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

National Bank Financial’s Patrick Kenny upgraded his recommendation for Secure Energy Services Inc. (SES-T) in reaction to a selloff in its shares following the Competition Tribunal’s order to divest 29 of the 103 facilities acquired in its merger with Tervita Corp.

The equity analyst now sees the Calgary-based company putting the federal agency “in the hot seat” with its appeal of the early March decision.

“SES recently filed its appeal to the Competition Tribunal’s decision, citing ‘palpable and overriding errors of fact’, including the omission of approximately $10-million related to restoring the Elk Point facility assuming divestiture – i.e., when taken into account, efficiencies exceed anti-competitive effects,” said Mr. Kenny. “Also, despite efficiencies exceeding effects over the same 10-year period (apples-toapples), the Tribunal added two extra years in concluding that effects over a 12-year period exceed benefits over a 10-year period (apples-to-oranges). Elsewhere, SES claims the Tribunal erred in law by conducting its own expert analysis regarding price elasticity of demand. A court date is expected for late June, with an ‘all-or-nothing’ decision anticipated by late Q3/early Q4.”

Through the legal battle, he thinks it’s “business as usual” for Secure, emphasizing an acceleration in buybacks and an updated valuation for the company ahead of its first-quarter earnings release.

“SES remains well positioned to harvest strong free cash flow and deploy into share buybacks with fundamental tailwinds including 5-7-per-cent ‘same-store-sales’ growth year-over-year, strong EBITDA margins in the high-30-per-cent range (was low-30-per-cent pre-merger) as well as environmental/waste disposal upside as E&P regulatory mandates kick in with a 5-per-cent minimum ARO spend.”

“Recall, we modeled the sale of $115-million of EBITDA for $570-million – i.e., low end of management’s expected price tag range of 5-8 times. Meanwhile, with SES set to unveil new segmented disclosure alongside Q1/23 results (Industrial/Waste Management, Energy Infrastructure, Oilfield Services), we highlight a new sum-of-the-parts valuation based on current market comparables of $13 per share, double the current stock price (admittedly the current discount partly reflects the company’s smaller size and the legal overhang).”

Moving Secure to “outperform” from “sector perform,” Mr. Kenny maintained an $8 target for its shares. The current average on the Street is $8.91, according to Refinitiv data.

“With the stock now down more than 25 per cent since the Tribunal’s decision a month ago and our $8.00 target remaining intact following clarity surrounding the company’s appeal, we are upgrading our rating back to Outperform (was Sector Perform) with a 12-month total return opportunity of 35 per cent,” he said.


Calling it a “next-gen fintech lender with scale,” Eight Capital analyst Adhir Kadve initiated coverage of Propel Holdings Inc. (PRL-T) with a “buy” recommendation, seeing “strong and profitable growth ahead” and a “a potential re-rating opportunity with the Pathward partnership.”

“FinTechs like Propel continue to increase their market share in the broader unsecured personal loan market and, to a greater extent, in the subprime unsecured personal loan market in North America,” he said in a report released Wednesday. “Fintechs now account for more than 50 per cent of both new loan originations and existing loan balances in the U.S., up from approximately 35 per cent six years ago. This theme has helped Propel grow at a 4-yr CAGR [compound annual growth rate] of 28 per cent and deliver consecutive years of more than 75-per-cent growth in F21 and F22. We estimate that Propel will likely continue a strong growth trajectory over our forecast period, supported by a fractional market share of a large TAM, and geographic and revenue diversification.”

Mr. Kadve thinks the Toronto-based company has an “attractive” financial profile and also emphasized its high insider ownership.

“We believe that Propel can deliver strong growth while also expanding its profitability,” he said. “Two key internal initiatives support our outlook. Primarily, the company is prioritizing lending to lower-risk existing and new borrowers. Existing customers have vastly better unit economics given low upfront provisioning requirements and zero CAC. On the latter, tightening lending standards have led to applications from higher quality borrowers to Propel’s platform. Secondly, the company is diversifying its geographic footprint into Canada, where it will offer lending products at APRs [annualized revenue yields] of 47 per cent (versus 100 per cent in the U.S.-based loan book). In our view, these initiatives should translate to lower overall losses in the portfolio, resulting in expanding adj. EBITDA and adj. Net Income margins of more than 25 per cent and 10 per cent, respectively. Insider ownership at Propel sits at 49 per cent, and CEO Clive Kinross and Board Chairman Michael Stein each own approximately 18.6 per cent, providing strong alignment with shareholders.”

