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

Though he expects the merger of Secure Energy Services Inc. (SES-T) and Tervita Corp. (TEV-T) to face “some resistance” from the Competition Bureau, iA Capital Markets analyst Elias Foscolos views the deal “positively from both a financial and strategic standpoint.”

“The new combined entity will contain each company’s core midstream facilities and associated infrastructure, as well as complementary service lines,” he said in a research note released Wednesday. “SES and TEV’s core facilities, primarily located in western Canada, provide treatment and disposal of oilfield waste and produced water, and provide terminalling, treatment, upgrading/blending, and marketing for crude oil recovered from the stream of waste and emulsion. Volumes through these facilities are driven by drilling & completions and production activity, with a greater weighting on the latter. Certain assets are supported by long-term contracts with producers, such as SES’ feeder pipelines or TEV’s onsite facilities. Combined operations will also include complementary waste and environmental management services, metals recycling, drilling fluids, and production chemicals.”

Mr. Foscolos thinks the market agreed with his positive view of the deal, pushing Secure shares up 26.5 per cent on Tuesday and Tervita up 9.7 per cent.

After raising his target prices for both companies, he downgrade Secure to “hold” from “speculative buy” while maintaining a “hold” for Tervita.

“At this point, it is too early to create a pro forma model for both companies,” he said. “However, based on expected cost savings of $75-million, which we have allocated equally between SES and TEV, we have increased our target price for both companies. This is based on a risked NPV model, which assumes the transaction will take approximately one year to close, followed by another year to realize cost savings. The model then applies a discount rate of 22 per cent to future cost savings. The discount rate assumes an equal cost of equity for SES and TEV, which has been grossed up (for simplicity’s sake) to account for regulatory risk associated with the Competition Act. We believe further upside exists on an FCF basis based on the potential for a) lower run-rate maintenance CAPEX if rationalization opportunities are identified across the facilities network, and b) lower debt cost if a portion of the TEV notes can be paid down early and refinanced at a lower rate.”

Mr. Foscolos’s target for Secure rose to $4.75 from $4. The average on the Street is $4.23.

His Tervita target increased by $1 to $5.75, exceeding the $5.39 average.

Elsewhere, National Bank Financial analyst upgraded Tervita to “outperform” from “sector perform” with a $7 target, up from $4.50. He raised his Secure target to $5.50 from $4.

RBC Dominion Securities’ Keith Mackey raised his target for Secure to $8 from $5 with an “outperform” rating.


The recent OPEC+ meeting “provides significant and surprising tailwind to pricing and inventory projections,” according to CIBC World Markets.

The firm’s energy sector equity analysts raised their cash flow estimates for oil-weighted companies in their coverage universe in response to increases in their commodity price forecasts, leading to target price adjustments as well as four rating changes.

“We are increasing our crude price expectations following the March 4 OPEC+ meeting which should see the bloc demonstrate continued supply restraint over the coming months,” they said. “While we are cognizant that there are downside risks from these levels, the supply restraint is directionally bullish for price, and should enable ample stock drawdowns over the near term. This is a 180-degree turn from the events which unfolded nearly a year ago that took crude prices into a tailspin unlike any other in history. The recent moves will enable the physical market to accelerate its healing process as the economy moves closer to normalizing in a post-pandemic world.

“The operating environment for producers is clearly much healthier than we anticipated going into 2021, and there will be greater capital allocation opportunities at US$60/Bbl versus US$50/Bbl. We are skeptical, however, that a return to growth will be top of mind for most operators in the industry. The amount of global spare capacity could swiftly see pricing correct should the bloc change course. That being said, as global OECD inventories draw back towards pre-pandemic levels, we believe at the very least that there could be more cushion in price moves even if the bloc accelerates the rollback of curtailments.”

With their price assumption increases, the firm upgraded these stocks

* Bonterra Energy Corp. (BNE-T) to “neutral” from “underperformer” with a $4.50 target, up from $2.50. The average on the Street is $3.04.

“Our expected return to target still lags some of its peers, however, the current oil price environment should see Bonterra generate competitive free cash flow, and accelerate debt reduction,” said analyst Jamie Kubik.

* Gran Tierra Energy Inc. (GTE-T) to “neutral” from “underperformer” with a $1.25 target, rising from 50 cents and above the 98-cent average.

“Given high financial leverage, we remain concerned by Gran Tierra’s ability to invest in growth or return capital to shareholders, but we are satisfied GTE can cover its financial liabilities at prevailing oil prices,” said David Popowich.

