Inside the Market’s roundup of some of today’s key analyst actions
Ahead of the release of ECN Capital Corp.’s (ECN-T) third-quarter financial results, National Bank Financial’s Jaeme Gloyn said he was “seeking signs of execution towards strong 2024 guidance and a favourable resolution of the ongoing RV & Marine (RVM) strategic review.”
“Sadly, the quarter delivered neither,” said the equity analyst, leading him to downgrade the Toronto-based firm to “sector perform” from “outperform” based on a “modest” 11-per-cent total return to his revised target price for its shares.
Before the bell on Monday, ECN reported “weak” adjusted revenues of $50-million, missing the $57-million estimate of both Mr. Gloyn and the Street. That led to earnings before interest, taxes, depreciation and amortization (EBITDA) of $24-million that also fell below projections ($31-million).
“First, Q3 results were uninspiring as originations, revenues, and EPS all missed,” he said. “In addition, fair value marks on a portfolio of manufactured home loans re-occurred in Q3, contrary to management’s previous guidance. This hints at the potential for future negative marks and/or increasing risk to achieving the 2024 EPS guidance of $0.19 to $0.25.
“Separately, while we continue to view earnings as secondary given the ‘event-driven’ nature of the story, that “event” potentially involves further bulking up of the RV & Marine segment. While that may prove to be the most appropriate strategy course, we believe it adds a layer of uncertainty to the value creation story. Therefore, we lowered our target multiple to 10 times (was 12 times, slightly above the current 9 times mutliple on 2024 consensus) and our 2024 EPS estimate to $0.19 (was $0.23).”
Seeing both its Manufactured Housing and RV and Marine operation units continuing to “struggle” with a year-over-year decline in originations, Mr. Gloyn reduced his target for ECN shares to $2.75 from $3.50. The average target on the Street is $2.87, according to Refinitiv data.
Elsewhere, CIBC’s Nik Priebe raised his target to $2.60 from $2.25 with a “neutral” rating.
“ECN reported noisy Q3 results, including another earnings miss driven by lower gain-on-sale margins. Origination revenue was once again impacted by rising market yields in the quarter (among other factors), prompting a lot of interest and discussion around this element of earnings sensitivity on the call. The positive angle is that origination volumes at Triad were generally in line with our prior estimate, and that gain-on-sale margins should eventually normalize (albeit with a bit of uncertainty around the exact timing). ECN continues to take steps to position the business for an eventual sale, and expects to conclude the Marine/RV strategic review in Q1/24. We consider this to be an important event necessary to clean up the structure and make the business more attractive as a buyout candidate,” said Mr. Priebe.
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Eight Capital analyst Christian Sgro expects Q4 Inc. (QFOR-T) shareholders to approve its definitive agreement to be acquired by Silicon Valley-based Sumeru Equity Partners for $6.05 per share, seeing little likelihood of a superior competing bid.
Accordingly, he revised his recommendation for the Toronto company that sells digital tools that public companies use to host shareholder meetings to “tender” from “buy” previously.
“Using the reported total equity value of $257-million and current consensus 2024 estimated revenue figures, we calculate a transaction multiple of 2.5 times,” said Mr. Sgro. “In the context of similar-sized Canadian software peers, we think this valuation is reasonable. This considers similar peers that have subscription revenues, software gross margins, and comparable profitability profiles. Importantly, the transaction offers liquidity to shareholders, which we think will be taken favourably in this environment.”
“In our view, Q4 is a highly attractive target for PE given the recurring revenue profile, impressive market penetration, zero debt, and stable path to profitability. We flagged a private equity takeout as upside risk in our recent initiation of coverage report. Players like Apollo Global Management (APO-NYSE, Not Rated) and Viking Global have been active consolidators. With that all said and considering the break fee, we think that a competitive offer is unlikely, given that we believe the current deal price is reasonable.”
To reflect the deal, Mr. Sgro moved his target to $6.05 from $6. The average is $5.33.
