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

Bombardier Inc.'s (BBD.B-T) turnaround plan is “continuing to gain traction, particularly as a number of key programs enter service and begin production rate increases,” said AltaCorp Capital Inc. analyst Chris Murray.

In the wake of Monday’s announcement of the closing of the C Series Aircraft Limited Partnership (CSALP), Mr. Murray upgraded his rating for Bombardier to “outperform” from “sector perform.”

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“With the close of CSALP, we have adjusted our estimates assuming Bombardier’s net share of earnings and losses will be reported as an equity pickup as part of the Commercial aerospace division,” he said. “The other impact to our estimates is a change in our expectations from cash flows related to increases in C Series production rates and orders, as well as a reshaping of our expectation for the timing of cash flows. With our 2020 estimates we continue to see growth in all segments with production rate increases across all aircraft lines, an improving business jet market and improved backlogs at BT. As we enter 2019 and 2020, we believe the company’s turnaround plan should continue to drive leverage levels down reaching 3.0 times at the end of 2019 and 2.0 times at the end of 2020.”

Mr. Murray moved his 2018 and 2019 EBIT estimates to $1.03-billion and $1.591-billion, respectively, from $918-million and $1.66-billion. He also introduced a 2020 projection of $2.26-billion.

“As the company continues to reduce product and leverage risks, we see an opportunity for a positive response in share prices, however we are cognizant that each of the company’s business lines is likely to see different outcomes and performance,” he said. “To reflect the variations in our expectations for each business line, we believe moving to a sum of parts model is more relevant at this juncture using an enterprise value to EBITDA approach. For the company’s transportation business, we believe higher multiples are warranted as we see margin expansion driving earnings and ROIC higher, while the model remains very capital light. In addition, the segment should benefit from improved deliveries and free cash flow generation. We see business aircraft remaining the crown jewel of the company, particularly with a fully refreshed product offering across the line-up as well as expectations for improvement in deliveries as well as improvement in fundamental drivers which we expect should see a resurgence in market cycles in 2019 and further acceleration beyond. We believe the company is the best positioned in the space and should trade toward multiples similar to its key peers, Textron (TXT-N) and General Dynamics (GD-N).”

Mr. Murray increased his target price for Bombardier shares to $6.50 from $4.50. The average target on the Street is currently $5.43, according to Bloomberg data.


Cominar Real Estate Investment Trust (CUF.UN-T) has achieved a “significant” transformation, according to CIBC World Markets analyst Sumayya Hussain, who expects “more to come.”

However, warning “the future is not quite so certain,” she initiated coverage of Quebec City-based REIT with a “neutral” rating.

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“Since 2017, Cominarhas made major strategic strides in addressing several challenges facing its business,” said Ms. Hussain. “After years of operational challenges (that extended beyond soft market fundamentals), the REIT has sold over a billion dollars in assets in markets where it lacked a competitive edge and local platforms, to revert to being a Quebec-focused REIT across all commercial asset classes. Change in leadership, a refresh of the board, and (in-progress) elimination of conflicts of interest are further positive steps that, in our view, address many unitholders’ concern.“

“On the other hand, management andthe newly constituted board are continuing to evaluate the long-term strategic direction of the REIT. More recently the REIT has been active on dispositions, deleveraging, unit buybacks, and capital spending; however, until the new board concludes its review, it will be challenging to fully establish what the new Cominar will look like. We await clarity on the new target leverage, future dispositions, and details around capital allocation. Given historically elevated leverage levels however, we expect debt reduction will be the key focus for the REIT in the interim. The REIT allocated net proceeds from the recent $1.14-billion asset sale to debt reduction, and we expect future sale proceeds could meet the same fate, which we view as a prudent move.”

Ms. Hussain set a $14 target for Cominar units, which is 31 cents less than the consensus on the Street.

“CUF is trading at 10.8 times 2018 estimated FFO [funds from operations], a 2-times discount to the REIT sector, and slightly above the five-year average FFO multiple of 9.5 times. CUF is trading 13 per cent below our NAV estimate, which represents prior lows; historically, CUF has traded at an average of 5 per cent below NAV. We believe the current valuation could reflect a ‘wait-and-see’ approach adopted by investors as the new strategic plan is outlined.”


Though the political turbulence in Nicaragua is likely to remain an overhang in the near term, Raymond James analyst David Quezada feels the pullback in Polaris Infrastructure Inc. (PIF-T) stock is “overdone” after dipping almost 33 per cent since unrest began in the middle of April.

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On Tuesday, Toronto-based Polaris, which acquires and develops renewable energy projects in Latin America, announced its San Jacinto geothermal plant achieved record-level power generation in the second quarter of 2018 of 139,000 MWh (net).

“We believe the key takeaway from yesterday’s release is that ‘operations have been running without any interruptions despite the current political situation in the country,’” said Mr. Quezxada.

“With news reports indicating an estimated 180 fatalities the timeline for resolution of the political unrest remains unclear. However, we reiterate our view of no real specific threat to the San Jacinto power plant which is a vital piece of infrastructure representing close to 15 per cent of the country’s generation mix. Further, we believe the fact that the power plant remains a senior secured piece of collateral for PIF’s development bank loans provides yet further incentive for the government to assure its operations continue. In addition, we also see the risk of payments from Disnorte-Dissur (the counterparty to PIF’s PPA) being interrupted as remote. That said, the headlines over unrest in the country are clearly weighing on investors and while the Catholic Church and other parties are attempting to mediate (with early elections a potential constructive outcome), talks were recently suspended as the Government failed to formally invite the United Nations High Commissioner for Human Rights and the European Union to observe the conflict. Based on our understanding of the situation from conversations with management we continue to believe a resolution is possible over the coming months, however, we acknowledge it remains highly uncertain. Nevertheless, with a 2019 EV/EBITDA of just 4.3 times we believe much of the above political unrest is now reflected in shares of PIF.”

