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

Following Tuesday’s release of fourth-quarter results that largely fell in line with his expectations, RBC Dominion Securities analyst Darko Mihelic sees the potential for upside to earnings for Bank of Nova Scotia (BNS-T) and called its valuation “relatively attractive.”

However, he maintained a “sector perform” recommendation for its shares, seeing “three impediments to a strong investment thesis.”

“1. The International Banking segment has too much economic uncertainty in the region combined with an unknown strategic plan. 2. It is difficult to see net interest income growing at the same rate as peers given its NIM sensitivity. 3. We view its credit reserves as relatively weaker than peers ahead of a recession,” Mr. Mihelic said.

Scotia reported adjusted earnings per share of $2.06 for the quarter, narrowly higher than the $2 forecast from both Mr. Mihelic and the Street.

“International Banking had stronger than expected earnings as did Canada P&C and Global Banking and Markets,” he said. “Our estimates change to reflect Q4/22 actual results, and we hold NIMs [net interest margins] constant in Q1/23 and expand thereafter for Canada and International Banking. We also reduce our net interest income expectation in Corporate for the remainder of our forecast period.”

With that view, he cut his core EPS estimate for 2023 to $8.48 from $8.69 and 2024 to $9.05 from $9.12.

However, he raised his target for Scotia shares to $86 from $83 based on an updated valuation. The average is $78.82.

Other analysts making target adjustments include:

* Canaccord Genuity’s Scott Chan to $81.50 from $83.50 with a “buy” rating.

“Our F2023E EPS forecast is down modestly (i.e. higher PCLs and NIX generally offset by other income),” he said. “On the former, we note that our F2023E total PCL ratio forecast of 35 basis points is in line with management’s guidance (unchanged from prior). BNS consolidated NIM was down 4 basis points quarter-over-quarter. The bank has the lowest NII sensitivity to a rising rate environment constraining margin expansion near-term relative to peers. Based on current balance sheet positioning, BNS would benefit most from a falling interest rate environment which likely won’t occur till the latter part of 2023.”

* National Bank’s Gabriel Dechaine to $82 from $85 with a “sector perform” rating.

“We have decreased our estimates slightly to reflect weaker NIM and a higher expense base, partially offset by more optimistic Capital Markets forecasts,” said Mr. Dechaine.

* Barclays’ John Aiken to $85 from $86 with an “equal-weight” rating.

“While Scotia reported a solid quarter, credit deteriorated once again. Although we believe that this will be manageable, the ongoing normalization in credit is anticipated to moderate growth for Scotia (and likely the group) in 2023,” he said.

* KBW’s Mike Rizvanovic to $74 from $75 with a “market perform” rating.

* CIBC’s Paul Holden to $76 from $77 with a “neutral” rating.

* BMO’s Sohrab Movahedi to $85 from $86 with a “market perform” rating.


Seeing “rising recessionary uncertainties and the potential for lower methanol prices in 2023,” RBC Dominion Securities analyst Nelson Ng downgrade Methanex Corp. (MEOH-Q, MX-T) to “sector perform” from “outperform” on Wednesday.

“We are cautious heading into 2023 as market participants generally expect a U.S. economic recession in the coming year,” he said. “Methanex’s financial results are very sensitive to methanol prices, which could be depressed under a recession. However, we note that the company’s balance sheet has strengthened over the past two years, and can weather a downturn (net debt, including leases, to trailing EBITDA is 1.8 times).”

Mr. Ng said his recommendation change was partially prompted by Chemical Market Analytics decision to “significantly” lower its methanol price forecast through 2023.

“CMA indicated the changes were mainly driven by a weaker Asian market outlook and its impact on global benchmark pricing, a recession-driven decline in demand and natural gas prices, and an increase in supply from the start-up of Methanex’s Geismar 3 plant closer to year-end,” he said. “We also note that strict COVID-19 restrictions and the sharp increase in infections on a national level in China could negatively impact near-term methanol demand.”

