/balance sheet positions rose to the top. With an uncertain macro/equity market outlook in 2023 we believe those elements will again guide outperformance this year. We prefer names that can best straddle defensive underpinnings with tangible growth, and we continue to put a high priority on a strong funding position. In general, we prefer the Power names over the Regulated Utilities as they provide cash flow visibility, have more levers for growth and could do better if market sentiment becomes more bullish. Top picks for 2023 are largely carryovers from last year: BLX (balanced growth), H (stability) and TA (catalysts/value).”


Analysts at Acumen Capital introduced their 2023 “Top Ideas” list on Tuesday, consisting of seven equities with a focus on “proven businesses that have historically shown solid execution against a well-articulated business plan.”

The firm said the stocks were chosen based on “reasonable valuations in the context of historical trading ranges; strong free cash flow generation supported by recurring revenue; business model that can grow both organically and through acquisitions; Strong balance sheet (or the ability to deleverage without external capital) to fund growth strategy internally and catalysts that may result in a step change in the business.”

Their picks are:

* Adentra Inc. (ADEN-T) with a “buy” rating and $60 target. Average: $48.64.

Analysts: “Macro headwinds overshadowed a strong year in which ADEN continued to execute on its business plan. The Company acquired Mid-Am in February 2022, posted record results in H1/22, and continued to return capital to shareholders in the form of dividends and share buybacks.”

* Alaris Equity Partners Income Trust (AD.UN-T) with a “buy” rating and $22.50 target. Average: $20.96.

Analysts: “While 2022 was slower than 2021 in terms of deployment, deal flow has improved to start 2023 with increasing rates making AD’s preferred product a more compelling option for current and potential new partners. Overall AD has done well to strengthen the portfolio through increased partner diversification and reduced concentration while ECR’s are tracking at all-time highs. In our view AD is significantly better positioned today than in the past while the valuation has become highly compelling at 0.84 times book.”

* Black Diamond Group Ltd. (BDI-T) with a “buy” rating and $8.50 target. Average: $7.79.

Analysts: “BDI had a total return of 10 per cent in 2022 after being a top performer in our coverage universe in 2021. Despite strong operational results achieved in connection with a transition of the business to an industrial from OFS, BDI continues to lag its peers. We believe BDI is well positioned for continued strong performance in 2023 driven by acquisition integration, stable and predictable growth in high margin rental revenue (MSS), steadily improving WFS utilization, and scaling of the LodgeLink digital platform.”

* Cargojet Inc. (CJT-T) with a “buy” rating and $220 target. Average: $198.36.

Analysts: “CJT is well positioned with a dominant market position and aircraft deliveries through the end of 2024 expected to fuel both domestic and international growth. We believe the Company’s strong fundamentals are disconnected from the share price.”

* Cathedral Energy Services Ltd. (CET-T) with a “buy” rating and $2.50 target. Average: $3.59.

Analysts: “CET delivered an excellent 2022, which saw revenue grow 72.5 per cent in the first nine months over 2021 levels. Management has completed seven acquisitions over the past 18 months that has driven its market share to more than 25 per cent in Canada and nearly 8 per cent in the U.S. We anticipate 2023 activity levels in the directional drilling sector in North America will continue to grow (15 per cent in Canada, 9 per cent in the U.S.) and push CET’s financial results higher. Further acquisition opportunities could act as positive catalysts for the shares as the management team delivers on its consolidation strategy.”

* Hammond Power Solutions Inc. (HPS.A-T) with a “buy” rating and $26 target. Average: $27.50.

Analysts: “HPS was a Dark Horse pick in 2022 and is graduating to our Top Pick list for 2023 as we anticipate another strong year for the company. HPS offers investors an attractively valued manufacturer that is set to deliver strong growth over the next several years as electricity demand, upgrading of infrastructure, EV charging stations, and renewable energy installations all drive demand for transformers. HPS is the market leader in the North American market, and we believe their distribution model and engineering expertise will improve their market share over the near-, medium-, and longterm.”

* Vecima Networks Inc. (VCM-T) with a “buy” rating and $32 target. Average: $27.50.

Analysts: “VCM has positioned itself for revenue growth and margin expansion over the coming years. 2022 delivered on the promise of that growth and we anticipate 2023 will consolidate that viewpoint. VCM was the top performer in our 2022 Top Picks with a total return of 30 per cent. The company’s Q1/F23 results continued the trend of outstanding growth driven by consumer demand for broadband speed and access. The company is now reaching a size and scale that should drive further investor interest in 2023 and we expect the quarterly financial results will act as positive catalysts for the shares.”


With its Valentine Gold project now fully permitted with early work commencing, Desjardins Securities analyst John Sclodnick thinks Marathon Gold Corp.’s (MOZ-T) “acquisition window [is] wide open,” seeing it as an enticing target for larger peers.

“We view the current juncture as an optimal acquisition window for a producer, as the project is de-risked through permitting,” he said. “The acquiring company could build the project as best suits it. The acquirer may want to control the engineering process and may want to build an 11,000tpd operation from the beginning rather than Marathon’s planned phase approach to development, which involves constructing a 7,000tpd processing plant before expanding to 11,000tpd in year 4.

“We expect that producers will be considering an acquisition of Marathon for various reasons. These include lowering jurisdictional risk profile, potentially for tax benefits if the company is headquartered in Canada. An acquirer may also want to bolster its production profile with a long-life, low-cost permitted mine in Canada with lots of resource growth upside along the 32km mineralized trend. The acquisition window is wide open and we believe that now is the time for a producing company to consider an acquisition. If not, the window may close once construction of the processing plant is underway. At that point, a company may wait and see how the asset ramps ups before making an acquisition.”

