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

Seeing the latest offer from Air Canada (AC-T) as fair, Desjardins Securities analyst Benoit Poirier recommends investors tender their shares of Transat A.T. Inc. (TRZ-T).

In a research note released Wednesday, he said the revised agreement, which includes a reduced purchase price of $5 per share, gives him “greater confidence that the transaction will go through.”

“COVID-19 has resulted in significant uncertainty for the airline industry, which made us doubt whether the combination of TRZ and AC would even occur,” said Mr. Poirier. “We believe the revised agreement offers incentives for AC to obtain regulatory approvals for the transaction. The extended outside date of Feb. 15, 2021 (vs Dec. 27, 2020 previously) should provide sufficient time to complete the transaction, in our view. The transaction is subject to shareholder approval and a special meeting will be called in early December.”

See also: Major Transat shareholder welcomes new Air Canada deal, but will wait to see if other bidders emerge

Moving Transat to “tender” from “hold,” he adjusted his target to $5 to match the offer from $6.50 previously. The average on the Street is $4.88.

“While the impact of the pandemic on the company and industry is unfortunate, we believe the combination with AC presents the best avenue for TRZ and its shareholders to weather the pandemic and benefit from the eventual recovery,” said Mr. Poirier.


In the wake of Microbix Biosystems Inc. (MBX-T) receiving a $1.45-million grant from the Ontario Together Fund of the Ministry of Economic Development, Job Creation and Trade, Industrial Alliance Securities analyst Chelsea Stellick upgraded her rating for the Mississauga-based company, citing “greater certainty on future revenues.”

The grant is expected to cover 50 per cent of the cost to automate production of the company’s quality assessment products (QAPs) that help “ensure the accuracy of infectious disease diagnostic testing, and enable local, secure, and cost-effective automated production of the quantities of viral transport media (Media) needed for Ontario’s nucleic-acid testing for COVID-19.”

“MBX will now also create locally based viral transport media (VTM)," said Ms. Stellick. "VTM allows for the safe transfer and storage of the virus before it is processed in a laboratory. The daily vial capacity is in the thousands, increasing to tens of thousands after automation.”

“We believe that this opportunity in Ontario could open future opportunities with other Canadian provinces to supply both its QAPs or VTM for COVID-19 testing."

Currently the lone analyst on the Street covering Microbix, she moved its shares to “buy” from “speculative buy” with a 70-cent target, up from 50 cents.


Recommended investors “remain on the sidelines” until a series of potential catalysts occur, M Partners analyst Paul Piotrowski downgraded Xebec Adsorption Inc. (XBC-X) to “hold” from “buy.”

“While we continue to view Xebec as one of the most attractive pure-play investments on renewable energy, and particularly renewable natural gas (RNG), we believe at current valuations it is prudent for investors to remain on the sidelines as we await further developments from the company,” he said.

"Xebec shares have climbed 32 per cent in October as support for clean energy initiatives from governments, utilities and other companies has continued to grow. On October 1, Prime Minister Justin Trudeau committed to $10-billion in spending through the Canada Infrastructure Bank, with $2.5-billion being allocated to renewable energy projects. In the U.S., Democratic presidential nominee Joe Biden’s campaign promises have included trillions of dollars in clean energy spending.

His target for Xebec shares is $6, exceeding the $5.76 average.

“We expect to revisit our target price and rating on Xebec in the event of any of the aforementioned catalysts, as well as any commentary on margin improvement," Mr. Piotrowski said. "Following the Q2 release, management retracted prior earnings and EBITDA guidance due to COVID uncertainty. Management had previously guided for 11-13-per-cent EBITDA margins. Concerns are largely focused on the delivery of Cleantech orders, the next set of which have U.S. exposure and hence greater COVID risk. Gross margins in this segment have tightened to 25-30 per cent versus 30 per cent previously expected. However, we do remain confident in management’s ability to drive margin improvement back to recent highs with product standardization efforts and cost structure improvements.”


Canaccord Genuity analyst Aravinda Galappatthige expects Rogers Communications Inc. (RCI.B-T) to see “steep” third-quarter financial declines due to weakness in both its wireless and media businesses.

However, in a research note previewing the Oct. 22 earnings release, he said the results are “well anticipated” by investors and the Street.

“We believe that Q3 headline numbers will be largely in line with Street estimates, given the rather specific indications provided by management on the prior call,” said Mr. Galappatthige. “That being said, we expect the extent to which Rogers can moderate its decline rates, especially for wireless, and close the gap with the other two incumbents will be carefully watched. Recall, Rogers saw far greater decline rates in Q2 largely related to COVID-19, than BCE and TELUS.”