“Methanex reaffirmed its Asia Pacific and China non-discounted reference prices for December at $410 per metric ton and $395/MT, respectively, but posted slightly lower U.S. reference prices ($575/MT vs. November pricing of $585/MT). We note that U.S. spot pricing declined 10 per cent over the past month.”

While nudging his 2022 adjusted EBITDA projection higher to US$949-million from US$942-million previously, Mr. Ng dropped his 2023 expectation to US$525-million from US$763-million, citing Methanex’s latest non-discounted reference prices and CMA’s updated forecast.

That led him to cut his target for Methanex shares to US$45 from US$50. The average is US$44.91.

“Although elevated natural gas prices could support methanol prices, we believe an economic slowdown will lead to lower overall methanol prices,” he concluded.


While RBC Dominion Securities analyst Greg Pardy said Suncor Energy Inc.’s (SU-T) Investor Day event in Toronto on Tuesday “provided a sober look at the upstream operating challenges it faces,” he concluded it “still left us encouraged at the margin, in large part given new leadership.”

“Suncor Energy delivered a series of solid presentations at its Toronto investor open house which dug into its upstream portfolio and game plan to improve its operating performance and safety,” he said. “The in-person session also showcased the competency and steady hands interim CEO Kris Smith has brought forth. We could see Kris becoming Suncor’s permanent CEO (potentially in the first quarter), and would support that appointment.”

Mr. Pardy said its decision to retain its Petro-Canada retail division “did not come as a surprise” and reflects, in part, “underwhelming market value proposition.:

“The company feels strongly that its retail segment affords it with a competitive product placement advantage, should gasoline demand wane in the years ahead,” he said. “Suncor’s plan to optimize its network and grow its retail EBITDA at a 7-per-cent CAGR [compound annual growth rate] over the next five years (to about $1 billion in 2027) via circa $100 million of incremental annual capital was greeted favorably by the investors we spoke with. This initiative will involve a series of components, including high-grading key controlled locations, rationalizing underperforming small c-stores, selectively growing new sites, investing in next-generation digital capabilities to drive sales, and exploring strategic partnerships.

“Intensified safety measures were the biggest topic at Suncor’s session, and are being approached from several angles. The company has reduced its mining & upgrading contractor workforce by approximately 15 per cent, and should accomplish its targeted 20-per-cent reduction by the second quarter of 2023. In addition, Suncor will have installed fatigue management systems at all of its mine sites by next July, and collision awareness by the end of 2023. In terms of employee incentive alignment, safety performance has moved from around 12-15 per cent of the scorecard to circa 22.5 per cent.”

Mr. Pardy said what stood out during the session was the “hard work ahead for Suncor in moving to a phase where its competitive edge broadens from physical integration to upstream operational excellence.”

“For the time being, the company appears focused on safety above all else and meeting its production, capital spending and operating cost guidance. This is logical, and perhaps it’s a bit early to expect successful operational reach. In any event, the good news from where we sit is that Kris Smith appreciates the importance of underpromising and overdelivering guidance-wise more so than his predecessors,” he said.

Maintaining an “outperform” recommendation for Suncor shares, Mr. Pardy trimmed his target to $54 from $55. The average is $54.42.

“At current levels, Suncor is trading at a debt-adjusted cash flow multiple of 3.0 times in 2023 (vs. our global major peer group avg. of 4.1 times) and at a free cash flow yield of 24 per cent (vs. our peer group avg. of 16 per cent),” he said. “We believe the company should trade at an average/below average multiple vis-à-vis our peer group given its physical integration, attractive downstream assets, free cash flow generation, strong balance sheet and rising shareholder returns, partly counterbalanced by challenging upstream operating performance in recent years.”

Elsewhere, others making target changes include:

* Scotia Capital’s Jason Bouvier to $53 from $56 with a “sector outperform” rating.

