Inside the Market’s roundup of some of today’s key analyst actions
Touting its “successful margin expansion and solid growth prospects,” Stifel analyst Martin Landry raised his recommendation for Premium Brands Holdings Corp. (PBH-T) to “buy” from “hold” on Wednesday.
“We are upgrading our rating on Premium Brands to BUY for the following reasons: (1) The company reported its highest EBITDA margins of the last six years. This increases our visibility and confidence on the path to 10-per-cent margins, and we see further upside beyond that level. (2) Premium Brands has significant capacity expansion planned for 2024. New program wins in the U.S. and Internationally should boost 2024 sales, potentially exceeding the company’s long-term organic growth target of 9-10 per cent. (3) While leverage at 4.7 times is above our comfort level, we see several paths to de-lever which include an expected double-digit increase in 2024 EBITDA, positive free cash flow in 2024 and potential divestiture of non-core assets. PBH has more than $700 million in unused credit facility providing flexibility and reducing the risk profile,” he said.
On Tuesday, the Vancouver-based specialty food company reported revenue ot $1.645-billion, up 1.3 per cent year-over-year but below Mr. Landry’s $1.738-billion estimate. Adjusted EBITDA jumped 12.5 per cent to $158.8-million, missing his $165-million forecast, while earnings per share fell 7.6 per cent to $1.26, which was 19 cents lower than anticipated.
However, the analyst emphasized the company’s EBITA margin improvement to 9.7 per cent, up 1 per cent year-over-year due to gains in its Specialty Foods segment.
“We are encouraged by the current profitability trends as it supports management’s EBITDA margin target of 10 per cent by 2027,” said Mr. Landry. “We expect profitability to continue to improve moving forward in part from a shift in mix as growth in the Specialty Food segment outpace growth in the Distribution segment. Additionally, new programs wins should leverage recent capital investments as capacity is filled, leading to strong contribution margins. We forecast EBITDA margins to reach 10 per cent by 2025, up from 9.2 per cent expected in 2023. In its quarterly investor presentation, management showed for the first time a potential for EBITDA margins to reach 12 per cent by 2027.”
Also seeing its capital expenditure spending supporting organic growth next year, Mr. Landry sees Premium Brands’ M&A pipeline has “healthy” even with leverage concerns.
“Premium Brands’ acquisition pace had been muted in the past 12 months, but M&A activity resumed in November with the acquisition of Menu-Mer, a small Quebec based food distributor with annual sales of $27 million,” he said. “Looking forward, PBH’s M&A pipeline appears healthy with 12 potential acquisition targets in the active stage, an increase vs. 10 in Q2/23. While management indicated that it would not stretch the balance sheet to make acquisitions, we would prefer a pause on acquisitions to focus on reducing the financial leverage.”
“We are only making small tweaks to our forecasts, reflecting management’s revised 2023 guidance. Our 2023 EBITDA estimates is reduced by 2 per cent on the back of lower revenues as recent trends in the company’s distribution business are expected to continue into Q4/23. Our 2024 revenue and EBITDA estimates are largely unchanged, but we have reduced our adjusted EPS estimates by 3 per cent due to higher interest expenses.”
Also introducing his 2025 estimates, which includes year-over-year revenue growth of 5 per cent, Mr. Landry trimmed his target for the company’s shares to $108 from $111. The average is currently $119.
Elsewhere, others making changes include:
* Desjardins Securities’ Chris Li to $110 from $124 with a “buy” rating.
“3Q results were mixed with higher-than-expected EBITDA in Specialty Foods offset by lower-than-expected results in Premium Food Distribution,” said Mr. Li. “While we expect the shares to be range-bound in the near term until there is better visibility on macro and leverage, we believe PBH remains well-positioned for long-term growth.”
“Despite the guidance reduction, the share price reaction was muted, probably because it was largely expected with the stock pulling back 20 per cent since 2Q results in mid-August and trading at close to a trough valuation of approximately 10.7 times 2024 EBITDA. While we expect the shares to be range-bound in the near term until there is better visibility on macro and leverage, we believe PBH remains well-positioned for long-term growth and maintain our positive view.”
