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

After it completed a clean sweep of second-quarter earnings beats for Canada’s Big 6, Credit Suisse analyst Mike Rizvanovic raised his rating for Bank of Nova Scotia (BNS-T) on Wednesday, pointing to improvement in provisions for credit losses and feeling a slower recovery in International Banking is already priced into its shares.

Before the bell on Tuesday, Scotiabank said it earned $1.90 a share after adjustments to exclude certain items. On average, analysts expected earnings per share of $1.77, according to Refinitiv.

“While we would argue that the quality of the bank’s EPS beat in Q2 was diminished somewhat by an outsized result within the Other segment, the broader trends for BNS are improving, slowly but surely,” said Mr. Rizvanovic. “The PCL outlook is better coming out of Q2, while International Banking (IB), which we view as the most important catalyst for a rerating, continued to grind higher towards management’s targeted $500-million quarterly earnings target. As such, we believe that the bank’s outsized discount vs. peers fully captures a slower recovery in IB, a business that provides upside torque from an improving macroeconomic backdrop with a further benefit from execution on expense management, which was clearly evident in Q2.”

After raising his earnings expectations for fiscal 2021 and 2022, he upgraded the bank’s shares to “neutral” from “underperform” with an $84 target, up from $77. The average on the Street is $86.13.

Other analysts adjusting their targets included:

* RBC Dominion Securities’ Darko Mihelic to $86 from $84 with an “outperform” rating.

“Q2/21 results were helped by lower PCLs and expenses while revenues missed expectations mainly due to the International segment,” he said. “We continue to believe the International segment will improve from here and that our estimates may prove conservative as the Pacific Alliance countries recover.”

* Desjardins Securities’ Doug Young to $89 from $85 with a “buy” rating.

“Consolidated pre-tax, pre-provision (PTPP) earnings were slightly better than our forecast; however, international banking results (a key part of the story) were weaker than expected. That said, management’s outlook for the international banking division was somewhat encouraging,” he said.

* BMO Nesbitt Burns’ Sohrab Movahedi to $93 from $88 with an “outperform” rating.

* National Bank Financial’s Gabriel Dechaine to $84 from $81 with a “sector perform” rating.

* Canaccord Genuity’s Scott Chan to $83 from $82 with a “hold” rating.


While its fourth-quarter results unlikely to ease investor concerns about profitability, CIBC World Markets analyst John Zamparo now sees Canopy Growth Corp.’s (WEED-T) “American THC aspirations” unlikely to materialize in 2021.

On Tuesday, shares of the Smiths Falls, Ont.-based cannabis producer fell over 3 per cent in Toronto after a weaker-than-anticipated quarterly release. An EBITDA loss of $94-million and revenue of $148.4-million both fell below Mr. Zamparo’s estimates (a $63.7-million loss and $152.08-million, respectively).

“Management signaled that F2022 will see roughly $150-million in cost reduction programs, while recent acquisitions (Supreme and Ace Valley) will add to the bottom line,” he said. “But we find it difficult to forecast positive EBITDA in late F22 without greater cost cuts or additional M&A (both are possible, but not currently in our numbers). Cash remains healthy as ever at $2.3-billion, but we note net cash now falls behind two different competitors. We forecast cash burn of $400-million in F2022 and $125-million in F2023. Ultimately, Canopy’s most important catalyst is legislative progress south of the border. On this topic, our expectations are more restrained versus earlier this year.”

Mr. Zamparo thinks U.S. Senate Majority Leader Chuck Schumer’s bill to legalize marijuana is unlikely to collect the 60-vote supermajority required in 2021.

“Rather, we believe the abundance of other political priorities, ongoing inertia among U.S. senators, and relative indifference (at best) from President Biden suggests a lower probability of reform than we had previously expected,” he said. “Even though WEED has discretion over defining a ‘triggering event,’ we find it difficult to foresee Canopy convincing its various partners (exchanges, banks, STZ) to support exercising its Acreage option in 2021. At the very minimum, we believe this would require passage of the SAFE Banking Act and direction from President Biden on an upgraded Cole Memo, but even these modest reforms appear unlikely in 2021, in our view.”

