Inside the Market’s roundup of some of today’s key analyst actions
Following in-line first-quarter financial results, Canaccord Genuity’s Aravinda Galappatthige sees Thomson Reuters Corp. (TRI-N, TRI-T) on track to meeting its full-year financial guidance, however he thinks “much of the good news is already priced in” after “aggressive shareholder returns policies and strong execution operationally have driven up” its shares during a strong recent run.
Accordingly, preferring to wait for “more compelling entry points,” he moved his recommendation to “hold” from “buy” previously.
He was one of two equity analysts on the Street to downgrade the Toronto-based news and information company a day after its quarterly report, which was met by a 0.5-per-cent decline to its TSX-listed shares.
“Adj EBITDA beat expectations due to notably lower corporate costs, while segment-level profitability met expectations in the aggregate,” said Mr. Galappatthige. “In terms of the top line, organic revenue growth remained robust at 6 per cent and 7 per cent for the Big 3 segments. The company continues to guide to 5.5-6-per-cent organic revenue growth in 2023 and 39-per-cent EBITDA margins (up from 35.1 per cent in 2022).
“Confidence around meeting guidance remains strong: Despite a backdrop of slowing macro conditions and some lengthening in sales cycles, we believe the Q1 result and comments on the call (including indications around Q2) are supportive of meeting full-year expectations. We found the 38.8-per-cent EBITDA margin in Q1 encouraging given the newly acquired (and low margin) SurePrep business generates half of its revenues in this quarter and would have served as a headwind. With further pricing tailwinds likely assisting H2 and fairly good cost management, we see the full-year expectation of a 39-per-cent margin as quite achievable.”
The analyst thinks Thomson Reuters “resilience continues to show” and thinks its balance sheet “offers further upside.” He sees pricing is “a key part of the equation going forward,” believing it can generate more revenue growth by “pulling on its price levers, both in the short and medium term.”
“We understand that the higher inflationary environment, though likely impacting costs early on, takes a while to play out through the revenue base due to a substantial proportion of contracts being multi-year in nature (in Legal 60 per cent of firms are on 3-yr contracts),” he said. “The expectation is that as these agreements come up for renewal, the rate increases can better reflect current inflation levels. We expect these tailwinds to continue to get stronger through Q2 and into H2/23.
“Longer term, we expect the level of product innovation to allow TRI to generate more growth through price upgrades as well as increased product intensity with customers. TRI leadership has been quite clear that increasing the pace of new product and feature development is a central objective going forward. The substantial investment TRI intends to deploy around generative AI and LLM (large language models) can further drive this objective.”
Citing its growth and defensive attributes, Mr. Galappatthige raised his target to US$131 from US$124. The average is US$129.45, according to Refinitiv data.
“TRI’s stock has continued its strong run in recent months, with the stock up 14 per cent since reporting Q4/22 on February 9, 2023,” he said.” Two of its closest comps, RELX (4 per cent) and Wolters Kluwer (14 per cent), have also had decent runs, while the more expensive credit rating agencies (SPGI down 2 per cent and MCO 0 per cent) that are also seen as comps to TRI have been flatter. TRI broke out of the Wolters/RELX cluster a while ago and now appears to have hit the upper end of the comp group that features SPGI, MCO, and FDS.”
Elsewhere, citing its valuation, Scotia Capital’s Maher Yaghi lowered Thomson Reuters to “sector perform” from “sector outperform” with a US$138 target, up from US$127.
TRI’s shares have performed exceptionally well this year compared to the TSX for good reason as management continues to deliver strong and steady results with focus on FCF generation in addition to returning significant cash to shareholders at the same time,” said Mr. Yaghi. “A combination that makes the company one of our favorite within our coverage universe. However, this strong performance has moved the stock’s valuation from the third quartile to the top quartile vs peers on most metrics over the last 3 years. It is always hard to downgrade the stock of a company that is performing well however with TRI trading at 22 times and 36 times EV/EBITDA and PE ratios respectively, on 2023, estimates we think it is best to wait for a better entry point. Our target has increased as we rolled forward our valuation to 2024 from 2023.”
