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

Calling it “a defensive growth story with more upside,” Scotia Capital analyst George Doumet assumed coverage of Restaurant Brands International Inc. (QSR-N, QSR-T) with a “sector outperform” recommendation, seeing its current valuation as “attractive” compared to peers.

“In the last five years, QSR grew adj. EPS at a CAGR [compound annual growth rate] of 8 per cent, largely in line with its International Highly Franchised (IHF) peers – with the group as a whole exhibiting defensive characteristics in prior downturns,” he said. “As it relates to QSR specifically, shares are currently trading in line with their historical average and at a 5-per-cent discount to IHF peers. We believe the valuation differential could narrow if the company delivers on our above-the-Street expectations for improvements in internal metrics (i.e., net restaurant growth (NRG) and same-store sales). More specifically, we anticipate upside from higher same-store sales at Tim’s Canada and a reacceleration of NRG driven by international, toward its historical cadence of 5 per cent plus.”

In a research report released Tuesday titled Reclaiming the Growth, Mr. Doumet said he expects momentum for Tim Hortons in Canada to continue and is looking further further signs of momentum at Burger King south of the border.

“Over the last few quarters, [Tim Hortons] performance has been improving at an impressive pace (same-store sales up 11 per cent in the latest quarter), driven by the successful execution of Phase 2 of the ‘Back to Basics” plan, in addition to strategic pricing and increased mobility in Canada,” the analyst said. “Vis-à-vis 2019, same-store sales are up 9 per cent (with the super-urban locations up 2 per cent). Looking ahead, we expect continued improvement driven by increased share gains in cold beverage/PM daypart; we estimate same-store sales growth (SSSG) of 5.6 per cent in 2023 and 3.5 per cent in 2024 (vs. consensus closer to 4.6 per cent and 2.2 per cent).”

Although early days, we are seeing encouraging signs of improvement at BK USA, notably a sequential improvement in comps and franchisee economics. We expect benefits from the recently announced ‘Reclaim the Flame’ program to yield more gradual improvements (we are largely in line for 2023E and ahead of consensus for SSSG in 2024E). That said, closure rates could see a modest uptick over the next 12 months (NTM).”

Seeing a “a clear focus on accelerating brand momentum and development but also a more holistic approach to improving franchisee health,” Mr. Doumet thinks share price upside is likely to be driven largely by internal changes.

“QSR shares are up almost 9 per cent in the LTM [last 12 months],” he said. “This compares with the highly franchised restaurant peers which are flat. The biggest outperformance occurred since the announcement of Patrick Doyle appointment to Executive Chairman (shares up 10 per cent plus following the announcement). A quick primer on Patrick Doyle: after holding various positions at Domino’s Pizza (DPZ-Q; not rated), he became CEO from 2010 to 2018, responsible for one of the biggest (if not the biggest) turnarounds in the restaurant industry. During his tenure at DPZ, shares returned 2,239 per cent vs. the S&P’s return of 184 per cent. Interestingly, BK USA’s current strategies are focused on: (i) menu improvements/simplification, (ii) restaurant refresh/renos, (iii) growth in digital sales and (iv) increased marketing spend – all areas that were instrumental to DPZ’s turnaround. Furthermore, Doyle’s remuneration package is 100-per-cent target performance–tied to a 10-per-cent-plus CAGR on QSR’s stock price over the next five years, with Doyle making a personal (longer-term) investment of $30-million in QSR shares.

“We value QSR shares at 17.5 times EV/EBITDA (2024E), largely in line with its current and historical valuation. Upside to valuation could be driven by an acceleration in internals, notably improved comps at Tim’s and NRG (driven by international) and the current macro environment, which favours more defensive/growth stories. Vis-à-vis its highly franchised/international peers (MCD, YUM, DPZ), relative valuation has improved (currently at 0.8-times discount vs. historical average of 1.6 times), due largely to a recent de-rating in DPZ (currently trading at 17 times vs. 20 times plus historically).”

Mr. Doumet set a target of US$72 for Restaurant Brands shares. The current average on the Street is US$70.54, according to Refinitiv data.


JP Morgan analyst Seth Seifman thinks Bombardier Inc. (BBD.B-T) has made considerable progress in improving its balance sheet over the last two years, leaving it less vulnerable to the turbulent macro economic conditions.

“Bombardier balance sheet is in the healthiest state in recent memory and with management on track or ahead of its longer-term financial targets,” he added.

