Inside the Market’s roundup of some of today’s key analyst actions
Desjardins Securities analyst Michael Markidis said Minto Apartment Real Estate Investment Trust‘s (MI.UN-T) virtual Investor Day event on Tuesday reinforced his bullish view, calling it one of his best ideas heading into the second half of 2021.
“Importantly, it showcased (1) management’s confidence in rental market fundamentals long-term, (2) the significant growth that can be achieved through development over the next several years, and (3) the expertise embedded within the entire organization,” he said.
Though its growth in the three years since it went public has been fueled largely by acquisitions, Mr. Markidis said Minto’s future centres on its development pipeline of more than 1,500 suites. He sees the phase being achieved through both balance sheet intensification and leveraging its convertible development loan program.
“MI’s average occupied monthly rent ($1,630) is the highest among the multifamily peer group,” he added. “Enhanced disclosure was introduced to provide greater comfort on affordability. Working professionals typically account for 65 per cent of new leases; those employed in the service industry account for much lower (24 per cent). The average annual qualifying household income within the portfolio is estimated at $98,000, which suggests the average rent-to-income is only 20 per cent.”
Also touting the potential stemming from its the rollout of its ESG program, which the use of artificial intelligence in building automation system optimization and real-time monitoring of natural gas and hydro consumption, Mr. Markidis raised his target for Minto units to $26 from $25.50. The average on the Street is $24.63.
Elsewhere, RBC Dominion Securities analyst Matt Logan increased his target to $25.50 from $25 with an “outperform” recommendation, while BMO Nesbitt Burns analyst Joanne Chen raised her target to $24.50 from $23 with an “outperform” rating.
“In our view, the event highlighted Minto’s high-quality portfolio and platform, which continues to be enhanced via MI.UN’s active intensification and repositioning efforts,” Ms. Chen said. “In addition, on the development side, Minto continues to leverage its partnership with Minto Group, a strategic advantage that we believe will further benefit the REIT in this environment given the significant compression in cap rates.”
“With the recovery well under way now in Canada, we continue to believe the quality of Minto’s portfolio will strongly attract the rebound in immigration and return to urban cores.”
BMO Nesbitt Burns Rene Cartier sees Altius Minerals Corp. (ALS-T) offering “diversified risk exposure centered around base metals and bulk commodities via the successfully developed royalty and streaming business model.”
However, with little visibility on new transactions, he’s forecasting a declining revenue profile for the St. John’s-based royalty and streaming company, “particularly as coal royalty revenue rolls off and as certain base metal royalties are expected to come to an end, with the majority of cash flow from the business already spoken for, including debt repayments as well as preferred and common stock dividends.”
“A review of the common stock dividend, with a potential increase, is expected this year,” he added. “Given where we are in the commodity cycle, and Altius’ countercyclical investment approach, we do not expect Altius to be an active acquiror of third-party royalties and streams. Instead, we expect a focus primarily on new Project Generation opportunities, which can be cultivated over time.”
In a research report released Wednesday, Mr. Cartier initiated coverage with a “market perform” recommendation, believing it “uniquely stands out with its targeting of differentiated commodities” versus other dominant players that are precious metals-focused.
“The benefits of the royalty and streaming business model include the avoidance of operating cost and capital expenditure risks associated with mining projects, and upside potential through commodity price increases, expansions, and exploration success,” he said.
“With strong and experienced mine operators, Altius’ portfolio of royalties and streams can be largely viewed as associated with low-cost, long-life assets, including the potash royalties, the Chapada copper stream, and its iron ore exposure through Altius’ equity investment in Labrador Iron Ore Royalty Corporation. Moreover, in our view, Altius’ portfolio is heavily concentrated in jurisdictions that are generally viewed as safe and stable by investors. Based on our estimates, we see over 70 per cent of Altius’ project net asset value in assets that are located in North America. Further, we estimate Altius has over 80 per cent of its project net asset value in assets already in production.”
Seeing its valuation sitting “slightly” below its mid-cap peers, Mr. Cartier set a $20 target for its shares, which is 33 cents below the current average on the Street.
“At this time, we do not expect Altius’ multiples to appreciate to the levels of its larger, diversified, and more significant cash flow generating precious metal royalty and streaming peers,” he said. “With the recovery, and current strength, in the underlying commodities of Altius’ portfolio, the company has already shown a meaningful re-rating, and is trading at the average, or towards the upper end, of its historical multiple trading ranges.”