For the quarter, Mr. Galappatthige is projecting a 18-per-cent drop in EBITDA year-over-year to $1.404-billion, slightly exceeding the $1.395-billion consensus. Earnings per share of 77 cents matches the Street’s view and represents a 45-cent drop from the same period a year ago.

He also said he expects Rogers to declines to exceed those of its competitors, noting: “This is mainly due to RCI facing a more profound impact from COVID-19 than its peers due to its media and sports exposure and sharper wireless declines due to heavier international roaming and a faster transition to unlimited. In addition, the variance in Q2 and Q3E vs wireless peers raises questions around the relative quality of RCI’s sub-base which appears to reflect greater competitive sensitivity as reflected in the lower sub growth vs peers, and (at least based on Q2) appears to require higher bad debt provisioning. While we believe the recent stock under-performance has largely reflected this variance, a recovery may be delayed unless Rogers is able to demonstrate a path to a more ‘in line with peers’ trajectory in financial results.”

Mr. Galappatthige further lowered his fiscal 2020 and 2021 estimates, saying the impact of COVID-19 is extending longer than his previous expectations and having a more severe impact on roaming and overage trends.

“Primarily, we have delayed a genuine rebound in financial performance to mid-Q2/21 and moderated the rate of the recovery through H2/21,” he said. "We have thus lowered F2021 EBITDA by a further 2 per cent and it now stands at 7.2 per cent lower than pre-COVID19 expectations (down 14 per cent with respect to F2020).

“At a high level, a key question is the extent to which the second wave impacts Rogers' financial performance. In wireless, we will be looking for colour around possibly easing overage decline rates as the underlying impact of the transition to unlimited starts to moderate. We will also be focused on bad debt provisioning. Recall Rogers incurred an incremental $90-million in Q2 ($80-million for wireless), which was far more than its incumbent peers, but had indicated that they believe the Q2 incremental provision was adequate to cover the current conditions. In cable, naturally, we will be interested in Rogers' case for and level of interest in consolidation, and an update on the Cogeco bid. We note promotional activity in wireline appears to have moderated which, together with less pressure from re-sellers, suggests a steadier outlook even against the backdrop of COVID19-related shutdowns in several provinces. In Media, we will look for an update on the financial outlook beyond F2020, as it starts to look more and more as if F2021 would also be notably affected.”

Maintaining a “buy” rating, Mr. Galappatthige lowered his target for Rogers shares to $57 from $58. The current average on the Street is $64.50.

“While we maintain our BUY rating due to longer-term value for Rogers and relative valuations, we recognize the possibility of further volatility in the share price in the near term, as we go through another quarter of double-digit service revenue declines,” he said.


Canaccord Genuity analyst Dalton Baretto sees TSX-listed base metals producers hitting “a fork in the road” following a “substantial” rally over the last two quarters.

In a research report previewing third-quarter earnings season titled “Biden our time,” he said the outcome of U.S. election and the impact and management of the second wave of COVID-19 are “two primary events will shape the global economy, and thereby the trajectory of commodity prices.”

“Q3 was another one for the record books, as the tailwinds from central bank stimulus (particularly in the U.S. and China) have continued to drive commodity prices higher,” he said. “The equity markets, however, have been a different story; ... global equity markets have stalled over September as the world comes to grip with a second wave of COVID-19 and as we approach what is possibly one of the most critical and contentious elections in U.S. history on November 3rd. We expect the fallout from the election results to impact all primary macro drivers of commodity prices, from geopolitics to trade policies to the USD, making any effort to forecast pricing right now a fool’s errand. As such, we have largely flat-lined our commodity price forecasts and are biding our time until the post-election world becomes a little clearer.”

Despite that uncertainty, Mr. Baretto did say, however, the physical commodity markets remain structurally strong.

“Looking past the macro picture, however, the physical market dynamics for most industrial commodities remain positive,” he said. “Copper has continued to benefit from stimulus targeting the ‘green’ economy as well as supply disruptions in Latin America that carried over into Q3. In addition, an open arbitrage window into Shanghai has substantially depleted inventories on the LME and backwardated that futures curve for most of the quarter. Iron ore continues to benefit from record steel production out of China, while met coal has perked up as well, as major export markets (India, Japan, South Korea) ramp up steel production (recent Chinese noise around bans of Australian notwithstanding). Even zinc has seen its price improve over the quarter, aided by concentrate tightness due to shut-downs in Mexico, Peru and India, despite refined metal continuing to build up on the exchanges.”

