Inside the Market’s roundup of some of today’s key analyst actions
Citi analyst Jon Tower acknowledges Restaurant Brands International Inc.’s (QSR-N, QSR-T) business is “improving,” however he does not think its first-quarter financial results were strong enough to “shift the investor narrative on the stock to more positive.”
Shares of the parent company of Tim Hortons and Burger King fell 3.5 per cent in Toronto on Tuesday following the premarket release.
“TH Canada certainly faced idiosyncratic headwinds (Omicron, truckers’ strike, slow urban reopening), but unit closures came as a modest negative surprise and the 2022/long-term same-store sales guidance (mid-single-digit-to-high-single-digit/2-3 per cent) was in line with the Street,” he said. “BK US SSS demonstrated quarter-over-quarter improvement but remains negative vs. 2019, with no clear drivers for reversing multi-year share losses vs. direct burger competitors. The global recovery was impressive, but not out of line with other global peers and supply-chain challenges pose a risk to near-term unit growth.”
Mr. Tower does see the company’s Tim Hortons operations in Canada back on a “solid recovery path,” but he thinks the size and scale of its operations are likely to keep same-store sales growth in line with the broader economy.
“With phase 1 of the turnaround well underway (coffee & food upgrades, asset modernization and digital push) the transition to phase 2 includes pushing further along these lines (e.g., more espresso-based & cold beverages, incenting digital adoption/sales, and focusing on daypart expansion) and echoes what we have seen from other global leaders in the past (e.g., MCD and SBUX),” he said.
“The company expects mid-to-high single digit SSS growth in 2022 and 2-3 per cent over the LT, with the latter likely influenced by the brand’s size and scale in a market where it controls 72 per cent of the high-frequency drip coffee occasion, 59-per-centshare of LSR breakfast food share and already large share in the growing espresso/cold beverage categories (40 per cent/24 per cent). Law of larger numbers means out-sized growth will be difficult to come by, in our view.”
Accordingly, Mr. Tower trimmed his earnings per share projections for both 2022 and 2023 to US$3.17 and US$3.67, respectively, from US$3.23 and US$3.79.
That led him to reduce his target for Restaurant Brands U.S.-listed shares to US$58 from US$64 with a “neutral” recommendation. The average on the Street is US$65.50, according to Refinitiv data.
“We don’t believe the market is fully capturing ramping international stories at Tims, Popeyes (and soon Firehouse) that can drive medium-term upside to net unit growth (NRG) and long-term upside to profits; however, limited visibility into the economics of these nascent businesses means limited ability to layer into valuation,” said Mr. Tower. “At the same time, we see above average room for near- to medium-term estimate volatility related to new store opening delays due to global supply chain issues, potential pressure on supply chain profits, and questions about co-investments that are likely part of any BK U.S. turnaround pitch in the coming quarters.”
Elsewhere, Stifel’s Christopher O’Cull downgraded Restaurant Brands to “hold” from “buy” with a US$58 target, down from US$68.
“Burger King U.S. and Tim Hortons Canada’s turnaround efforts remain early stage,” said Mr. O’Cull. “We are concerned these efforts will be hampered by the inflation and competitive pressures their franchisees face. We continue to be encouraged by Burger King ROW comp and unit growth performance, with the former far exceeding estimates in 1Q (20 per cent, Stifel 10 per cent, Street 11 per cent). Popeyes unit growth is also encouraging, but the concept only represents 10-12 per cent of total segment profit, so it is not as critical of a factor as the two core brands. In our opinion, the stock price is range-bound without improving comps at TH Canada and BK US, and our conviction that comps will improve meaningfully is low; therefore, we are moving to the sidelines.”
Other analysts making target adjustments include:
* RBC Dominion Securities’ Christopher Carril to US$68 from US$70 with an “outperform” rating.