Others making changes include:
* BMO’s Tim Casey to $184 from $182 with an “outperform” rating.
“Q1 results were solid with revenue in line and EBITDA above expectations. Adj. EPS beat at $0.82 vs. Street $0.79. F23 revenue guidance was lowered by 1.5 per cent to reflect the pending sale of the majority stake in Elite to TPG,” said Mr. Casey. “Thomson announced an expected investment of $100-million per year for generative AI product enhancements with initial integration into key legal products occurring in H2/23. TRI intends to return $2.2-billion of capital by June (funded by LSEG proceeds).”
* National Bank’s Adam Shine to $184 from $170 with a “sector perform” rating.
* TD Securities’ Vince Valentini to $185 from $175 with a “hold” rating.
* JP Morgan’s Andrew Steinerman to US$130 from US$114 with a “neutral” rating.
Woodbridge Co. Ltd., the Thomson family holding company and controlling shareholder of Thomson Reuters, also owns The Globe and Mail.
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Citi’s Jon Tower said he’s “on the sidelines” after Restaurant Brands International Inc. (QSR-N, QSR-T) first-quarter earnings report, believing its valuation is appearing to “already bake in a fair amount” of optimism about its initiatives to revive Burger King south to the border.
The analyst now wants to see “clearer macro skies” and greater evidence of the reversal of unit and traffic declines from the chain before a more bullish stance is taken.
“It’s difficult to disaggregate how much top-line strength is coming from brand initiatives in core markets driving idiosyncratic improvement versus broader industry tailwinds, and despite the category being viewed as defensive, we would put QSR as more at risk than peers in a macro downturn,” he said in a note. “We tend to give QSR more credit for building sales initiatives at Tims, but increased U.S. promotional activity could quickly zap momentum from Reclaim the Flame/store profitability initiatives and lead to additional waves of BK closures.”
TSX-listed shares of the Toronto-based company rose 2.8 per cent on Tuesday following the quarterly report. Excluding items, Restaurant Brands earned 75 US cents per share, compared with the Street’s projection of 64 US cents.”
Mr. Tower acknowledged Burger King in the United States saw traffic and store profit improvements from the previous quarter. However, traffic still remained negative despite “benefits from weather/lapping Omicron-driven staffing challenges/increased ad spend.
“Quarter-over-quarter improvements, stabilizing monthly traffic level and building benefits from Reclaim the Flame all give management hope that traffic turns positive over the course of the year; however, we’re worried macro pressures ultimately mean a ramp in competitive intensity that mutes this program’s positive effects on sales/traffic,” he said.
“BK U.S. NROs [net restaurant openings] likely to remain negative in 2023, as the company anticipates a higher level of gross closures (300-400 vs. 200/year historically) and tightened standards around who can build (only ‘A’/’B’ can build/acquire stores, and QSR will emphasize keeping portfolios to less than 50 units with local ownership and contiguous geographies). QSR still believes NRO expansion across other brands/geos mean growth accelerates from here (more in 2H) but wouldn’t commit to a firm timeline for more than 5-per-cent growth.”
Mr. Tower thinks increased mobility and better winter weather may have “contributed an out-sized factor” in same-store sales growth for Tim Hortons. The company saw a gain of 15.5 per cent in Canada and 13.8 per cent overall, which topped the consensus projection of 10.1 per cent.
“New products/daypart/ops improvement efforts appear to be gaining steam,” he said. “Growth in PM, cold beverage and breakfast all suggest the brand is winning share, an encouraging sign for QSR’s largest EBITDA contributor.”
While he trimmed his 2023 and 2024 EPS estimates to US$3.13 and US$3.41, respectively, from US$3.15 and US$3.42 due to rising costs, including non-cash equity compensation, Mr. Tower raised his target for Restaurant Brands shares to US$74 from US$70 based on a higher valuation multiple to “reflect Tims CAN strength.” The average target is US$73.43.
“We believe this multiple accurately balances the company’s improving global unit growth against limited visibility into economics in these newer markets, potential near-term headwinds tied a global economic slowdown and risks of a significant closure and reinvestment cycle ahead for the Burger King U.S. business,” said Mr. Tower, reiterating his “neutral” recommendation.
