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

Fundamental Research analyst Sid Rajeev sees Canada’s Big 5 banks providing investors an “attractive” opportunity with potential upside of 10 per cent on average, citing the “pick up” in third-quarter earnings and the expectation of a recovery in the fourth quarter through 2021.

“High dividend yields of more than 4 per cent makes the sector compelling for income-seeking investors,” said Mr. Rajeev. “Except [Royal Bank of Canada] which currently trades at a hefty P/B of 1.75 times, the other banks are attractively valued at 1.1 times and their share prices have only started to edge up after underperforming the broader markets for most of 2020.”

In a research report released late Tuesday, Mr. Rajeev said he expects earnings to remain volatile in the near term, however, he sees the large banks as “well equipped to withstand asset quality issues arising from the COVID-19 pandemic” with sufficient capital levels able to withstand credit losses.

“Due to the COVID-19 pandemic, large Canadians banks’ earnings will continue to remain under pressure as restricted activities fuels weakness among businesses, leading to credit losses and slower loan growth,” he said. “Deferrals on loans will remain a key risk amid elevated unemployment and highly levered consumers’ status as most large banks have high retail exposure. Banks with the most retail exposure have higher uncertainty. Moreover, a low interest rate environment globally should be a drag on interest margins and incomes.

“However, top Canadian banks’ healthy capital levels of 11.0-12.5-per-cent Common Equity Tier 1 (CET1 consisting of shareholders’ equity and retained earnings forms part of Tier1 Capital) along with tight cost controls should help these banks to withstand asset quality issues arising from the COVID-19 pandemic. The big five Canadian banks hold more than $86-billion in excess capital (excess of CET1 over regulatory requirement of 9 per cent) and loss reserves ($59-billion CET1 capital and $27-billion of allowance for credit losses (ACL)) forms 3 per cent of banks’ net loans and appears sufficient to face the coronavirus-driven headwinds. Moreover, an expected healthy recovery in GDP, and a rebound in unemployment in 2021, should help, subject to developments regarding a COVID-19 vaccine, the lack of which, could trigger another round of deferrals.”

In the note, Mr. Rajeev initiated coverage of the banks of the country’s five largest banks. His ratings and fair value targets are:

  • Toronto-Dominion Bank (TD-T) with a “hold” rating and $66.47. The average on the Street is $67.16.
  • Royal Bank of Canada (RY-T) with a “hold” and $89.93. Average: $105.57.
  • Bank of Nova Scotia (BNS-T) with a “buy” and $66.04. Average: $60.97.
  • Bank of Montreal (BMO-T) with a “buy” and $94.07. Average: $84.11.
  • Canadian Imperial Bank of Commerce (CM-T) with a “buy” and $108.25. Average: $106.85.

“Our fair values based on equal-weighted P/E and P/B methodology for all banks except RBC shows decent upside,” he said. “We assume a 10-per-cent premium in both P/E and P/B for the top 2 banks (RBC and TD) given their size, operating performance and healthy capital adequacy levels. Consequently, we arrive at fair values with potential upside of 20 per cent for BNS and BMO; and 10 per cent for CIBC and initiate with a BUY. We rate both RBC and TD as HOLD, with the former currently trading at a hefty P/B of 1.75 times, and with a potential downside of 7.0 per cent, and TD with a potential upside of 6.0 per cent.”


Appili Therapeutics Inc. (APLI-X) possesses a “pipeline of products meeting important national needs,” said Industrial Alliance Securities analyst Chelsea Stellick.

In a research report released Wednesday, she initiated coverage of the Halifax-based pharmaceuticals company with a “buy” rating, emphasizing its “diverse” group of five major anti-infection programs, including a COVID-19 prevention candidate.

“The Company’s strategy looks at high value programs and products that target serious and/or life-threatening infections,” said Ms. Stellick. “APLI also continues to look at near-to-market/revenue or commercial opportunities to tackle some of the most serious health threats. The Company has brought together a team of experienced drug development and commercialization professionals to (1) identify high volume commercial and R&D anti-infective assets, (2) leverage available incentive programs to accelerate development, and (3) maximize market access, reimbursement, and partnership and alliances to realize stakeholder value.”