“Despite above-average global system sales growth and accelerating comp growth at Burger King and Popeyes, QSR’s valuation remains in line with the global ‘all-franchised’ restaurant peer group average, driven in large part by continued weakness at Tim Hortons (responsible for 50 per cent of total op. profit),” Mr. Carril said. “While we believe that TH sales improvement remains the primary catalyst for QSR shares, we see the combination of BK-driven, near-best-in-class unit growth (normalized 5 per cent plus), current momentum at PLK, significant scale, and potential to add brands in the future as key positives for a stock that in our view remains attractively value.”
* CIBC’s Mark Petrie to US$70 from US$69 with an “outperformer” rating.
* Jefferies’ Alexander Slagle to US$62 from US$66 with a “neutral” rating.
* Barclays’ Jeff Bernstein to US$68 from US$74 with a “buy” rating.
* Deutsche Bank to US$70 from US$72 with a “buy” rating.
After a “solid start to the year” and a raise to its guidance, National Bank Financial analyst Maxim Sytchev expects Colliers International Group Inc.’s (CIGI-Q, CIGI-T) to be able to “overpower interest rates (over time)” with its “strong” execution.
Shares of the Toronto-based professional services and investment management company rose 2.3 per cent after it reported better-than-anticipated first-quarter results. Revenue of US$1-billion beat the forecasts of both Mr. Sytchev (US$0.89-billion) and the Street ($0.9-billion), “driven by growth across all service lines and most geographies.” Adjusted EBITDA and earnings per share of US$121.5-million and US$1.44 also beat expectations (US$108.7-million and US$1.13 and US$107.5-million and US$1.23).
Mr. Sytchev said Colliers’ management had a very positive tone on the conference call that followed the earnings release.
“Colliers management felt confident enough to increase growth projections for the remainder of the year, exceeding Street forecast,” he said. “High-teens EPS growth in 2022 on the back of record 2021 is impressive, firming up 2025 objectives, as a result. On the business development front, CIGI added affiliate operations in the U.S. and Italy while expanding its engineering consulting footprint in U.S. Southwest. After quarter-end, the company also completed the Antirion transaction in Europe; once Basalt Infrastructure gets folded in, Investment Management will represent 23 per cent of consolidated EBITDA. With $400 mln-worth of capital invested so far this year for M&A, management sees 2022 as a record capital deployment year.”
After increasing his financial forecast to fall in line with the guidance adjustment, Mr. Sytchev trimmed his target for its Colliers shares to US$164 from US$176 after a forward multiple compression. The average target on the Street is US$170.
“CIGI shares started to slump EXACTLY as the U.S. 10-year started to spike in March,” he said. “While we of course do not want to be blind to macro gyrations, we also do not have a great sense how many Fed hikes we are going to witness, how effective they will be (perhaps we don’t need to go 4 or 5 this year, depending on inflation trajectory, etc.). Instead, we agree with management that buying back shares at current levels will likely be accretive for shareholders in the long term, especially as CIGI has embarked on 2025 Strategic plan that imputes a LOT of growth. We continue to see value in CIGI shares at the moment, and assuming there is no recession, CIGI investors should do well over our forecast horizon.”
Elsewhere, CIBC’s Scott Fromson raised his target to US$165 from US$155 with an “outperformer” rating, while BMO’s Stephen MacLeod increased his target to US$160 from US$184 with an “outperform” rating.
“Colliers reported a solid Q1/22 beat; combined with high Q2 visibility, this led to increased 2022 guidance (high-teens EPS growth),” said Mr. MacLeod. “The call was upbeat, with key highlights including Colliers’s focus on its recurring revenue base (IM 23 per cent of adj. EBITDA post-Basalt; total recurring now 50 per cent of adj. EBITDA), acquisition pipeline, liquidity position, and long-term track record of success despite the macro backdrop. With the stock down 27 per cent year-to-date on H2 recessionary fears, we see attractive risk-reward (8.4 times 2023 EV/EBITDA).”
Iamgold Corp.’s (IAG-N, IMG-T) better-than-anticipated first-quarter results were overshadowed by a “much” higher-than-expected capital increase at its Côté Gold project in Northern Ontario, said Canaccord Genuity’s Carey MacRury, who estimates it will run short of cash in 2023.