“As we think of similar-sized software companies within our coverage, there are several opportunities for investors to redeploy capital,” he said. “In descending order of market capitalization, the following mid-cap companies have similar subscription dynamics and gross margin profiles and would be a suitable replacement: D2L Inc. (DTOL-T, BUY, $11.00 target), Kneat.com Inc. (KSI-T, BUY, C$4.50 target), Vitalhub Corp. (VHI-T, BUY, $5.00 target), and MediaValet Inc. (MVP-T, BUY, $2.50 target). We see the potential for these companies to also be taken out by U.S. private equity, with recent USD/CAD foreign exchange trends making this opportunity more attractive.”
Elsewhere, CIBC World Markets’ Stephanie Price also moved the stock to “tender” from “neutral” and raised her target to $6.05 from $4.
“The purchase price represents a 36-per-cent premium to the last closing price and a 43-per-cent premium to the 20-day average trading price and a valuation of 2.3 times EV/2024E Sales,” she said. “The deal includes a go-shop provision during which the company can actively solicit a superior proposal, although such a proposal seems unlikely, in our view, given that QFOR did engage in a strategic review process post the interest from Sumeru, the valuation is already a premium to the small-cap tech average of 1.6 times EV/Sales, and the transaction has already received voting support from shareholders holding 37.2 per cent of the outstanding common shares.”
Others tweaking their targets include:
* Canaccord Genuity’s Robert Young to $6.05 from $4 with a “hold” rating.
“We consider the announcement a positive outcome for the broader shareholder base, given the headwinds to QFOR’s growth profile as it transitions to breakeven profitability,” said Mr. Young.
* RBC’s Maxim Matushansky to $6.05 from $3.75 with a “sector perform” rating.
“While the takeout multiple is below peers, it is at a significant premium to where the stock has been trading for the last two years and the all-cash transaction provides certainty in a slower IPO environment,” said Mr. Matushansky.
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Seeing its relative valuation as “reasonable” relative to its U.S. peers, Scotia Capital analyst Himanshu Gupta lowered his recommendation for BSR REIT (HOM.U-T) to “sector perform” from “sector outperform” previously.
“BSR is trading at 12.4 times 2024 estimated AFFO [adjusted funds operations] multiple vs U.S. peers trading at 10-14 times,” he said. “BSR is trading at 6.6-per-cent implied cap rate while U.S. peers are trading at 6.8-6.9 per cent. BSR trading at 32-per-cent discount to NAV (vs CDN REIT sector at 29-per-cent discount). So, attractive valuation on absolute basis but not so on relative basis.”
In a research note released Tuesday, Mr. Gupta pointed to two other factors in justifying his recommendation change for the REIT, which focuses on multifamily garden-style residential properties in the Sunbelt region of the United States. They are:
* Concerns over same-property net operating income.
“The wait is getting longer,” he said. “As per RealPage, new supply is projected to remain elevated in 1H/24 and will only begin to ease off in Q3/24 and onwards. We forecast a fair bit of deceleration in SP NOI growth with 1 per cent year-over-year in 2024 (vs 2.5-per-cent previous estimate) versus 7 per cent in 2023. We project SP NOI growth should return to usual 2 to 3 per cent only in 2025.”
* Slowing growth.
“Transitioning out from the Growth bucket: We forecast a muted negative 1-per-cent year-over-year AFFOPU [adjusted funds from operations per unit] growth in 2024, and a small recovery in 2025,” he said. “Our 2024 FFOPU estimate is 3 per cent below consensus but there could be further downside if we see pressure on renewal lease spreads as well (in response to negative new leasing spreads).”
Mr. Gupta lowered his target by US$4 to US$13. The average is US$15.38.
Elsewhere, BMO’s Michael Markidis dropped his target to US$13.50 from US$16.50, reiterating an “outperform” recommendation.
“HOM has generated strong earnings growth for investors over the past two years; however, year-over-year comparisons will likely be relatively subdued through 2024 as the rebalancing in the REIT’s three core markets (Dallas, Houston, Austin) continues to unfold,” said Mr. Markidis. “On a positive note, the long-term demand drivers are intact, HOM’s financial position is sound, and management continues to proactively defend the value of its portfolio through the NCIB.”
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Believing “weakening” revenue growth is “casting a shadow on profitability gains,” Scotia Capital analyst Divya Goyal lowered Softchoice Corp. (SFTC-T) to “sector perform” from “sector outperform.”