“SU’s 2023 production guidance is lower than the Street’s estimates while capex was in line,” he said. “Opex is expected to increase meaningfully year-over-year and added mining costs and inflation have impacted SU’s FCF growth plans. Further, SU’s 2023 cash tax guidance was higher than our estimate. Despite these headwinds, SU expects to hit its $12-billion net debt target by the end of Q1/23 and allocate 75 per cent of free cash flow towards SBBs. On the reduced FCF outlook, we have lowered our price target.”

* BMO’s Randy Ollenberger to $55 from $58 with an “outperform” rating.

“Suncor held its investor day where it provided an overview of its plans to improve reliability and safety at its oil sands operations as well as resolve production constraints at Fort Hills. Suncor outlined its rationale for not selling its retail business and plans to improve margins. While we believe the company has provided a credible plan to address recent challenges, it is increasingly clear that it will take time to demonstrate it, which could continue to weigh on share price performance,” he said.


National Bank Financial analyst Vishal Shreedhar expects Dollarama Inc.’s (DOL-T) defensive properties to “shine through” when it reports third-quarter 2023 financial results on Dec. 7 before the bell, seeing consumers increasingly “seeking value” as the discount retailer continues to nudge its prices higher.

“Our review of peer management commentary suggests a continued emphasis on value, pressure in discretionary & general merchandise and incrementally cautious seasonal demand expectations,” he said. “We believe that DOL’s assortment increasingly benefits from consumers seeking value amid heightened inflation. Moreover, we understand that Canadian retailers have largely been passing on inflation at this point, which is favourable for DOL.

“Our analysis of a set basket of goods suggests moderate price inflation over the quarter, predominantly in the kitchen and disposable cutlery categories. Recall that DOL has historically managed margins through refreshment of its assortment (approximately 30 per cent each year) and introduction of new price points.”

For the quarter, Mr. Shreedhar is projecting earnings per share of 68 cents, which is 2 cents below the consensus estimate on the Street but 7 cents higher than the same period a year ago. He said that 12-per-cent growth is “predicated on high single-digit revenue growth (mid-single-digit same store sales growth, new stores), SG&A leverage, and share repurchases over the last 12 months, partly offset by gross margin contraction.”

He forecasts same store sales growth of 5.5 per cent, versus 0.8 per cent a year ago. Gains come off transaction increases of 11.0 per cent year-over-year while basket growth is expected to fall 5 per cent.

While he trimmed his earnings per share projections for fiscal 2023 and 2024 to $2.65 and $3.11, respectively, from $2.68 and $3.14, Mr. Shreedhar raised his target for Dollarama shares to $88 from $86. The average is $86.96.

“We continue to hold a positive view on DOL’s shares given its defensive growth orientation supported by strong cash flows, a solid balance sheet and resilient sales performance,” he said. “Over the medium term, we believe that Dollarama will be well positioned to grow earnings given anticipated network expansion, favourable sssg and ongoing development of the international business.

“DOL’s shares have performed well, up 28.6 per cent year-to-date vs. the TSX discretionary index down 5.0 per cent. Given premium valuation and strong share price performance, a key investor question is can Dollarama continue to outperform. We think it can, provided fundamental performance remains strong. That said, we acknowledge that DOL’s performance will also be governed, to some degree, by market demand for stocks with defensive properties.”


Raymond James analyst Stephen Boland said a “highly constructive” Investor Day event reaffirmed his confidence in Element Fleet Management Corp.’s (EFN-T) business, prompting him to raise his recommendation for its shares to “strong buy” from “outperform.”

“While the discussion was broad and diverse, the overall takeaway was clear: EFN has left its past issues in the rear-view mirror and finally looks poised to deliver on its long-term growth objectives,” he said. “Through a series of internal initiatives, strategic revamps and a more disciplined capital allocation strategy, EFN has transformed itself into one of the most robust and resilient businesses in our coverage. With a more asset-light approach — supported by higher services revenue and greater syndication volumes — the company is delivering increasingly higher returns on capital. The rationale behind the original 2016 Element Financial split is finally coming to fruition. Moreover, management is now confident that EFN can now deliver long-term double-digit growth in free cash flow per share.”