“Pathward Financial (CASH-Q, Not Rated) will leverage Propel’s technology and platform to offer loans to customers at or below 36-per-cent APR, with Propel earning a fee on every loan origination. In our view, as the partnership scales, this revenue stream should have accretive SaaS-like margins with no balance sheet risk. With scale over time, we see a re-rating opportunity for the company as key comps in the Lending as a Service (LaaS) space trade at 4 times EV/Revenue vs. Propel currently at less than 1.”

Mr. Kadve set a target of $15 per share. The current average on the Street is $13.13.


Desjardins Securities analyst Jerome Dubreuil sees Quisitive Technology Solutions Inc.’s (QUIS-X) valuation as “compelling,” pointing to his expectation for double-digit growth and “long-term tailwinds” in IT services.

On Monday, the Toronto-based Microsoft solutions provider and payments solutions provider reported fourth-quarter 2022 revenue of $45.9-million, narrowly below the Street’s expectation of $46.3-million. However, adjusted earnings before interest, taxes, depreciation and amortization of $8.1-million was better than anticipated ($6.6-million).

“We highlight the beat was supported by a $0.5-million one-time item, as well as by PayiQ-related expenses, which were $1-million lower than we had anticipated as management better matched the timing of PayiQ expenses with future revenue generation,” he said. “We expect higher PayiQ expenses to resume in the coming quarter.”

In a research note titled QUIS is compelling as is—PayiQ is gravy, Mr. Dubreuil said management “adopted a more cautious tone for next quarter” as it continues to ramp up PayiQ, its cloud-enabled payments solution platform. That led him to reduce his forecast for both fiscal 2023 and 2024.

“QUIS’s cloud operations generated revenue of US$32.3-million in 4Q22, missing our estimate of US$34.6-million, with organic growth of 8 per cent year-over-year,” he said. “Management also guided to cloud revenue in 1Q23 which could be weaker than we had anticipated as ‘several customers delayed projects while they evaluate the macroeconomy and their own 1Q results.’ Management nonetheless anticipates double-digit growth in cloud for 2023 as it has strong confidence in the pipeline ahead. We were expecting 14.5-per-cent organic growth in 2023 and have adjusted our forecast to 10 per cent.”

“Payments revenue of $13.6-million beat our $12.2-million, with impressive organic growth north of 30 per cent. In July, management expects to launch PayiQ with some of its clients who require only Visa and MasterCard certifications, providing an opportunity to demonstrate the platform’s payment processing capabilities on a larger scale. The ramp-up of the deployment is, however, expected later this year, with a full launch expected in 3Q23. Material revenue contribution from the platform is now expected to materialize in 2024. We have reduced our PayiQ forecast.”

To reflect his lower forecasts and that “the significant PayiQ contributions are now more distant,” Mr. Dubreuil trimmed his target for Quisitive shares to $1.10 from $1.40, reiterating a “buy” recommendation. The average is $1.51.

Elsewhere, Scotia Capital’s Divya Goyal cut her target for to $1.10 from $1.50, keeping a “sector outperform” rating.

“Quisitive released Q4/22 and F2022 results, broadly in line with our and consensus estimates,” she said. “On the conference call this morning, management provided a detailed update on the Cloud and Payments Solutions business. While both lines of business are projected to see growth in the medium to long-term, management indicated some softness in Q1/23, primarily due to current macroeconomic circumstances, which have resulted in decision delays and elongated sales cycles especially across larger projects. QUIS continues to report strong progress towards PayiQ commercialization expected to materialize in Q3/23.”


Following several “transformational” polymetallic discoveries at its Ruby Hill mine in Nevada and the recent acquisition of Paycore Minerals Inc., Canaccord Genuity analyst Michael Fairbairn sees a path for i-80 Gold Corp. (IAU-T) to “bootstrap production, growing into a Nevada-focused intermediate producer with reasonable external funding needs.”

