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

Citing disappointing sales in China, an expected delay in “meaningful” fuel cell adoption in heavy-duty applications and higher near-term costs, Citi analyst P.J. Juvekar downgraded Ballard Power Systems Inc. (BLDP-Q, BLDP-T) to “neutral/high risk” from “buy/high risk” on Wednesday.

“We think the sales growth inflection for BLDP is likely deferred until 2023+,” he said. “Management noted disappointment with China and WBJV [Weichai Ballard Hy-Energy Technologies Co, Ltd] sales and the outlook is uncertain into 2022. However, management has conviction in longer-term growth prospects as China SOEs are investing in the supply chain. China has a target of 1 million FCEVs [fuel cell electric vehicles] by 2030 along with 2,000 hydrogen refueling stations. BLDP noted growing activity for FCEBs [fuel cell electric buses] in Europe receiving 40 bus OEM orders now totaling 150 compared to its current base of 160 across 10 EU countries. We still believe in the hydrogen economy for heavy-duty applications, but the growth seems to be in fits and starts. Plus, BLDP does not have other legs to the story such as either H2 fuel sales or electrolyzers.”

Mr. Juvekar made the rating change in a research note reviewing third-quarter results for both Burnaby, B.C.-based Ballard and peer Plug Power Inc. (PLUG-Q) after both fell short of consensus earnings per share projections for the third quarter. However, Latham, N.Y.-based Plug raised its fiscal 2022 sales guidance to US$900-925-million, exceeding the analyst’s US$700-million projection.

“We think PLUG will outperform BLDP in the near term with its ‘hydrogen ecosystem’ strategy providing hydrogen (H2) fuel, electrolyzers and fuel cells (FC),” he said.

After reducing his EPS estimates for Ballard due to higher costs and slower near-term sales growth, Mr. Juvekar maintained a US$19 target for its shares. The average target on the Street is US$22.21.

“We continue to see better sales growth in 2H of the decade with cost leverage resulting in an unchanged target,” he said.

“Sales have disappointed in China and to WBJV with an uncertain outlook into 2022. We expect meaningful adoption in heavy-duty applications is delayed until 2023+ with higher near-term costs. Plus, Ballard Power does not have an end-to-end market strategy relying on the build out of hydrogen supply infrastructure.”

Mr. Juvekar hiked his Plug Power target to US$56 from US$35 with a “buy/high risk” recommendation. The average is US$47.74.


Canaccord Genuity analyst Carey MacRury is “looking ahead to a stronger 2022″ for Barrick Gold Corp. (ABX-T).

“2021 has been somewhat of a disappointing year for Barrick relative to its initial guidance at a number of operations, including Nevada, Hemlo, and Lumwana,” he said in a research note released Wednesday. “We now forecast 2021 gold production to be at the lower end of the guidance range and also for copper production. That said, we expect 2022 to show improvement; we forecast gold production rising to 4.7 million ounces in 2022 (up 7 per cent) and copper production to 480 million pounds (up 17 per cent), which we expect should drive increased FCF. Barrick has also indicated it intends to release a more fulsome capital return plan with its year-end results following the $750-million return of capital that was announced this year.”

Mr. Baretto adjusted his financial expectations for Barrick to account for its third-quarter financial results, which were released on Nov. 4 and fell largely in-line with his expectations. Adjusted earnings per share of 24 cents topped his projection, while higher operating costs led to an EBITDA miss.

After lowered his earnings and cash flow per share forecasts through 2023, Mr. Baretto cut his target to $31 from $32 with a “buy” rating. The average is $34.33.


Q4 Inc. (QFOR-T) has a “dominant market position in the North American Investor Relations (IR) solutions market, with a stable, blue chip customer base,” according to CIBC World Markets analyst Stephanie Price.

Seeing “room to grow,” she initiated coverage of Toronto-based software provider, which debuted on the TSX on Oct. 25 following its its initial public offering, with an “outperformer” recommendation after coming off research restriction on Wednesday.