Others making changes include:
* RBC’s Christopher Carril to US$84 from US$81 with an “outperform” rating.
“A strong start to 2023 for Tims and BK, with the latter’s 1Q performance — maybe more importantly — easing recent concerns around domestic franchisee profitability and health,” said Mr. Carril. “Looking ahead, we see QSR’s momentum and continued improvement as particularly compelling amid a still uncertain macro/consumer outlook. Additionally, we think perhaps underappreciated with 1Q earnings, is renewed focus and updated strategy for Popeyes, a key potential LT development driver. New restaurant development remains an area to watch, but should accelerate in the 2H. Raising estimates (2023 EPS to $3.18, from $2.99) and, as a result, our PT shifts to $84.”
* Stifel’s Christopher O’Cull to US$72 from US$65 with a “hold” rating.
“QSR reported better-than-expected comp sales results across the board, with particular accelerations at Tim Hortons and Burger King,” said Mr. O’Cull. “We believe the Tims Canada segment’s efforts to expand beverage options and increase food attachment will help it sustain mid single-digits comps, on average, through the balance of the year. Sales also accelerated sequentially at Burger King. While we are encouraged by the brand’s progress, successfully turning the corner on traffic performance will become increasingly important as pricing moderates. At the moment, it appears the company’s advertising investments are moving the needle, but we anticipate competition in the category will remain stiff and believe the brand may be more vulnerable to a potential slowdown in consumer spending than most others in its segment. We maintain our Hold rating as we believe the current valuation is reasonable.”
* Credit Suisse’s Lauren Silberman to US$79 from US$74 with an “outperform” rating.
“We believe continued strength at TH, progress against the BK US turnaround and execution against accelerating unit growth should improve sentiment on the fundamental story, and at current valuation, we believe RBI offers a favorable risk/reward,” said Ms. Silberman.
* BMO’s Peter Sklar to US$81 from US$79 with an “outperform” rating.
“Overall, while results were particularly strong at Tim Hortons Canada, all banners (domestically and internationally) appear to have good momentum at the same time, a good predictor of stronger stock price returns over the coming months,” said Mr. Sklar. “We believe the ‘across the board’ strength in all banners reflects maturing initiatives in digital, a stronger commitment to franchisee economics, successful menu innovations, and a deeper commitment to the strongest operators (who generate disproportionate results). With valuation now at 17 times forward EBITDA (historical range: 14-20 times), we see upside to valuation given these results.”
* Stephens’ Joshua Long to US$72 from US$68 with an “equal-weight” rating.
“Sales at Tim Hortons Canada were traffic-driven reflecting strength of new food offerings and improved consumer mobility while Burger King results reflected success in digital ordering and operational execution across the U.S. and international markets.,” said Mr. Long. “The company’s emerging brands remain well-positioned for long-term growth supported by a recently unveiled strategic plan (at Popeyes) and solid digital sales and a new mobile app launch in Canada (at Firehouse). ... Our maintained Equal-Weight rating reflects our desire to gain greater visibility into the materialization of brand momentum above and beyond what we believe is positioned as a compelling asset-light story with global growth potential.”
* Barclays’ Jeffrey Bernstein to US$84 from US$78 with an “overweight” rating.
* Truist’s Jake Bartlett to US$80 from US$78 with a “buy” rating.
* Scotia’s George Doumet to US$81 from US$72 with a “sector outperform” rating.
* CIBC’s Mark Petrie to US$85 from US$76 with an “outperformer” rating.
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While Aritzia Inc. (ATZ-T) reported “impressive” fourth-quarter 2023 financial results with revenue growing 44 per cent year-over-year and earnings per share up 20 per cent, Stifel analyst Martin Landry expects the focus of investors to be on weaker-than-anticipated guidance for its next fiscal year.
“Aritzia is coping with three main issues: (1) inflationary pressures on product costs and labour. In our view, management has been slow to increase prices to offset inflation which creates a disconnect in gross margin in H1FY24. (2) Transitionary dual warehousing costs as the company ramps-up its new 550,000 sq.ft. distribution center in Vaughan, Ontario starting in August while still using 3rd party logistic suppliers until fully ramped-up in FY25. (3) a normalization of the promotional activity which was below historical levels in 2022,” he said.