“We continue to like i-80 for its 100-per-cent Nevada-based asset portfolio (a top mining jurisdiction per the Fraser Institute), its deeply experienced, Nevada-focused management team led by industry veteran CEO Ewan Downie and President/COO Matt Gili (former Barrick Chief Technical Officer), and strong liquidity to fund near-term growth,” he said.

Mr. Fairbairn touted the potential from its “ambitious growth plan centered around a hub-and-spoke model in Nevada.

“IAU had planned to refurbish the Lone Tree autoclave and have three sulfide deposits (Granite Creek, Ruby Hill, and McCoy-Cove) feed the central hub,” he said. “However, in mid-2022, IAU made a major base metals discovery at Ruby Hill, and in November, the company released a scoping study analyzing the potential restart of the existing leach circuit at Ruby Hill to process oxide ore and/or convert the oxide plant to a ~740tpd base metal flotation facility. In February of this year, management announced that it was considering progressing with the polymetallic opportunity at Ruby Hill ahead of its gold ramp-up plan.”

“Ruby Hill now hosts five distinct CRD zones (including the various Hilltop zones), the zinc-rich Blackjack zone, and will soon control the high-grade FAD deposit. While exploration remains ongoing, we believe these deposits could be mined and processed at Ruby Hill via a base metals flotation facility. In light of this, we have revised our estimates to account for this possibility. After spending $125-million in initial capital, we forecast 90,000 ounces AuEq [gold equivalent] of annual production at LOM [life-of-mine] co-product AISC [all-in sustaining cost] of $1,390 per ounce AuEq over a 15-year mine life, beginning as early as 2026. We forecast this driving a $218-million NPV8% and a 38-per-cent IRR.”

Revising his model to incorporate high-grade polymetallic production Ruby Hill mine, Mr. Fairbairn raised his target for i-80 shares by $1 to $6, keeping a “speculative buy” recommendation. The average is $5.18.


Bitfarms Ltd. (BITF-Q, BITF-T) is “a geographically diversified low-cost miner with leading yield-per-exahash,” according to Stifel analyst Bill Papanastasiou.

He initiated coverage of the Toronto-based bitcoin self-mining company with a “speculative buy” recommendation on Wednesday.

“With a long-standing track record as a proof-of-work mining company, Bitfarms has strategically established a footprint of ten facilities across geographically diverse regions that provide access to sustainably lowcost, surplus electricity,” said Mr. Papanastasiou. “The company operates under a self-mining business model, leveraging cheap power, efficient hardware, and operational excellence to generate industry-leading yield-per-exahash and margin performance. Management recently restructured its balance sheet, which significantly reduced debt obligations and offers financial flexibility ahead of the upcoming BTC halving event expected to occur in May 2024. We see the potential for near-term hashrate capacity expansion to 6.0 EH/s [exahash per second] by year-end as the company focuses its attention on scaling the first 50MW warehouse in Argentina with an existing US$22.4-million equipment purchase credit.”

Seeing improved mining economics after the spot price for bitcoin has appreciated “immensely” since the start off the year and touting several potential catalysts, he set a target of US$2 per share, matching the average on the Street.

“We believe near-term catalysts include (i) approval of the Rio Cuarto facility power permit; and (ii) the easing of importation restrictions in Argentina, which will allow the company to scale the first fully-built warehouse and reach 6.0 EH/s capacity by year-end (fully-funded), while also improving power costs and efficiencies from an extremely attractive power rate of roughly US$0.03/kWh and new mining equipment,” he said. “Secondly, further upside to unit economics is possible should the company pursue the build-out of the remaining three warehouses in Argentina and bring an incremental ~200MW capacity online. Bitfarms has also recently improved its financial flexibility following the retirement of debt obligations ahead of the Bitcoin halving event and is well-positioned for potential organic and inorganic growth opportunities.”


In other analyst actions:

* TD Securities’ Graham Ryding raised IGM Financial Inc. (IGM-T) to “buy” from “hold” and increased his target to $48 from $44, while RBC Dominion Securities’ Geoffrey Kwan increased his target to $50 from $46 with a “sector perform” rating. The average is $46.38.