He was one of three analysts on the Street to downgrade the Toronto-based miner on Tuesday, lowering his recommendation to “sell” from “hold” previously.
“Management had noted with its Q4/21 results that inflationary and other cost pressures at the project were building, resulting in the projected remaining costs to completion to trend upwards above the high end of the previous range,” said Mr. MacRury. “IAMGOLD has increased its guidance for remaining capex to completion at Côté (IMG’s share) to $1.2-$1.3 billion from April 1, 2022, onwards (including $100-150 million in contingencies), significantly higher than the company’s previous estimate was $710-760 million, from Jan 1, 2022, onwards and our estimate of $950 million. Adjusting for the $78.5 million spent in Q1, the new estimate is 90-per-cent higher at the midpoint and follows a 28-per-cent increase in capex guidance that was announced in Q2/21. The company has withdrawn its 2022 and 2023 Côté project cost guidance and expects to provide detailed updated costs and schedule estimates review before the end of the second quarter. Management notes that planned commercial production is expected to be delayed by 4-5 months to the end of 2023.
“Based on our revised forecasts, we estimate that the company ending 2022 with $170 million in cash with $250 million drawn on its $500 million credit facility. We forecast the company drawing the remaining $250 million on its credit facility and ending 2023 with a negative cash balance of $270 million. Management also expects additional funding will be required in 2023.”
Mr. MacRury sees “few desirable options to plug the funding gap.”
“Management notes that it is investigating options including taking on additional debt or equity financing, strategically disposing of assets or pursuing joint-venture partnerships,” he added. “We think the sale of Rosebel could be near the top of the potential list, but given the recent challenges at the mine, it’s unclear whether the proceeds from a sale would be enough to fill the gap. We think another possibility to consider would be an outright sale of the company.”
With changes to his financial forecast, Mr. MacRury cut his target for Iamgold shares to $2.75 target from $4.50. The average is $3.98.
Elsewhere, Credit Suisse’s Fahad Tariq cut the miner to “underperform” from “neutral” based on a limited turn to his revised target (US$2.50 from US$3.50) and to “reflect liquidity concerns.”
Raymond James’ Farooq Hamed lowered it to “underperform” from “market perform” with a target of US$2.25, falling from US$3.
“IAG had a strong operating quarter in 1Q22 however results were overshadowed by preliminary findings from the Cote project review and risk analysis which highlighted a significant capex increase and timeline extension at the project,” said Mr Hamed. “We have incorporated 1Q22 results and new Cote guidance into our model and are downgrading our rating”
Seeing rising interest rates as a headwind to sector valuation and expecting inflation to continue to weigh on costs, National Bank Financial analyst Rupert Merer lowered his rating for Algonquin Power & Utilities Corp. (AQN-N, AQN-T) to “sector perform” from “outperform” ahead of the release of its first-quarter financial results on May 12.
“We adjusted our model to account for good weather (stronger wind in the U.S., cool weather in Missouri). However, with some adjustments to our calibration on AQN’s regulated returns, our adj. EBITDA falls by 2 per cent to $338-million (was $345-million, consensus $334-million ), with AFFO at $232-million (was $235-million). There could be some moving parts in Q1, with the NYAW acquisition in January, timing of rate increases and possible sell-downs of assets to recycle capital.”
Mr. Merer is now projecting earnings per share for the quarter of 21 US cents, down a penny but in line with the Street’s view. His full-year estimate fell 2 US cents to 73 US cents, in line with company guidance of 72-77 US cents and 2 US cents above the consensus..
“In 2022, AQN should benefit from a $36-million revenue increase at its Empire utility and about $25-million for BELCO, both of which were approved in March,” he said. “AQN should close the acquisition of Kentucky Power in mid-2022, with the goal to ‘green the fleet’ over time. However, the asset could under-earn initially and growth investments are not certain. The U.S. anti-dumping investigation looking at solar panel imports could slow some development projects, specifically the New Markets and Chevron solar projects that had plans to install in 2022E. With Q1 results, we will look for updates on AQN’s investment plan, which calls for $12.4-billion in capex over the next five years. AQN could see incremental upside from projects in its 3,835 MW prospective wind and solar pipeline.