On Nov. 9, the Toronto-based software-focused IT solutions provider reported a third-quarter gross sales decline of 4 per cent year-over-year, driven by a 27.5-per-cent drop in Hardware sales.
“Despite weaker-than-anticipated gross sales, the company reported year-over-year gross profit growth of almost $2.5-million, or 3.3 per cent, and year-over-year adj. EBITDA growth of $7.5-million, or 49 per cent, using operating leverage in the business (including variable comp accruals) and cost-optimization efforts,” said Ms. Goyal “Although Softchoice’s cost-containment efforts have been effective over the past few quarters despite top-line weakness, profitability growth may not be sustainable over the longer term if the top line continues to weaken. Additionally, sustained weakness in the Services and Hardware businesses could impact the company’s overall profitability given that Software & Cloud generated only a 13.5-per-cent gross profit margin against gross sales as compared with the Hardware and Services segments which generated 17 per cent and 28-per-cent gross profit as a percentage of gross sales.
“We are also concerned that, although Softchoice benefits from its SMB and commercial clientele (90 per cent of total revenues) being in the early stages of their digital transformations, a recessionary scenario driven by increased geopolitical conflict and macroeconomic uncertainty could result in a slowdown across this client group, thereby impacting growth in new business alongside recent declines in the enterprise segment.”
Taking “a cautious stance” on Softchoice, she maintained a $20 target. The average is $21.57.
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In response to weaker-than-anticipated third-quarter results “as macro headwinds took a toll on digital ad demand and pricing,” Canaccord Genuity’s Robert Young downgraded Enthusiast Gaming Holdings Inc. (EGLX-T) to “speculative buy” from “buy” previously.
On Monday after the bell, the Toronto-based digital media company reported revenue of $45.6-million, down 10 per cent year-over-year and below both Mr. Young’s $47.15-million estimate and the consensus projection of $49-million due largely to weaker ad pricing. He emphasized gross margin of 36.7 per cent saw “strong expansion,” rising 4 per cent year-over-year and 1.5 per cent quarter-over-quarter and falling below projections (36.9 per cent and 36.3 per cent, respectively). He estimates EBITDA came in at a loss of $26.-million, below his estimate of a loss of $2.2-million but better than consensus at $3-million.
“EGLX management continues to signal positive EBITDA in Q4, although this is critically dependent on spending trends in the back end of the quarter,” he said. “Q4 is normally a very seasonally strong period post Black Friday, with CPMs up across web and video, although macro pressures create continued uncertainty on the degree of improvement. Against that backdrop, we expect brand solutions revenue to benefit from continued strong demand, exemplified by a large new 7-figure win in Q3 with StateFarm. The more important (and dependable) factor, in our view, is the NFL TNG deal, which is extending into Season 2 and drives Enthusiast’s largest brand solutions opportunity date. We believe the timing of high margin NFL TNG revenue in Q4 and Q1 further supports a transition to profitability. We expect subscription revenue to be flat quarter-over-quarter on continued subscriber growth as management retools. The higher mix of high margin revenue supports continued gross margin expansion in Q4 and into 2024, in our view. A comprehensive review of operations and elimination of unprofitable channels, combined with OpEx controls, is expected to yield flattish OpEx in the near term. A decision to delist from the NASDAQ is a further cost reduction. This supports our view of break-even EBITDA in Q4. We expect typical seasonality in Q1 to drive an 11-per-cent dip with EBITDA shifting back negative.”
Mr. Young thinks Enthusiast’s balance sheet “remains the biggest wrinkle,” seeing cash burn as a key concern in the near-term. He noted its dependent on top-line performance in the fourth quarter, particularly post Black Friday trends.
“We continue to believe the company can sustain operations without raising external capital through to a sustainably positive EBITDA model but the risk is higher, in our view,” he said.
Reducing his forecast for the remainder of the year, Mr. Young lowered his target for its shares to $1.50 from $3. The average on the Street is $2.61.