Mr. Quezada maintained an “outperform” rating and $28 target for Polaris shares. The average on the Street is currently $26.86.

Elsewhere, Industrial Alliance Securities analyst Jeremy Rosenfield kept a $30 target with a “speculative buy” rating.

Mr. Rosenfield said: “As a growth-oriented small-cap renewable power producer, PIF offers investors (1) cash flow stability from its existing contracted San Jacinto geothermal asset, (2) near-term and longer-term growth opportunities linked to organic developments and potential acquisitions, (3) an attractive dividend (5.7-per-cent yield, 40-60-per cent FCF payout) with dividend growth potential, and (4) a discounted valuation compared with larger peers that could close over time as the company executes a growth strategy and the political situation improves in Nicaragua.”

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Innergex Renewable Energy Inc. (INE-T) is adding U.S. solar diversity to its portfolio with the acquisition of the 250 megawatt Phoebe project in Texas, said Desjardins Securities analyst Bill Cabel, who projects the asset will generate a high-single-digit internal rate of return over its 35-year life.

On Tuesday, Longueuil, Que.-based Innergex announced the acquisition of the photovoltaic solar project from Longroad Energy Partners LLC as well as a 12-year power purchase agreement with Shell Energy North America. It received full notice to proceed with construction, which is expected to cost US$397-million, with commercial operations to be reached by the third quarter of 2018.

In reaction to the deal, Mr. Cabel increased his 2019 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) estimate to $475-million from $472-million.

He kept a “hold” rating for Innergex shares and a target price of $15.50. The average target on the Street is $16.

“We estimate that the acquisition adds 25–50 cents (Canadian) to our unrisked net asset value per share,” he said. “Using a 60% risking, the NAV contribution is not significant enough to move the needle on valuation. Our target thus remains at $15.50.”

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“We like INE’s high-quality asset portfolio and recent multi-pronged international development platform. Moving in a new direction can take some time to prove out, but we are encouraged by the opportunity for continued growth through international development. While recent M&A has added a number of interesting growth options in new jurisdictions, which is positive, we maintain our Hold rating at this time.”

Elsewhere, Raymond James’ David Quezada did not change his “outperform” rating or $19 target.

Mr. Quezada said: “Importantly, we believe this transaction was opportunistic for INE with the company leveraging a strong relationship with the seller and its reputation as a reliable developer supporting an IRR materially above comparable US solar transactions with IRRs in the mid-single digits.”


Acumen Capital analyst Trevor Reynolds said he views Vertex Resource Group Ltd.’s (VTX-X) $4.3-million acquisition of an Edmonton-area hydro-vac services company as “another step in the right direction for VTX as they work to grow and expand their line of service offerings.”

On Tuesday, the Sherwood Park, Alta.-based provider of environmental services announced the deal, which doubles its hydro-vac fleet.

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“Management expects to utilize the healthy existing client base of the company in conjunction with VTX’s to optimize utilization of the fleet,” said Mr. Reynolds. “In addition to increased utilization, costs on the business will be reduced through the right sizing of management. Management also notes that the majority of work in the Edmonton area is municipal, further reducing the company’s exposure to the cyclicality and seasonality of oil and gas. VTX had previously been outsourcing close to $1-million in hydro-vac work in the Edmonton area which will now be satisfied internally. The acquisition is expected to add $5-million of annual revenue for full year 2019.”

With the deal, Mr. Reynolds raised his 2018 revenue and EBITDA projections by 2 per cent, while his 2019 estimates increased by 3 per cent and 4 per cent, respectively.

The lone analyst currently covering the stock, according to Bloomberg, Mr. Reynolds maintained a “buy” rating and $1.20 target.

“We base our valuation on a group average of comparable companies in the environmental and oil field services space,” he said. “Of note, based on the lack of liquidity which is driven by the high level of insider ownership, we do apply a discount to VTX’s valuation at this time. Despite the discount we see significant upside from today’s trading level.”


Echelon Wealth Partners analyst Ralph Garcea sees 2018 as a “year of build” for Tucows Inc. (TC-T) and expects to see growth in 2019 from its fibre initiatives.

“On the Q118 call, TC noted it expects to light up its first customers in Sandpoint and Centennial by the end of Q218 – we look for an update on this front and would not be surprised if this timeline has been pushed out by a few weeks,” said Mr. Garcea in a research note previewing the Toronto-based internet services and telecommunications company’s second-quarter results.

“TC expects 2018 to be a year of multiple concurrent builds with $30-million expected in capex and a target of passing 40K homes by year-end. We believe that as the operating leverage from the Ting fibre business begins to yield fruit in late 2018/early 2019, we will look to fine-tune estimates on this front and suspect a more bullish growth thesis to emerge to offset declining margins in Ting Mobile and a relatively stable domains business.”

Mr. Garcea adjusted his near-term estimates for Tucows in reaction to the bulk transfer of 2.7 million domains to Namecheap, which he said carry revenues of $14.6-million with “very little gross margin.”

He kept a “hold” rating and $80 target for the stock, which sits in-line with the consensus.

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