Enthusiast Gaming Holdings Inc.’s (EGLX-T) balance sheet is “prepped to chase monetization” following the closing of its $55.5-million equity offering, according to Canaccord Genuity analyst Robert Young.
“The equity raise enables EGLX to pare down its high-interest debt further and deploy the remaining proceeds toward acquiring gaming communities and other associated entities in the gaming ecosystem, thereby allowing it to layer on its direct sales and subscription service offerings to drive value,” he said. “A significantly strengthened balance sheet alongside the recent up-list to the TSX and NASDAQ cross-list are signs of steady maturation of the company. We believe Enthusiast’s value proposition for brands seeking Gen Z engagement is attractive given its array of properties that provide a walled garden of sorts to brands to increase ROI on marketing spend.”
After strengthened its liquidity position through the marketed offering, Mr. Young expects Enthusiast to remain “very active” in its M&A activities following recent acquisitions of the Icy Veins fan community and data platform Tabwire LLC. He called the pipeline of potential deals “robust.”
“Enthusiast plans to continue to roll up fan communities and has highlighted opportunities to bolster League of Legends, Minecraft and Roblox assets in particular,” he said. “Management has highlighted strong margins in fan communities given the lack of editorial cost and low competition for assets. EGLX will also pursue other pools of content and media related to video game lifestyle given the ability to layer direct sales and subscriptions to drive incremental value.”
“We see organic growth opportunities arising from expanding recent success in 1) direct ad sales, 2) subscription, 3) content licensing plus new social initiatives accelerated by the acquisition of Tabwire. In addition to current subscription offerings on TSR, the Escapist and Siliconera, EGLX plans to launch additional VIP and premium plans including ProjectGG, a platform-wide subscription offering. If EGLX can convert 0.5 per cent or 1.5 million of its 300 million monthly active users and maintains current $5-10 monthly subscription pricing, we see a path to an 8-figure revenue line from $7-million currently.”
Reaffirming his “buy” rating, Mr. Young cut his target to $11.50 from $12 due to share dilution. The current average is $12.25.
“Given its strong growth prospects, margin expansion potential driven by the emergence of subscription and direct sales, and increased visibility among U.S. investors post its NASDAQ listing, we believe there is room for multiple expansion,” he said.
Aritzia Inc.’s (ATZ-T) $63-million acquisition of a majority stake in athletic-wear designer and manufacturer Reigning Champ “accelerates its expansion into men’s wear by creating a standalone brand to complement its existing well-known women’s platforms,” said BMO Nesbitt Burns analyst Stephen MacLeod.
Though he reiterated that the Vancouver-based retailer is “not an acquisitive company,” noting its growth has been largely organic through the expansion of its brand, Mr. MacLeod said the deal “meaningfully accelerates” its men’s wear expansion strategy.
“While the announcement came as a surprise, Artizia has previously dabbled in men’s wear with its Super Puff line and has identified men’s as a product expansion lever,” he said.
“You won’t see Reigning Champ in Aritzia stores, at least for now; the platform will be run separately, but there are incremental growth opportunities. Most notably, Artizia’s supply chain and infrastructure can support more volume; Reigning Champ can leverage Aritzia’s IT infrastructure, supply chain, analytics capabilities, and scale to drive incremental growth. Leveraging Artizia’s outerwear success and capabilities, Reigning Champ can grow this category. Store network expansion (Reigning Champ currently has four) is another area for potential growth to complement e-commerce and wholesale, although expanded product variation would likely need to come first.”
Calling Aritzia “an attractive growth story” and touting its “differentiated and unique positioning, robust brand momentum, and long runway for growth (both store network and e-commerce),” Mr. MacLeod increased his target for its shares by $1 to $40, keeping an “outperform” recommendation. The average target is $37.88.
“We see an opportunity to leverage its solid brand awareness in Canada and growing recognition in the U.S., as well as its on-trend product under multiple exclusive brands, to drive average annual normalized double-digit EPS growth,” he said.
After shareholders approved Secure Energy Services Inc.’s (SES-T) acquisition of Tervita Corp. (TEV-T) at special meetings on Tuesday, iA Capital Markets analyst Elias Foscolos reiterated his view of the merger as “highly strategic and generally regarded as a win-win.”
“Post-merger, SES will have a more extensive network of facilities and additional scale, enhancing the Company’s ability to provide cost-effective, value-adding service for its E&P customer base,” he said. “SES expects to realize $75-million of synergies within 12-18 months of closing, enabling strong free cash flow and debt repayment. Both companies’ stocks rose when the news was released back in March and an overwhelming majority of both companies’ shareholders (more than 99 per cent) voted in favour of the transaction.”