* Yangarra Resources Ltd. (YGR-T) to “outperformer” from “neutral” with a $1.75 target, increasing from $1.25 and topping the $1.61 average.

" Under higher commodity price assumptions, we believe Yangarra is better positioned to fund a growth capital program, and reduce financial leverage. The stock also trades at a substantial discount to peers on our higher price deck, which we believe is unjustified given the change in growth visibility,” said Mr. Popowich

Conversely, Mr. Kubik downgraded Paramount Resources Ltd. (POU-T) to “underperformer” from “neutral” due to its “robust” valuation and “strong” performance thus far in 2021. He kept an $11.50 target, which remains higher than the average of $11.05.

“While POU’s recent operational performance has been excellent and its financial leverage is no longer of concern to us, we show the stock as trading at a healthy premium versus peers. As we believe the stock has overshot in the near term, we would await a better entry point,” he said.


Raymond James analyst Jeremy McCrea also raised his rating for Bonterra Energy Corp. (BNE-T) to “outperform” from “market perform” with a $4.50 target, up from $3.

“There are two ways to fix a balance sheet issue: 1) slowly chip away and wait for commodity prices, or 2) grow profitability into the debt,” he said. “With new lending agreements last fall, Bonterra expanded its 4Q drilling program, which, combined with rising commodity prices, is quickly resolving leverage issues. Looking forward, one of the more encouraging items was well costs had fallen to $1.5-million (vs. $2.0-million) pre-Covid. With many of these wells producing 25 bbls in 12 months, reaching payout in 10 months at strip, the outlook for BNE is quickly improving. With little hedges in place for 2H21, leverage at 1.6 times for 2022 (at strip) and a share price that is still down 80 per cent from levels seen in 2018 (when CDN oil prices were this high), we are upgrading our rating to Outperform. Although there remains higher risk for the name (especially as the reserve report shows when oil prices fall), we believe there exists good potential return in the name today. See inside for updated well results and economics.”


Following Tuesday’s release of “decent” quarterly results, Desjardins Securities analyst Benoit Poirier thinks the “key pillars” are now in place for SNC-Lavalin Group Inc. (SNC-T) to “unleash” the full potential of its Engineering Services business.

He called the Montreal-based firm’s outlook for the segment “encouraging” after “solid results across the board despite the pandemic.”

“SNCL Engineering Services revenue is expected to increase in the low-single-digit percentage range in 2021 (consensus was 3.5 per cent year-over-year versus our initial forecast of 3.1 per cent), with an adjusted EBIT margin of 8–10 per cent (consensus was 9.6 per cent vs our initial forecast of 9.2 per cent).”

He sees SNC at an “the inflection point for positive FCF,” calling it “a 2022 story.”

“In 4Q, SNC reported cash flow from operations of $105 million vs our forecast of negative $172-million — its fifth consecutive operating cash flow beat,” he said. “For 2021, management expects breakeven operating cash flow, as positive cash flow from SNCL Engineering Services will be largely offset by SNCL Projects. We forecast operating cash flow of $1-million in 2021 (was $367-million) and FCF of negative $109-million (was $247-million). We assume that the inflection point for FCF generation will occur in 2022 once SNC starts to significantly unwind the LSTK backlog (we forecast $301-million, implying FCF conversion of consolidated net income of 69 per cent).”

Calling its upcoming Investor Day “a catalysts for the story,” Mr. Poirier said: “Management expects to provide an update on its growth strategy for the SNCL Engineering Services segment in the latter part of 2021. Management will also provide an update on its capital deployment strategy, potentially opening the door to start directing capital to M&A and/or share buybacks — an important milestone in SNC’s transition as an engineering services company”

Keeping a “buy” rating for SNC shares, he trimmed his target by a loonie to $37. The average on the Street is $33.23.

“We expect SNC to be re-rated as it delivers strong adjusted EBITDA and FCF, demonstrating the full potential of its Engineering Services business,” he said.

Elsewhere, ATB Capital Markets Chris Murray thinks SNC’s “rotation to a pure-play engineering services firm with more clarity and stability [is] continuing.”

Keeping an “outperform” recommendation for SNC shares, Mr. Murray raised his target to $39 from $38.

Other analysts making target adjustments included:

* National Bank’s Maxim Sytchev to $33.50 from $34.50 with an “outperform” rating.

* Scotia Capital’s Mark Neville to $39 from $42 with a “sector outperform” rating.


A series of firms initiated coverage of ABC Technologies Holdings Inc. (ABCT-T), a Toronto-based auto parts maker that began trading on Feb. 22, after coming off research restriction on Wednesday.

