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

Mining equity analysts at National Bank Financial are forecasting the majority of precious metals producers in their coverage universe to report “softer” production results for the first quarter versus the previous quarter, given the negative impact of the Omicron variant on employee availability.

“We also expect the bulk of our coverage (83 per cent) to report higher cash costs quarter-over-quarter due to the general trend of lower production quarter-over-quarter and coupled with rising costs for several key consumables (diesel, cyanide, steel, etc),” they said. “We see the potential to take increased positions in royalty companies, which are currently implying similar FCF yields as producing peers, with no direct impact from inflationary pressures on operating margins. It will be interesting to see how the elevated prices for consumables weigh on company outlooks, but we may see revisions to cost guidance held off until Q2 results are released.”

In a research report released Wednesday, the firm revised its price deck for all metals. Its 2022 gold forecast rose to US$1,921 per ounce (from US$1,830) with its long-term estimate increasing to US$1,525 per ounce from US$1,475.

“Our revised metal price deck proved modestly positive for the cash flow generation outlook of our coverage universe given the elevated commodity prices observed throughout 1Q22 which supported positive price estimate revisions in the near term,” the analysts said.

“We made several target price revisions, driven mostly by the new price deck, with modestly higher near-term gold and silver prices for 2022 and 2023 versus our prior price deck. We also tweaked our valuation target multiples to better align with broader industry trends. Companies with target price changes of 10% or more include: Barrick (+31%), Alamos (+18.2%), Fortuna (+18.2%), Pan American Silver (+14.6%), OceanaGold (+14.3%), Newmont (+11.2%), Eldorado (+11.1%), Centerra (+10.3%), IAMGOLD (+10.0%), SSR Mining (+10.0%), Osisko Gold Royalties (+10.0%), Royal Gold (+16.0%), Sandstorm Gold (+25.0%), Triple Flag (+21.1%) and Wheaton Precious (10.3%).”

Citing its performance thus far in 2022, analyst Mike Parkin lowered her recommendation for Newmont Corp. (NGT-T, NEM-N) to “sector perform” from “outperform.”

“We are downgrading Newmont ... following Newmont’s shares outperforming Super Senior Peers (Barrick (ABX, “sector perform,” $38 target) and Agnico Eagle (AEM, “outperform”, $99 target and the S&P/TSX Global Gold Index YTD,” he said. “We also revised up our metal price deck for both base and precious metals ... which drove up EBITDA estimates for 2022 and 2023, despite a move to assuming higher operating costs over this same period to factor in the elevated inflationary environment facing the industry.

“In our opinion, Newmont remains a quality name to own, but following a period of strong share price appreciation, we expect the shares to trade more in line with peers for the near term. We could move to become more constructive on Newmont as we approach 2023 as we see potential for Newmont.”

That higher EBITDA forecast led Mr. Parkin to increase his target for Newmont shares to $119 from $107. The average on the Street is $96.97.

For other senior producers, the analysts’ target changes are:

  • Agnico Eagle Mines Ltd. (AEM-T, “outperform”) to $99 from $94. Average: $89.87.
  • Barrick Gold Corp. (ABX-T, “sector perform”) to $38 from $29. Average: $27.86.
  • B2Gold Corp. (BTO-T, “outperform”) to $8.50 from $7.75. Average: $7.65.
  • Endeavour Mining Corp. (EDV-T, “outperform”) to $45.25 from $44.25. Average: $44.27.
  • Kinross Gold Corp. (K-T, “outperform”) to $12 from $11. Average: $10.74.

For royalty companies, their changes are:

  • Franco-Nevada Corp. (FNV-T, “sector perform”) to $225 from $210. Average: $210.
  • Maverix Metals Inc. (MMX-T, “sector perform”) to $7 from $6.75. Average: $8.36.
  • Osisko Gold Royalties Ltd. (OR-T, “outperform”) to $22 from $20. Average: $23.25.
  • Royal Gold Inc. (RGLD-Q, “sector perform”) to $165 from $140. Average: US$148.83.
  • Sandstorm Gold Ltd. (SSL-T, “outperform”) to $12.50 from $10. Average: $12.50.
  • Triple Flag Precious Metals Corp. (TFPM-T, “sector perform”) to $23 from $19. Average: $22.70.
  • Wheaton Precious Metals Corp. (WPM-T, “outperform”) to $75 from $68. Average: $58.71.