“Management remains very bullish on the company’s pipeline and customer activity, particularly repeat business,” he said. “Q3 did see a seasonal uptick but weaker than our model, particularly in light of a large deal which had pushed from Q2. Enthusiast named Felicia DellaFortuna as the new CFO, a last piece of a revamped management team emphasizing digital experience, joining from BuzzFeed effective November 14. Alex Macdonald, who will be transitioning to a strategic advisory role within the company, remains to oversee a smooth handoff. We remain confident on the business model and remain impressed by the quality of customers and high repeat business, but we also remain wary on the balance sheet and near term macro headwinds which have persisted. With reduced estimates on the back of Q3 and weak ad spend and pricing driving deeper into Q4 than we modelled, we see a higher risk profile
Elsewhere, Scotia Capital’s Kevin Krishnaratne lowered his target to $2.50 from $3 with a “sector outperform” rating.
“EGLX continues to focus on improving its revenue mix towards higher margin businesses with a view to turn Adj. EBITDA profitable exiting Q4 and into 2024,” said Mr. Krishnaratne. “We look forward to an uptick in trends in Q4 on seasonality and continued contributions from NFL TNG. We model Adj. EBITDA profitability being reached in Q4 (slightly over breakeven) ahead of even better results in 2024 as the company becomes fully self sustaining. Pursuant to slight reductions to our forecast that reflect conservatism in ad spend in the near-term following recent industry trends, and a lowering of our target multiple.”
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Dream Residential Real Estate Investment Trust (DRR.U-T, DRR.UN-T) is now “deeply discounted” despite “solid” third-quarter financial results, according to Desjardins Securities analyst Kyle Stanley.
“DRR’s extensive value-add program has translated into above-average rental growth in a tough market,” he said in a note released Tuesday. “At 8.1 times 2024 FFO [funds from operatoins] and a 10-per-cent implied cap rate, it is difficult to overlook the discounted valuation; we believe risks are more than adequately priced in, and investors who can get past the limited trading liquidity should be rewarded.”
On Nov. 8, the Toronto-based REIT reported funds from operations per unit of 18 US cents, up 18.8 per cent year-over-year and matching the expectation of Mr. Stanley and the Street. He said the “merits” of the REIT’s “unique geographic exposure and value-add strategy were on display in 3Q23,” pointing to a 5.4-per-cent rise in blended leasing spreads.
“For the first time, DRR reported yearover-year same-property results, highlighted by 11.4-per-cent SP NOI [same-property net operating income] growth,” he said. “As fundamentals in the Sun Belt in particular have softened due to supply pressures, DRR’s portfolio has been insulated. Its focus on affordability and the middle market segment have contributed to the healthy performance, along with solid results from its value-add program, in our view. It completed 122 renovations in 3Q23, with trade-outs generating a 23.5-per-cent rent lift over the expiring rate, which translated into an ROIC [return on invested capital] of approximately 19 per cent (ahead of the 12–16-per-cent target). It is on pace to complete 400 value-add renos in 2023 and is finalizing the Cincinnati market study, which will open the door to a reno program in that market shortly.”
“While the cost of capital and lack of private market deal flow have impeded external growth to date, management is exploring partnerships with third-party capital to help facilitate acquisition activity. Broken capital structures are becoming more prevalent in the market and are offering attractive acquisition opportunities. DRR’s ability to partner with a financial backer would stretch its capital further and likely enhance the going-in yield via management fees. For a deal to be accretive today, DRR would target a going-in yield of 6.5–7.0 per cent.”
Seeing it “financially flexible” with ample acquisition capacity with its existing equity base and limited debt maturities through 2025, Mr. Stanley lowered his target for Dream units to US$8.50 from US$9 to reflect a “slightly moderated” FFOPU outlook and reduced multiple. The average on the Street is US$10.69.
“Revisions to our 2023 outlook incorporates lower expected property taxes in Texas following the recently passed tax cut proposal,” said the analyst. “As a result, our SP NOI margin increased 130bps to 52.1 per cent. Revisions to our 2024 and 2025 estimates primarily reflect a slightly higher SP NOI growth outlook, offset by increased G&A and interest expense. Our revised FFOPU estimate was unchanged in 2023 (US$0.71) but decreased 2 per cent in 2024 and 2025 to US$0.75 and US$0.80, respectively, translating into a two-year CAGR [compound annual growth rate] of 6 per cent. Our NAVPU increased 3 per cent to US$13.10, reflecting a higher NOI profile.”