After making “modest” changes to his commodity price forecasts, Mr. Baretto tweaked target price for several stocks, and, given the near-term uncertainty, said he is “advocating catalyst-driven stories over those that offer other attributes (metal price leverage, growth, valuation, etc.).”

His target changes included:

Josemaria Resources Inc. (JOSE-T, “speculative buy”) to $1.10 from $1.05. The average on the Street is $1.05.

Ero Copper Corp. (ERO-T, “buy”) to $23 from $22. Average: $22.02.

First Quantum Minerals Ltd. (FM-T, “buy”) to $17 from $18. Average: $17.09.

Teck Resources Ltd. (TECK.B-T, “buy”) to $22 from $20. Average: $22.87.


Nutrien Ltd.'s (NTR-N, NTR-T) third-quarter results are likely to benefit from improvements in global agricultural fundamentals, according to RBC Dominion Securities analyst Andrew Wong.

Though he thinks that backdrop is likely to lead to “moderate” growth in its Retail segment and “strong” potash volumes, Mr. Wong thinks a rebound in nitrogen prices won’t likely appear until early 2021.

“Retail likely helped by high acreage and solid crop prices, but seasonally slower and down year-over-year as Q3/19 benefited from delayed activity in prior quarters,” he said in a research note. "Potash volumes were likely strong due to contract shipments and prices stabilized. Nitrogen volumes were hurt by Trinidad outage and prices were lower than expected due to weak cost curve support.

“The Retail segment has benefited in 2020 from increased U.S. crop plantings and improved farm economics. We think the combination of high yields, improving crop prices, and strong export demand should further improve the U.S. farm outlook into late-2020 and 2021. In the near-term, we expect Retail to benefit from a relatively wide fall application window and strengthening crop prices into the fall season. We maintain our 2020 Retail EBITDA estimate at $1.45-billion, at the mid-point of guidance ($1.4-1.5-billion).”

Mr. Wong pointed to several factors to justify his view of a “moderate” rebound into the 2021 season, including: “strong H2/20 Indian imports; U.S. imports year-to-date have been running below prior year levels; crop prices are higher and point to another strong U.S. spring season; international nat gas prices are strengthening into the seasonally stronger winter season. Potash prices have improved moderately with the help of strong shipments across global regions and supply uncertainty due to political unrest in Belarus. However, we note the China-Canpotex contract expiration October 31 and improved availability from Belarus may temper price upside.”

After trimming his 2020 and 2021 EBITDA projections to US$3.6-billion and US$4-billion, respectively, from US$3.7-billion and US$4.1-billion, he lowered his target for Nutrien shares to US$47 from US$48. The average on the Street is US$48.30.

Seeing Nutrien’s stable free cash flows supporting both its dividend and growth opportunities despite “still challenging” market conditions, he maintained an “outperform” rating.

In a separate note, Mr. Wong raised his target for shares of The Mosaic Co. (MOS-N), seiing it poised to “continue to benefit from several positives including improved phosphate market conditions, stabilized potash markets, and continued strength in the Brazil ag sector.”

With an “outperform” rating, he now has a US$25 target, up from US$20 and above the US$20.38 average.

“We also have increased confidence in Mosaic’s cost savings initiatives which were recently highlighted at an analyst day event and should result in improved margins,” the analyst said.


Albemarle Corp.'s (ALB-N) valuation is outpacing near-term fundamentals, said RBC Dominion Securities analyst Arun Viswanathan.

Though he acknowledged the potential “EV growth story” for the North Carolina-based miner, he lowered his rating to “underperform” from “sector perform,” seeing a muted lithium price outlook in the near term.

“We are downgrading ALB to Underperform based on our view of: 1) limited lithium pricing momentum holding for 2021 as more contract renegotiations adjust for incentive pricing; 2) expansion projects in La Negra III/IV in 2021 may add further pressure to lithium prices; and 3) investors may quickly pull back and trim positions should ALB 2021 pricing outlook on its Q3 call disappoint,” said Mr. Viswanathan.

“North American lithium carbonate prices have fallen nearly 20 per cent year-to-date, while hydroxide prices fell 5 per cent, mostly due to ample supply and inventory buildup. While ALB has previously noted that spot prices differ from contract prices, given that we believe lithium suppliers have at least 12 months of inventory to work off, we remain skeptical that 2021 lithium prices will break from the downward trend and rise back to 2018-2019 levels. This leads us to believe that ALB may have to continue offering incentive pricing to ensure customers take delivery of contracted volumes. We believe ALB could indicate flat-to-down price expectations for 2021 on its Q3 call resulting in 10-per-cent downward impact to 2021 EBITDA estimates. It is also possible that contracts could be renewed for 3-5 years at these new lower price levels.”