After the bell on Tuesday, the Vancouver-based clothing retailer introduced 2024 guidance that includes revenues of $2.42-2.5-billion, up 12 per cent year-over-year at the mid-point but “slightly” below Mr. Landry’s estimate of $2.5-billion. Gross profit margins are expected to declined 2 per cent year-over-year with the majority of the pressure in the first half of the year with a 6-per-cent year-over-year decline projected.
With expenses also rising, Mr. Landry said the guidance “translates into a very weak H1FY24 as EPS estimates could be down by more than 70 per cent year-over-year.”
“Management tried to reassure investors by opening a discussion on EBITDA margins for FY25,” he added. “Management expects EBITDA margins to recover from FY24 lows of 12.5 per cent and reach at least 16 per cent in FY25. The margin expansion in FY25 should come from a reversal of temporary costs in FY24, mostly related to distribution and logistics. Management also reiterated its expectations for EBITDA margins to reach 19 per cent by FY27 as communicated in the company’s investor day held in October 2022. We still believe that Aritzia’s FY27 EBITDA margins targets are achievable. However, the volatility in EBITDA margin is surprising and larger than expected.”
“Our FY24 EPS forecast decreases by 35 per cent to $1.47 with most of the impact in H1FY24. Hence, the narrative surrounding Aritzia’s story could be negative for the next two quarter before seeing earnings growth return in Q3FY24.”
While he maintained a “buy” recommendation for Aritzia shares, Mr. Landry dropped his target by $12 to $50. The average on the Street is $55.
“We believe that Aritzia’s earnings volatility this year may give investors some pause,” he said, :As a result, we have reduced our valuation multiple to reflect the higher execution risk to return to previous profitability levels as well as a slowing revenue growth profile ... Despite near-term earnings pressure, Aritzia’s growth story remains mostly unchanged with a long runway in the United-Sates and internationally. The company is undergoing growing pains which are temporary in nature, and we see a path to a return to historic profitability levels. However, in the meantime, investors’ confidence has been shaken.”
Elsewhere, a pair of analysts downgraded Aritzia:
* BMO Nesbitt Burns’ Stephen MacLeod moved it to “market perform” from “outperform” with a $50 target, down from $60.
“While we continue to appreciate Aritzia’s unique market positioning and U.S. growth opportunity, the unexpected shift to a period of infrastructure investment is expected to weigh on F2024E EBITDA (we have reduced our F2024E estimate by 26 per cent), with margins only returning to F2023A levels by F2025,” said Mr. MacLeod. “Combined with moderating sales growth (F202 estimate up 10-14 per cent vs. up 47 per cent in F2023) and an uncertain macro backdrop, we see balanced risk-reward with the stock trading at a premium to historical levels.”
* CIBC’s Mark Petrie lowered it to “neutral” from “outperformer” with a $44 target, down from $60.
“Aritzia’s F2024 guidance fell well below expectations, with severe GM% pressure exacerbated by further SG&A investment and slower revenue growth. We remain bullish about the long-term growth opportunity for Aritzia, though in the context of slowing consumer spending as well as substantial margin volatility, we take a more cautious view and downgrade from Outperformer to Neutral,” said Mr. Petrie.
Other analysts making adjustments include:
* Canaccord Genuity’s Derek Dley to $50 from $65 with a “buy” rating.
“In our view, F2024 very much appears to be a year of investment for Aritzia, with notable margin pressure in the front half of the year, before stabilizing and margin expansion accelerating in F2025,” said Mr. Dley. “As a result, we expect the stock will be challenged over the next two quarters until margin pressures subside. That said, the outlook for F2025 remains generally on track with our expectations ahead of the quarter, and longer term, we believe Aritzia remains a best-in-class retailer for those willing to look through the next couple quarters.”
* RBC’s Irene Nattel to $60 from $63 with an “outperform” rating.