“The Company’s five programs – ATI-2307 (antifungal), ATI-1701 (biodefence), ATI-1503 (antibiotic), ATI-1501 (anti-infective), and Favipiravir (antiviral) – all focus on various unmet medical needs. Antimicrobial resistant infections are becoming a major threat to global health, and with a heightened focus from governments and international health organizations, there are ample opportunities for federal support and funding. APLI is continuously identifying programs that can address unmet medical needs through in-licensing to add to its portfolio.”

Ms. Stellick said its sponsorship of a trial to evaluation Favipiravir as a potential early treatment and preventative treatment against COVID-19 is a notable opportunity for Appili.

“Discovered by FUJIFILM Toyama Chemical (FFTC) (4901-T, Not Rated), Favipiravir is a broad-spectrum antiviral that exhibits antiviral activity in vitro against SARS-CoV-2,” she said. “Approved in Japan and China for certain types of influenza, two smaller-scale studies have shown higher clinical recovery rates and symptom alleviation compared to Standard of Care (SOC). The US Food and Drug Administration (FDA) has granted APLI clearance to proceed in expanding its Phase 2 clinical trial into the U.S. in addition to the 16 long-term care (LTC) facilities across Ontario.”

Touting its “attractive” market opportunities, Ms. Stellick set a target of $3 per share. The average target on the Street is $2.70.

“APLI’s diverse anti-infective program addresses several unmet medical needs,” she said. " The Company’s strong balance sheet ($25.5-million cash on hand as of June 30) and recent public offering, position APLI to continue to grow its pipeline either via acquisitions or by advancing its current clinical trials for its five lead programs.”


Canaccord Genuity analyst Doug Taylor raised his financial projections for Well Health Technologies Corp. (WELL-T) following Tuesday’s announcement of its entry into the U.S. market with the US$14-million acquisition of California-based telehealth company Circle Medical.

Concurrently, Well announced a a nonbrokered private placement for gross proceeds of $23-million, led by Mr. Li Ka-shing, to support the deal.

Mr. Taylor expects Well to feature a “higher organic growth profile” after it breaks out Circle into its own division.

He raised his 2021 revenue and adjusted EBITDA projections to $61.7-million and $4.5-million, respectively, from $52.6-million and $4.2-million.

Keeping a “speculative buy” rating, the analyst increased his target for Well shares to $6 from $4.75. The average on the Street is currently $5.58.

“We are refreshing our model and valuation to reflect the proposed majority stake (backing out minority interest) and financing, resulting in an increased target price ... This reflects higher multiples assigned to direct-to-patient telehealth revenue postdeal with rising peer comps, combined with our expectation of continued accretive capital deployment in the healthcare IT space; the company has proforma cash of $38-million,” he said.

Elsewhere, Echelon Capital analyst Rob Goff increased his target to $6.80 from $5 with a “speculative buy” rating (unchanged).

Mr. Goff said: “We are encouraged by the timing of the investment, long-established progressive strategic partnerships, and WELL’s strong leadership. We see further upside as the Company ramps its telemedicine program, expands its related ecosystem, unifies OSCAR EMR vendors, and continues to follow its disciplined acquisition approach.

“In a hyper growth market where peers are moving aggressively to grab share organically and through acquisitions, WELL’s proven access to capital warrants aggressive valuations given the market opportunity and the Company’s proven ability to add significant shareholder value through acquisitions. Share valuations lean on relative benchmarks while absolute valuations struggle to assign appropriate scope for telehealth targets and inorganic value creation. We see the shares continuing to command premium valuations finding support in US valuations. The expansion move into the US arguably supports a positive revaluation given the scale of the opportunity.”


Calling it “the highest acquisitive story in the industry,” Paradigm Capital analyst Gordon Lawson initiated coverage of VOX Royalty Corp. (VOX-X) with a “buy” rating.

“Along with management’s expertise in the royalty industry, VOX owns an exclusive database of more than 7,000 prospective transactions that provide a competitive advantage to help yield wider opportunities within a range of industries,” he said. “In several cases to date, VOX has been the sole bidder on a contract owing to its exclusive knowledge of the existing royalty. With this, the company has secured an industry-leading 17 transactions for 38 royalties since January 2019 and now holds a collection of 43 royalties and streams. Based on our analysis of these royalties, we calculate these transactions to be accretive to NAV [net asset value]. Since its May 2020 IPO, VOX has continued to grow with the completion of several new deals.”