Despite its shares already pricing in the deal, Mr. Foscolos sees valuation upside remaining in Secure.
“Pro forma, SES is trading at 6.5 times EV/EBITDA 2022,” he said “To put this into perspective, this is an 4-times discount to crude oil infrastructure peer, Gibson Energy Inc. (GEI-T, $26.06, “hold”, target $25.50), on 80 per cent of GEI’s EBITDA based on consensus forecasts. While SES does not have the same take-or-pay profile as GEI, we believe there is room for some degree of multiple expansion as the synergy and de-leveraging story plays out.”
Though he said Tuesday’s news “an expected step forward,” he raised his target for both companies’ shares, reiterating “speculative buy” recommendations.
His target for Secure is now $5.75, up from $5.50 but below the $5.92 average.
Mr. Foscolos’s Tervita shares rose to $7.25 from $7, exceeding the $6.79 average.
Elsewhere, Canaccord Genuity’s John Bereznicki increased his target for Secure shares to $6.75 from $6 with a “buy” rating.
“While this transaction remains subject to customary closing conditions, we continue to believe the resulting entity will be a clear-cut market leader with significant synergy potential and increased institutional relevance,” he said.
Denison Mines Corp.’s (DML-T) $20.5-million acquisition of a 50-per-cent stake in JCU Exploration Co Ltd. provides its “exposure to some of Canada’s best undeveloped uranium projects,” said Canaccord Genuity analyst Katie Lachapelle.
Following the closing of the deal with UEX Corp. (UEX-T), both companies will share equal ownership of JCU, which holds a portfolio of 12 uranium joint venture interests in Canada, including a 10-per-cent interest in Denison’s 90-per-cent-owned Wheeler River project.
“We view this transaction as highly accretive for Denison, as it allows the company to consolidate an additional 5 per cent of Wheeler River at less than 50 per cent of our proportional NAV for the project,” said Ms. Lachapelle. “In our view, this justifies the transaction alone, before allocating any value to JCU’s other interests including: Millennium (30.099 per cent), Kiggavik (33.812 per cent), and Christie Lake (34.451 per cent). In total, we estimate that Denison will be acquiring 48.5 million pounds at a mere 34 US cents per pound, well below where Denison currently trades (US$5.84 per pound).”
“Although longer dated, we believe these projects provide leverage to rising uranium prices (up 18 per cent since March), and accordingly, ascribe value to these projects on an in-situ basis.”
Maintaining a “speculative buy” recommendation, Ms. Lachapelle bumped up her target for Denison shares to a Street-high $2.50 from $2.25. The average target is currently $1.97.
Meanwhile, Raymond James analyst Brian MacArthur increased his target by 10 cents to $1.80 with a “market perform” rating.
“DML holds a controlling interest in the Wheeler River project, including the Phoenix deposit, which is one of the highest-grade deposits in the world,” he said. “DML also offers a diversified revenue stream from tolling, DES, and UPC while exploration and development activities at Wheeler progress. We believe Denison offers investors high exposure to uranium through a number of assets.”
BMO Nesbitt Burns analyst Ben Pham called Northland Power Inc.’s (NPI-T) announcement of its securing of a 25-year contract from Poland’s Energy Regulatory Office for its Baltic offshore wind initiative a “project milestone that improves visibility to the company’s longer-term goal to double adjusted EBITDA by 2030.”
“We believe including the project in our financial model is now warranted, especially given NPI’s strong track record for building offshore wind projects,” said Mr. Pham, emphasizing the potential for stable cash flow coming from the contract.
With increased confidence in the project, he raised his target to $43 from $42 with a “market perform” recommendation. The average is $49.87.
“While we rate NPI as Market Perform on relative return, we like the resilient contracted renewable and gas-fired power assets and the upside optionality to new growth (especially offshore wind development),” the analyst said.
In a research report titled The Right Place at the Right Time, Raymond James analyst Michael Glen initiated coverage of The Lion Electric Co. (LEV-N, LEV-T), a Montreal-based electric vehicle manufacturer, with a “market perform” recommendation, calling it a “legitimate early-mover” in the industry.
However, he warned the company, which secured a partnership with Amazon in early January that gives the U.S. retail giant the right to buy a 15.8-per-cent stake, will face stiff competitive tests moving forward.