“ATZ delivered another very strong FQ4 print, ahead of forecast and consensus but combination of unexpected, transient margin pressure in F24, capex guidance more than 2 times prior forecast, and investor concerns around sustainability of discretionary consumer spending likely to weigh on investor sentiment until visibility improves,” he said. “To be sure, top line growth trajectory remains buoyant with Q1 guidance $450-460-million (up 10-13 per cent year-over-year) and F24 guidance 10-14per cent, underpinned by accelerating U.S. penetration, growth of omnichannel and expansion into new categories. PT to $60 (-$3), SP reflects sector exposure/valuation/relative upside potential.”
* TD Securities’ Brian Morrison to $50 from $62 with a “buy” rating.
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National Bank Financial analyst Maxim Sytchev thinks the first-quarter financial report from Colliers International Group Inc. (CIGI-Q, CIGI-T) was “not as negative as the share price reaction suggests” and thinks it “does not make sense to step away at a cyclical low.”
Shares of the Toronto-based commercial real estate services provider dropped 9.7 per cent on Tuesday after net revenue of US$966-million, down 3 per cent year-over-year and below the Street’s forecast of US$973-million. Adjusted earnings before interest, taxes, depreciation and amortization of US$104.6-million and earnings per share of 86 US cents also fell below expectations (US$133-million and US$1.40).
Mr. Sytchev said Colliers continues to face a “tough” backdrop for its Capital Markets business, seeing weakness persisting. However, he emphasized the company’s “earnings power remains intact” for its Investment Management and Outsourcing & Advisory segments.
“Management expects Q2 CM revenues to drop 30 per cent to 40 per cent on a year-over-year basis, which will likely translate to negative consolidated organic EBITDA growth in the quarter,” he said. “Credit conditions are tighter, debt is more expensive and CRE sentiment is weak, which has impacted transaction volumes as buyers and sellers struggle to find an equilibrium. That being said, sequential improvement is expected and H2/23 will come on far easier comps. Company-wide margins are expected to expand for the full year, as CIGI’s cost structure is highly variable and management is pursuing ambitious cost control measures in areas of nonrevenue-producing headcount, discretionary spend and real estate expenses.
“The IM and OA verticals continue to bolster results given their exposure to structural tailwinds and positive organic consolidated EBITDA growth for the full year remains a real possibility (note that prior acquisitions would add about US$40-million in EBITDA from Q2 to Q4). Exposure to the office sector is relatively low in IM and long-dated strategies/commitments in the vertical ensure revenue stickiness in this high-margin business. As rates stabilize, fundraising should accelerate as well, with management expecting 10-per-cent year-over-year growth in AUM [assets under management] by the end of the year.
With lower forward projections, Mr. Sytchev cut his target to US$133 from US$140, reiterating an “outperform” rating. The average is US$136.79.
“There are portions of the CIGI business that are quite cyclical, meaning Capital Markets, which was 16 per cent of the top line in Q1/23 (vs. 26 per cent last year),” he said. “Like for ANY cyclical business, stepping away at the bottom does not make sense while Investment Management and Outsourcing & Advisory have a structural growth component to them. While the number of real estate transactions have precipitously declined, we are also not convinced that we are going to see many rate hikes post-May, providing much needed certainty for the clearing mechanism to resume. All in, we view CIGI’s investment thesis as relatively unchanged – positioned for Investment Management business durability, while affording management an opportunity to deploy capital in an accretive manner throughout the business cycle.”
Elsewhere, others making changes include:
* Scotia’s Michael Doumet to US$127.50 from US$140 with a “sector outperform” rating.
“CIGI reported a decent-sized 1Q miss and lowered its 2023 EBITDA guide by 5 per cent (at the mid-point),” said Mr. Doumet. “Despite the reduced 2023 guide and the visible headwinds to CRE (our 2023E EBITDA is at the low end of the guided range), we remain positive on the name. To us, CIGI shares trade at an attractive multiple on what we view as an organic trough. The transactional/cyclical businesses (CM and Leasing) are expected to organically reset at below-2019 levels in 2023. Meanwhile, its acyclical businesses (O&A and IM) are expected to grow at a healthy clip (i.e., double-digit). If we think about the setup – a 15-per-cent EBITDA compounder; trough organic EBITDA from cyclical CM & Leasing; higher proportion of EBITDA from acyclical O&A and IM; trading multiple in line with historicals; Q2/23 as the last quarter of organic declines; and EBITDA recovery in the 2H (with potential acceleration in 2024) – we believe the current entry point offers an attractive risk/reward.”