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Following last week’s release of “mixed” third-quarter results from Chorus Aviation Inc. (CHR-T), National Bank analyst Cameron Doerksen said he continues to “remain positive on the overall outlook for regional aircraft leasing (market values and lease rates for regional aircraft generally trending positively) with the company’s shift to an asset-light model to drive better free cash flow generation and shareholder returns as well as lower leverage in the coming years.”
On Nov. 8, the Halifax-based company repored revenue and adjusted EBITDA of $448-million and $113-million, respectively. Both exceeded the projections of both Mr. Doerksen ($418-million and $112-million) and the Street ($410-million and $108-million). However, reported adjusted earnings per share of 6 cents fell short of the 11-cent expectation due to higher interest and income tax expenses.
“Chorus reiterated its full-year 2023 guidance ranges for revenue, EBITDA, EBT, FCF and leverage, and while there were no substantive changes to the guidance, management expects to finish the year at the high end of the range for revenue, EBITDA, FCF and leverage, with EBT tracking toward the low end of the range,” said Mr. Doerksen. “Additionally, the company expects to close some asset sales in Q4, but will come in at the lower end of its targeted range for the year of US $50-US$100 million.”
Pushing back his expectation from when its new US$500-million Falko Fund III will begin contributing financially due to “the uncertain macroeconomic environment” and warning of the rising costs of reacting to the industry-wide pilot shortage, Mr. Gloyn trimmed his EPS forecast for the fourth quarter to 8 cents from 10 cents, citing a higher depreciation expense and a slightly higher assumed tax rate. His full-year 2023 and 2024 estimates slid to 33 cents and 35 cents, respectively, from 40 cents for both.
That led him to reduce his target for Chorus shares to $3.50, below the $3.73 average, from $4 with an “outperform” rating.
In a separate note, Mr. Doerksen cut his Taiga Motors Corp. (TAIG-T) target to $1.40 from $2.25 with a “sector perform” rating. The average is $1.83.
“We are encouraged to see the company is making progress on the production front,” he said. “However, we remain cautious on the stock as the company will need to significantly ramp production further over the next several years to reach consistent profitability and positive cash flow. We also still forecast additional financing will be needed over the next two years to support the production ramp. We have made significant changes to our forecast to reflect what we think is a more realistic production ramp and as a result, our target moves to $1.40.”
Elsewhere, Canaccord Genuity’s Luke Hannan cut his Taiga target to $2.25 from $2.75 with a “buy” rating.
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In other analyst actions:
* Barclays’ Benjamin Theurer upgraded Nutrien Ltd. (NTR-N, NTR-T) to “overweight” from “underweight” with a US$68 target, up from US$64 but below the US$73.78 average on the Street.
“After a volatile third quarter and relative underperformance of K vs. N, we switch our recommendations and double-upgrade MOS and NTR to OW, given their K exposure, while upgrading ICL to OW as well. We downgrade CF to UW given recent relative outperformance, and lower CTVA to EW due to persistent destocking overhang,” he said.
* Needham’s Ryan MacDonald initiated coverage of Docebo Inc. (DCBO-Q, DCBO-T) with a “buy” recommendation and US$56. The average is US$50.17.
“We view Docebo as a differentiated learning management system (LMS) vendor that is quickly gaining share through the evolution of corporate learning beyond HR into the extended enterprise,” he said. “Our industry work suggests that learning/training are top priorities for HR buyers heading into 2024 and the TAM [total addressable market] for Docebo is significant, at $25-billion. With a differentiated product suite and growth initiatives fueled by investments in the indirect channel via SI/OEM relationships, Docebo is poised to take share and deliver a balanced mix of growth and profitability that could put it in the ‘Rule of 40′ discussion in FY24. Given this dynamic, we view DCBO shares as undervalued at an EV/revenue multiple of 6 times our FY24 estimate, representing an attractive entry point for investors.”
* TD Securities’ Michael Tupholme lowered his Ag Growth International Inc. (AFN-T) target by $8 to $75 with a “buy” rating. The average is $76.44.
“We believe global agriculture fundamentals are supportive of demand for AFN’s products/solutions, and we are also attracted to the company-specific revenue growth and margin improvement opportunities that AFN offers. Meanwhile, we view the company’s valuation as very attractive,” he said.