* Scotia’s George Doumet to $125 from $129 with a “sector outperform” rating.
“Q3 results missed street expectations, but there was an anticipation of softer results (our estimates were there and the stock sold off into the Q),” said Mr. Doumet. “As a result of the weak seafood business and some other largely transitory issues, PBH also lowered its 2024 revenue and EBITDA guidance by 2 per cent and 3 per cent.
“These results have improved our confidence in PBH exceeding its 5-year 10-per-cent EBITDA margin target (we think 12 per cent plus) and see an acceleration in organic growth starting in 2H/24 (likely matching the 5-year plan 10-per-cent CAGR). At the balance sheet level, we look for healthy deleveraging supported by higher EBITDA, but also improved FCF generation (wcap reversal, CLR initiatives, etc.). We see a significant risk/reward opportunity at current levels.”
* RBC’s Sabahat Khan to $103 from $110 with a “sector perform” rating.
“Premium Brands reported consolidated sales/ Adjusted EBITDA that were below consensus, while full-year 2023 guidance was also revised lower. Management noted that many of the negative impacts from Q3 were one-time in nature (e.g., Specialty Foods organic growth was impacted by temporary delays with a major customer/facility startup), while some headwinds are expected to continue into Q4 (e.g., softness in the lobster business; we have revised our Q4 forecasts lower as a result). Overall, while inflationary pressures are easing, we continue to take a cautious view at this time on Q4 and the 2024 Adjusted EBITDA outlook given the uncertain macro backdrop,” said Mr. Khan.
* BMO’s Stephen MacLeod to $117 from $124 with an “outperform” rating.
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National Bank Financial analyst Matt Kornack raised his recommendation for True North Commercial REIT (TNT.UN-T) to “sector perform” from “underperform” previously, pointing to “improved earnings growth and a more compelling implied cap rate given trading performance (8.39 per cent) spread to financing costs on new debt (approximately 6 per cent) and relative to [his] NAV cap rate of 8.25 per cent.”
On Monday, the Toronto-based REIT reported largely in-line third-quarter financial results, including funds from operations of 11 cents, down 2 cents year-over-year but matching the forecast of both Mr. Kornack and the Street. He called it a “stable” quarter from an operations perspective with the disposition of several properties with low weighted average lease terms (WALT) and spreads “lower but positive.”
While investors punished True North’s decision to halt its monthly distribution, sending its units plummeting 22.9 per cent on Tuesday, it was a negative initial reaction anticipated by Mr. Kornack.
“Operationally, Q3 was largely in line with our expectations as there was a limited amount of leasing completed in the quarter but expected backfilling of vacant space occurred and the REIT completed dispositions of buildings with potential vacancy pressures,” he said. “Spreads on leasing were positive, albeit lower than historical figures but capex tracked averages (leasing costs were higher relative to the square footage transacted but this was expected). The bigger news was a novel approach to capital allocation and the higher distribution. Post quarter, TNT will suspend amounts paid to unitholders for approximately six months and allocate the capital to unit buybacks under the NCIB. This is accretive to FFO/unit without incrementally leveraging the REIT (while our preference would have been for de-leveraging with the proceeds, this is welcome nonetheless). Given recent trading weakness and the announced plan, we are moving to Sector Perform.”
Mr. Kornack’s target for True North units rose to $1.50 from $1.25. The current average is $1.54.
Elsewhere, Canaccord Genuity’s Mark Rothschild lowered his target to $1.25 from $1.75 with a “hold” rating.
“In our view, the capital should be utilized to reduce leverage, as debt to asset value (utilizing an 8.25-per-cent cap rate) is now 93 per cent and strengthening the balance sheet is critical,” said Mr. Rothschild. “Should property fundamentals improve, we believe there would be significant upside to the unit price, although we view the combination of a difficult financing market and soft demand for office space as material headwinds.”