“We have a positive view of the Rockefeller Capital Management (RCM) investment and IPC sale,” said Mr. Kwan. “We think the IPC sale surfaces value for an asset we think may have been overlooked/undervalued given IGM’s primary wealth management operations at IG Wealth. At the same time, we like IGM re-allocating the capital into a more attractive, higher growth opportunity (e.g., new country, larger industry, possibility to increase its ownership stake in time). Bigger picture, with IGM’s transformation complete and delivering solid fundamentals with a healthy balance sheet, we believe IGM is likely to be more active on organic and inorganic initiatives to execute on its growth strategy. We view IGM as having the most attractive riskreward profile within our asset/wealth manager coverage.”

* Bernstein’s Nadine Sarwat upgraded Canopy Growth Corp. (CGC-Q, WEED-T) to “market perform” from “underperform” and raised her target to US$1.55 from US$1.50. The average target on the Street is US$1.98.

* Scotia Capital’s Benoit Laprade cut his target for Canfor Pulp Products Inc. (CFX-T) to $4, below the $5.15 average, from $6, keeping a “sector perform” rating.

* Canaccord Genuity’s Roman Rossi trimmed his Gran Tierra Energy Inc. (GTE-T) target to $2.30 from $2.40 with a “buy” rating. The average is $1.90.

* Morgan Stanley’s Ioannis Masvoulas increased his target for Lundin Mining Corp. (LUN-T) to $10, above the $9.64 average, from $9.50 with an “overweight” rating.

* Credit Suisse’s Andrew Kuske lowered his Northland Power Inc. (NPI-T) target to $46 from $46.50, keeping an “outperform” rating. The average is $45.13.

“We maintain a positive bias on NPI’s overall exposure and ability to surface further value from the existing asset base – let alone some future prospects,” said Mr. Kuske. “The transaction with Gentari provides a good starting point, however, we believe various other levers can be pulled to generate greater value ... Given NPI’s partners in Poland and Taiwan we see broader potential for the convergence of offshore wind and green hydrogen-related efforts on a longer-term basis – something that is also not in our financial forecasts.

“For NPI, we focus on three areas: (1) outstanding options with a view of several recent transactional marks that create farm down flexibility; (2) with Orsted’s recent FID in Taiwan, some of the questions around Hai Long should begin to dissipate with greater clarity around returns, costs and schedule; and, (3) dealing with the duration dichotomy. Rather positively, the farm down flexibility creates several strategic options that can raise questions about overall business direction.”

* BMO’s Michael Markidis cut his Northwest Healthcare Properties REIT (NWH.UN-T) target by $1 to $10 with an “outperform” rating. The average is $10.93.

“NWH reported Q422 results that were in line with our estimate but well-short of Street expectations,” said Mr. Markidis. “Two consecutive quarterly misses have been a catalyst for significant underperformance. It is taking longer than initially anticipated; however, NWH is making progress reducing leverage/variable rate debt exposure and increasing third-party AUM. The payout ratio is elevated based on our near-term earnings outlook; however, we believe there is sufficient liquidity to bridge the gap in the near-term.”

* Raymond James’ Steve Hansen cut his Nutrien Ltd. (NTR-N, NTR-T) target to US$85 from US$90 with a “market perform” rating. The average is US$96.40.

“We are trimming our target price ... based upon further downward revisions to our financial estimates stemming from sharply lower NPK prices in recent months and diminished hope for a traditional spring rally,” he said. “While news surfaced [Tuesday] that Canpotex inked a long overdue export contract with Indian importer IPL, the new price ($422/mt) notably undercut our prior estimate and came with a short 6-month term, suggesting further price uncertainty this fall. We will continue to monitor accordingly.”

* TD Securities’ Greg Barnes raised his Osisko Gold Royalties Ltd. (OR-T) target to $27, above the $23.42 average, from $22 with a “buy” rating.

* CIBC World Markets’ Stephanie Price raised her targets for Quebecor Inc. (QBR.B-T, “outperformer”) to $38 from $35 and Rogers Communications Inc. (RCI.B-T, “outperformer”) to $75 from $72. The averages are $36.48 and $72.25, respectively.

* TD Securities’ Jonathan Kelcher reduced her Slate Office REIT (SOT.UN-T) target to $3.75 from $4.50, reaffirming a “hold” rating. The average is $4.27.

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

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