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

Cenovus Energy Inc. (CVE-T) is “bigger, better and more resilient” following its merger with Husky Energy Inc. (HSE-T), according to RBC Dominion Securities Greg Pardy.

“In our eyes, the announced Cenovus-Husky merger is strategically sound on paper, with success heavily dependent upon operational execution,” he said. “The deal will infuse much needed midstream/downstream integration into Cenovus' bitumen-weighted upstream, and should unearth value in Husky’s diverse portfolio through improved operational delivery.”

Mr. Pardy said the deal addresses Cenovus' “Achilles heel,” which he sees as cash flow volatility.

“From where we sit, the merger with Husky creates a more resilient company via an improved cost structure (including $1.2 billion of targeted synergies), downstream integration and enhanced market access,” he said. “The new Cenovus will still maintain good exposure to oil prices with a US$1 change in WTI impacting our 2021 cash flow estimate by about $290-million (7 per cent) (vs. 4-5 per cent for peers).”

“Based on our preliminary analysis, the Cenovus-Husky merger appears accretive to its cash flow and free cash flow per share under our outlook in 2021, excluding one-time integration costs. Our 2021 base outlook factors in an effective closing date of January 1, production of 748,000 boe/d, capital investment of $2.4-billion, $600-million of operating synergies, and $500-million of one-time restructuring costs. This outlook would point toward considerable deleveraging over the course of 2021 — which could be accelerated via non-core asset dispositions.”

Maintaining an “outperform” rating for Cenovus shares, Mr. Pardy raised his target to $8.50 from $7. The current average on the Street is $7.35, according to Refinitiv data.

“Cenovus is trading at a debt-adjusted cash flow multiple of 5.4 times (4.8 times excluding restructuring costs) (versus our Canadian integrated peer group average at 5.9 times) in 2021, and 4.0 times (vs. peers at 4.4 times) in 2022,” he said. “In our minds, the combined entity should trade at a discount multiple versus our Canadian integrated oil peer group reflective of its improved upstream-downstream balance and reduced exposure to Canadian heavy oil differentials, partially off-set by its above average balance sheet leverage, and need to demonstrate successful integration, including targeted synergies.”


Citi analyst Prashant Rao thinks the “single most important factor” to watch at Imperial Oil Ltd.'s (IMO-T) virtual Investor Day presentation on Thursday is its capital allocation plan.

“We think the company can easily make a sound case for increased cash flow generation ahead, supporting any commitment to increase the dividend and place share repurchases in scope,” he said. “By contrast, while recent vaccine progress has firmed the market view for late 2021 economic recovery, our sense is that large-scale (e.g. $3-billion-plus) development projects will not sit well with investors. IMO’s 1P reserve life alone is over 20 times our 2022/2023 production estimates; we do not see a rush for Upstream investment.”

“Ultimately, we think the market would greatly appreciate a comprehensive capital allocation plan, outlining the company’s targets for post dividend FFO split between growth capex and share repurchases at various oil price scenarios. We favor a growing, sustainable dividend and smaller opportunistic share repurchases, rather than the other way around. But admittedly, IMO’s ownership structure might make it difficult to make such public commitments.”

In a research note released Wednesday, Mr. Rao said Imperial enters the event with “gathering” tailwinds, pointing to five factors: a “resilient” balance sheet; increased likelihood for rising oil prices in 2021; limited capex needs; limited downstream headwinds and ongoing cost improvements.

“The current production ramp on improved operating leverage implies substantially recovered 2021 earnings/FFO,” he said. “In this context, we think there is room for shareholder returns to revisit 2018-2019′s 50 per cent-plus of FFO levels by 2022, but this requires constraint in long-term Upstream growth. Trading valuation looks slightly discounted (0.7 times P/B at 7-per-cent 2022 estimated ROE, 6.0 times DACF), and there could be a case for $25-plus per share valuation.”

Mr. Rao also sees the company’s dividend, featuring a 4-per-cent yield, as “well supported” by cash flows and does not think it requires balance sheet help.

“While most Canadian oil companies have lowered or suspended their dividends this year, IMO could be positioned to increase it ahead (we model a 14-per-cent raise in 1H21),” he said. “Beyond this, we see scope for share repurchases resuming later in 2021. The balance sheet has ample room to be a backstop if needed: sub-19-per-cent debt/cap (a controlled sub-200 basis points increase versus pre-CV19) is 600 bps below peers.”

Citing upstream opportunities, he increased his target for Imperial shares to $23 from $19, keeping a “neutral” rating. The average on the Street is $21.02.