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Pointing to “a wider-than-normal discount to NAV (near peak levels),” Desjardins Securities analyst Doug Young now sees the valuation for Power Corporation of Canada (POW-T) as “compelling,” leading him to upgrade its shares to “buy” from “hold” following a “positive” third-quarter financial report.
Shares of the Toronto-based management and holding company jumped 3.9 per cent on Tuesday following the release of its quarterly results, which included adjusted earnings per share of $1.52 that topped both Mr. Young’s 93-cent estimate and the consensus projection on the Street of $1.06. He attributed that beat largely to a non-cash gain at Beligum-based Groupe Bruxelles Lambert (GBL).
“Also, relative to our estimate, better-than-expected results at its investment platform and its other and standalone investments contributed $0.10,” said Mr. Young. “GWO accounted for $0.06 of the beat relative to our estimate, but we knew this would be the case post its 3Q23 results release last week. IGM was in line. Other than GWO’s and IGM’s contribution, the rest is difficult to model.”
After raising his operating EPS projections through 2025, Mr. Young bumped his target for Power shares to $39 from $38. The average on the Street is $39.86.
“We see the current valuation as compelling, with the discount to NAV at 31.9 per cent as of November 13, which is near its peak level of 33.5 per cent,” he said.
“We believe POW has ways to surface value in the future. It also offers an attractive dividend yield (6.2 per cent) and discount to NAV (31.9 per cent).”
Elsewhere, Scotia Capital’s Phil Hardie raised his target to $44 from $42.50 with a “sector perform” recommendation.
“Power Corp. likely offers an attractive combination of resilience, dividend yield & growth, and value,” said Mr. Hardie. “We believe that management has delivered solid execution and strategic progress on several fronts, however POW’s NAV discount has blown out to what we view as relatively extreme levels that do not appear to be justified by fundamentals. After tightening to a recent low of 17 per cent in July 2022, we estimate that the discount has blown out to over 30 per cent. Over the next twelve months, we expect the discount to narrow to the upper-teens. The stock currently offers a dividend yield of 6.2 per cent with a strong track record of dividend growth. Despite a softening economy, we expect mid-single-digit dividend growth.
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Desjardins Securities analyst John Sclodnick moved Marathon Gold Corp. (MOZ-T) to “tender” from “buy” following the announcement of its deal to be acquired by Calibre Mining Corp. (CXB-T), believing it “appears to be only way forward.”
“We certainly view it as a disappointing outcome for a quality Canadian project; however, given MOZ was significantly underfunded in a challenging financing market, the CXB offer appears to be the best solution for MOZ shareholders, who can continue to participate in the potential re-rating of CXB’s undervalued shares,” said Mr. Sclodnick.
“We had previously modelled a $70-million funding gap for MOZ to complete the Valentine Gold project as per the latest study; however, if management were to proceed with its proposed larger throughput upfront, that funding gap would have increased to $100-million, or 35 per cent of the company’s market cap. This would have caused significant further dilution to shareholders given the stock was trading at 0.30 times NAV prior to the takeout offer, and it had already taken on a debt financing package and royalties up to 3 per cent.”
The analyst thinks the deal, announced Monday, enables Marathon shareholders to “avoid further dilution and erosion of the capital structure, as CXB has the balance sheet and free cash flow to fund development through ramp-up.”
He moved his target for its shares to 72 cents from $2.25 to reflect the exchange ratio. The average on the Street is $1.34.
Elsewhere, Scotia’s Ovais Habib cut his Marathon target to 75 cents from $1.50 with a “sector outperform” rating.
“We view this deal as positive for both parties as MOZ gets immediate funding from the $40-million placement to close its funding gap regardless of the deal’s outcome and brings in an experienced operating team to complete construction, while CXB gets geographic diversification into a tier 1 jurisdiction and a pathway to reaching more than 400 koz by 2025,” he said.
Meanwhile, Raymond James’ Farooq Hamed lowered his Calibre target to $2 from $2.25 with an “outperform” rating. The average is $2.28.