Mr. Bolland said “attractive” industry dynamics help support Element Fleet’s “low risk, resilient business model” and thinks its scale helps differentiate it from peers.

“EFN’s long-term client relationships result in material switching costs for customers. Management noted that recent data suggests client retention is close to 99 per cent,” he said. “In addition, EFN’s diverse customer base — along with the mission-critical nature of fleet assets — has driven exceptionally low credit losses over time. Given the current excess backlog and the potential for better origination volumes in 2023 and 2024, management believes the business can perform strongly even in a recessionary environment.”

“As the market leader in each of its geographies, EFN’s scale holds significant sway. Firstly, the depth of EFN’s relationships gives it significant pricing power with suppliers, generating incremental cost-savings for customers. Secondly, with 1.5 million vehicles under management, EFN has access to a vast array of data sources. EFN has been able to leverage this information to help optimize customer maintenance spend, extend the useful life of vehicles and maximize value upon resale.”

Touting its “significant organic growth runway,” he raised his target to $24 from $21. The average is $21.75.

Others making changes include:

* BMO’s Tom MacKinnon to $23 from $21 with an “outperform” rating.

“EFN’s Investor Day gives us increased confidence in EFN’s ability to deliver on its recently-increased 6-8-per-cent organic revenue growth target (recently upped from 4-6 per cent),” said Mr. MacKinnon. “We see EFN, with 8-per-cent 2023 estimated FCF per share yield, as a fundamental long, and its low-risk organic revenue growth model, with annuity-like predictability, accelerating FCF, for which the majority is returned to shareholders, as translating into consistent 10-per-cent-plus organic EPS & FCF per share growth.”

* TD Securities’ Graham Ryding to $22 from $21 with a “buy” rating.


Seeing “a clear path to a near-term free cash flow inflection point and year-over-year operational improvements,” Desjardins Securities analyst Jonathan Egilo initiated coverage of Copper Mountain Mining Corp. (CMMC-T) with a “buy” recommendation, believing “current trading levels represent a compelling entry point for investors.”

The Vancouver-based junior producer is transitioning into a single asset company, focusing on its flagship Copper Mountain mine in British Columbia, after selling its Australian development properties for US$230-million.

“The stock’s underperformance, driven by operational challenges, as well as a strong forecast for 2023, have created a compelling entry point in our view,” said Mr. Egilo. “We believe the current 21.6-per-cent 2023 FCF yield (or 23.9 per cent when using spot metals prices) represents a lack of market confidence in execution. We believe that 4Q results meeting expectations, the 2023 guidance update being largely aligned with the most recent technical report and FCF turning positive again in 1Q23 could drive a significant re-rating ... The stock is trading at a significant discount to its one-, three- and five-year averages relative to the baskets of small-, mid- and large-cap copper producer peers.

“While 2022 has seen cash flows fall off, in 2021 the company generated $130-million in FCF; during this period of strong FCF, which we view as a potential proxy for 2023, CMMC at one point traded at a 33-per-cent P/NAV premium to the small-cap producers, at only a 2-per-cent discount to the mid-caps and at a 5-per-cent discount to the large caps. This represents a stark difference to the current discounts to the peer groups of 40 per cent, 48 per cent and 61 per cent, respectively. In our view, therein lies the upside potential if Copper Mountain is able to execute and deliver positive FCF in 2023.”

Believing a near-term FCF inflection is “forthcoming” following its recent operational struggles, he set a target of $2.50 per share. The current average is $2.71.


Scotia Capital analyst Justin Strong thinks negative guidance revisions cast “uncertainty” over the near-term expectations for Anaergia Inc. (ANRG-T).