“IMO’s strong balance sheet and ample liquidity should allow the company to maintain its dividends during this downturn. After a significant pullback in IMO’s stock price, current risks/rewards appear to be balanced,” Mr. Rao said.


In the wake of weaker-than-expected third-quarter financial results, Desjardins Securities analyst David Newman sees a recovery coming in 2021 for Chemtrade Logistics Fund (CHE.UN-T).

However, he downgraded the Toronto-based industrial chemical company to “hold” from “buy” on Wednesday, citing “the impact of higher turnaround activity in 4Q20, the COVID-19 aftermath on chemical products and a tepid caustic soda outlook (slow recovery in prices).”

On Nov. 12, Chemtrade reported earnings before interest, taxes, depreciation and amortization of $65-million, falling short of both Mr. Newman’s $73-million estimate and the $75-million consensus projection on the Street.

“The miss was largely due to weaker SPPC [Sulphur Products and Performance Chemicals] and EC [Electrochemicals] results, given the impact of COVID-19 on the demand for merchant acid (economic slowdown), regen acid (lower refinery operating rates), sodium chlorate (printing paper) and chlor-alkali (lower sales volumes and prices for caustic soda and HCl). WCI [Water Products and Specialty Chemicals] was in line given a muted COVID-19 impact on water solutions product.”

“CHE expects a modest sequential improvement across most chemical products in 4Q, except caustic soda with lower pricing and water products, given seasonally low demand. CHE will also be impacted by the North Vancouver and Richmond facility turnarounds, which should reduce EBITDA by $10-million. In 2021, it expects a continued recovery in chemicals demand, with caustic soda likely toward 2H20. Post-pandemic, CHE is confident in a full recovery of most chemical products, including caustic soda, supported by long-term fundamentals. Sodium chlorate could face a secular decline with lower paper demand (work from home).”

After trimming his financial estimates for the remainder of 2020 and 2021, Mr. Newman lowered his target for Chemtrade units to $5.75 from $7.50. The average on the Street is $6.58.


Bonterra Energy Corp.'s (BNE-T) newly secured liquidity will allow for growth through 2021, said Raymond James analyst Jeremy McCrea, prompting him to raise his rating to “market perform” from “underperform.”

On Monday, the Calgary-based company confirmed lending commitments of $45-million from the Business Development Bank of Canada and $38.4-million from Export Development Canada. It also formalized amendments to its senior credit facility to extend the borrowing base redetermination date to June 30, 2021 (from April 28, 2021) and to extend the revolving maturity date to Dec. 31, 2021 (from April 28, 2021).

“Bonterra had above-average leverage coming into the pricing downturn and unfortunately, given BNE’s size, lending facility constraints and low liquidity, the stock sold off more meaningfully than peers,” said Mr. McCrea. "In response, BNE suspended its dividend and mostly all investment amid a combination of these events. Six months later, Bonterra has now finalized lending agreements with the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) (which were initially announced on Nov. 2).

“Although some investors akin this to ‘borrow from Peter to pay Paul’, the difference is ‘Peter’ is allowing spending once again. There are two ways to fix a balance sheet issue: 1) slowly chip away; and 2) grow profitability into the debt. We’re encouraged to see Bonterra now take this second approach as this likely gives equity holders much more potential value than what they were likely facing before. With 30-per-cent growth now expected into 2021 (while spending within FFO), D/EBITDA now down to 3.8 times 2021 (from 4.4 times previously), and wells that look to be more profitable, we are moving to Market Perform."

Mr. McCrea raised his target for Bonterra shares to $1.75 from $1. The average is $1.54.


Echelon Capital Markets analyst Andrew Semple “significantly” increased his target expectations for Trulieve Cannabis Corp. (TRUL-CN) following better-than-anticipated third-quarter results and signs of strong results from its recently acquired Pennsylvania assets.

“Trulieve has amassed an impressive share of Florida’s medical cannabis market, where it accounts for 50 per cent of volume sold,” he said. "The company’s dispensaries are approximately 2.5 times more productive than those of its peers in that market (based on volume), which we believe is indicative of a very deep competitive moat. A key factor in the Company’s success, in our view, has been its ability to maintain adequate supply in the face of surging patient demand. Meanwhile, tough capital markets conditions have left many of its peers unable to pursue large capacity expansion projects to keep pace, whereas Trulieve’s early success has allowed it to reinvest positive operating cashflow into further production capacity, compounding that competitive edge.

“Coupled with $175-million in pro forma available cash and positive FCF, we believe Trulieve has inherent optionality to pursue M&A, develop organically, or further press the attack in Florida.”