“Q4 has an impressive roster of blue-chip companies, with 50 per cent of the S&P 500 relying on Q4′s IR solutions,” she said. “With publicly traded companies required to disclose regulated information on their IR websites, and the majority of those companies hosting quarterly earnings calls, Q4 has a sticky customer base that generates solid recurring revenue (113-per-cent net revenue retention). A loyal customer base also offers meaningful up-sell opportunities. In addition to its base website business, Q4 offers virtual event production (conference calls, analyst days), data & analytics products, and a CRM product tailored to IR professionals. We expect Q4 to add further product offerings that cater to IR and investment professionals, such as ESG themed products and additional data analytics solutions. The growth of Q4′s relationship with Square shows the potential for expansion within the install base, with Square’s spend growing by 6 times from 2017-2021 as the client subscribed for additional Q4 solutions.”

“We foresee multiple avenues for future growth, including expansion within existing customers, new clients in core and emerging verticals, and an extension of IR offerings,” she said.

Ms. Price thinks Q4′s existing customer base provides “a large up-sell opportunity” moving forward, noting: “Q4 has established a dominant presence in the corporate IR solutions market, with 50 per cent of the S&P 500 using its solutions. Of these customers, 59 per cent use only one Q4 solution (typically the IR website offering). Up-selling Q4′s other solutions (virtual events, data analytics, CRM) into the base could represent a $200-million incremental opportunity. We expect Q4 to continue to introduce new product offerings (such as ESG-themed products) to further expand this opportunity. The company has historically had success in cross-selling, with average revenue per account (ARPA) growing 40% organically since 2015. We see the largest ARPA growth from customers that have begun using Q4′s data analytics solution, which combines Q4′s proprietary data with third-party data to provide more targeted investor recommendations.”

Seeing M&A activity also providing potential upside to current forecasts, Ms. Price set a target of $17 per share, calling its current valuation “attractive.”

“Information Services peers such as S&P Global, IHS Markit and Broadridge trade at an average multiple of 9.6-times sales, over five turns above Q4′s current valuation,” she said “Q4 is also priced at a discount to SaaS peers with similar Rule-of-40 scores, which trade at 9.4 times. Our upside scenario assumes 50-per-cent revenue growth (versus 80 per cent in 2020) and a valuation in line with peers at 10 times.”

Elsewhere, Credit Suisse analyst Kevin McVeigh initiated coverage with an “outperform” rating and $15 target.

“Q4 offers investors a unique opportunity to own a leading capital markets communication software platform offering end-to-end solutions as corporations undergo digital transformation amid needed evolving capital markets communication strategies,” said Mr. McVeigh. “Its offerings span shareholder analytics, newsroom websites and ESG communication, virtual investor days, town halls, and shareholder meetings at the center of the buy- and sell-side disrupting an industry in need with low penetration [approximately 5 per cent]. Q4 sits in a large $20-billion total addressable market [TAM] spanning public companies [$13-billion TAM], investment banks [$5-billion], and global asset management [$2-billion]. With potential sensitivity in a rising interest rate environment, we believe current valuation, incremental revenue optionality from its installed base, and potential M&A offer downside protection. As a point of reference, there is $200-million of incremental annual recurring revenue [ARR] within its existing customer base.”


After “strong underlying demand, compelling business model” drove better-than-expected third-quarter results, RBC Dominion Securities analyst Irene Nattel raised her rating for Pet Valu Holdings Ltd. (PET-T) to “outperform” from “sector perform,” seeing “strong momentum” following a raise to its 2021 guidance.

“Two quarters post-IPO, PET is delivering results well above expectations and ahead of its long-term growth algorithm,” she said. “Key drivers of performance include very strong same-store sales underpinned by pet adoption rates with scaling and franchise model contributing to GM expansion. While pace of revenue growth should cool as adoption rates normalize, TAM and gross margins are likely to remain above prior expectations notwithstanding accelerating inflation, notably wages and supply chain costs.”