Mr. Merer maintained a target price of US$16 per share. The average is US$17.43.
Following a “disappointing” fourth quarter, Stifel analyst Martin Landry downgraded Wildpack Beverage Inc. (CANS-X) to “hold” from “buy” and “materially” reduced his financial expectations, seeing “limited” visibility on a path to returning to positive EBITDA.
On Tuesday, the Vancouver-based beverage manufacturing and packaging company reported revenue of $6.6-million, down 6 per cent from the previous quarter and below the expectations of both Mr. Landry ($11.3-million) and the Street ($10.8-million). An EBITDA loss of $7-million also missed the analyst’s forecast (a profit of $1-million).
Mr. Landry sees its cash balance “suddenly” becoming a concern.
“Wildpack incurred a cash burn of $8.5-million during Q4/21, bringing the company’s cash balance to $1.5-million,” he said. “In addition, the cash consideration received from the November 2021 debentures of $14,795 was lower than the $20-million modeled, which partly explains the lower cash balance vs our expectations. In our view, Wildpack will need additional capital to keep operating. Wildpack has some options such as collecting its accounts receivable faster, asking customers for deposits, and potentially looking for equipment financing. We note that $5 million of debentures were raised at the end of March, which provided much needed capital to the company.”
“Wildpack has significant financial leverage, which raises its risk profile. The company has $40-million of debentures expiring in 2024. The debentures have a conversion price of $1.51 which could still be achieved, however, the recent share price action makes this threshold more difficult to reach. There is a potential that the company may be able to raise bank debt as a source of capital. This would be a positive outcome, but our visibility is limited as to timing and size of a potential credit facility, especially given the recent operating losses.”
Also warning of “limited visibility on profitability metrics,” he cut his EPS estimates for 2022 and 2023 to losses of 6 cents and 2 cents, respectively, from profits of 2 cents and 4 cents.
“With the surprising Q4/21 results, our visibility on Wildpack’s profitability has blurred,” he said. “We now model negative EBITDA for Q1/22 and Q2/22, a different outcome than previously, when we expected ~$5 million of EBITDA. This turn of event, at a time when the company’s cash balance is low, reduces the company’s margin of error. Wildpack’s small cash balance will make it challenging to grow at the same pace as previously expected. Hence, we have significantly reduced our revenue forecasts, which now stands below the company’s guidance of $75-85 million.”
The analyst reduced his target for Wildpack shares to 30 cents from $1.75. The average is $2.06.
“We would review our HOLD rating upon access to non-dilutive financing such as bank debt, combined with improved visibility on the company’s earnings power,” he said.
National Bank Financial analyst Dan Payne initiated coverage of Kiwetinohk Energy Corp. (KEC-T) with an “outperform” rating, calling CEO Pat Carlson an “industry luminary” who “continues to evolve the Canadian energy landscape.”
“Following on management’s leadership in the evolution of the Canadian energy sector, Kiwetinohk Energy Corp. is positioned as one of the most uniquely oriented toward the theme of energy transition, where it intends to vertically integrate high-impact upstream assets through a portfolio of green power generation projects, with a view of becoming a low-cost supplier of low-emissions energy; leveraging climate change as an opportunity and not a risk,” he said.
Mr. Payne thinks the Calgary-based company possess “renewables upside backstopped by upstream assets.”
“Its strategy of vertically integrating its value chain will lever off of material business units, including its a) upstream assets comprised of 12 mboe/d (45-per-cent liquids) of production with a primary emphasis in the Fox Creek region of NW Alberta, which have visibility to growth towards 20 – 21 mboe/d (Q1/23), or 60-per-cent year-over-year growth, to support a meaningful cash flow base of $250-300-million serving to support concurrent reinvestment through its, b) green energy power generation portfolio, where management envisions generating 1,500 MW of power, or 10 per cent of the Alberta market, from its reliable natural gas & renewables portfolio, with an associated goal to mitigate emissions with 90-per-cent carbon capture,” he said.