* BMO’s Stephen MacLeod to US$131 from US$150 with an “outperform” rating.
“While Capital Markets headwinds are (unsurprisingly) expected to continue (Q2/23E down 30-40 per cent), this is expected to be partially offset by acquisitions, as well as robust growth in O&A and IM,” said Mr. MacLeod. “These offsets reflect the meaningful steps Colliers has taken over the past several years to increase its proportion of recurring revenues (54 per cent of LTM [last 12-month] revenues), which are being given an opportunity to shine against the tough macro backdrop. We see attractive riskreward for long-term investors willing to look through near-term headwinds.”
* TD Securities’ Daryl Young to US$140 from US$150 with a “buy” rating.
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Touting the growing resource base at its project in Chile with a “manageable” initial capital estimate, BMO Nesbitt Burns analyst Rene Cartier initiated coverage of Marimaca Copper Corp. (MARI-T) with an “outperform” rating on Wednesday.
“Exploration efforts have been focused on further delineating and defining the Marimaca deposit. A relatively recent resource was published in 2022; however, we expect a further update in the near-term to deliver additional growth, and a resource upgrade,” he said. “Marimaca has outlined additional targets in close proximity, and near where the plant facilities would be located, which could be a future growth driver for the shares, though we expect integration to be longer dated. There are a number of prospective targets that have yet to be fully explored.”
“On our assumptions, the Marimaca project is anticipated to move into production in 2027. We have modelled Marimaca as a larger open pit copper mine relative to the prior PEA, particularly in light of success in growing resources, but with production below the 50ktpa threshold. We expect a feasibility study to be released after the resource update. Potential supplemental ore feed from surrounding targets could position the project as a larger-scale growth option for a strategic partner or an acquiror; however, at this time, we see this as more mine life extension potential as compared to scale uplift. In our view, the estimated lower capital intensity, and the manageable initial capital, provides an attractive entry point for a base metal project. We do not model supplemental resources beyond the Marimaca oxides, or include the recently discovered sulphides in our mine model, and see this as upside exploration potential.”
In a research report titled Chile Spice and (Almost) Everything Nice, Mr. Cartier emphasized the heavy insider ownership of the Toronto-based company.
“Management/insiders hold a significant economic interest in Marimaca at 45 per cent,” he said. “Private equity firms Greenstone Capital, and Tembo Capital, effectively control the company, though they have been supportive for overall project advancement. Of the board of directors, 50 per cent are independent, and both private equity firms having some form of representation. We see this as a concern for large-scale institutional ownership. With $15-million in cash, Marimaca will need to raise funds by mid-year based on our estimates and accordingly, we could see an equity financing overhang with the name.”
Pointing to its presence in “an attractive mining jurisdiction in proximity to established infrastructure with strong exploration results to date and additional prospective near-mine targets,” he set a target of $5.75, which is below the $6.25 average.
“Shares of Marimaca are trading at 0.5 times our diluted P/NAV10%, a bit below the midpoint of other developer and explorer peers within the BMO coverage universe at 0.6 times,” the analyst said. “Marimaca’s exploration success and nearby prospective targets, location in a quality mining jurisdiction, and readily available access to infrastructure, all support the progression of an estimated low capital intensity development project, in our view. We expect some discount is likely to persist, however, given the shareholder ownership, and near-term cash requirements.”
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In other analyst actions:
* Barclays’ Adrienne Yih downgraded Canada Goose Holdings Inc. (GOOS-N, GOOS-T) to “equal-weight” from “overweight” with a US$20 target, down from US$21. The average on the Street is US$19.81.