The mining team at RBC Dominion Securities also raised their gold price assumptions on Wednesday, emphasizing “easy monetary policy represented a tailwind for gold during the pandemic, and the cessation of this policy now represents a headwind.”

“We view the post-pandemic environment as a headwind for gold, where a resurgence of inflation has provided the foundation for a shift in monetary policy and for real rates to increase — we note that this trend is already well established, but the gold price has not adjusted to these conditions,” he said. “While geopolitical conflict, a lingering pandemic, and global supply chain stress present various cross-currents, we expect traditional price relationships for gold will re-emerge as these interim uncertainties eventually subside. Our gold price forecasts reflect the metal adjusting to these conditions, including a stepwise shift in tighter monetary conditions, and real yields rising and stabilizing at mildly positive levels. We acknowledge that gold’s role as a strategic central bank asset and portfolio diversifier for investors has improved in the current environment, and our forecasts incorporate higher go-forward demand from these factors.”

RBC raised its 2022 and 2023 gold price assumptions by 9 per cent to US$1,889 per ounce and US$1,795, respectively. Its long-term forecast increased 7 per cent to US$1,600 per ounce (from US$1,500).

“Our view on gold equities leans cautious short-term in light of commodity price risks, plus underlying elevated cost inflation for producers,” they said. “In recent years, the gold sector has achieved fundamental improvements, including deleveraging, improved return of capital, and better operating execution. However, margin expansion from gold price upside has been tempered due to underlying cost inflation, where energy, labour, and discretionary spending are larger contributing factors. We estimate costs for companies under coverage will increase 7 per cent in 2022, as compared to average gold prices year-to-date being up 10 per cent. These changes have weakened the prior valuation merits of the sector, and commodity downside risk represents a potential additional risk factor. The royalty business model provides insulation from costs and reduces commodity price leverage — we maintain a slight bias for the group, although note relative valuation for the large-cap royalty group vs. producers has sustained a substantial premium. Our top picks for the sector include Centamin, Endeavour Mining, Northern Star, Osisko Gold Royalties, Regis Resources, Royal Gold, and SSR Mining.”

In conjunction with the report, analyst Josh Wolfson lowered his recommendation for a pair of companies.

With its shares trading at a discount to peers after recent “challenges,” he thinks Kinross Gold Corp.’s (KGC-N, K-T) relative valuation is “reasonable,” leading him to move his recommendation from “sector perform” from “outperform.”

“Following Kinross’ Great Bear / Dixie acquisition including $1-billion in additional net debt assumed, plus the suspension of its Russian asset portfolio, Kinross’ financial outlook has weakened,” he said. “These events, plus low returns associated with GBR in our view justify lower relative valuation for Kinross being sustained. Dixie’s advancement and evaluation represent a source of upside, but this remains a long-dated opportunity.”

“At current gold prices, we forecast Kinross will generate above-average FCF over 2023-24, which may help the company reduce interim leverage. Beyond this period, the sustainability of these cash flows is contingent upon the deferral of Lobo Marte development, advancement of Manh Choh, resequencing at Tasiast, and sustained elevated gold prices.”

Believing its financial position could improve with the completion of the divestiture of its Russian assets, Mr. Wolfson maintained a US$6 target, which falls below the US$7.98 average on the Street.

“Near-term, we expect 1Q financial results will be challenged by prior guided lower 1H output and elevated costs, plus the negative impact of both the GBR acquisition and Russian portfolio suspension,” he said. “Revised guidance is scheduled to be provided, where we expect higher costs will be a factor.

“We believe discussion over Kinross as a potential acquisition target is unfounded—we view potential M&A immediately following recent various negative updates as poorly timed (Tasiast fire, Round Mountain challenges, GBR acquisition, Russia conflict, Manh Choh potential delays). Conversely, a reasonable premium applied to shares in our view would largely offset the valuation merits of the company to a third party.”

Seeing it in the “early stages of a turnaround,” Mr. Wolfson lowered Iamgold Corp. (IAG-N, IMG-T) to “underperform” from a “sector perform” recommendation, pointing to “elevated risks with the development of its Cote Gold project, plus execution at its Rosebel and Westwood mines.”

“IAMGOLD’s valuation is now closer to that of its peer group, while its risk profile is materially above-average,” he said. “Key risks include large project development in the current environment, and a management and board transition underway. In general, IAMGOLD is exposed to greater gold price downside risks, cost inflation, and operating execution challenges.