Before the bell on Tuesday, the Markham, Ont.-based company reported revenue of $201-million, up 26 per cent year-over-year and topping Ms. Nattel’s $177-million forecast, driven by same-store sales growth of 20.3 per cent. Adjusted EBITDA of $51-million also easily topped her forecast ($35-million)

Concurrently, the company raised its 2022 earnings per share guidance by 24 per cent to 97 cents with same-store sales growth slightly above 15 per cent. Ms. Nattel had previously expected 78 cents.

“While we anticipate rising wage and supply chain costs (both incremental and inflation driven) to remain key themes through 2022, in our view, the combination of strong pet adoption rates, market share gains, network growth, fixed cost scaling, franchise structure leverage, and efficiencies should more than offset headwinds,” she said. “Against this backdrop, we raise our F22 and F23 estimated EBITDA by 10 per cent, driving a 14-per-cent increase in EPS forecasts.”

Citing “sustainable growth, FCF growth, and high return franchise mode,” the analyst raised her recommendation and increased her target for Pet Valu shares to $40 from $34. The average target on teh Street is $38.50.

“PET presents a compelling, SMID-cap opportunity in a growing and defensive segment of specialty retail with forecast earnings growth/returns at the higher end of our coverage universe,” she said. “With the share price down 8 per cent from recent highs, and an even more pronounced valuation contraction in light of upward earnings revision, we view the stock’s current level as an attractive entry point.”

Elsewhere, CIBC’s Mark Petrie increased his target to $43 from $34 with an “outperformer” rating, while National Bank’s Vishal Shreedhar raised his target to $35 from $33 with a “sector perform” rating.

“Pet Valu reported blowout Q3 results with same-store sales (SSS) growth well ahead of forecast and excellent GM% leading to earnings well ahead of our estimates and consensus,” said Mr. Petrie. “We continue to believe PET is very well-positioned to take share in a healthy industry with sustained tailwinds. Our Q4 estimates rise with the boosted outlook and our F2022 estimate follows suit.”


In a separate research report, Ms. Nattel reaffirmed her “constructive” view of Alimentation Couche-Tard Inc. (ATD.B-T) ahead of the Nov. 23 release of its second-quarter 2022 results.

“Tweaking forecasts and target ahead of FQ2 results to reflect strong industry fuel margins in the period and expectations around sustainability at higher levels, more than offsetting slow volume recovery as work from home continues to impact miles driven,” she said. “We reiterate our view that the current environment is likely to drive a deeper wedge between industry leaders and small-chain operators and accelerate industry consolidation of which ATD is a key beneficiary.”

“Underpinned by strong industry fuel margins, ongoing strength in inside store performance, contribution of Circle K HK, and translation tailwind of weaker USD, partly offset by higher opex, notably the impact of rising gas prices on credit card fees,” Ms. Nattel is now forecasting earnings per share for the quarter of 69 cents, up 21 per cent from her previous estimate and 4 per cent higher than the result during the same period a year ago.

“Our revised FQ2 estimate is above the mid-point of forecast range $0.58-$0.75,” she said. “Looking further ahead, we remain highly constructive on the outlook, with meaningful earnings torque from the Circle K re-branding and deployment of Fresh Food, Fast.”

Her target for Couche-Tard shares rose to $73 from $65 with an “outperform” rating. The average on the Street is $58.54.

“In our view, current valuation presents a compelling opportunity, with shares trading below the midpoint of the 7-year range despite solid underlying performance trends, strong FCF across cycles, a clean balance sheet, and opportunity for strategic M&A,” said Ms. Nattel.


Following “another strong” quarter, Desjardins Securities analyst Gary Ho sees Dominion Lending Centres Inc. (DLCG-X) possessing improved fundamentals and an “attractive” free cash flow yield.

After the bell on Tuesday, the Vancouver-based mortgage firm reported third-quarter earnings before interest, taxes, depreciation and amortization of $13.8-million, exceeding Mr. Ho’s $11.4-million estimate. A “strong” EBITDA margin of 61.9 per cent and funded mortgage volumes of $22.6-billion also topped his projections (57.6 per cent and $19.6-billion, respectively).