The analyst set a target of $18 per share, which is $1 below the current consensus.
“In addition to resident operating leverage of its upstream assets (10-15-per-cent upside), the company offers a significant energy transition call option of $20-25 per share (200-per-cent upside; $8 per share which is arguably prospective on an un-risked DCF today), positioning itself as a wholly unique investment opportunity,” he said.
In other analyst actions:
* Believing it’s “well-positioned to unlock portfolio potential,” BMO Nesbitt Burns analyst Raj Ray initiated coverage of Dundee Precious Metals Inc. (DPM-T) with an “outperform” rating and $11 target. THe average is $12.36.
“DPM is an intermediate gold producer that also offers meaningful exposure to copper and a strategic smelter for complex concentrates,” he said. “We believe DPM offers an underappreciated investment opportunity given its discounted valuation. The company has a consistent operational track record and solid balance sheet along with a peer-leading near-term FCF profile. There is visibility on brownfield and greenfield growth opportunities, but additional work will be required to unlock value in the growth pipeline.”
* Citing reduced profitability, Canaccord Genuity’s Matthew Lee cut his Air Canada (AC-T) target by $1 to $25, below the $29.87 average, with a “hold” rating.
“Following the company’s Q1 results, we have increased our F22 revenue forecasts to reflect continued growth in cargo and yield strength associated with the company’s passing through of fuel costs and revenue management efforts,” said Mr. Lee. “However, we have lowered our EBITDA given pressure from rising fuel costs and, more recently, elevated crack spreads. Our longer-term expectations are increased modestly, which reflect yield strength buttressed by a partial return in business travel.”
* Seeing it “ahead of plan,” RBC’s Luke Davis raised his target for Athabasca Oil Corp. (ATH-T) shares to $3.25 from $2.50 with a “sector perform” rating, removing his “speculative risk” qualifier. The average on the Street is $3.19.
“Athabasca’s positioning continues to improve, with steady operational performance setting the stage for a strategic shift in the 2023 time frame. The company is ahead of plan on term debt repayment, with open market purchases and warrant proceeds accelerating the pace,” he said.
* BCMI Research’s Chris Damas raised his target for Birchcliff Energy Ltd. (BIR-T) to $15, exceeding the Street’s average of $11, from $12.
“Many NA E&P companies are reporting strong Q1 results, but still have lots of debt, have high OpEx and their pre-war below market hedges cut into cash flow,” he said. “The most recent example being Murphy Oil (MRO).
“Birchcliff Energy has none of these problems and the dramatic increase in energy prices flows completely to the bottom line. ... BIR is completely unhedged on natural gas and liquids. It has swapped out AECO pricing to the Dawn hub in Lake Erie and the NYMEX/Henry Hub. BIR has firm transportation access to markets for its 2022 guided 78-80,000 boed production.”
* National Bank Financial’s Patrick Kenny raised his Capital Power Corp. (CPX-T) target to $48, above the $46.54 average, from $47 with an “outperform” rating.
* Canaccord Genuity’s Doug Taylor lowered his target for Cloudmd Software & Services Inc. (DOC-X) to $1.50 from $3, keeping a “speculative buy” rating. The average is $2.59.
“CloudMD released Q4 results that featured a small revenue beat and positive adjusted EBITDA in the final quarter prior to the January close of the MindBeacon acquisition. We expect the company will pivot back to EBITDA losses in the quarters ahead as the MindBeacon burn rate is assumed before returning to profitability in late 2022. We see this pivot as key to broadening CloudMD’s appeal given the increased emphasis on profitability in the current market. This leads us to reduce our valuation multiple and target price until we have better visibility on this milestone,” said Mr. Taylor.
* CIBC’s Dean Wilkinson raised his European Residential REIT (ERE.UN-T) target to $6, exceeding the $5.68 average, from $5.75 with an “outperformer” rating, while National Bank Financial’s Matt Kornack raised his target to $5.80 from $5.50 with an “outperform” rating..