“Key to the success of IAMGOLD is the advancement of its Cote Gold development project in Ontario, where an update is scheduled to be released in 2Q. In our view, higher capital costs, longer timelines, and potential increase in operating costs are risks. Nonetheless, at current higher gold prices, we forecast IAMGOLD maintains good financial flexibility to manage the construction budget. Should lower gold prices materialize, IAMGOLD could seek to advance non-core asset dispositions or secure external funding.”

His unchanged US$2 target falls below the average of US$3.19.

For senior producers, Mr. Wolfson’s target changes were:

  • Agnico-Eagle Mines Ltd. (AEM-N/AEM-T, “outperform”) to US$65 from US$60. Average: US$75.34.
  • Barrick Gold Corp. (GOLD-N, ABX-T, “outperform”) to US$27 from US$23. Average: US$28.18.
  • Newmont Corp. (NEM-N/NGT-T, “sector perform”) to US$77 from US$60. Average: US$77.62.


Ahead of the approaching earnings season, National Bank Financial analyst Gabriel Dechaine reduced his first-quarter earnings per share projections for Canadian life insurance companies by an average of 5 per cent.

He pointed to three factors: “1) lower period end and average AUM [assets under management] levels; 2) experience losses at GWO, SLF and MFC; and 3) weaker sales in Asia that should result in lower new business gains or higher new business strain. We also push forward the closing date of GWO’s Prudential acquisition (closed on April 4, 2022) by one quarter (originally modelled in Q1/22 as per guidance).”

With that view, he trimmed his EPS estimates for 2022 and 2023 by 2 per cent each, leading to cuts to his target prices for three of the four stocks in the sector. They are:

* iA Financial Corp. Inc. (IAG-T, “outperform”) to $88 from $89. Average: $92.22.

“IAG is another stock where expectations may be ahead of reality,” he said. “Consensus sits at $2.08 (vs. NBF at $1.89), which compares to a guidance range of $1.85-$2.00. Although IAG has been delivering above the high end of its guidance in two of the past three quarters, we believe a quarter with weaker equity markets and tougher comps will make repeating such performance a challenge.”

* Great-West Lifeco Inc. (GWO-T, “sector perform”) to $38 from $39. Average: $41.78.

* Sun Life Financial Inc. (SLF-T, “sector perform”) to $76 from $77. Average: $77.71.

“The laggards in the group are GWO and SLF,” he said. “Between the two, we prefer GWO for its Canadian-focused Group business (where exposure to mortality experience is less of a factor than it is for SLF’s) and for the simple fact that GWO’s earnings are less influenced by fluctuations at Putnam than SLF’s are from MFS (which is far more profitable).”

Mr. Dechaine maintained a “sector perform” rating and $28 target for Manulife Financial Corp. (MFC-T). The average on the Street is $31.61.

“While most lifecos have delivered a tepid performance to start the year, MFC has been a standout, up nearly 12 per cent on the year and outperforming the S&P/TSX by 800 basis points,” he said. “Investment gains (e.g., oil & gas portfolio), wider credit spreads and the gain on sale of most of its U.S. VA business should boost reported profits and support stable BVPS [book value per share] (i.e., to offset negative AOCI adjustments). However, with the stock’s relative performance into the quarter, we believe additional upside potential is limited.”


After “big” earnings misses in four of the past five quarters, Scotia Capital analyst Michael Doumet feels the Street’s estimates for Badger Infrastructure Solutions Ltd. (BDGI-T) are now too low as it rebounds from COVID-driven struggles.

Accordingly, he raised his rating for the Calgary-based excavation company to “sector outperform” from “sector perform” ahead of the May 12 release of its first-quarter results.

“COVID has been a massive headwind for BDGI,” said. In the last two years, COVID increased operating costs (non-billable hours, overtime pay, recruiting/training costs) and limited demand growth. Following several negative revisions to Street estimates through 2021, we now see upside.

“While we are hesitant to call 1Q22 a catalyst, we believe reduced COVID-headwinds, a recovery in non-res construction, and increased oil & gas activity will accelerate a return to historical margins (i.e. 23% to 25 per cent) in the N-T. Beyond that, we expect company-specific marketing, customer, and pricing initiatives (and constrained industry hydrovac supply) to help drive margins towards target levels (i.e. 28 per cent to 29 per cent) in the M-T.”

Mr. Doumet noted the Street has its 2022 and 2023 EBITDA forecast for Badger by 25 per cent and 10 per cent, respectively, over the last 12 months, leading him to see upside risk to estimates. His projections are now 12 per cent and 15 per cent above the consensus view, believing “easing COVID headwinds and increased end-market activity will drive margin expansion (and upside surprises).”