Mr. Sclodnick thinks companies with potential acquisition interest will find the Toronto-based miner’s current valuation as “attractive.”

“MOZ is trading at 0.57 times consensus NAV [net asset value], a 21-per-cent premium to the gold developer peer group, but its average premium was 30 per cent over the past year, peaking at 67 per cent,” he said. “Given the project is fully permitted in a lower risk jurisdiction with further resource growth potential, the stock certainly deserves to trade at a premium valuation. The price might be right for a producing company to offer an attractive premium, and still show material NAV accretion to its own board and shareholders, with any future discoveries as additional upside.”

With a “buy” recommendation, the analyst trimmed his target for Marathon shares to $2.25 from $2.70. The average is $1.83.

“With the stock recently breaching the latest deal price of $1.10, we believe that some participants may be selling shares and holding the warrants,” said Mr. Sclodnick. “Once this pressure subsides, combined with a potential positive announcement of an expanded credit facility, we expect the shares to outperform.”


Flow Beverage Corp.’s (FLOW-T) cost-savings initiatives are likely to reduce its cash burn, according to Stifel analyst Martin Landry, who sees recent contract wins as signs of momentum for the Toronto-based company.

On Monday, Flow announced it has commenced an internal restructuring to “further optimize the Company’s operations toward achieving profitable growth,” including the reduction of 80 jobs on top of the previously announced sale of its Verona production facility. It estimates the moves will result in annual cash savings of approximately $17-million.

“These two initiatives should reduce Flow’s capital intensity and make the company’s business model more asset light,” said Mr. Landry.

“We are reducing our cash burn for both FY23 and FY24 by approximately $5 million. The improvement in cash burn comes primarily from better gross margins, along with lower G&A, salaries and benefits expenses due to the cost saving initiatives announced today. As a result, we estimate FY23 EBITDA loss to come in at $6.8 million ($12 million previously) and at $2.7 million in FY24 ($6.9 million previously).”

The analyst also emphasized Flow brand products “appear to be performing well,” citing recent distribution wins at Dollar General, Family Dollar, Fred Meyer, ShopRite and Costco Canada.

“This brings the total number of doors where FLOW’s products are distributed to over 46,000. Another significant win is the distribution agreement with Foodbuy, a distributor specialized in the foodservice channel with access to 11,000 doors. Lastly, FLOW will be distributed at 1,000 Starbucks restaurants in Canada.”

Seeing the focus turning to “execution,” Mr. Landry remained a “speculative buy” recommendation and $1 target for Flow shares, touting its “strong growth prospects.” The current average is $2.17.

“FLOW has an ACV penetration of less than 30 per cent in the U.S., vs. approximately 80 per cent for peers, leaving significant room for growth,” he said. “In addition, the company’s brand awareness is still low, given its short history. While the beverage industry is highly competitive and dominated by large players with deep financial resources, we see the potential for FLOW to generate significant revenue growth in the coming years.”


In other analyst actions:

* Seeing a “high probability” a management-led takeover bid will succeed, Echelon Partners analyst Rob Goff moved Canaccord Genuity Group Inc. (CF-T) to “tender” from “buy” and removed his previous target of $1.50 per share.

* TD Securities’ Steven Green downgraded Noranda Income Fund (NIF.UN-T) to “tender” from “hold” with a $1.42 target, up from $1 and matching the average.

* BMO’s Raj Ray initiated coverage of Osino Resources Corp. (OSI-X) with an “outperform” rating and $1.60 target. The average is $2.39.

“Osino’s main asset, Twin Hills, is an advanced-stage gold project in Namibia that is scalable with simple executable design and located in a relatively safe jurisdiction proximal to established infrastructure. Osino’s valuation remains discounted, and we believe the company’s shares have potential to re-rate in the near term as the project de-risking continues,” he said.

* TD Securities’ Jonathan Kelcher resumed coverage of StorageVault Canada Inc. (SVI-T) with an “buy” rating and $8 target, up from $7.40. National Bank’s Tal Woolley resumed coverage with an “outperform” rating and $7 target, below the $7.61 average.

* Following Monday’s release of “light” second-quarter results, Canaccord Genuity’s Matt Bottomley trimmed his Tilray Brands Inc. (TLRY-Q, TLRY-T) target to US$5 from US$7 with a “buy” rating. The average is US$4.20.

“We are reiterating our BUY recommendation but are lowering our PT ... for Tilray Brands following a weaker-than-anticipated FQ2/23 print in addition to the recent softening of US federal catalysts following the conclusion of the congressional lame-duck session, which ultimately did not advance any cannabis reforms,” he said.

* Stifel’s Cody Kwong cut his Vermilion Energy Inc. (VET-T) target to $37 from $42 with a “buy” rating. The average is $37.29.

“Vermilion released its 2023 budget and guidance, that while below consensus on a production and capex basis, targets production growth of 3 per cent year-over-year while it returns 25 per cent of projected FCF to shareholders by increasing its base quarterly dividend by 25 per cent and reinstating its buyback program,” he said. “The balance of FCF will be directed towards the balance sheet with an eye on a $1.0 billion debt target by year-end. VET obtained formal Irish government consent for the Corrib acquisition, which is expected to close by the end of 1Q23. With the lower volumes slightly curtailing cash flow and pace of buyback activity we are reducing our target price to $37.00 per share. With clarity surrounding its return of capital plans, better visibility on the Corrib acquisition closing alongside EU windfall tax clarity (burden moving lower in this update), we believe we are past the point of maximum pessimism on this name, all else equal.”

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