Though he thinks Canopy’s recent acquisitions of The Supreme Cannabis Company and Ace Valley are likely to add approximately $90-million in fiscal 2022 sales, he warned the company hasn’t had an encouraging start to its fiscal year.

“Canopy’s significant retail presence (73 stores) means it is disproportionately hurt by COVID lockdowns, and May Hifyre data suggests a soft start to FQ1 (combined April & May retail sales were roughly flat vs. the two prior months),” said Mr. Zamparo. “We believe that Canopy’s products sell at significantly higher rates at its own stores, so as the province expands store count, Canopy’s relative share could decline. Hifyre estimates WEED’s national share declined 2 percentage points in May, to 10 per cent.”

Maintaining a “neutral” rating for Canopy shares, he cut his target to $36 from $38. The current average on the Street is $33.01.

Elsewhere, a pair of analysts upgraded Canopy shares:

*Canaccord Genuity’s Matt Bottomley to “hold” from “sell” with a $30 target, down from $32.

* Eight Capital’s Graeme Kreindle to “neutral” from “sell” with a $29 target, down from $34.50.

Conversely, CFRA analyst Garrett Nelson cut the stock to “buy” from “strong buy” with a $45 target, down from $75.

Other analysts making target changes include:

* Desjardins Securities’ John Chu to $35 from $55 with a “hold” rating.

“Its market share gain in flower was impressive given the quarter-over-quarter sales declines from most of its peers,” he said. “However, with the 4Q shortfall, we are cautious regarding its 40–50-per-cent CAGR guidance to FY24 given the limited visibility for its U.S. and international businesses, but we are becoming more comfortable with its strong positioning in the Canadian adult-use market. We lowered our target ... after reducing our forecast and valuation multiple, which better reflects current levels.”

* Cowen and Co.’s Vivien Azer to $39 from $44 with an “outperform” rating.

* Alliance Global Partners’ Aaron Grey to $32 from $40 with a “market perform” rating.

* MKM Partners’ William Kirk to $51 from $55 with a “buy” rating.


RBC Dominion Securities analyst Wayne Lam thinks Argonaut Gold Inc.’s (AR-T) Magino project is likely to “transform the company by adding a long-lived, lower cost asset within a Tier I jurisdiction with interesting longer term exploration upside.”

Seeing “significant” production ahead from the impending output at the Northern Ontario mine and emphasizing exploration upside across its platform and its attractiveness as a potential target for M&A, he initiated coverage of the stock with an “outperform” rating on Wednesday.

“Construction at Magino is well underway, with first gold anticipated by early-2023,” said Mr. Lam. “In our view, the addition helps complete the next leg of transformation towards improved geopolitical profile and enhanced operational outlook, with output increasing by 35 per cent to 318 Koz AuEq in 2023 including 60-per-cent production from Canada/US (vs 20 per cent currently) and a 20-per-cent decline in costs. As well, Magino continues Argonaut’s strategy of upgrading the portfolio via longer lived assets with a 16-year reserve life, following on from the addition of Florida Canyon in 2020 (10 years) and CDG in 2017 (15 years), versus an average of 4.5 years for the Mexican asset.”

“Exploration remains a key part of the Argonaut story, with $10-million budgeted this year. At Magino, the company has been drilling off higher grades at depth, with the mine sitting adjacent to the Island Gold mine (4.7 Moz at 12.3 g/t M&I+I). As well, initial drill results below the El Creston pit at La Colorada have returned high grade intercepts, demonstrating early stage potential for mine life extension and a longer term underground opportunity. All in all, we view exploration to be in the early innings, adding to fundamental improvement within the asset portfolio.”

With increased “competitive tension,” Mr. Lam thinks the Toronto-based company could become increasingly attractive to “a larger company looking to add production growth within a Tier I jurisdiction or as a potential merger-of-equals in creating a stronger Intermediate producer.

“In particular, we believe the company could benefit from a merger-of-equals type of transaction with New Gold or as a consolidation target for Alamos given proximity of Magino to the Island Gold mine,” he said.

Seeing its valuation set for re-rating as Magino continues to advance, Mr. Lam set a $4.25 target for its shares. The average on the Street is $4.99.