* RBC’s Robert Kwan raised his Gibson Energy Inc. (GEI-T) target to $28 from $27, reiterating an “outperform” recommendation. The average is $25.88.
“Gibson Energy’s shares continue to offer an attractive dividend yield (almost 6 per cent) that is conservatively underpinned by cash flow (68-per-cent trailing DCF payout ratio) with confirmed growth that we expect to drive roughly 5-per-cent EBITDA growth into 2023,” he said. “Further, we see numerous avenues for projects to extend growth past 2023 as well as increase the overall growth rate. Finally, we continue to view Gibson Energy’sshares as having a high ‘floor’ (i.e., less downside) given the conservative financial structure and the strategic nature of its asset base that could be attractive to potential strategic and financial acquirors.”
* CIBC’s Scott Fletcher cut his target for shares of Lifeworks Inc. (LWRK-T) to $23 from $24 with a “neutral” rating. Other changes include: National Bank’s Jaeme Gloyn to $24 from $26 with a “sector perform” rating, TD Securities’ Graham Ryding to $26 from $27 with a “buy” rating and BMO’s Étienne Ricard to $28 from $29 with an “outperform” rating. The average is $26.
“Overall, management painted a picture that Q1-22 will reflect a bottoming of results given improving counselor staff mix, pricing pilot unfolding favorably and the likelihood of COVID lockdowns (and associated negative revenue impacts) diminishing,” said Mr. Gloyn.
* Calling its first-quarter results “solid,” RBC’s Greg Pardy raised his MEG Energy Corp. (MEG-T) target to $22 from $21 with an “outperform” rating. The average is $24.85.
“Our bullish stance towards MEG reflects its capable leadership team, top-quartile oil sands operations at Christina Lake, balance sheet deleveraging and emerging shareholder returns,” he said.
* CIBC’s Jacob Bout increased his target for Nutrien Ltd. (NTR-N, NTR-T) to US$127 from US$120 with an “outperformer” rating. Other changes include: TD Securities’ Michael Tupholme to US$130 from US$125 with a “buy” rating, Raymond James’ Steve Hansen to US$125 from US$105 with an “outperform” rating, Mizuho’s Christopher Parkinson to US$128 from US$124 with a “neutral” rating and JP Morgan’s Jeffrey Zekauskas to US$120 from US$95 with an “overweight” recommendation. The current average is US$113.99.
“NTR’s solid performance, low-cost asset base, and volume optionality are all cause for enthusiasm in what’s becoming a very solid multi-year outlook,” said Mr. Parkinson. “We remain cautious re: elevated ‘22/’23 investor expectations, but acknowledge NTR’s sound execution and “clean” quarters garner attention.
“NTR remains the sole global potash producer with enough meaningful excess op capacity to put a dent into the void being left by Belarus / Russia, meaning there is an increasing focus on asset scarcity value. The FCF thesis is building, which is drawing bull camp enthusiasm.”
* Desjardins Securities’ Gary Ho cut his target for PowerBand Solutions Inc. (PBX-X) to 85 cents from $1.60 with a “buy” rating. He’s currently the only analyst covering the Burlington, Ont.-based auto e-commerce solutions provider.
“4Q revenue was slightly below January preliminary numbers while gross margin and EBITDA beat our expectations,” he said. “However, the operating environment continues to suffer from low inventory, elevated prices and increased financing competition. While financing is a risk, we believe it is manageable. Visibility on a near-term industry turnaround is limited, but we see medium- to longer-term value for patient investors.”
* Ahead of the May 12 release of its first-quarter results, which he expects will display year-over-year improvements, National Bank Financial’s Endri Leno bumped up his Rogers Sugar Inc. (RSI-T) target to $5.75 from $5.23 with a “sector perform” rating. The average is $6.05.
“Given 1) the benefit to sugar demand from potentially lower HCFS use; and 2) the defensive nature of sugar (and RSI), we are increasing our target EV/EBITDA multiple,” he said.