“We anticipate that the competitive dynamic will evolve rapidly over the next three to five years,” said Mr. Glen. “Particularly within the much larger medium and heavy truck market, while the market has been slower to evolve with electric product, we fully anticipate an acceleration of introductions from both incumbents (i.e., diesel/ICE OEMs) and new entrants. Importantly, this situation is being driven by customer demand for electric product. From that perspective, we have little doubt that any OEM/supplier with the near-term capacity and/or supply chain capabilities to deliver electric truck product will largely be sold out.
“Over the medium to long-term, as capacity builds out, we anticipate the market will consolidate as leaders emerge. The bottom line for us on the competitive situation is that Lion will need to ensure that they stay ahead of its peers in terms of the total cost of ownership metrics of most importance to customers. In that regard, the company is embarking on an ambitious expansion/capital spending program over the next two years (Joliet, Illinois and Mirabel, Quebec) that incorporates very tight timelines, and we will monitor overall execution.”
Mr. Glen set a target of US$22 per share. The current average is US$23.
“We acknowledge that valuing a stock like Lion Electric is challenging and there are a number of risks to take into consideration,” he said. “The basis for an investment in the stock is substantially focused on the evolution and technology underlying the use of battery-electric in the medium and heavy transportation market. From that perspective, we have already seen considerable momentum in terms of battery electric passenger cars and there is clearly building momentum in heavier transportation markets. That said, in the near-term, we believe such demand will be best sustained by continued government investment/support in the sector (i.e., via infrastructure/charging support/investment, emissions regulation, vehicle subsides), coupled with substantial investments needed from the corporate side. What provides us with confidence in Lion Electric’s participation in the growth of the medium / heavy duty battery-electric market is a combination of the company’s legacy and history (10-plus years/approximately 400 buses and trucks on the road and in operation with 7 million miles of use).”
After the preliminary economic assessment results from its Koné Gold Project in Ivory Coast exceeded expectations, Stifel analyst Alex Terentiew raised Vancouver-based Montage Gold Corp. (MAU-X) to “buy” from “speculative buy.”
“Given Montage’s rapid pace of execution to build a large, reasonably low-cost and long-life gold project in Cote d’Ivoire, we see Koné's potential as only starting to be realized by investors, with the stock still trading at an attractive P/NAV of 0.31 times.”
With a reduction in uncertainty on Koné's potential, Mr. Terentiew increased his target to $2 from $1.80. The average is $2.08.
In other analyst actions:
* After its second-quarter dividend exceeded expectations, Scotia Capital analyst Orest Wowkodaw hiked his Labrador Iron Ore Royalty Corp. (LIF-T) target to $50 from $45 with a “sector outperform” rating. The average is $44.50.
“Overall, we view the update as positive for the shares,” he said. “We note that [iron] prices continue to track well above our expectations, setting the stage for ongoing elevated dividends in H2/21.”
* Coming off restriction following its $35-million convertible offering, Scotia’ Jeff Fan cut his target for BBTV Holdings Inc. (BBTV-T) to $18.50 from $19 with a “sector outperform” rating. The average is $18.42.
“The convertible offering removes the near term (2022) expiration of BBTV’s RTL note and provides a multi-year horizon for management to continue the revenue growth and gross margin expansion put in motion in 2020,” said Mr. Fan. “Management’s informal guidance for Q2 is unchanged post the offering, and we continue to expect 22-per-cent revenue growth and 7.4-per-cent gross margin in Q2 as the business positions for margin expansion in late 2021 and 2022. Overall our thesis is unchanged, BBTV continues to grow both base and plus revenues, while making structural operational changes to increase gross margins.”
* JP Morgan analyst Michael Glick initiated coverage of Stelco Holdings Inc. (STLC-T) with an “overweight” rating and $54 target, exceeding the $43.38 average.
* TD Securities analyst Tim James raised his Air Canada (AC-T) target to $34 from $30, keeping a “buy” recommendation. The average is currently $27.97.
* Mr. James also increased his target for Chorus Aviation Inc. (CHR-T, “buy”) to $6 from $5.50, while he trimmed his Transat AT Inc. (TRZ-T, “reduce”) target to $3.25 from $3.50. The averages on the Street are currently $5.44 and $4.10, respectively.
* National Bank Financial analyst Vishal Shreedhar increased his Empire Company Ltd. (EMP.A-T) target to $46 from $44 with an “outperform” rating, while RBC’s Irene Nattel raised his target to $45 from $43 with a “sector perform” recommendation. The average is $45.10.