“Argonaut currently trades at a 25-per-cent discount to Growth peers on long-term NAV and 15-per-cent discount on near-term EBITDA,” he said. “Additionally, we view potential for addition to the GDX ETF in Q2 as a near-term catalyst. Given the scarcity of companies with meaningful production growth ahead, we anticipate a re-rating opportunity as Magino continues to advance towards production.”


Concurrently, Mr. Lam and colleague Michael Siperco assumed coverage of a series of TSX-listed mining stocks on Wednesday.

They gave “outperform” ratings to the following companies:

* Centerra Gold Inc. (CG-T) with a $13 target. The average on the Street is $10.41.

“Our target is based on the value of Mount Milligan, Oksut and cash ($10.00 per share), with option value for Kumtor ($3.00 per share),” said Mr. Siperco. “We see limited fundamental downside from the remaining portfolio at current levels, and 30-per-cent potential upside from outcomes at Kumtor. For investors willing to look past headlines on a longer time horizon, the risk/reward proposition is attractive.”

* Equinox Gold Inc. (EQX-T) with a $14 target. Average: $18.11.

“Equinox Gold has set clear sights on expanding production to 1Moz+ over the next few years, providing the company with potential for a peer leading growth profile,” said Mr. Lam. “However, we remain on the sidelines given construction risk and capital inflation headwinds ahead. In our view, current valuation reflects market cautiousness around execution, with potential re-rating should the company be able to deliver.”

* Marathon Gold Corp. (MOZ-T) with a $4 target. Average: $4.06.

“We believe Marathon is one of the most attractive advanced stage developers today with the Valentine Gold project sitting in a Tier I jurisdiction with robust economics and further exploration upside following up on the maiden resource at Berry. In our view, environmental permitting, anticipated in Q3/21, will be a key catalyst in clearing the final hurdle to construction in early-2022,” said Mr. Lam.

* Osisko Mining Inc. (OSK-T) with a $5.50 target. Average: $6.40.

“With the (massive) +1.6m meter +4-year exploration program at Windfall drawing to a close, our focus is shifting to the mine it could become (with first gold expected in 2024),” said Mr. Siperco. “The grade, mine life, jurisdiction and district-scale upside support a premium valuation and catalysts are coming (including the resource update, 3rd bulk sample and 1H22 feasibility study).”

* Sabina Gold & Silver Corp. (SBB-T) with a $3.25 target. Average: $3.77.

“We are assuming coverage of Sabina with an Outperform, Speculative Risk rating and a C$3.25 price target, reflecting the longer-term upside as Back River edges closer to construction,” said Mr. Siperco. “While execution and financing risks remain in the near term, we see the quality of the deposit and potential further optimization/exploration upside as justifying the risk.”

* Silvercrest Metals Inc. (SIL-T) with a $14 target. Average: $15.28.

“Construction at Las Chispas is ahead of schedule, and we are focused on value-creating opportunities beyond the 2021 feasibility study (FS). The project has been significantly de-risked and the rampup plan for 2H22 is conservative and achievable. With exploration/optimization ongoing, we see strong potential for resource, and eventual production growth as supporting the premium valuation,” said Mr. Siperco.

* SSR Mining Inc. (SSRM-Q, SSRM-T) with a US$27 target. Average: US$28.75.

“We are assuming coverage of SSR Mining with a US$27.00 price target and an Outperform rating, reflecting one of the best risk/reward profiles among intermediate gold producers. We see considerable upside in the stock from the realistic near sector-high FCF yield from existing operations as management continues to execute and demonstrate consistent cash generation (as well as growing cash return),” said Mr. Siperco.

They have a “sector perform” recommendation for these:

* Pan American Silver Corp. (PAAS-Q, PAAS-T) with a US$36 target. The average is US$42.73.

“Our valuation and price target are heavily dependent on Escobal and the La Colorada Skarn project, and more visibility/certainty on both assets could lead us to revise our assumptions. In the interim, however, our rating reflects near-term operating challenges that may weigh on results (and free cash flow) in 2021,” said Mr. Siperco.

* Pretium Resources Inc. (PVG-T) with a $16 target. The average is $16.14.

“Pretium has demonstrated greater operational consistency at Brucejack over the past year amidst reset expectations and fundamental improvements under the new management team,” said Mr. Lam. “We remain on the sidelines as shares appear fully valued with potential headwinds due to ongoing cost pressures and risk around the upcoming LOM plan update in H1/22.