Accordingly, he lowered his recommendation for the Burlington, Ont.-based company that converts organic waste into water and fertilizer to “sector perform” from “sector outperform.”

“We expect 2023 to be a rebuilding year with respect to investor confidence in the company’s timelines for growth,” he said. “While we still believe ANRG has many positive attributes, we note the importance of near-term growth visibility. As such, in our view, the current investment thesis is more dependent on project execution than the industry fundamentals, which still appear strong.

“While we continue to believe the upside potential in ANRG shares remains significant, we feel compelled to downgrade ANRG to Sector Perform in the interim. We are reducing our target multiple by 1 times to 11.7 times 2024E EV/Adj. EBITDA from 12.8 times to reflect greater uncertainty around near-term performance.”

Mr. Strong dropped his target for Anaergia shares to $7.25 from $14.50. The average is $10.96.


Following “mixed” third-quarter financial results, Desjardins Securities analyst Gary Ho warns investors patience is required with PowerBand Solutions Inc. (PBX-X).

Seeing the Burlington, Ont.-based auto e-commerce solutions provider “hitting the reset button,” he lowered his recommendation to “hold” from “buy,” citing “limited visibility on a turnaround in originations.”

“While we believe PBX has sufficient cash on hand, it requires sustained higher originations to recover from the current cash burn situation,” said Mr. Ho.

Powerband reported revenue of $2.1-million and gross profit of $1.2-million for the quarter, both below the analyst’s expectations ($3.3-million and $1.6-million, respectively). However, an adjusted EBITDA loss of $2.3-million met his expectations, due largely to cost containment.

“Lease originations of 110 were well below our 295 (369 in 2Q),” said Mr. Ho. “PBX deliberately scaled down dealer onboarding to reposition itself for more sustained and profitable growth. Originations remain soft given low inventory levels, high vehicle prices and supply chain constraints. We cut our originations expectation for 2023.

“Lending guidelines have become more rigorous, negatively impacting market penetration. That said, PBX is making headway to expand lending relationships.”

Dropping his revenue and profit expectations for 2022 and 2023, Mr. Ho, currently the lone analyst covering PowerBand to 15 cents from 40 cents.

“Our cautious views are predicated on: (1) limited visibility on a meaningful turnaround in lease originations (although we recognize the massive market opportunity); (2) the continued going concern note, with the company consuming approximately $2.5-million per quarter of cash (at current run rate); and (3) new lending relationships are needed to capture market share,” he said.


In other analyst actions:

* Piper Sandler’s Charles Neivert lowered Nutrien Ltd. (NTR-N, NTR-T) to “neutral” from “overweight” and cut his target to US$93 from US$115. The average on the Street is US$101.95.

* Seeing its “outlook undermined by increased costs at Coastal GasLink,” CIBC World Markets’ Robert Catellier downgraded TC Energy Corp. (TRP-T) to “neutral” from “outperform” with a $65 target, down from $68. Others making changes include: RBC’s Robert Kwan to $73 from $75 with an “outperform” rating; BMO’s Ben Pham to $68 from $70 with an “outperform” rating; Barclays’ Teresa Chen to $62 from $65 with an “equal-weight” rating and TD Securities’ Linda Ezergailis to $74 from $76 with a “buy” rating. The average is $65.70.

“Another (unquantified) cost increase on the Coastal GasLink (CGL) project creates uncertainty and increases the importance of the asset sale program for deleveraging. We prefer less uncertainty for committing more capital and thus are downgrading our rating,” said Mr. Catellier.

* In response to Tuesday’s release of new drill results from ongoing exploration at its Island Gold Mine in northern Ontario, National Bank’s Michael Parkin raised his Alamos Gold Inc. (AGI-T) target to $15, above the $14.01 average, from $13 with an “outperform” rating.