“With evidence mounting of a 2H23 recession, we recommend limited exposure to consumer product discretionary, sticking with best-in-class names to weather a downturn. Despite being an early cycle sector exiting a recession, we note that a slowing consumer spending environment has historically impacted all retailers,” she said.
* Scotia’s Tanya Jakusconek raised her Agnico Eagle Mines Ltd. (AEM-T) to $98 from $95 with a “sector outperform” rating, while National Bank’s Mike Parkin also moved his target to $98 from $95 with an “outperform” rating. The average is $88.40.
* Following an update on ongoing metallurgical programs at its Cactus project, IA Capital Markets’ Ronald Stewart raised his Arizona Sonoran Copper Co. Inc. (ASCU-T) target to $3.75 from $3.50, reiterating a “speculative buy” rating. The average is $3.36.
* National Bank’s Patrick Kenny bumped his Capital Power Corp. (CPX-T) target to $52 from $51 with an “outperform” rating. The average is $51.62.
* RBC Dominion Securities’ Geoffrey Kwan bumped his EQB Inc. (EQB-T) target to $88 from $87, above the $85.75 average, with an “outperform” rating.
“EQB reported very good Q1/23 results with normalized EPS ahead of our forecast and consensus; provisions for credit losses better-than-forecast; total loans outstanding in-line with our forecast; and loan originations that were only slightly below our forecast,” said Mr. Kwan. “Furthermore, the 6-per-cent dividend increase was in line with our forecast. Our note title reference to The Eagles’ classic Take It Easy reflects our view that despite the uncertain housing/mortgage market backdrop, we think EQB nevertheless continues to focus on its growth strategy, which we think the company is doing well. Within our small cap coverage, EQB is our best idea.”
* TD Securities’ Tim James raised his Exchange Income Corp. (EIF-T) target to $66 from $65 with a “buy” rating. The average is $63.91.
* Canaccord Genuity’s Mark Rothschild trimmed his target for First Capital REIT (FCR.UN-T) to $19 froM $19.50 with a “buy” rating. The average is $19.22.
* In reaction to its quarterly earnings release after the bell on Tuesday, Raymond James’ Brian MacArthur raised his Franco-Nevada Corp. (FNV-T) target to US$165 from US$163 with an “outperform” rating, while BMO’s Jackie Przybylowski cut her target to $235 from $236 with an “outperform” rating. The average is $213.58.
* Ahead of its May 9 earnings release, Desjardins Securities’ Gary Ho cut his Goeasy Ltd. (GSY-T) target to $150 from $165 with a “buy” rating, while TD’s Marcel Mclean cut his target to $160 from $180 with a “buy” rating. The average is $159.30.
“We expect 1Q results to be within the guidance range, but the main focus will be on how GSY is positioning itself in the new 35-per-cent rate cap environment and the implications for its three-year outlook (reason for our reduced valuation multiple),” he said. “That said, given its attractive 20-per-cent-plus ROE, solid management team and attractive valuation, we maintain our Buy rating ... Our investment thesis is predicated on: (1) its ability to manage in the current challenging macro environment through its robust credit underwriting platform, supported by its creditor insurance program; (2) solid loan book growth, particularly on secured products; (3) credible management team; and (4) the business has consistently generated a mid-20-per-cent ROE.”
* Canaccord Genuity’s Scott Chan raised his IA Financial Corp. Inc. (IAG-T) target to $100, exceeding the $97.83 average, from $95.50 with a “buy” rating.
* Lowering her quarterly forecast to reflect seasonal trends, RBC’s Irene Nattel cut his Neighbourly Pharmacy Inc. (NBLY-T) target by $1 to $35 with an “outperform” rating. The average is $29.06.
“We reiterate our view that the Rubicon acquisition was a key ‘de-risking’ event that: i) folds in a notable M&A competitor; ii) adds significant scale in under-penetrated markets; and iii) brings NBLY closer to the critical mass at which strategic opportunities emerge,” said Ms. Nattel. “On the subject of pharmacist vacancies, we anticipate gradual improvement in H2/2023 as the new cohort of graduates comes online but competition for talent likely to sustain wage pressure. New central fill facilities should also help relieve pressure, while adding capacity for expanding scope of service. In our view, labour and Rx count headwinds are transient and continue to support robust M&A pipeline.”