* Torex Gold Resources Inc. (TXG-T) with a $23 target. Average: $29.19.

“Torex is preparing for a broader transition as production shifts from the El Limon-Guajes (ELG) mine to Media Luna by 2024. In our view, the company sits at a crossroads in balancing near-term FCF from ELG versus development risk ahead. We highlight the company as a leader on ESG, but remain cautious on construction risk,” said Mr. Lam.


In reaction to Pembina Pipeline Corp.’s (PPL-T) acquisition offer, a group of analyst raised their target prices for shares of Inter Pipeline Ltd. (IPL-T).

RBC Dominion Securities analyst Robert Kwan thinks Pembina’s offer “appears to balance value maximization with minimizing risk.”

“We view the agreement with Pembina positively given the value above our base case (i.e., where we thought Brookfield Infrastructure would ultimately bid). In the absence of another offer (waiting to see how Brookfield Infrastructure responds), we believe the transaction is highly likely to close,” he said.

Maintaining a “sector perform” rating for Inter shares, he raised his target to $19.45 from $18, which is the current consensus.

Others making changes include:

* CIBC’s Robert Catellier to $19 from $18.50with a “neutral” rating.

“The key to this transaction will be the integration of the Heartland Petrochemical Complex (HPC) and also future growth opportunities. Pembina has access to enough propane to fully supply HPC, virtually eliminating supply risk. Pembina had previously pursued a similar PDH/PP project, putting it in a position to properly evaluate HPC,” Mr. Catellier said.

* National Bank Financial’s Patrick Kenny to $19 from $18 with a “sector perform” rating.


Citing “improving conditions at existing oil sands mine sites and diversification drive, the latter of which should continue to shift its multiple higher,” BMO Nesbitt Burns analyst John Gibson continues to see the investing case for North American Construction Group Ltd. (NOA-T) in “a positive light.”

“NOA offers a unique package of relative stability through its core oil sands construction operations, which exhibit high barriers to entry and are largely backstopped by contracts, as well as growth potential through its diversification into metals/mining and other earthwork construction projects,” he said.

Mr. Gibson resumed coverage of Alberta-based provider of heavy civil construction and mining contractors on Wednesday following the completion of a $65-million convertible debenture financing.

In a research note titled Wheels in Motion, he said: “NOA’s Q1/21 results and outlook were strong, driven by improvements at its current work sites, additional project work and a pick-up in its recently awarded gold mine contract in Northern Ontario. As a result, the company shifted its 2021 guidance upwards. Management has also identified some sizable ($100-300-million) brownfield expansion projects in Quebec that were recently tendered and could be awarded in 2H/21, while some other large projects in the U.S. appear to be on its radar

Keeping an “outperform” rating for its shares, Mr. Gibson increased his target by $1 to $21, exceeding the $20.20 average.

“Note that our 2021 EBITDA estimate of $204-million already sits towards the higher end of the company’s guidance range of $180-210 million,” he said. “NOA represents a best of both worlds approach considering its correlation to WTI prices combined with its growing diversification outside the oil sands. We continue to view the company in a positive light, particularly given its inexpensive valuation.”

Elsewhere, others resuming coverage include:

* Canaccord Genuity’s Yuri Lynk with a “buy” rating and $21 target.

“Our BUY rating on NACG is predicated on its dominant competitive position in the oil sands, which we view as a source of reliable cash flow,” said Mr. Lynk. “A number of exciting bid opportunities outside the oil sands not only enhance the company’s growth profile but also lower its operational risk via geographical and customer diversification. A healthy balance sheet, strong and aligned management team, and modest valuation multiple round out an already attractive investment case.”

* TD Securities’ Aaron MacNeil with a “hold” rating and $16 target.

“In our view, this convertible debt offering is a normal course business activity and one that occurs as part of management’s capital structure planning process,” said Mr. MacNeil. “As a result, there have been no meaningful changes to our estimates following the convertible debt offering. We continue to have high confidence in the management team’s ability to execute on awarded work for both its core oil sands operations and its diversification strategy. As a result, our 2021 EBITDAS estimate remains at $195.0 in-line with the midpoint of management’s guidance range.”