On Tuesday before the bell, the Tallahassee-based company reported revenue of US$136.3-million, exceeding the projections of both Mr. Semple (US$139.2-million) and the Street (US$132-million). Adjusted EBITDA of US$65.8-million also topped expectations (US$61-million and $61.5-million, respectively).

Mr. Semple said the “already solid” results could’ve been even stronger if the company did not expect a “modest” bottleneck relating to third-party testing after Florida’s Department of Health updated its testing requirement.

Also responding to stronger-than-expected pro forma results from Pennsylvania after its recent acquisitions of Solevo Wellness and PurePenn, the analyst raised his 2021 revenue and adjusted EBITDA estimates to US$847.4-million and US$394.1-million, respectively, from US$765.3-million and US$354.9-million. He also introduced 2022 projections of US$992.6-million and US$469.8-million.

“We model a steeper growth trajectory in 2021 than the Street, while anticipating some flattening of that trajectory thereafter as competition begins to ramp in Florida and the tailwinds from initial dry flower and edible product introductions begins to fade (still some years away, in our view),” he said. “We believe our 2022 estimates may prove to be conservative if Trulieve can continue developing new store locations quickly and if peers continue to prioritize other markets for investment.”

Maintaining a “buy” rating, Mr. Semple raised his target for Trulieve shares to US$43 from US$36. The average is $51.90.

Elsewhere, PI Financial analyst Jason Zandberg raised his target for to $50 from $42 with a “buy” rating, while ATB Capital Markets analyst Kenric Tyghe increased his target to $48 from $45 with an “outperform” rating.

“Despite the headwinds in Florida, Trulieve delivered strong SSS [same-store sales] growth of 19.0 per cent on the 29 stores open in both periods, driven by an increase in traffic (approval delays limiting new product introduction driving customers to visit more often), partially offset by a decrease in average ticket (lower due to increased frequency of visits),” said Mr. Tyghe. “While management did not update 2020 guidance, previous guidance didn’t include any contribution from the recently closed acquisitions of PurePenn and Solevo in Pennsylvania. We have largely revised our Q4/20 and 2021 estimates to better reflect Trulieve’s expected gross margin profile on the launch of edibles in Florida and the full year inclusion of Pennsylvania.”


National Bank Financial analyst Michael Parkin adjusted his target prices for a group of TSX-listed gold companies on Wednesday.

He raised his targets for the following stocks:

  • Barrick Gold Corp. (ABX-T, “sector perform”) to $43 from $42. The average on the Street is $42.24.
  • Kinross Gold Corp. (K-T, “outperform”) to $18 from $17. Average: $16.21.
  • Centerra Gold Inc. (CG-T, “outperform”) to $20.50 from $17. Average: $19.35.
  • Eldorado Gold Inc. (ELD-T, “outperform”) to $22 from $21. Average: $15.36.
  • New Gold Inc. (NGD-T, “outperform”) to $4 from $3.75. Average: $3.03.

He reduced his targets for:

  • Agnico Eagle Mines Ltd. (AEM-T, “outperform”) to $124 from $128. Average: $112.66.
  • Kirkland Lake Gold Ltd. (KL-T, “sector perform”) to $75 from $76. Average: $81.48.
  • Alamos Gold Inc. (AGI-T, “outperform”) to $16 from $17.50. Average: $17.57.
  • Iamgold Corp. (IMG-T, “outperform”) to $7.50 from $8.75. Average: $7.21.
  • Oceanagold Corp. (OGC-T, “outperform”) to $4 from $4.25. Average: $3.55.
  • SSR Mining Inc. (SSRM-T, “outperform”) to $44 from $45. Average: $39.50.


Seeing Canadian banks in a position to deliver credit-driven earnings per share beat in the fourth quarter,, National Bank Financial analyst Gabriel Dechaine raised his financial expectations for 2021 and his target prices for a group of stocks.

He thinks the fourth quarter to deliver a steep decline in the balances of loans deferring payments, given six-month deferral programs, mostly mortgage-related, expired in September and October. He also expects net interest margin (NIM) compression to abate from the third quarter and capital ratios to increase.

Noting investors have become more focused on growth issues facing the sector, Mr. Dechaine made the following changes:

  • Canadian Imperial Bank of Commerce (CM-T, “sector perform”) to $111 from $107. Average: $98.21.
  • Bank of Nova Scotia (BNS-T, “sector perform”) to $60 from $57. Average: $62.38.
  • Bank of Montreal (BMO-T, “sector perform”) to $87 from $83. Average: $86.05.
  • Laurentian Bank of Canada (LB-T, “underperform”) to $26 from $24. Average: $29.06.
  • Canadian Western Bank (CWB-T, “sector perform”) to $30 from $28. Average: $30.45.