Mr. Seifman also sees the Montreal-based luxury jet manufacturer executing well on its recovery in a solid demand environment and believes its current backlog is adequate to weather a moderate recession.

That led him to raise his target for Bombardier shares to $75 from $70, keeping a “neutral” rating. The average target on the Street is $76.63.


Calling its flagship Las Chispas underground mine in Mexico “a high-grade, low cost operation with exploration upside,” Scotia Capital analyst Ovais Habib resumed coverage of SilverCrest Metals Inc. (SILV-A, SIL-T) with a “sector outperform” recommendation.

“During the last two years, SILV constructed the mine on time and on budget, and recently achieved commercial production there in Q4/22,” he said.

“The next major catalyst for SILV is the release of an updated feasibility study at Las Chispas, scheduled for release in Q2/2023. We expect the updated study to incorporate industry-wide inflationary pressures, therefore we have incorporated 40-per-cent higher capex and 30-per-cent higher AISC in our estimates along with added 8-per-cent dilution. Even after adding extra conservatism, we continue to expect robust free cash flows owing to the high-grade nature of the orebody and low operating cost structure with significant gold byproducts. At spot prices, we forecast 2024 free cash flow of $100-million (FCF yield of 9 per cent). Notably, SILV also has significant exploration upside, which we have not factored in at this time.”

Believing SilverCrest “can re-rate higher and should trade at premium given the high-grade nature of the orebody and low operating cost structure,” Mr. Habib set a US$8 target for its shares. The average is $13.17 (Canadian).

“As the mine reaches steady state production, we expect SilverCrest to dedicate additional resources to exploration across its large, under-explored land package including the nearby El Picacho target,” the analyst said. “We see additional upside through resource conversion as well as potential through testing of nearby regional targets. In the near term, we expect SilverCrest to focus on near-mine exploration dedicating to replacing reserves at the deposit, while over the medium-to-longer term we see SILV systematically stepping out exploration efforts using a 30/60/90 km approach (measured in distance from the on-site mill) in an effort to delineate nearby ore sources to further extend the mine life at Las Chispas.”


Following the close of its $17.3-million equity financing, Paradigm Capital analyst Adam Gill sees the potential for Yangarra Resources Ltd. (YGR-T) to initiate a dividend next year as its balance sheet continues to improve and it moves closer to its long-term goal of lower debt.

The financing involved the sale of 6.79 million Canadian Development Expenses flow-through shares at a price of $2.54 per share. The proceeds from the issuance will be used to incur CDE expenses on its existing Canadian properties prior to Dec. 31.

“The next major catalyst in our view is reducing net debt to $100-million or lower and implementing a dividend,” Mr. Gill said. “Before the deal, YGR had $139.4-million drawn on its $180-million credit facility; following the financing we see the draw standing at $125.7-million at the end of Q1/23. Given the pressure on gas prices and YGR’s relatively high gas weighting, we do not expect the company to see sub-$100-million in the current strip environment. That said, if we see some improvement in commodity prices, we believe YGR could be in a position to consider a dividend in 2024. Under a US$80/Bbl WTI/US$3.50/MMBtu NYMEX price assumption, we see the credit facility falling below $100-million in H1/24.”

Believing Yangarra “continues to be a strong value pick in the space,” Mr. Gill trimmed his target for its shares to $2.50 from $3, reiterating a “speculative buy” recommendation. The average on the Street is $3.63.

“YGR has been a notable [underperformer], down 36 per cent year-to-date and 19 per cent month-to-date, relative to the S&P/TSX Capped Energy Index down 9 per cent YTD and 9 per cent MTD, and our junior/intermediate domestic Oil E&P Index down 9 per cent YTD and 4 per cent MTD,” the analyst said. “That said, through March we have seen some elevation in the oil E&Ps strip EV/DACF valuations, given the slide in oil prices. For 2023, the median multiple has increased by 0.4 points to 3.3 times over March, while the 2024 multiple has increased 0.7 points to 3.6 times on average. Given YGR’s relative performance, the valuation has been relatively more stable (flat in 2023 and up 0.1 points in 2024), deepening the relative value we see in the stock.”

Elsewhere, ATB Capital Markets’ Amir Arif trimmed his target to $3.30 from $3.80 with an “outperform” rating.

“YGR recently completed 14 wells, with nine of them tied in during Q1/23 and the remaining five coming online in the second quarter. This is a step up in completion count compared to the six wells completed in Q4/22. We continue to like the name given its relative valuation to the small cap group; at current strip pricing,” said Mr. Arif.


