Inside the Market’s roundup of some of today’s key analyst actions
Raymond James analyst Frederic Bastien said he remains “attracted” to Brookfield Infrastructure Partners L.P. (BIP-N, BIP-UN-T) following a meeting with chief financial officer Bahir Manios at the firm’s North American Equities Conference in London last week.
“The event not only proved useful in raising the LP’s profile with UK institutional investors, but also allowed us to take stock of the latest phase of BIP’s asset rotation strategy and the huge benefits that come with its scale,” said Mr. Bastien. “What was clear to us from the 1-on-1 meetings is that management still has room to high-grade its investment portfolio in the foreseeable future. We notably see BIP selling more de-risked assets to investors with lower return hurdles, and recycling the proceeds into higher-return opportunities across its platforms. This sustainable business model, combined with BIP’s strong organic growth prospects, should support an improved valuation — all else equal.”
From the meeting, Mr. Bastien said he thinks “more data wheeling and dealing [is] in the offing,” saying: “Management is contemplating a couple of U.S. deals where it could bring to bear BIP’s competitive advantages of size, operating capabilities and access to capital. Either transaction would tilt the LP’s FFO [funds from operations] exposure squarely back in favour of developed countries (and more equally weighted across its four operating platforms). With such a fluid playbook, however, it is practically impossible for us to predict exactly where opportunity will knock next. What we can say with confidence is that BIP’s infrastructure portfolio has grown so diverse that no one asset, economy or currency can veer it off course. We feel this will be reflected in stable and predictable growth over and beyond our forecast horizon.”
He also expects further divestitures, noting Brookfield said last week it could generate US$280-million from the sale of its Colombian transmission assets and another 33-per-cent stake in its Chilean toll roads.
“These deals are consistent with Brookfield’s strategy to opportunistically exit mature assets at strong valuations in order to redeploy capital into higher returning investments,” he said. “We believe they are also reflective of the countries’ much improved investment grade credit ratings and attractiveness for foreign capital (unlike Mexico). We should note more asset sales are contemplated by year-end, which would push BIP’s liquidity to approximately $2.5-billion net of existing commitments. Not a bad way to kick off 2020, if you ask us.”
After slight tweaks to his financial projections, Mr. Bastien kept an “outperform” rating and US$52 target for Brookfield. The average on the Street is US$47.44, according to Bloomberg data.
"We derive our valuation by applying a target yield of 4.25 per cent to our 2020 DPU forecast of $2.20 (inline with the current yield). he said. “We argue the utility-like attributes of BIP’s growing asset base, the easing interest-rate environment and the healthy FFO per unit growth we forecast through 2020 all support a better valuation than history might otherwise suggest.”
Following Health Canada’s decision to suspend its cannabis growing and processing licences, Cannaccord Genuity analyst Derek Dley lowered his target for shares of CannTrust Holdings Inc. (TRST-T), pointing to “uncertainty” surrounding its future prospects.
“Importantly, Health Canada will allow CannTrust to continue cultivation and harvesting of already-planted cannabis, although the company will not be allowed to plant new lots of cannabis or sell or distribute cannabis during the suspension,” said Mr. Dley. "Additionally, the regulator stated CannTrust can possibly have its licenses reinstated if the company can demonstrate that the reasons for the suspension are no longer present, or that the suspension is unfounded. Health Canada also provided CannTrust suggested measures such that, if they are implemented, we believe it may provoke the regulator to remove the suspension of CannTrust’s licenses, including better inventory tracking and improvement of key personnel’s knowledge of Cannabis Act provisions. Conversely, this could be step one in the eventual removal of CannTrust’s licenses, which we believe remains a distinct possibility.
“We had previously expected a full suspension and revocation of all CannTrust licenses. And while today’s news results in only a suspension, we note there is still significant uncertainty regarding the company’s prospects, and our previous view may in fact turn out to be correct. Given that Health Canada will allow CannTrust to continue cultivation of existing plants, there remains a slight possibility that the company will be able to sell its products at some point in the future, in our view. But the lack of clarity regarding timing on any potential resumption of sales, combined with the company’s severely tarnished reputation, compel us to remain on the sidelines.”
Maintaining a “hold” rating for CannTrust shares, the analyst moved his target to $2 from $2.50. The average is $7.
“Our target price represents our estimated net cash position for CannTrust at the end of Q2/19, along with the carrying value of the company’s PP&E, which together result in a tangible asset value of $1.96 per share,” he said.
Though he sees it best positioned to capitalize on the growing cannabis market over the long term, Oppenheimer analyst Rupesh Parikh initiated coverage of Canopy Growth Corp. (WEED-T) with a “market perform” rating on Wednesday, expressing concern over the Street’s “lofty” expectations for the sector.
“We expect CGC to capture more than its fair share of the $150-billion-plus global opportunity longer-term," he said. “We believe a stockpile of $3-billion in cash, the Constellation Brands partnership, and R&D investments should help to drive share over time. In Canada to date, recent commentary suggests market share in the 25-30--per-cent range suggesting early success.”
“Shorter-term, we believe a full valuation, lofty Street expectations, the potential for losses to persist, and regulatory delays hamper the case for outperformance. CGC remains on our radar, and we are closely watching the company’s ability to navigate a difficult backdrop lately and improve profitability.”
Mr. Parikh did not specify a target price. The average target on the Street is $55.73.
Calling it the “manufacturing beast from the east,” Raymond James analyst Rahul Sarugaser initiated coverage of Organigram Holdings Inc. (OGI-T) with an “outperform” rating.