They include:

* Scotia Capital with a “sector outperform” rating and $15 target.

* JP Morgan with an “overweight” rating and $14 target.

* BMO Nesbitt Burns with a “market perform” rating and $11 target.


The recent sell-off in Apple Inc. (AAPL-Q) shares “creates a golden buying opportunity with a $3 trillion valuation on the horizon,” according to Wedbush analyst Dan Ives.

Seeing a “great entry point” for investors, he added the tech giant to the firm’s “Best Ideas List” on Wednesday.

“Coming off an historic December quarter for Apple in which the company crushed iPhone expectations, the Street has been anticipating some modest cuts to iPhone forecasts for FY21 and reflected in the stock’s sell-off over the last month,” said Mr. Ives. “To this point, our recent Asia checks overall came in bullish yet again with 230 million-plus units looking like the bogey for 2021 with an initial build forecast for iPhone 13 which could be a “game changer’ indicating the supercycle party in Cupertino is going well in FY22.”

Mr. Ives sees the “supercycle thesis playing out” in fiscal 2021, and he expects similar strength when the iPhone 13 is revealed later this year.

“While the Street is forecasting roughly 220 million iPhone units for FY21, we believe based on this current trajectory and in a bull case Cupertino still has potential to sell north of 240 million units (250 million could be in the cards - an eye popping figure) which would easily eclipse the previous Apple record of 231 million units sold in FY15,” he said. “Importantly, with our estimation that 350 million of 950 million iPhones worldwide are currently in the window of an upgrade opportunity, we believe is translating into an unprecedented supercycle upgrade cycle for Cook & Co. Geographically speaking, demand in China looks strong coming out of the Chinese New Year and remains a linchpin to our Apple bull thesis. We also believe ASPs are continuing to trend higher on a positive mix of iPhone Pro versions and Pro Max shipped with Mini continuing to be significantly scaled down around production/demand globally.”

“We have gotten our first reads for iPhone 13 builds with this next iPhone launch coming out of Cupertino in the September timeframe. Initial Asia supply chain builds for iPhone 13 are currently in the 100 million unit range compared to our initial iPhone 12 reads at 80 million units (pre-COVID) and represents a 25-per-cent increase year-over-year out of the gates. While this number will clearly move around over the coming months, we believe this speaks to an increased confidence with Cook & Co. that this 5G driven product cycle will extend well into 2022 and should also benefit from a post vaccine consumer ‘reopening environment.’ From a spec perspective, we have increased confidence that iPhone 13 will have a 1 terabyte storage option which is double from the highest Pro storage capacity today (512GB) and will also include a number of enhancements with Lidar across all iPhone 13 models.”

Mr. Ives has an “outperform” rating and US$175 target for Apple shares. The current average is US$151.75.


The impact of Curaleaf Holdings Inc.’s (CURA-CN) US$286-million acquisition of EMMAC Life Sciences Ltd. should “outweigh” the transitory issues that created a fourth-quarter sales moss, according to BTIG analyst Camilo Lyon, who said “the biggest gets bigger” with the deal.

“CURA grew Q4 sales 205 per cent, slightly below our 217-per-cent estimate, but nonetheless impressive as macro factors during the quarter (surging COVID cases, lack of stimulus, high unemployment) clipped demand,” he said. “Gross margin came in down 400 basis points below our 52-per-cent estimate largely due to the transition of management fee income to sales, however, adj. EBITDA margins of 23.4 per cent beat our 21.3-per-cet estimate on tighter expense controls.

“That said, we believe the more important news is the acquisition of EMMAC.”

Mr. Lyon said the acquisition of the privately held European medical marijuana producer brings significant expansion potential for Curaleaf.

“EMMAC, while not profitable today, gives CURA a platform to enter Europe, a high grade medical market, which has similar consumption characteristics to the U.S., but is 3 years behind the U.S. in its market development,” he said. “With a population twice that of the U.S., entering Europe now while valuations remain reasonable, in anticipation of the acceleration of demand makes long term strategic sense. With this acquisition, CURA also gains shared knowledge on best manufacturing practices (including EMMAC’s GMP certification),a pharmaceutical grade supply chain, and R&D processes that can transfer to its U.S. operations. Importantly, EMMAC management is staying onboard and will continue operating the business such that it does not distract from CURA’s U.S. operations. With respect to the U.S., the company continues to invest in cultivation expansion (NJ, AZ,FL, PA, IL), retail/wholesale door openings, and new product introductions, all of whichshould support outsized revenue growth of 108 per cent this year.”