While its fourth-quarter financial results missed expectations, H.C. Wainwright analyst Scott Buck said his “long-term optimism remains in place” for Enthusiast Gaming Holdings Inc. (EGLX-Q, EGLX-T) as its “shifting” product mix moves it closer to profitability.

After the bell on Monday, the Toronto-based digital media company reported revenue of $54-million, down 5.2 per cent year-over-year and well below the analyst’s $67-million estimate. Also pointing to higher operating expenses, Mr. Buck calculated Enthusiast’s adjusted EBITDA loss to be $3.3-million, missing his projection of a $600,000 profit.

“The revenue miss was driven by macroeconomic pressure on advertising rates,” he said. “However, the company was able to partially offset this industry weakness by growing higher margin direct sales and subscription revenue during the quarter. While we expect these CPM [cost per thousand impression] headwinds to remain in place through at least 1H23, continued strength in direct sales and subscriptions should continue to expand gross margin in 2023, resulting in positive quarterly adj. EBITDA by year-end. Should CPMs improve before 2H23, we would expect the company to achieve positive adj. EBITDA ahead of our model.

“While we understand some investor disappointment in 4Q22 results, the company continues to be aggressive in managing costs and driving revenue growth in higher margin verticals. This positions the business to demonstrate meaningful operating leverage as the operating environment improves. Our longer-term optimism is further bolstered by strong underlying trends in gaming, which we believe should continue to garner a growing percentage of advertisers’ wallet share over time.”

To response to the results and management commentary, Mr. Buck lowered his 2023 forecast with his revenue estimate sliding to $212.3-million from $268-million previously. He’s projecting an adjusted EBITDA loss of $10.5-million, however he expects positive EBITDA by the fourth quarter.

“We are also introducing our 2024 revenue and adj. EBITDA estimates of $260.7-million and $6.3-million, respectively. This represents a meaningful acceleration in revenue growth as we expect some recovery in CPMs beginning in 2H23,” he noted.

With his lower revenue expectation, Mr. Buck cut his target for Enthusiast’s U.S.-listed shares to US$3 to US$4, maintaining a “buy” rating. The average is US$3.20.

“We recommend investors take advantage of recent share weakness to accumulate a position ahead of accelerating revenue growth beginning in 2H23,” he said.

“We are now valuing EGLX shares at $3.00, reflecting an approximately 3.0 times EV/revenue multiple on our 2023 revenue estimate of $212.3-million. The $3.00 price target represents approximately 350.0-per-cent upside from recent trading levels. Our targeted 3.0 times EV/revenue multiple is a discount to high quality gaming and esports peers which currently trades at closer to 8.0 times, though we believe is skewed somewhat higher by the larger names in the sector. While EGLX shares have declined from an April 2021 high of $8.88, we believe the company continues to balance growth while also moving the business towards consistent profitability. The current environment may be challenging, but as visibility begins to improve, we believe investors should gravitate towards depressed EGLX shares.”

Elsewhere, others making changes include:

* Scotia Capital’s Kevin Krishnaratne to $3.25 from $3.75 with a “sector outperform” rating.

“Although Q4 results missed and our estimates have been reduced, this is largely due to the impact of industry-wide programmatic ad spend pressures, with the company’s higher-margin Direct Sales & Subscriptions businesses performing well,” said Mr. Krishnaratne. “We are optimistic on the potential for positive surprises as the year progresses including: 1) newly appointed CEO Nick Brien brings a wealth of industry experience and is focused on unlocking value across EGLX’s leading gaming portfolio; 2) the success of newer Direct Ad sales initiatives such as NFL TNG which is expected to be profitable in 2023, with the company receiving inbounds from other major pro sports leagues; and 3) subscriptions (less than 10 per cent of revenue, but more than 20 per cent of GP) as an area the new CEO sees considerable runway.”

* RBC Dominion Securities’ Drew McReynolds to $3 from $3.50 with an “outperform” rating.


While acknowledging Copper Mountain Mining Corp. (CMMC-T) has “disappointed operationally as of late,” Desjardins Securities analyst Jonathan Egilo thinks negative investor sentiment has been “adequately baked into the shares” given its current valuation.

“CMMC could outperform the peer group if 2023 delivers the forecast FCF inflection,” he said. “Thus far through 1Q23, operations have been performing on budget.”