“OGI draws on its deep bench strength in pharmaceutical and food manufacturing to produce consistent, high-quality products for Canada’s cannabis markets,” he said. “The company’s pursuit of operational excellence is yielding results: industry-leading production costs — averaging 90 cents per gram of dried flower over the last five quarters—which endow OGI with some of the Canadian cannabis industry’s highest gross margins. OGI’s manufacturing prowess will truly have its chance to shine during Canada’s Cannabis 2.0 — derivative products such as edibles,beverages, vaporizers — era, starting October 2019. Priming itself for launch into this high-margin market, OGI has made a series of deft strategic maneuvers, including a partnership with leading vaporizer company PAX Labs and a $15-million investment in a state-of-the-art chocolate production line.
“A key reason we appreciate OGI is its active adoption of next-generation technologies. For example, OGI made one of the industry’s first investments in cannabinoid biosynthesis with a $10-million investment in Hyasynth Biologicals. We see OGI doubling down on this massively disruptive technology to enable the production of pure, consistent, low-cost cannabinoids at large scale and in the complete absence of plants. (One can imagine Hyasynth’s technology empowering every one of OGI’s Cannabis 2.0 initiatives.) With investments like these, OGI makes itself attractive to the large CPG, food and beverage, and pharmaceutical companies — premier cannabis companies’ ultimate buyers — we see waiting in the wings.”
Mr. Sarugaser set a $11 target for the Moncton-based company’s stock. The average on the Street is $11.97.
“We reiterate that our fundamentals-driven analysis — confirmed by, but not relying on, a multiples–based analysis of OGI’s peers — should lend investors confidence in OGI’s intrinsic value (and material undervaluation by the market),” he said “Therefore, from its current price, we believe OGI is positioned to create significant value for its shareholders.”
Saying it’s “taking care of business," Desjardins Securities analyst Kyle Stanley resumed coverage of BSR Real Estate Investment Trust (HOM.U-T, HOM.UN-T) with a “buy” rating following its US$55-million equity offering and private placement.
“The REIT continues to tick the right boxes, including (1) growing its public float, (2) acquiring high-quality properties in targeted growth markets, and (3) recycling capital from non-core markets to take advantage of historically tight cap rate spreads between primary and secondary markets,” said Mr. Stanley.
He has a US$12 target for the REIT. The average is currently US$12.31.
In a presentation at the much-watched event, Ms. Soni said Kinross president and chief executive officer Paul Rollinson reiterated the company’s core values of “1) operational excellence, 2) financial strength and flexibility, 3) attractive growth, and 4) compelling relative value.”
Ms. Soni raised her financial expectations for the company with the announcement that it plans to increase throughput at its Tasiast gold mine is an open-pit gold mine in Mauritania. She also emphasized the “very attractive economics” of its newly acquired Chulbatkan development project in Russia.
Keeping an “outperformer” rating for Kinross shares, she hiked her target to US$6 from US$5.50. The average on the Street is US$5.42.
She said Pretium president and CEO Joseph Ovesenek highlighted the Vancouver-based company’s progress on ramp-up and longitudinal longhole stoping development.
“Mr. Ovsenek noted the best opportunity for value creation would be to reinvest in its organic growth rather than invest in a marginal gold producer,” said Ms. Soni. “Pretium was again able to generate good FCF in Q2 (was FCF positive for every quarter since Q1/2018), and repaid $45-million of debt. PVG noted that it would be able to generate strong FCF in the coming quarters and will prioritize capital deployment to debt repayment, exploration, reinvestment in its assets and returning capital to shareholders.”
With a “neutral” rating (unchanged), she hiked her target to $18 from $15.50. The average is $20.16.
“We continue to see consistent delivery of higher grades as a key catalyst for the stock; market concerns around grades may fade in a higher gold price environment,” the analyst said.
Ms. Soni also kept a “neutral” rating for TMAC shares, raising her target to $6.50 from $6.25. The average on the Street is currently $8.18.
“We continue to view a steady improvement to consistent planned production rates, grades and recoveries in the following quarters is key to building investor confidence,” she said.
Calling it the “next source of Class 1 nickel,” Paradigm Capital analyst David Davidson initiated coverage of Talon Metals Corp. (TLO-T) with a “buy” rating.
“Talon Metal’s flagship project is the high-grade nickel-copper-cobalt Tamarack project in Minnesota. As one of the few undeveloped Class 1 nickel, copper and cobalt projects globally, Tamarack offers a much-needed supply solution to steadily growing battery metal consumption,” he said. “With a strong partner in Kennecott (a subsidiary of Rio Tinto Group), Talon is well positioned to expand the value of Tamarack and move the project into development.”
He set a 40-cent target for shares of the Toronto-based company.
Mackie Research analyst Andre Uddin initiated coverage of Theralase Technologies Inc. (TLT-X) with a “speculative buy” rating and 80-cent target, which xxx.
Mr. Uddin said: "Theralase is focused on developing a paradigm-shifting Photodynamic Therapy (“PDT”) for treating Bacillus Calmete Guérin (“BCG”)-unresponsive non-muscle invasive bladder cancer (“NMIBC”) - targeting a significant market opportunity and unmet medical need (the only currently approved treatment option for patients is to have their bladder removed surgically or use Valrubicin).
“Theralase has completed a single-arm Phase Ib trial in 6 BCG-unresponsive NMIBC subjects. At the therapeutic dose, PDT induced a durable 67-per-cent Complete Response (“CR”) rate after 1 year – far surpassing CR and duration of CR results of other bladder cancer treatment modalities, currently in development. Results to date have shown that Theralase’s PDT was safe, well tolerated and at the therapeutic dose, effective, compared to other competitive drugs in development.”
In other analyst actions:
TD Securities analyst Aaron MacNeil downgraded Horizon North Logistics Inc. (HNL-T) to “hold” from “buy” with a $1.40 target, down from $1.60 and below the $2.06 average.