Equity analysts at BMO Nesbitt Burns made a series of target changes to mining stocks after the firm raised its 2021 full-year estimates for a group of metals, including hot-rolled coil steel (by 26 per cent), copper (7 per cent), zinc (5 per cent) and thermal coal (8 per cent).

“May has certainly been an interesting month for commodity markets, with many metals hitting new cyclical highs as buyers fearing further inflation scramble for supply, particularly as freight bottlenecks inhibit prompt deliveries,” the firm said. “We reiterate that, in our view, demand has done just about as much as it can in this cycle, and China’s recent strong rhetoric against further price gains will dampen financial accentuation. However, supply risk remains prevalent, and is set to keep prices elevated, if not at current levels, over the coming quarters. With this, metals and mining industry margins will remain extremely strong across both base and precious metals.”

“With Chinese demand (both physical and financial) starting to ease, we expect the majority of commodities to be lower than current levels on average in H2 2020, before sequential gains in H1 2022. We see an opportunity for precious metals outperformance over the coming quarter, with gold back in favour with asset allocators and traditional bar, coin, and jewellery demand seeing a continued recovery. We will, though, be keeping a close eye later in the year for signs that the Federal Reserve and other central banks are giving greater clarity on timelines for paring asset purchases. We also see uranium as a commodity where the price will be higher by the end of 2020 than it is at present.”

For base and bulk metal equities, BMO analysts raised their targets for 24 stocks by an average of 12 per cent.

There changes include:

  • First Quantum Minerals Ltd. (FM-T, “market perform”) to $27 from $25. The average on the Street is $33.78.
  • Hudbay Minerals Inc. (HBM-T, “outperform”) to $15.50 from $13.50. Average: $13.24.
  • Taseko Mines Ltd. (TKO-T, “outperform”) to $3.25 from $2.75. Average: $3.
  • Teck Resources Ltd. (TECK.B-T, “market perform”) to $33 from $32. Average: $31.60.
  • Turquoise Hill Resources Ltd. (TRQ-T, “market perform”) to $20 from $18. Average: $25.66.

“Our global top picks are (alphabetically): Anglo American, Champion Iron, Constellium, Copper Mountain, Freeport McMoRan, Ivanhoe Mines, Lundin Mining, and the steel equities on weakness,” they said.

After “modest” changes to their gold and silver forecasts, which include a rise in late 2021 followed by 2022 declines, they made changes to 16 precious metal stocks, including:

  • Barrick Gold Corp. (GOLD-N/ABX-T, “outperform”) to US$33 from US$32. Average: US$29.26.
  • Osisko Gold Royalties Ltd. (OR-T, “market perform”) to $22 from $20. Average: $22.83.
  • IAMGold Corp. (IAG-N/IMG-T), “market perform”) to US$4 to US$3.75. Average: US$4.13.
  • Sandstorm Gold Ltd. (SAND-N/SSL-T, “market perform”) to US$10 from US$9.75. Average: US$10.50.

“We are lowering our rating for AngloGold Ashanti to Market Perform from Outperform. Our top picks are (alphabetically): Agnico Eagle, Endeavour Mining, Kirkland Lake, SSR Mining, and Wesdome,” the said.


In other analyst actions:

* After resuming coverage following the closing of its acquisition of RSA Insurance Group plc., CIBC Word Markets analyst Paul Holden raised his Intact Financial Corp. (IFC-T) target to $188 from $170, keeping an “outperformer” rating. The average on the Street is $187.50.

“We believe that RSA Canada is the domestic target that Intact has coveted the most,” said Mr. Holden. “Intact management knows the operations well, the company does not have to take any competitive remedial actions to close the transaction and management’s experience with prior acquisitions means that the integration know-how is there. We expect Intact will hit and potentially exceed its cost synergy targets in Canada.”

* CIBC’s Jamie Kubik bumped up his target for Tamarack Valley Energy Ltd. (TVE-T) to $4 from $2.75, reiterating an “outperformer” rating, while Stifel’s Cody Kwong raised his target to $4.50 from $4 with a “buy” rating and reaffirming it as his “Top Idea within our junior E&P coverage universe.” The average is $3.61.