Mr. Lawson estimates VOX’s NAV is comprised of 66-per-cent previous metals contracts and 86-per-cent of his valuation is located in geopolitically safe jurisdictions, including Australia and Brazil.

“Royalty companies that exhibit these positive attributes tend to trade at premiums to peers,” he said.

Seeing its current valuation as “attractive,” Mr. Lawson, who is currently the lone analyst on the Street covering the stock, set a target price of $3.75.


Following a “strong” second-quarter earnings beat, Raymond James analyst Steve Hansen said expects Itafos (IFOS-X) to benefit from “healthy” new phosphate price tailwinds into 2021.

On Aug. 26, the fertilizer maker reported adjusted EBITDA for the quarter of $11.5-million, up 582 per cent year-over-year and exceeding Mr. Hansen’s $0.9-million projection. The beat came largely due to better-than-anticipated results Conda subsidiary and the benefits of an “aggressive” savings program.

“Management reiterated its FY2020 guidance of $10-20-million EBITDA, implicitly suggesting that the recent surge in phosphate pricing will likely be offset by Conda’s residual acid feedstock challenges and associated maintenance downtime,” the analyst said. “While we recognize (& model) this issue, we still expect this guidance will ultimately prove conservative given: 1) Conda’s strong leverage to higher DAP prices; and 2) further evidence that management’s commercialization (SPA pricing, value-added products) and cost-management efforts are bearing fruit.”

Mr. Hansen raised his target for Itafos shares from 65 cents, which is the current consensus, to 75 cents.

He kept a “market perform” rating, citing its “elevated leverage profile and residual concerns over Conda’s recent operational (acid feedstock) challenges.”


Seeing a “compelling capital return opportunity and strong execution,” RBC Dominion Securities analyst Mark Dwelle upgraded Equitable Holdings Inc. (EQH-N), a New York-based financial services company, to “outperform” from “sector perform.”

“Our rating change reflects three main considerations: we expect the company will soon accelerate its share buyback efforts which will be accretive to 2021 earnings and book value, the company has executed on its portfolio repositioning and expense reduction initiatives which support achieving a mid-teens ROE [return on equity] and valuation is attractive both relative to peers and in view of the company’s superior capital position,” he said.

Seeing no near-term impediments to earnings growth, Mr. Dwelle hiked his target to US$28 from US$21. The average on the Street is US$26.63.

“Despite an expected earnings boost next year, expectations of a mid-teens ROE and a strong capital position shares trade at about 70 per cent of book value,” he said. “We see room for re-rating up to around 90-100 per cent of book value and demonstrate how shares are undervalued relative to peers on a sum of the parts basis.”


Raymond James analyst Chris Cox raised his 2020 financial expectations for Crescent Point Energy Corp. (CPG-T) after it announced it has the reactivation of previously shut-in volumes and revised its guidance for the year along with a preliminary outlook for 2021.

“Previous commentary from Management had indicated that prevailing oil prices in the US$40 per barrel range were sufficient to support a return of previously shut-in production, with the company waiting for more stability in pricing before electing to do so. As such, [Tuesday’s] announcement shouldn’t come as a surprise to investors and indeed updated guidance of 119-121,000 barrels of oil equivalent per day is only slightly ahead of our previous estimate of 118,000 boe/d, reflecting modest timing differences in the return of shut-in production.

“Accordingly, the focus shifts to the 2021 outlook, with Management providing preliminary guidance for the company to sustain or exceed 2H20 production of 110,000 boe/d on a spending outlook of $500-550-million - also consistent with our prior forecasts. This program is expected to be fully funded from operating cash flow in a low-US$40/bbl WTI price environment, bringing the company’s break-even more in-line with peers and allowing for modest organic debt reduction at the current strip.”

Maintaining a “market perform” rating, Mr. Cox moved his target for Crescent Point shares to $2.50 from $2.25. The average is $3.40.


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