“Overall, we believe the transaction expands CXB’s appeal to a broader potential investor base on the basis of increased company and production size, lower overall political risk exposure as the concentration of NAV and production from Nicaragua is decreased below 50 per cent, and increased share liquidity. Based on our modeling we see the transaction as being slightly accretive to CXB on a NAV basis,” said Mr. Hamed.
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In a separate report, Mr. Sclodnick lowered Argonaut Gold Inc. (AR-T) to “hold” from “buy,” citing issues with its Magino mine in Northern Ontario, with a 60-cent target, down from 90 cents. The average is 91 cents.
“Magino continues to suffer through numerous ramp-up issues, which have caused significant strain on the balance sheet,” he said. “While the sale of the Mexican operations may help to reduce debt, it would also lower EBITDA. We see risk of an equity financing, which would be quite dilutive at current valuations; due to this risk and balance sheet strain during the prolonged Magino ramp-up, we are downgrading the stock to a Hold from a Buy.”
“While our target still implies a solid potential return to target of 33 per cent, we are downgrading the stock to a Hold due to balance sheet risk, as we see potential that the company may be in breach of financial covenants and also the risk of an equity raise.”
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With a “reset” in the expectations for its Defense and Security segment, RBC Dominion Securities analyst James McGarragle sees Tuesday’s selloff in shares of CAE Inc. (CAE-T) “creating an attractive entry point” for investors.
Shares of the Montreal-based company fell 4.4 per cent following the premarket release of its second-quarter 2024 financial report, which included a record backlog of $11.8-billion, up 11 per cent year-over-year. Adjusted EBITDA of $230-million and operating income of $139-million exceeded the projections of both the analyst ($222-million and $129-million, respectively) and the Street ($225-million and $131-million).
However, investors expressed concern about CAE’s margin outlook for its Defense segment, which Mr. McGarragle said “disappointed.”
“Defense margins have been in focus since CAE’s Investor Day in June 2022, and [Tuesday’s] miss combined with a weaker than expected guide was not well-received, with the shares trading down 4 per cent,” he said. “We adjusted our Defense margin estimates lower to align with the company’s mid single digit guidance in fiscal H2/24 and model for these trends to persist into next year. Continue to believe CAE’s share price assigns no value to the Defense segment, and that with Defense expectations now reset lower there is upside risk to our Defense outlook.”
The analyst now thinks the “dichotomy” between the Defense and Civil business, which he sees “firing on all cylinders,” is significantly more “pronounced” exiting the quarter.
“Strong Civil execution was once again overlooked by weak margins in Defense,” said Mr. McGarragle. “We value CAE shares on a sum of the parts basis and apply a 13.5 times multiple to Civil, in line with premium industrial compares to reflect favourable industry dynamics and long-term secular trends. This implies the Civil business is worth roughly $29 per share, in line with today’s close of $28.87. So with expectations reset in Defense, we see very attractive optionally in the shares at current prices.”
“We are bringing lower our F24 EBITDA estimate to $1,044-million (from $1,064-million) due to weaker than expected operating margin guidance in defense. Our Civil adj. operating income growth estimate is for year-over-year growth of 18 per cent, in line with guidance for growth of mid to high-teen. Our F25 EBITDA estimate also decreases to $1,084-million (from $1,194-million). Our F25 EPS estimate decreases to $1.35 (from $1.49) and represents FY22-F25 CAGR of 17 per cent, below Investor Day targets for mid-20-per-cent growth, due to margin headwinds in Defense.”
Maintaining an “outperform” recommendation for CAE shares, he lowered his target to $34 from $37. The average is $37.08.
“Despite Defense margin headwinds, we still see solid value in CAE shares at today’s levels,” said Mr. McGarragle. “Following the quarter, we took lower our Defense target multiple to 7 times (from 8.5 times), well below Defense peers at 12-13 times, to reflect margin headwinds. Despite our meaningfully lower estimates and target multiple, our TP of $34 still represents an attractive 18-per-cent return to target.”