“While the stock price has retreated, DLC’s fundamentals have improved — a record $75-billion in LTM [last 12-month] funded mortgages, healthy 62-per-cent margin, increase in Velocity penetration to 47 per cent and reduction in leverage to sub-1 times,” the analyst said. “The shares offer an attractive pro forma 17-per-cent FCF yield. We increased our estimates, with our bullish view remaining unchanged.”

With raises to his revenue and earnings projections through 2023, Mr. Ho increased his target for Dominion shares to $6.50 from $6, keeping a “buy” rating.

“Our positive thesis is predicated on: (1) near-term housing activity should remain above historical averages; (2) reflagging efforts to add new brokers could bolster DLC growth in 2021/22; (3) a potential fintech play with Newton/Velocity, a business already EBITDA and FCF-positive; and (4) the monetization of non-core assets could eliminate leverage,” he said.


As the market for electric vehicles continues to grow, BMO Nesbitt Burns analyst Robin Fiedler thinks “the unwavering need for conventional graphite-based anodes is underappreciated.”

“The perception that replacement technologies are around the corner, and wholly and immediately disruptive is a disconnect from reality,” he said in a research report released Wednesday. “Major EV OEMs are looking to secure supply of proven materials and reduce reliance on Chinese-dominant supply, while also lowering battery production costs. Within a resulting strong demand backdrop for graphite anode material this decade, we see a unique opportunity for lower-cost, natural-based graphite anode material (CSPG), vs. synthetic graphite alternatives. New graphite-anode projects are going to be needed beyond the large Asian incumbent capacity growth plans (mostly synthetic-based), and new entrants able to break into Western auto OEM supply chains will be favorably positioned. However, anode material production is complex, particularly considering the importance of battery safety and performance. In this environment, we see a supportive backdrop for CSPG pricing this decade.”

Expecting graphite-based anode material to remain dominant in EVs through this decade, Mr. Fielder initiated coverage of a pair of TSX-listed companies:

* Toronto-based NextSource Materials Inc. (NEXT-T) with an “outperform” rating and $7 target. The average target is $6.15.

“NEXT is an overlooked company within a misunderstood segment of the battery supply chain,” said Mr. Fiedler. “We believe NEXT’s exclusive partnerships with established anode material suppliers is underappreciated by the market amid an attractive relative valuation to peers currently. Ultimately, NEXT solves the downstream need to diversify away from Chinese-dominant battery material supply without the major development risks associated with a new entrant.”

* Montreal’s Nouveau Monde Graphite Inc. (NOU-X) with a “market perform” rating and $10 target. The average is $14.07.

“We appreciate NMG’s enviable position to potentially be a localized source of anode material to the N. American battery market, but ultimately believe the company is reasonably valued currently,” he said. “That said, we expect NMG’s Quebec-based project will ultimately prove successful given its favorable location, strong investor/government support, and industry-low carbon footprint.”


Another in a string of weaker-than-anticipated quarters for Farmers Edge Inc. (FDGE-T) was “clearly disappointing,” according to Raymond James’ Steve Hansen.

However, the analyst sees “signs of incremental progress” from the Winnipeg-based digital farming solutions provider that he said keeps him “engaged,” including “the firm’s carbon platform and associated upsell of its highest-value fertility services.”

On Nov. 11, Farmers Edge reported revenue of $6.8-million, down 34 per cent year-over-year and below both Mr. Hansen’s $8.6-million estimate and the Street’s $8.1-million projection due largely to weaker-than-expected Digital Agronomy sales.

While total acreage continued to slip, down 8.8 per cent from the second quarter, Mr. Hansen noted a “sizeable” portion was lower value and he now sees “solid” early progress in the fourth quarter.

“2020 Elite acre conversions are now expected to reach 60 per cent, notably light vs. its original 67-per-cent target,” he said. “Despite this shortfall, management noted that more than 60 per cent of these converting customers have opted to convert to higher-value fertility products, with further upside to this upsell ratio expected into year-end.”

Though he sees its carbon program “gaining traction,” calling it a “notable bright spot,” Mr. Hansen cut his target to $6 from $7.50 with a “market perform” rating. The average is currently $5.13.