* CIBC’s Krista Friesen raised her Boyd Group Services Inc. (BYD-T) target to $285 from $280, keeping a “neutral” rating. The average is $282.38.
“Much of the focus for BYD has been getting margins back to pre-pandemic levels. As we noted last quarter, we do believe that BYD will be able to get back to pre-pandemic margins; however, we believe that the bar of reaching those margins might be a bit low. It is becoming increasingly clear that the opportunity for BYD within scanning and calibration could provide a notable boost to margins, and drive them higher than pre-pandemic levels. With that said, we acknowledge that this is a longer-term opportunity, and we maintain our Neutral rating,” she said.
* Mr. Friesen also lowered her Exchange Income Corp. (EIF-T) target to $58 from $64.50. The average is $63.60.
“EIF reported an essentially in-line Q3; however, the stock was down nearly 5 per cent on the back of weaker-than-expected 2024 guidance. We suspect that we and the Street were mismodelling some of the contributions from new contracts within Aerospace & Aviation, as well as contribution from Northern Mat. Having adjusted our model to better reflect the timing of contracts and the contributions from recent acquisitions, we maintain our Outperformer rating and lower our price target,” she said.
* Canaccord Genuity’s Matthew Lee lowered his Bragg Gaming Group Inc. (BRAG-T) target to $13 from $13.50. The average is $11.35.
“Bragg reported Q3 results with revenue below our forecast but EBITDA higher than expected,” said Mr. Lee. “Our key takeaway was the company’s official extension of its BetCity contract to late 2025. While the new contract has slightly worse economics, we believe it was paramount that the firm locked up one of its most important clients. In our view, this gives BRAG revenue visibility going forward and substantially de-risks the story. Along with the quarter, management reiterated guidance, which we believe could be conservative given that it implies a somewhat pedestrian fourth quarter. For F24, we have lowered our growth estimates slightly as the trimmed scope of the BetCity contract creates a revenue headwind. Nevertheless, we expect solid 8-per-cent growth with margins expanding on improving mix.”
* Scotia’s Mario Saric cut his CAP REIT (CAR.UN-T) target by $1 to $55 with a “sector outperform” rating. The average is $54.61.
“We believe the CAR reward-risk equation has improved since Q2 results,” he said. “One risk that remains for sentiment (in our view) = CAR buying the minority stake in ERES (we think headline of more European exposure would be negative). We believe CAR looks especially attractive to generalists seeking more liquid exposure to CAD Apartments, which we still overweight heading into 2024 (i.e., we think CAD Apartments can do relatively well in both risk-on and risk-off market themes).”
* RBC’s Pammi Bir cut his Choice Properties REIT (CHP.UN-T) target by $1 to $15 with a “sector perform” rating. The average is $14.67.
“Following another in line print, we see CHP as well-positioned for an economy shifting to lower gear. The portfolio continues to register strong operating metrics, underpinned by its defensive, grocery anchored retail, while significantly below market rents should continue to support solid NOI upside in industrial. Developments are also progressing well at healthy yields. While higher rates are creating some headwinds, we still see a steady, durable earnings picture,” said Mr. Bir.
* Canaccord Genuity’s Robert Young bumped his target for Computer Modelling Group Ltd. (CMG-T) to $10.50 from $10 with a “hold” rating, while BMO’s John Gibson raised his target to $11.50 from $10 with a “market perform” recommendation. The average is $9.70.
“We are raising our target price on CMG ... following what was one of CMG’s strongest quarters in recent memory,” said Mr. Young. “Headline numbers were well ahead on another robust 12-per-cent normalized year-over-year growth in recurring SaaS revenues, or 19 per cent year-over-year as reported, benefitting from positive FX movements. With Bluware in the fold for just a few days in the quarter, the true impact will be seen in the quarters ahead, and we are cognizant of renewals during a period of heightened consolidation among energy producers. On the back of the results, we are increasing our forecasts and our target price. We recently moved CMG to a more neutral HOLD rating given a strong run in its shares in recent months. While we believe sentiment will remain positive on the heels of this quarter, we see the valuation, at 17.7 times NTM [next 12-month] EBITDA as fair given the normalized growth rates and while we assess the execution on recently completed M&A.”