* Following Tuesday announcement of its joint venture with South Africa’s Gold Fields to develop the Windfall gold mining project, Scotia’s Ovais Habib moved his Osisko Mining Inc. (OSK-T) target to $4.25 from $4.50 with a “sector outperform” rating. Other changes include: Raymond James’ Brian MacArthur to $24 from $22 with an “outperform” rating, iA Capital Markets’ Sehaj Anand to $4.90 from $5.40 with a “buy” rating and BMO’s Andrew Mikitchook to $5.75 from $5.25 with an “outperform” rating. The average is $5.56.
“We believe this deal puts OSK in a position where it is fully funded to reach the production stage with reduced development risk by bringing in a sophisticated operator as partner,” said Mr. Habib. “In retaining a 50-per-cent interest in the project, OSK will maintain its exploration upside to the high-grade deposit and could use the new liquidity to invest in its other development projects in the Abitibi region once Windfall construction is complete. All things considered, we view the deal as mixed for OSK shares as the deal provides the liquidity needed to fully fund Windfall development, derisking the project; however, following model updates our price target falls.”
* Canaccord Genuity’s Robert Young lowered his target for Pluribus Technologies Corp. (PLRB-X) target to $3 from $3.75, below the $3.25 average, with a “speculative buy” rating.
* Canaccord Genuity’s Scott Chan cut his target for Propel Holdings Inc. (PRL-T) to $11.75 from $12, below the $13.50 average, with a “buy” rating.
* CIBC’s Dean Wilkinson lowered his Slate Office REIT (SOT.UN-T) target to $2.50 from $3 with a “neutral” rating. Others making changes include: Raymond James’ Brad Sturges to $2.25 from $3.25 with a “market perform” rating, TD’s Jonathan Kelcher to $2.50 from $3.75 with a “hold” rating and RBC’s Tom Callaghan to $2.75 from $4.75 with a “sector perform” rating. The average is $2.83.
“While SOT has experienced a deep contraction in its 2023E P/AFFO multiple following its decision to prudently reduce its annualized distribution rate in April, we believe a recovery in SOT’s unit price may be constrained until such time that the REIT meaningfully reduces its significant near-term debt maturity exposure and financial leverage metrics trend closer to long-term target levels once private market activity allows for SOT to prudently pursue asset sales at deemed new FMVs,” said Mr. Sturges.
* Following its first-quarter release, Scotia’s Phil Hardie raised his TMX Group Ltd. (X-T) target to $161 from $159 with a “sector perform” rating. Other changes include: BMO’s Étienne Ricard to $158 from $155 with a “market perform” rating and National Bank’s Jaeme Gloyn to $155 from $152 also with a “sector perform” recommendation. The average is $153.71.
“TMX delivered on our 3 keys to the quarter: (i) demonstrating continued solid momentum at Trayport; (ii) delivering revenue growth with the help of pricing initiatives and M&A activity; while at the same time, (iii) containing expense growth to deliver an EBITDA margin beat,” said Mr. Gloyn. “The one drawback is that organic expense growth of 8-per-cent year-over-year outpaced organic revenue growth of 6 per cent year-over-year. However, this largely reflects the impact of a softer capital markets backdrop on listings and trading revenue growth. Moreover, we like that TMX continues to invest in growth as a 7-per-cent year-over-year increase in headcount almost entirely explained the 8-per-cent year-over-year increase in compensation and benefits expense. Overall, we expect the market to look through negative operating leverage and focus on the underlying revenue growth, driving a positive share price reaction [Tuesday]. We increased our estimates and price target.”
* In response to its first-quarter earnings beat, Scotia’s Michael Doumet raised his Wajax Corp. (WJX-T) target by $1 to $30 with a “sector outperform” rating. The average is $28.75.
“While we expect cyclical tailwinds to moderate in its equipment business, Hitachi-specific growth opportunities should lead to healthy through-the-cycle growth. We continue to see value in WJX and believe M&A could help surface value,” said Mr. Doumet.
David Leeder