Elsewhere, others making target changes include:
* National Bank’s Cameron Doerksen to $36 from $38 with an “outperform” recommendation.
“While the pace of margin improvement in CAE’s Defence sector is a clear disappointment, we remain very positive on the Civil segment (approximately 75 per cent or more of total company operating income) where results are coming in better than expected in F2024,” said Mr. Doerksen. “CAE should enjoy growth in its Civil segment over a multi-year period supported by underlying airline pilot training demand and higher full flight simulator deliveries. We also expect Defence margins to eventually show improvement underpinned by very supportive growth in global defence spending that will drive new order activity. Finally, the recently announced sale of CAE’s Healthcare division to Madison Industries for net proceeds estimated at $250 million will accelerate balance sheet deleveraging while also helping management re-focus on its core businesses.”
* Desjardins Securities’ Benoit Poirier to $35 from $37 with a “buy” rating.
“Overall, we view CAE’s results as neutral given quarterly results came in stronger than expected, but the slow recovery in defence margins is what drove the share price reaction yesterday, in our view,” said Mr. Poirier. “Reintroduction of capital returns to shareholders upon closing of the healthcare divestiture should send a positive signal. Our model currently assumes the introduction of a 5-cents-a-share per quarter dividend in 4Q, which should be received positively.”
* Scotia’s Konark Gupta to $36.50 from $38 with a “sector outperform” rating.
“Consolidated FQ2 results came in slightly ahead as Civil continued to exhibit strength while Defense margin disappointed due to timing-related mix issues,” said Mr. Gupta. “As CAE expects these trends to continue in fiscal 2H, it raised full-year Civil guidance and trimmed Defense guidance for a net negative impact on our F2024 EBIT outlook. We have also reduced our F2025 EBIT estimate considering Defense mix noise will likely continue in at least the first half of next fiscal year. However, on the positive front, working capital rebounded early for a nice FCF, backlog continued to break records in both segments, and pro forma leverage ratio reached CAE’s target of 3.0 times , paving the way for potential reinstatement of shareholder returns in early 2024. We are reducing our target ... on revised estimates, while maintaining our Sector Outperform rating as we expect continued double-digit EPS growth over the next 2.5 years. That said, we are mindful of potential earnings weakness next quarter due to a more pronounced seasonality in Civil this year.”
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In other analyst actions:
* JP Morgan’s Mark Strouse downgraded Canadian Solar Inc. (CSIQ-Q) to “underweight” from “neutral” with a US$22 target, down from US$33 and below the US$35.18 average on the Street. Other changes include: Oppenheimer’s Colin Rusch to US$51 from US$68 with an “outperform” rating and Roth’s Philip Shen to US$35 from US$50 with a “buy” rating.
“CSIQ missed 3Q23 forecasts, including a GM miss driven by a $35-million inventory writedown, and guided below the Street for 4Q to the low end of its 2023 expectations,” said Mr. Rusch. “However, there are several positive elements to an otherwise disappointing print. First, energy storage growth in 2024 was guided to 3 times, suggesting CSIQ’s product offering is gaining meaningful traction. Second, CSIQ is managing cash well with cash cycle days less than 90, cash balance remaining about $2-billion, and total debt down $560-million, suggesting it is well positioned to work through current price/inventory levels. Management highlighted that project-level economics, particularly for utility-scale projects, remain compelling and that global solar demand is poised for 3 times growth by 2030. As we moderate expectations and rationalize our price target, we remain constructive on shares.”
* TD Securities’ David Kwan initiated coverage of Constellation Software Inc. (CSU-T) with a “hold” rating and $3,250 target. The average is $3,197.50.
* Mr. Kwan became the first analyst to initiated coverage of Lumine Group Inc. (LMN-X), giving it a “buy” rating and $28 target, and Topicus.com Inc. (TOI-X) with a “hold” rating and $99 target.
* National Bank’s Lola Aganga initiated coverage of Lithium Americas Corp. (LAC-T) with an “outperform” rating and $16 target. The average is $18.25.