* TD Securities’ Sam Damiani trimmed his Firm Capital Mortgage Investment Corp. (FC-T) target to $12 from $12.50 with a “buy” rating. The average is $11.50.
* Stifel’s Justin Keywood lowered his Hamilton Thorne Ltd. (HTL-T) target to $2.75 from $3 with a “buy” rating, while Canaccord Genuity’s Tania Armstrong-Whitworth cut her target to $2 from $2.25 with a “buy” recommendation. The average is $2.32.
“Hamilton Thorne, a leading supplier into the fertility industry, reported Q3 results that were somewhat of a rare miss on estimates but with still 5-per-cent organic growth,” he said. “The quarter was impacted by unexpected headwinds with equipment sales in China, along with a recall by a contract manufacturer on two product lines. Looking forward, management has guided for a strong Q4 with 9-10-per-cent organic growth, 15-per-cent overall growth and 19-per-cent adj. EBITDA margin. The product recall appears to be temporary, and we anticipate 20-per-cent growth in F2024 with improving margins on the back of price increases and completed investments in manufacturing capacity. The recent Gynetics acquisition will also bolster growth.”
* CIBC’s Cosmos Chiu reduced his Mag Silver Corp. (MAG-T) target to $17.50 from $21 with a “neutral” rating. The average is $22.18.
* CIBC’s Allison Carson lowered her target for Marathon Gold Corp. (MOZ-T) to 84 cents from $1.70 with a “neutral” recommendation. The average is $1.69.
* Canaccord Genuity’s Yuri Lynk cut his Neo Performance Materials Inc. (NEO-T) target to $11 from $13 with a “buy” rating, while Stifel’s Ian Gillies trimmed his target to $9 from $9.50 with a “hold” recommendation. The average is $12.60.
“We are encouraged by NEO’s quarterly results, as the company’s core businesses continue to recover (Magnequench and C&O),” said Mr. Gillies. “In particular, C&O [Chemicals and Oxides] performance seems to be normalizing, which we have reflected in our new estimates. However, this is offset by what is likely to be a slower ramp at Estonia whereby full production of 2,000 tonnes will not likely be achieved until late 2026 or 2027. ... Our HOLD rating remains unchanged as illiquidity of the stock and volatility of the cash flow stream lead us to believe that the implied upside of 34 per cent is not warranted to change our rating.”
* CIBC’s Bryce Adams, currently the lone analyst covering Sierra Metals Inc. (SMT-T), raised his target to 75 cents from 50 cents with a “neutral” rating.
* BMO’s Randy Ollenberger cut his Strathcona Resources Ltd. (SCR-T) target to $28 from $31 with a “market perform” rating, while TD Securities’ Menno Hulshof lowered his target to $32 from $34 with a “hold” recommendation. The average is $37.75.
‘Strathcona reported lower-than-expected cash flow on slightly higher production,” Mr. OIllenberger said. “The company released its 2024 capital budget of $1.3 billion (vs. consensus of $1.35 billion), which is expected to yield volumes of 190-195 mboe/d (versus consensus of 196 mboe/d). The budget takes into account $150 million of brownfield growth capital, which will add over 25 mb/d of incremental production capacity by 2026. We believe that Strathcona’s limited float will continue to constrain share performance relative to peers.”
* TD Securities’ Mario Mendonca raised his Sun Life Financial Inc. (SLF-T) target by $1 to $68 with a “hold” rating. The average is $72.92.
“In our view, the following support a premium valuation for SLF: 1) lower interest-rate sensitivity; 2) solid capital levels; 3) track record of earnings stability; and 4) strong ROE (low capital-intensity business mix). However, we rate SLF HOLD and continue to favour MFC over SLF, mostly reflecting relative valuation,” said Mr. Mendonca
* Jefferies’ Owen Bennett increased his Street-high TerrAscend Corp. (TSND-T) target to $6.10 from $5.40 with a “buy” rating. The average is $3.73.
* TD Securities’ Greg Barnes lowered his Triple Flag Precious Metals Corp. (TFPM-T) target to $22, below the $23.14 average, from $26 with a “buy” rating.
David Leeder