Shares of the Vancouver-based company jumped 11.6 per cent on Monday following the premarket release of its fourth-quarter 2022 financial report, which Mr. Egilo deemed to be “very poor.” Those results were offset by 2023 guidance that fell in-line with expectations.

“Management forecasts Cu recoveries of 84.0 per cent on average over the full year, with gradual quarter-over-quarter improvements on the back of last year’s mill improvements,” he said. “We had previously modelled 85.0 per cent (now 83.8 per cent), below the 88.0 per cent in the August 2022 tech report. While management indicates it expects 2024 recoveries to exceed 2023 levels and approach the target 88.0-per-cent level, we are taking a more conservative approach and model long-term recoveries peaking at 85.5 per cent. CMMC also indicated on the call that the mine plan has been adjusted since the 2022 tech report to ‘smooth over’ the five-year production profile, which previously saw grade-driven peaks of 140mlbs Cu (2027) and troughs of 88mlbs Cu (2025). We have adjusted our model accordingly and model a five-year production peak of 121mlbs (2027) and trough of 91mlbs (2023).”

Still forecasting “significant” free cash flow gains in 2023, Mr. Egilo made most reductions to his 2023 estimates while increasing his expectations for 2024. He kept a “buy” recommendation and $3.25 target for Copper Mountain shares, exceeding the $2.67 average.

Elsewhere, others making changes include:

* Stifel’s Alex Terentiew to $2.20 from $2 with a “hold” rating.

“Despite a challenging 4Q22 (16-per-cent production miss and C1 Cash Costs 53 per cent higher than our estimates owing to several operational challenges), management reiterated their outlook for a much improved 2023 on the back of stable operations and various mill improvement projects materializing,” said Mr. Terentiew. “In light of management’s 2023 production (88-98 Mlbs) and cost guidance (AIC: $2.45-$2.95 per pound), our 2023 production forecast is 88 Mlb and we improve our AIC forecast by $0.10/lb to $3.02/lb. However, we continue to maintain our HOLD rating, as we are looking for proof of operational improvements and reliability as the new CEO, Patrick Merrin, assumes office on April 24, 2023. Our target price has also been increased to C$2.20 on the back of an improved 3-year EBITDA forecast and unchanged longterm growth prospects.”

* BMO’s Rene Cartier to $2.25 from $2.50 with an “outperform” rating.

“We were expecting continued challenges with Q4/22, however, production results were below our expectations with costs above,” said Mr. Cartier. “CMMC missed revised 2022 production guidance. Positively, production guidance for 2023 was in line with our estimates and CMMC commentary in the release indicated production through the start of the year is matching plan expectations. Delivering into guidance and investor expectations will be important, in our view, to regain investor confidence.”

* Cormark Securities’ Stefan Ioannou to $2.75 from $3 with a “buy” rating.


In other analyst actions:

* BMO’s Ben Pham bumped his Brookfield Renewable Partners LP (BEP-N, BEP.UN-T) to US$34 from US$33 with an “outperform” rating. The average is US$38.22.

* CIBC’s Cosmos Chiu cut his Mag Silver Corp. (MAG-T) target to $21 from $24 with a “neutral” rating. Other changes include: , Raymond James’ Brian MacArthur to $25 from $25.50 with an “outperform” rating, H.C. Wainwright’s Heiko Ihle to US$16 from US$17 with a “buy” rating and Stifel’s Stephen Soock to $25.75 from $27.75 with a “buy” rating. The average is $25.21.

“We expect the Juanicipio project to continue reaching various milestones throughout 2023 and following the commissioning of the plant,” said Mr. Ihle. “Given Juanicipio’s connection to the national power grid in late-December 2022, full-load commissioning at site is now well underway. In turn, Fresnillo (FRES.L; not rated) has reiterated that the operation remains on track to reach nameplate production in mid-to-late 2023. For now, excess mineralized material from the Juanicipio project continues to be processed through the Saucito and Fresnillo beneficiation plants when capacity is available. Finally, we note that the company managed to produce its first lead concentrate during March 2023 and that MAG expects its first commercial shipment of concentrate in the coming weeks.”

With a file from Reuters

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 23/05/24 10:05am EDT.

SymbolName% changeLast
Bombardier Inc Cl B Sv
Brookfield Renewable Partners LP
Enthusiast Gaming Holdings Inc
MAG Silver Corp
Restaurant Brands International Inc
Silvercrest Metals Inc
Yangarra Resources Ltd

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