“Similar to the 17-minute song from Iron Butterfly, we think it could take some time for the market to digest Tamarack’s most recent transaction with Anegada,” said Mr. Kubik. “That said, the addition of Charlie Lake brings a high-rate and economic oil play that enhances the strategic capability of this company, and we see the composition of assets within Tamarack as being appealing and competitive for the company’s size. Anegada’s assets are young, and come with a higher decline rate, which somewhat moves off of the company’s positioning as a low-decline producer, and so we expect this team will manage the new assets accordingly. We also see this as a high-quality addition, as the assets carry ample reserves, netback strength, and future drilling locations. Given quality has a price, the transaction metrics screen above our pre-deal estimates in some instances. Given the low reinvestment plans for the assets, our new estimates demonstrate 12 per cent per share accretion in 2022 and we see Tamarack being the go-to small-cap option for crude exposure.”

* Scotia Capital analyst Orest Wowkodaw trimmed his target for Lundin Mining Corp. (LUN-T) by $1 to $15, keeping a “sector outperform” rating. The average is $16.25.

“In our view, only three things appear fairly certain with respect to the future tax and royalty regime for Cu miners in Chile: 1) Higher taxes appear inevitable; the question is how much? 2) With an election this fall and a mandate to rewrite the constitution in mid-2022, we are unlikely to receive clarity within the next 12 months, and 3) Miners are likely to delay starting construction of new projects until visibility arrives,” said Mr. Wowkodaw. “Within our Canadian coverage, LUN is the most exposed to higher potential Chilean taxes as Candelaria represents 50 per cent of our asset level 8%NAVPS. Moreover, the mine’s fiscal stability agreement expires in 2023. Although we anticipate Chile to ultimately strike a reasonable compromise that generates higher tax revenue without imploding the country’s investment climate, we view the escalating fiscal regime risks as a negative development for LUN shares.”

* Scotia’s Himanshu Gupta raised his Dream Industrial Real Estate Investment Trust (DIR.UN-T) target to $16 from $15 with a “sector outperform” rating. The average is $15.63.

* Credit Suisse analyst Manav Gupta raised his Imperial Oil Ltd. (IMO-T) target to $45 from $40 with a “neutral” rating. The average is $37.33.

“In the last 9 months, IMO has been the strongest beat and raise story in the Canadian integrated space and as a result it has outperformed CNQ by 25.2 per cent, SU by 55.4 per cent and CVE by 22.8 per cent,” he said. “Year-to-date, IMO has outperformed all its peers by 30-36 per cent. On its 1Q 21 call, the company said it’s looking to buy back $1-billion of stock (29.3 million shares) by June end. IMO is not looking to FID any major oil growth projects at this stage. Focus will be on de-bottleneck opportunities that moves Kearl up to 280mb/d.”

* Calling it a “debt reduction story,” Mr. Gupta also increased his Cenovus Energy Inc. (CVE-T) target to $13 from $7, topping the $12.36 average, with a “neutral” recommendation.

“Since closing the HSE merger, CVE management remains focused on lowering net debt to below $10-billion in the medium term,” he said. “Long-term, CVE would like to see net debt below $8-billion. During 1Q21, free funds flow was C$594M, and the reason net debt did not decline was because of working capital built by C$902M. CVE remains on track to achieve the combined $1.2-billion annual run rate synergies by the end of 2021. In the near-term with so much focus on balance sheet, CVE will most likely do de-bottlenecking and brownfield/efficiency projects vs. full phase expansions. While CVE has not put out explicit divesture targets, those opportunities do exist as CVE is looking very closely at all of HSE’s assets. We believe CVE can significantly improve performance of HSE’s heavy oil assets, by lower sustaining capex as well as cutting operating cost.”

* Ahead of the release of its fourth-quarter results on June 14, Stifel analyst Maggie MacDougall increased her target for Major Drilling Group International Inc. (MDI-T) to $11.50 from $11 with a “buy” rating. The average on the Street is $11.58.

“We do not expect any major surprises in the quarter, but anticipate updates regarding bidding activity with producers, the status of reopening in more restricted jurisdictions, and the company’s success in recruiting and traing staff ahead of an expected ramp-up in activity,” she said.

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