* CIBC’s Bryce Adams cut his Sierra Metals Inc. (SMT-T) target to $1.75 from $1.90 with a “neutral” rating. The average is $2.69.
“TFII stock valuation appears more attractive following a 26-per-cent decline year-to-date. The company also enjoys several self-help levers that should mitigate downside earnings risk from potentially slowing freight cycle, and it may re-engage more aggressively in M&A at these lower valuation levels. Historically M&A has been the largest creator of value for TFII shareholders. Our rating reflects our view that cyclical uncertainties are likely to persist in the near-term and potentially cause further volatility, but for longterm oriented investors these lower valuation levels should prove rewarding,” said Mr. Chamoun.
* Canaccord Genuity’s Aravinda Galappatthige lowered his Thomson Reuters Corp. (TRI-N, TRI-T) to US$115 from US$117 with a “buy” rating, while JP Morgan’s Andrew Steinerman cut his target to US$113 from US$117 with a “neutral” rating. The average is US$118.80.
“While we have trimmed our target multiple slightly from 19 times to 18.5 times 2023 estimated EV/EBITDA to reflect market valuation softness ... we suspect there is upside to valuations over time both in terms of earnings revisions and potentially multiple as well, as the market recognizes longer-term (post 2023) growth prospects,” said Mr. Galappatthige.
* Scotia Capital’s Phil Hardie increased his TMX Group Ltd. (X-T) target to $152 from $148 with a “sector perform” rating. Others making adjustments include: TD Securities’ Graham Ryding to $160 from $155 with a “buy” rating, Deutsche Bank’s Brian Bedell to $148 from $152 with a “buy” rating and BMO’s Étienne Ricard to $151 from $150 with an “outperform” rating. The average is $150.71.
“TMX posted solid Q1/22 results, with core EPS down just 3 per cent over an unusually strong Q1/21 benefiting from better-than-anticipated cost control,” he said. “That said, first-quarter results also showed clear signs of normalization of capital markets activities following a record 2021 that will likely put TMX’s growth thesis on hold over the near term.
“TMX stock has held in relatively well through a volatile start to 2022 and has outperformed the TSX/S&P Financial Index year-to-date. We attribute this resilience to investor confidence in its ability to prosper across a range of market conditions following the transformation of its business over the past few years. The next leg of TMX’s valuation re-rate will likely relate to: (1) increased confidence in its ability to generate average double-digit growth over the mid-term and (2) material acquisitions that accelerate its strategy and further shift its exposure to less-cyclical segments for supporting recurring revenue.”
* RBC’s Luke Davis raised his target for Topaz Energy Corp. (TPZ-T) to $28 from $27.50 with an “outperform” rating. Others making changes include: TD Securities’ Aaron Bilkoski to $27 from $26 with a “buy” rating, BMO’s Ray Kwan to $30 from $27 with an “outperform” rating and Stifel’s Robert Fitzmartyn to $31.50 from $27.25 with a “buy” rating. The average is $27.33.
“Topaz posted solid Q1/22 results underscored by meaningful free cash generation alongside increased guidance following the Keystone Royalty acquisition. Management remains constructive on potential acquisitions, which could provide incremental upside to our updated estimates,” said Mr. Davis.
* Scotia Capital’s Michael Doumet raised his Wajax Corp. (WJX-T) target to $29 from $28 with a “sector outperform” rating, while BMO’s Devin Dodge increased his target to $25 from $23 with a “market perform” rating. The average is $27.50.
“Following the big EPS beat in 1Q22 (32 per cent vs. Street), we conservatively raised our 2022E EPS by 5 per cent,” Mr. Doumet said. “WJX’s end-markets are working: approximately 50 per cent of its revenues come from mining, forestry, oil sands, and oil & gas end-markets. Western Canadian sales were up strong (20-per-cent organic) and are likely poised for a record 2022. Its Industrial Parts and ERS business are growing at double-digit rates, growth we view as sustainable in the M-T given the strong backdrop and its ability to compound with M&A (Industrial Parts + ERS revenues have CAGR’ed at 13 per cent in the last 5 years).”