He raised his target for Badger shares to $39 from $34. The average is $35.06.

“From an EV/EBITDA perspective, BDGI trades at 6.5 times on our 2023 estimates, versus its historical average of 8.0 times (and we would argue our 2023 margins have upside potential),” he said. “While a secular story, BDGI share price outperformance often comes within a short period of the cycle. The best time to buy the stock, in our experience, is when BDGI ramps its truck production as it signals a recovery in utilization and margins (i.e. late cycle). We also note that BDGI’s EV/truck has never fallen below $0.8-million, recently bouncing off those levels post-4Q21. Each time it reached those lows (in March 2013, September 2015, and March 2020), the shares appreciated more than 75 per cent in the next 12 to 18 months. With costs for hydrovacs rising, we view the valuation metrics as increasingly relevant. While we might be early with our upgrade (some risk to 1Q22), we expect a significant ramp in profits through the 2H22 and 2023 – ahead of consensus expectations.”


Calling its new wind partnership for 1.2 gigawatts of wind in Québec with Énergir and Hydro-Québec “exciting,” Desjardins Securities analyst Bill Cabel raised his Boralex Inc. (BLX-T) target to $47 from $46, keeping a “buy” rating. The average target on the Street is $46.10.

Shares of the Kingsey Falls, Que.-based company rose 2.6 per cent on Tuesday following the premarket announcement of the agreement, which will see the partners participate equally in the projects on the Seigneurie de Beaupré territory through affiliated companies.

“In our view, it is positive to see BLX partner with HQ on these wind projects, which makes it highly likely that they are contracted and built — giving us confidence in their outlook,” he said.

“With a solid near-term identified growth pipeline and a 3.1GW development pipeline in various stages in Europe and North America, BLX is well-positioned to drive growth beyond 2022. Its outlook remains positive and we continue to believe it is the name to own in onshore renewables.”


Credit Suisse analyst Andrew Kuske raised his targets a group of Canadian utility stocks on Wednesday.

“Overall, our sub-sector bias is clear with the ratings skew favouring the power and renewable stocks,” he said. “We believe core elements of renewables attraction remain very positive and, given events in Europe, exposure in that region is gaining in prominence for a combination of pricing and development potential in an accelerated energy transition. In our view, the risk-adjusted return potential and core fundamentals of the renewables sub-sector remain compelling and the malaise in sentiment provides opportunity – often with favourable relative dividend/distribution yields. Awash in a sub-sector of Outperforms, we focus on several themes, including: (a) hydro assets (BEP (T to US$47 from US$46), BLX (TP to C$46 from C$45), INE (TP to C$25 from C$24) and TA (TP to C$18 from C$17)); (b) a meaningful potential acceleration of “pipeline development” (BEP); (c) addressing the duration dilemma (NPI (TP to C$51 from C$50)); (d) the European acceleration (BEP, BLX, INE and NPI); (e) valuation positive energy transition stocks (CPX and TA (TP to C$18 from C$17)); and, (f) watching the Western water flows (BEP, BLX, CPX, INE, RNW and TA).”

His changes include:

  • Boralex Inc. (BLX-T, “outperform”) to $46 from $45. The average is $46.10.
  • Innergex Renewable Energy Inc. (INE-T, “outperform”) to $25 from $24. Average: $22.15.
  • Northland Power Inc. (NPI-T, “outperform”) to $51 from $50. Average: $46.17.
  • TransAlta Corp. (TA-T, “outperform”) to $18 from $17. Average: $16.23.


Stifel analyst Martin Landry thinks Pet Valu Holdings Ltd. (PET-T) possesses “significant” valuation upside as investors “get more comfortable” with its growing franchise business, which he called “a valuable asset.”

In a research report released late Tuesday, he gave the Markham, Ont.-based company a “buy” recommendation.

“Pet Valu currently has approximately 475 franchised stores, representing 67 per cent of the company’s network,” he said. With an average franchisee tenure of 9-years and a 98-per-cent renewal rate (from 2015 to 2020) Pet Valu’s franchise network is healthy. The company receives more than 800 inquires per year of which only 1 per cent are awarded a franchise, suggesting the network has a high appeal and quality franchisees. Management intends to convert more corporate stores to franchises over time.”