In other analyst actions:

* Raymond James analyst Rahul Sarugaser downgraded Skylight Health Group Inc. (SLHG-X) to “market perform” from “outperform” with a $4.50 target, down from $7 and below the $6.30 average on the Street.

“While SLHG is making good progress toward extracting organic value from its inorganically-grown patient base, tangible outcomes — ie. material incremental revenue — from these efforts are likely a year (or two) away,” said Mr. Sarugaser. “Given, trimmed Rev. from divestment of SLHG’s legacy cannabis business, the rapid de-rating of the healthcare services sector (now 3.5 times ‘22 EV/Rev. vs 5.0 times in 2Q), combined with SLHG’s pref. share offering (9.25-per-cent rate, post-3-yr US$25 redemption; we assume $12-million in our modeling) that we effectively consider convertible debt that is likely to create an overhang.”

* BMO Nesbitt Burns analyst Mike Murphy raised his target for shares of Africa Oil Corp. (AOI-T) to $2.75 from $2.50 with an “outperform” rating, while Scotia Capital’s Gavin Wylie increased his target to $2.50 from $2.25 with a “sector perform” recommendation.. The average is $2.36.

“While economic entitlement production through Prime was slightly lower than our forecast, we expect the company to be near the top end of its guidance range for 2021,” Mr. Murphy said. “We look forward to the imminent spud of the potentially high impact Venus-1 well offshore Namibia in which the company has an indirect 6-per-cent interest.”

* BMO’s Brian Quast bumped up his Ascot Resources Ltd. (AOT-T) target to $1.75 from $1.50 with an “outperform” rating. The average is $1.80.

“As production becomes imminent at the Premier & Red Mountain Gold Mine, we expect the stock to rerate toward being a premium smaller producer with exceptional exploration potential,” said Mr. Quast.

* Scotia’s Himanshu Gupta bumped up his target for Automotive Properties Real Estate Investment Trust (APR.UN-T) to $14 from $13.50 with a “sector outperform” rating. The average is $14.11.

“APR is well-suited for income investors with distribution yield of 6.1 per cent (full 214 basis points higher than REIT sector average and 142 basis points above CDN Retail REIT average), and we see a total NTM return potential of 13 per cent,” he said.

* Canaccord Genuity’s Doug Taylor lowered his target for Drone Delivery Canada Corp. (FLT-X) to $1 from $1.30, below the $2.50 average, with a “hold” rating.

“Drone Delivery released Q3 results that still do not feature material revenue, as the company saw a pause in one of its contracts and a renewal that included a price reduction,” said Mr. Taylor. “While the balance sheet remains robust ($31-million) to support the ongoing cash burn in advance of the potential revenue ramp, we have made further reductions as the commercialization process continues to be slower than we had previously estimated.”

“We maintain a HOLD rating and recommend investors wait for firm evidence that the company has pivoted into the next phase of its evolution, monetizing its significant investments in drone cargo technology, to signal an entry point.”

* Scotia Capital analyst George Doumet cut his Kits Eyecare Ltd. (KITS-T) target to $5 from $7.50 with a “sector outperform” rating, while Canaccord Genuity’s Derek Dley reduced his target to $8 from $11 with a “buy” rating. The average is $6.67.

“We have lowered our 2022 sales estimate and target multiple to reflect lower than anticipated top-line growth, although we acknowledge improving gross margins leave the company well on track to achieve positive adjusted EBITDA in H1/22,” said Mr. Dley.

“While there are no perfect public comparable companies to KITS, we believe the broader eyewear retail peer set is an appropriate barometer, with the group trading at an average of 3.8 times 2022 sales. In our view, KITS should trade at a premium to these peers, given its earlier stage in the growth cycle, higher expected revenue growth, healthy balance sheet, and strong management team.”

* B. Riley analyst Susan Anderson hiked her Lululemon Athletica Inc. (LULU-Q) target to US$548 from US$466, exceeding the US$463.93 average, with a “buy” rating.

* Canaccord Genuity’s Yuri Lynk raised his target for Neo Performance Materials Inc. (NEO-T) to $27 from $25, reiterating a “buy” rating, while Scotia’s Mark Neville bumped up his target by $1 to $29 with a “sector outperform” recommendation. The average is $27.50.