Though he sees its fiscal 2021 as “conservative,” he trimmed his target for Curaleaf shares to $34 from $35 based on “slightly” lower sales and earnings assumptions. The average is $25.14.

He reiterated a “buy” recommendation.

Elsewhere, MKM Partners analyst William Kirk hiked his target for to $25 from $18 with a “buy” rating, while Haywood Securities analyst Neal Gilmer raised his target to $28 from $26 with a “buy” recommendation.

“Curaleaf continues to perform well across key markets in the U.S. and we expect continued positive momentum in the U.S. With the announced entry into the EU market, Curaleaf is demonstrating its leadership position to expand into other markets,” said Mr. Gilmer.


Calling it an “established sportsbook operator positioning itself to be a leading technology provider in the U.S. market,” H.C. Wainwright analyst Scott Buck initiated coverage of Elys Game Technology Corp. (ELYS-Q, ELYS-NE) with a “buy” rating, seeing the secular shift toward the legalization of sports betting on both sides of the border providing a multi-year tailwind.

The San Francisco-based company secured the first-ever dual-listing of a NASDAQ-listed operating company on Toronto’s NEO Exchange in early January.

“The company has more than 20 years of experience as a successful gaming operator, primarily in the Italian markets,” said Mr. Buck. “As the regulatory landscape changes in North America, we believe the company is positioned to leverage its operating and technology expertise in this meaningfully larger market with potential to become one of the largest business-to-business gaming technology providers in North America.”

“In2Q21, the company is expected to launch its first U.S. gaming operation in Washington D.C., utilizing its differentiated B2B2C model. We expect licensing partnerships with additional commercial and tribal gaming operators to accelerate revenue growth, drive operating leverage in the business, and raise company exposure among U.S. investors. By partnering with land-based businesses, the company avoids the hyper-competitive and challenging B2C online business carving out an attractive, and profitable niche. Exiting 2022, we believe licensing revenue generated from U.S. partnerships is likely to generate more than 8.0 per cent of total revenue at an annual run-rate of $5.6-million, and growing.”

Mr. Buck pointed to its balance sheet strength powering U.S. expansion and providing M&A flexibility.

Seeing upside to its shares “driven by accelerating revenue growth, margin expansion and more consistent profitability,” he set a US$8 per share target. The average is US$6.78.

“Longer term we believe the company is positioned to achieve positive EBITDA and bottom line earnings well ahead of many gaming peers, due to the differentiated business model, which could drive meaningful multiple expansion over time,” the analyst said.


In other analyst actions:

* After a “significant” fourth-quarter cash flow beat, Canaccord Genuity analyst Anthony Petrucci upgraded Vermilion Energy Inc. (VET-T) to “buy” from “speculative buy,” projecting “material” 2021 FCF to further strengthen its balance sheet. His target rose to $11 from $7.50, which exceeds the $8.62 average on the Street.

* Following a “strong” fourth quarter, Canaccord’s Robert Young increased his Converge Technology Solutions Corp. (CTS-T) target to $8.50 from $8 with a “buy” rating. The average is $7.81.

“We continue to see strong trends driving workflows into the hybrid cloud in a post-pandemic world. Converge serves under-served mid-size enterprise clients that need a bridge from legacy systems to modern cloud architectures. We continue to see strong organic and inorganic growth opportunity,” he said.

* RBC Dominion Securities analyst Nelson Ng dropped his Just Energy Group Inc. (JE-T) target to $1 from $3 with an “underperform” rating. The average is $2.42.

* TD Securities analyst Craig Hutchison raised his Turquoise Hill Resources Ltd. (TRQ-T) target to $26 from $24, maintaining a “speculative buy” recommendation, while Scotia Capital’s Orest Wowkodaw raised his target to $30 from $27 with a “sector outperform” rating. The average is $20.60.

“Although significant risks remain, we rate TRQ shares SO based on relative valuation and the scarcity of high-quality Cu projects,” Mr. Wowkodaw said

“The shares are currently trading a very attractive P/NAV 12% of only 0.50 times. We note ... the shares are anticipated to re-enter the index later in March, which is likely to materially increase investor interest in the name.”

* TD Securities’ Daryl Young increased his Geodrill Ltd. (GEO-T) target to $3 from $2.75 with a “buy” rating. The average is $2.98.

* National Bank Financial analyst Adam Shine increased his target for Spin Master Corp. (TOY-T) to $47 from $42, keeping an “outperform” rating. The average is $40.55.

* BMO Nesbitt Burns analyst Stephen MacLeod raised his target for Altus Group Ltd. (AIF-T) to $66 from $63, maintaining an “outperform” rating. The average is $60.28.

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