“Historically, investors have valued franchised businesses at higher multiples than corporate networks. Franchised businesses have asset light models with higher return on invested capital and are perceived as more attractive by investors. Franchised businesses carry higher profit margins and in most instances can be expanded faster than corporate networks leading to scale benefits. Franchisees typically have a higher community engagement and can be established in smaller markets due to their lower operating costs. We assembled a select group of franchised businesses. The average valuation multiple of our peer group is 19 times 2022 EBITDA, a valuation multiple we believe is fair for PET’s franchised business.”

Mr. Landry estimates the franchised business should be valued at $28 per share, or approximately $2.2-billion, and he also thinks its implied corporate store network valuation “appears too low.”

“Pet Valu’s business has solid organic growth prospects with SSS [same-store sales] growth guidance of 6-9 per cent, operates in a recession resistant industry which has not contracted once in the last 30 years in Canada and has potential to gain market share with a growing network expected to grow at 5 per cent in 2022,” he said. “Hence, we believe that Pet Valu’s corporate network should garner a much higher valuation multiple to reflect its appealing characteristics. Assuming a 12 times EBITDA multiple would suggest a valuation of $8 per share for PET’s corporate network.”

The analyst set a target of $44 per share. The average on the Street is currently $41.

”We see significant valuation upside for PET, for the following reasons: (1) PET has a healthy and growing franchised network which should garner a higher valuation, (2) Pet Valu has pricing power to pass on vendor inflationary pressures, (3) Consumer demand is somewhat inelastic as highlighted in our recent consumer survey,” said Mr. Landry. “Hence, we believe investors should revisit an investment in Pet Valu. We recently added Pet Valu among Stifel GMP’s top pick list.”


In other analyst actions:

* Citing its plan to sell US$400-million of its shares at market, Barclays analyst Gaurav Jain cut his Tilray Inc. (TLRY-Q, TLRY-T) target to US$4.50 from US$8.50, under the US$12 average, with an “underweight” recommendation.

* Scotia Capital’s Michael Doumet raised his target price for shares of Ag Growth International Inc. (AFN-T) to $52 from $50 with a “sector outperform” rating. The average is $51.44.

“We are off restriction following AFN’s convertible debt offering,” he said. “The raise effectively eliminates the need for additional outside capital in the medium term. Going forward, outsized profit growth in Brazil and the U.S. and stronger contributions from Food and AGI Digital – in addition to a favourable ag cycle – is moving AFN towards a FCF inflection that will accelerate its deleveraging process. Despite the positive momentum across the business, its trading multiple remains compressed – mostly due to the bin incident, which we argue is effectively behind them now (to us, it’s been contained and provisioned for). With EBITDA growth set to re-accelerate in 2Q22 and beyond, we believe strong FCF generation and a re-rate will accrue sizable returns for equity holders through our forecast horizon.”

* Canaccord Genuity’s Carey MacRury raised his Altius Minerals Corp. (ALS-T) target by $1 to $28 with a “buy” rating. The average is $26.93.

* After the close of its bought deal offering of 4.8 million shares for $60-million in gross proceeds, TD Securities’ Aaron MacNeil resumed coverage of Anaergia Inc. (ANRG-T) with a “speculative buy” rating and $35 target. Others making target changes include: Scotia’s Justin Strong to $18 from $19 with a “sector outperform” and National Bank’s Rupert Merer to $17 from $18 with a “sector perform” recommendation. The average on the Street is $24.

“We believe ANRG is well positioned to pursue its strategy and create shareholder value. Our thesis and recommendation are based on ANRG’s (1) strong growth outlook, (2) enticing valuation with significant growth upside above our target price, (3) portfolio of proprietary technologies, and (4) first mover advantage in the RNG space,” said Mr. Strong.

* Scotia Capital’s Phil Hardie cut his Fiera Capital Corp. (FSZ-T) target to $10.50 from $11.50, below the $11.64 average, with a “sector perform” rating.

* RBC’s Irene Nattel raised her Metro Inc. (MRU-T) target to $74 from $70, keeping a “sector perform” rating. The average is $71.40.

* CIBC World Markets’ Bryce Adams cut his Sierra Metals Inc. (SMT-T) target to $1.90 from $2.25, below the $2.79 average, with a “neutral” rating.

* TD Securities’ Arun Lamba raised his Solaris Resources Inc. (SLS-T) target to $25 from $22 with a “speculative buy” rating. The average is $21.76.

Follow David Leeder on Twitter: @daveleederOpens in a new window

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