In other analyst actions:

* After “strong” third-quarter results, Canaccord Genuity analyst Matt Bottomley raised his target for Curaleaf Holdings Inc. (CURA-CN), his top pick in the sector, to $18.50 from $16 with a “speculative buy” rating (unchanged). The average on the Street is $17.81.

“Although lofty, we believe Curaleaf’s industry-leading exposure and growth profile in five states that are committed/likely to implement adult-use cannabis in the coming year(s) (AZ, NJ, NY, PA, CT) justifies a premium valuation,” he said.

* National Bank Financial analyst Don DeMarco moved Teranga Gold Corp. (TGZ-T) to “tender” from “outperform” with a $28.25 target, up from $20.25. The average on the Street is $20.97.

* Evercore ISI initiated coverage of Bellus Health Inc. (BLU-Q, BLU-T) with an “outperform” rating and US$12 target. The average is US$9.98.

* BoA Global Research analyst John Murphy cut his target for Magna International Inc. (MGA-N, MG-T) to US$74 from US$79 with a “buy” rating. The average is $66.87.

* CIBC analyst Mark Petrie raised his target for BRP Inc. (DOO-T) to $78 from $77 with a “neutral” recommendation. The average is $80.67.

“Even with the pullback in the shares the past two weeks, we do not view the valuation as attractive or see sufficient upside to compensate for the lack of visibility on how next year will evolve following potential pull-forward buying this year,” he said.

* Mr. Petrie lowered his George Weston Ltd. (WN-T) target to $122 from $126 with an “outperformer” rating, while Scotia’s Patricia Baker raised her target to $117 from $116 with a “sector outperform” recommendation. The average is currently $120.17.

“Weston’s Q3 results came in nicely ahead of our modest expectations driven by better margin realization and continued cost control,” said Mr. Petrie. “Visibility remains limited given the uncertainty of dining restrictions and consumer behaviour, but the business appears to be showing improvements as a result of the multi-year transformation strategy. Even amidst virus-driven uncertainty, we believe the bakery is on a firmer footing, and we see opportunistic M&A as increasingly likely.”

* CIBC’s Christopher Couprie trimmed his target to Summit Industrial Income REIT (SMU.UN-T) to $14.25 from $15 with a “neutral” rating. The average is $14.04.

“We believe SMU will continue to focus its acquisition growth in Montreal and key Ontario markets like the Greater Toronto Area, in turn reducing exposure to Alberta,” he said.

* Scotia Capital analyst Himanshu Gupta raised his target for Sienna Senior Living Inc. (SIA-T) to $15 from $13, while Industrial Alliance Securities' Frédéric Blondeau bumped his target to $14 from $13.50 with a “hold” recommendation. The average is $14.05.

* CIBC’s Dean Wilkinson raised his target for H&R REIT (HR.UN-T) to $17 from $15, keeping an “outperformer” rating, while Scotia’s Mario Saric increased his target to $14.75 from $13 with a “sector perform” rating.. The average is $15.14.

* National Bank Financial analyst Tal Woolley raised his target for Northwest Healthcare Properties REIT (NWH.UN-T) to $13 from $11.50 with a “sector perform” rating. The average is $13.04.

* National Bank’s Patrick Kenny cut his target for TC Energy Corp. (TRP-T) to $70 from $73 with an “outperform” rating. The average is $70.39.

* Scotia’s Matt Kornack lowered his target for Minto Apartment REIT (MI.UN-T) to $22 from $22.50 with a “sector perform” rating. The average is $23.22.

* Canaccord Genuity analyst Doug Taylor initiated coverage of VitalHub Corp. (VHI-X) with a “buy” rating and $4 target.

“VitalHub is a consolidator of healthcare software assets that service the acute care, mental health and specialty healthcare markets, among others,” he said. “The company’s management team and advisors boast experience from several other successful Canadian technology consolidation stories. As this expertise is brought to bear in VitalHub’s target markets, we expect continued strong accretion for shareholders. VitalHub is reasonably valued, at 3.6 times EV/NTM sales and 18.3 times NTM EBITDA, while healthcare IT valuations remain elevated. Our positive thesis on the name is based on closing the multiple gap as the company continues to roll out its dual-track organic and acquisitive growth strategy.”

With a file from Reuters

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