“In our opinion, the results demonstrate the potential to extend mineralization and add low-cost ounces to the LOM [life of mine] that are in proximity to existing mine infrastructure, which supports meaningful upside in the value of this flagship asset. Following today’s positive results, we updated our model to tweak up the ounce upside at Island, which sees our NAV increase by 3 per cent,” he said. “Our target price has increased to $15 (prev. $13) on an increased 11.0 times (prev. 9.5 times) EV/ EBITDA target which implies a 1.1 times NAV multiple, well justified in our opinion on the continued strong results (both operationally and on an exploration basis) coming out of the flagship Island Gold Mine. We continue to see Alamos as our Top Pick in the Intermediates.”

* Credit Suisse’s Andrew Kuske lowered his target for Algonquin Power & Utilities Corp. (AQN-N, AQN-T) to US$10.75, below the US$$11.54 average, from US$12, maintaining an “outperform” rating.

“From the time that Algonquin Power & Utilities (AQN) reported Q3 2022 to now: an earnings miss along with a guidance reduction cascaded into a series of negative narratives (and potential realities),” he said. “Collectively, those issues and a lack of confidence contributed to share price performance of negative 35 per cent from November 10th to now (the day before the November 11th print) ... The restoration of confidence will take time, however, we address various points of a potential action plan to surface value for the stock. In this context, we reiterate our Outperform rating.”

“We do not forecast a dividend cut in the future for AQN. Yet, we believe a series of decisive actions must be taken to address the confidence issues along with some underlying financial challenges related to the debt levels at the company and relatively weaker credit metrics than others. To us, the simplest course of actions include: (a) a “rinse and repeat” approach to monetizing some renewable assets – very similar to the recent capital recycling transaction (Ramping up the Recycling); (b) elimination of the DRIP; (c) becoming self-funding (ex-normal course debt needs); and, (d) the potential for selected partial utility interest divestitures (more distant in time).”

* Canaccord Genuity’s Doug Taylor bumped his Kraken Robotics Inc. (PNG-X) target to 80 cents from 70 cents with a “buy” rating. The average is 85 cents.

“Kraken reported September Q3 results which were within range of Street expectations,” he said. “Cash flow generation was strong in the quarter and will improve with upcoming deposits and milestone payments, putting the company on improved footing to deliver against an impressive list of sizable opportunities. Management reiterated guidance for 2022, but recent contract wins, including [Tuesday’s] $14-million battery order, lead us to increase our forecast for 2023. ... We believe that there are further near-term catalysts for the stock in the form of additional battery orders and military opportunities which could arise in the coming weeks and months, potentially signaling further upside to our new expectations.”

* JonesTrading initiated coverage of Theratechnologies Inc. (THTX-Q, TH-T) with a “buy” rating and US$6 target. The average is US$6.07.

* After updating his financial projections for Tricon Residential Inc. (TCN-N, TCN-T), Citi’s Nicholas Joseph cut his target to US$10.50 from US$12.50 with a “buy” rating. The average is US$11.94.

“We see three potential catalysts for TCN: (1) solid internal growth driven by a sector leading loss-to-lease (approximately 20 per cent) and reliance on renewals which are more resilient vs. new lease rate growth, (2) external growth primarily through JVs, and (3) simplification through monetizing / exiting ancillary businesses,” he said. “In addition, we have a favorable view of TCN’s technology platform, which should help both internal and external growth. Risks include higher leverage vs. peers in a higher interest rate environment, higher fee income / complexity associated with the fund business model which results in a lower multiple vs. peers, regulatory risks, macroeconomic uncertainty, a slowing transaction and housing market, and the fact that Tricon is not a REIT / RMZ index eligible.”

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 08/04/24 11:59pm EDT.

SymbolName% changeLast
Alamos Gold Inc Cls A
Algonquin Power and Utilities Corp
Anaergia Inc
Bank of Nova Scotia
Dollarama Inc
Element Fleet Management Corp
Kraken Robotics Inc
Methanex Corp
Nutrien Ltd
Powerband Solutions Inc
Suncor Energy Inc
TC Energy Corp
Tricon Capital Group Inc

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