“High rare earth prices and the company’s strategic initiatives should continue to drive strong results,” said Mr. Lynk.We expect volumes in the quarter to remain impacted by the lockdown in Malaysia that closed most factories during September/October, severely affecting the world’s supply of semiconductors. Nonetheless, we believe margins should continue to benefit from rare earth prices that continue to trade higher.”

* National Bank Financial analyst Tal Woolley raised his Northwest Healthcare Properties Real Estate Investment Trust (NWH.UN-T) target to $14.50 from $14, below the $14.62 average, with a “sector perform” rating.

* CIBC World Markets analyst Kevin Chiang raised his target for Parkland Fuel Corp. (PKI-T) target to $53 from $50 with an “outperformer” rating, while RBC’s Luke Davis increased his target to $50 from $49 with an “outperform” rating and National Bank’s Vishal Shreedhar bumped his target to $48 from $47 with an “outperform” rating. The average is $50.79.

“PKI’s investor day reaffirmed our positive outlook on the company given its strong inorganic and organic growth pipeline,” said Mr. Chiang. “We see a disconnect between PKI’s share price today versus the fundamentals of its business. While the investor day focused on the company’s multi-year growth outlook, it also directly addressed some of the concerns we hear from investors on the name.”

* Scotia’s Himanshu Gupta raised his StorageVault Canada Inc. (SVI-X) target to $7.25 from $6.50 with a “sector outperform” rating. The average is $7.31.

“Self Storage is going through a re-rating in the transaction market. There are large portfolio transactions in the U.S. which are being done at 4, mid-3, sub-3 cap rates. This is happening because market is realizing the quality of the cash flow and embedded growth profile. This makes us think what makes self storage so unique.”

“Self storage is zoned as industrial but consumer base is all (largely) residential. Multi-family has rent control (in some jurisdictions), while industrial has typical five year lease terms. Self storage has no rent control and month-to-month leases. Loosely speaking, self storage can increase rents whenever and whatever they want (obviously subject to market conditions) - this freedom is not available to any other sectors, and will be instrumental in inflationary environment.”

* Stifel analyst Andrew Partheniou lowered his target for TerrAscend Corp. (TER-CN) to $21 from $23 with a “buy” rating, while Andrew Semple cut his target to $13 from $15 with a “speculative buy” rating. The average is $16.86.

“We are not too surprised to see Q3/21 results below expectations given the well telegraphed temporary yield issues in PA,” said Mr. Partheniou. “As a result, we believe TER has crossed the trough with yields already improving and quality flower clocking in at THC levels above 30 per cent. We believe management could build on this momentum with GAGE potentially closing in early 2022 bringing with it synergistic IP and premium genetics that may be exportable across state lines, namely in PA where management indicated a 30-day window to import new genetics. Matched with NJ REC, which TER indicated could turn on in Q1/22 (in-line with our expectations), we believe there could be significant upside to our forecasts. Hence, we believe investors have an ideal entry point with shares currently trading in-line with the average of senior peers at 8-8.5 times EV/2023 estimated EBITDA.”

* Benchmark analyst Aydin Huseynov cut Trillium Therapeutics Inc. (TRIL-Q, TRIL-T) to “hold” from “buy” with a US$18.50 target, matching the consensus.

* Canaccord’s Matt Bottomley cut his target for shares of Verano Holdings Corp. (VRNO-CN), a Chicago-based cannabis company, to $30 from $35 with a “buy” recommendation, while BTIG analyst Camilo Lyon raised his target to $48 from $45 with a “buy” rating. The average is $39.39.

“We believe VRNO is well positioned in its existing 15-statefootprint with several organic expansion projects underway and as it integrates various acquisitions all the while maintaining industry-leading high 40s+ adj. EBITDA margins,” said Mr. Lyon.

* JP Morgan analyst Jessica Fye cut her Zymeworks Inc. (ZYME-N, ZYME-T) target to US$32 from US$39 with a “neutral” recommendation. The average is US$47.04.

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