After lowering his 2020 earnings per share projection to US$3.80 from US$4.40, he cut his target for Albemarle shares to US$78 from US$80. The average is US$82.63.

“Despite the limited price increases and ample supply environment, we believe the stock is currently priced to near-perfection,” he said.


Scotia Capital analyst Phil Hardie raised his target prices for shares of Power Corp of Canada (POW-T) and subsidiary IGM Financial Inc. (IGM-T) in response to the announcement Wealthsimple Technologies Inc. has attracted $114-million in its latest equity financing.

IGM is Wealthsimple’s larest shareholder, holding a 36-per-cent interest following the transaction. The Power group will have a 61.7-per-cent ownership.

“We view this development as positive, as it puts an emphasis on the potential value of IGM’s strategic investments portfolio and further showcases the accelerated pace of change across the Power group to unlock value,” he said.

“The value of IGM’s investment in the fintech increases by 118 per cent from $252-million ($1.06 per share) to $550-million ($2.31 per share). On an aggregate level, the Power group of companies' investment in Wealthsimple now has a fair value of $934-million, representing a 44-per-cent gross IRR from its total investment cost of $315-million.”

Mr. Hardie raised his target for IGM shares to $37 from $36, while his Power target increased to $32.50 from $32. The averages on the Street are $35.57 and $28.64, respectively.

He maintained “sector power” rating for both.


In other analyst actions:

* BTB REIT’s (BTB.UN-T) refinancing of its convertible debenture series “removes an overhang,” said Laurentian Bank Securities analyst Yashwant Sankpal, who resumed coverage with a “hold” rating and $3.25 target, falling 3 cents below the consensus.

“The COVID-19 lockdown has created significant challenges to Retail and Diversified landlords,” he said. “Despite the gradual easing of restrictions, some businesses are still experiencing slower activity and a severe second wave could further hurt these businesses. While the ongoing support from the Federal and Provincial governments has kept many businesses afloat, there are concerns that some of them would not be able to survive after the support is gone. BTB is facing its fair share of tenant woes - ranging from rent deferrals to bankruptcies. With the refinancing of the maturing series addressed, BTB should be able to concentrate its full focus back on operations.”

* Expecting strong pricing to potentially lead to record quarterly EBITDA when it reports third-quarter results on Oct. 28, Laurentian Bank Securities analyst Jacques Wortman raised his target for Champion Iron Ltd. (CIA-T) to $4.30 from $3.90, exceeding the $3.84 average. He kept a “buy” rating.

* Wells Fargo analyst Allison Poliniak-Cusic raised her target for Canadian Pacific Railway Ltd. (CP-N/CP-T, “overweight”) to US$351 from US$321. Her target for Canadian National Railway Co. (CNI-N/CNR-T, “equal weight”) to US$108 from US$97. The average targets on the Street are US$320.30 and US$106.43, respectively.

* Berenberg initiated coverage of Yamana Gold Inc. (AUY-N, AUY-T) with a “buy” rating and US$7.70 target, exceeding the US$7.28 average on the Street.

* CIBC World Markets analyst Nik Priebe initiated coverage of Trisura Gold Ltd. (TSU-T) with an “outperformer” rating and $110 target. The average is $106.43.

“We see a lot to like about Trisura," he said. "The U.S. business is experiencing rapid growth supported by ample reinsurance capacity and a strong distribution network. The Canadian franchise also continues to outperform the broader P&C insurance industry across a range of traditional performance metrics. Ultimately, we believe the performance of the stock will be largely influenced by the trajectory of premium growth in the U.S. business. The growth rate has accelerated over the past year, and we believe the continued expansion of admitted licenses should increase the size of the addressable market.”

* Eight Capital started Dollarama Inc. (DOL-T) with a “buy” rating and $60 target. The average is $54.48.

* Eight Capital gave Canadian Tire Corporation Ltd. (CTC.A-T) a “neutral” rating and target of $150, exceeding the $140.30 average.

* PI Financial analyst Philip Ker lowered Fury Gold Mines Ltd. (FURY-T) to “buy” from “neutral” with a $2.75 target, down from $3.10 and below the $3.45.

* Cormark Securities initiated coverage of Royal Helium Ltd. (RHC-X) with a “buy” rating and 80-cent target.

* Roth Capital analyst Darren Aftahi raised target for Shopify Inc. (SHOP-N, SHOP-T) to US$1,000 from US$850 with a “neutral” rating. The average is US$1,113.13.

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