* TD Securities’ Brian Morrison lowered his target for shares of Aimia Inc. (AIM-T) to $5 from $5.50, reiterating a “speculative buy” recommendation. The average is $5.13.
* National Bank’s John Shao lowered his Alithya Group Inc. (ALYA-T) target to $2 from $2.75 with a “sector perform” rating, while Desjardins Securities’ Jerome Dubreuil cut his target to $2.70 from $3.15 with a “buy” rating. The average is $3.28.
“Alithya reported FQ2 results that were below our and the consensus estimates due to a challenging macro environment with customers reducing or delaying their IT spending,” said Mr. Shao. “The softness on the top line was partially offset by the Company’s optimization and cost-reduction initiatives, driving its gross margin profile towards the right direction. While we believe the Company is prepared for a rebound should the macro environment improve, it remains uncertain how long that recovery will take and when we will see growth rates reaccelerate.”
* National Bank’s Dan Payne lowered his Birchcliff Energy Ltd. (BIR-T) target to $9.25 from $9.75 with an “outperform” rating, while BMO’s Randy Ollenberger cut his target to $8 from $8.50 with a “market perform” rating. The average is $9.57.
“Birchcliff reported lower-than-expected cash flow due to softer volumes, weaker realized prices and higher transport costs. Total debt continued to rise as the company outspent cash flow. The company pulled forward $20 million of 2024 capital into Q4/23, with 2023 expenditures now expected to total $300 million. Birchcliff also released a preliminary 2024 capital budget that was in-line with expectations. Birchcliff continues to have no fixed hedges in place, leaving it fully exposed to weaker natural gas prices,” said Mr. Ollenberger.
* RBC’s Pammi Bir raised his Chartwell Retirement Residences (CSH.UN-T) target to $14 from $13 with an “outperform” rating. The average is $13.25.
“Post in line, yet operationally strong results, we’re increasingly constructive on CSH. SP NOI growth shifted to high gear as the benefits of significant operational efforts are becoming more readily visible. Together with pent-up demand, slowing new supply, and demographic tailwinds, we see a recipe for momentum to carry through 2024. Layering on the anticipated merits from winding-up the Welltower JV, we believe the risk/reward profile remains compelling,” said Mr. Bir.
* Canaccord Genuity’s Robert Young raised his Converge Technology Solutions Corp. (CTS-T) target by $1 to $6, keeping a “speculative buy” rating. The average is $5.65.
* TD Securities’ Mario Mendonca trimmed his ECN Capital Corp. (ECN-T) target to $2.50, below the $2.74 average, from $2.75 with a “hold” rating. Other changes include: Raymond James’ Stephen Boland to $3.50 from $4 with an “outperform” rating and BMO’s Tom MacKinnon to $2.60 from $2.75 with a “market perform” rating.
* Following “yet another disappointing set of Q3 results,” Canaccord Genuity’s Tania Armstrong-Whitworth, currently the lone analyst covering Else Nutrition Holdings Inc. (BABY-T), cut her target to 45 cents from 55 cents with a “hold” rating.
* ATB Capital Markets’ Chris Murray cut his Exro Technologies Inc. (EXRO-T) target to $2.25 from $3.35 with a “speculative buy” rating. The average is $2.90.
* Canaccord Genuity’s Joseph Vafi lowered his target for Hive Digital Technologies Ltd. (HIVE-Q, HIVE-X) to US$6 from US$7 with a “buy” rating. The average is US$5.94
* Desjardins’ Alexander Leon lowered the firm’s target for Inovalis Real Estate Investment Trust (INO.UN-T) to $1.25 from $3 with a “hold” rating. The average is $3.63.
* TD Securities’ Arun Lamba cut his K92 Mining Inc. (KNT-T) target to $9.50 from $10 with a “buy” rating. The average is $10.56.
* ATB Capital Markets’ Nate Heywood raised his Parkland Corp. (PKI-T) target to $54 from $50 with an “outperform” rating. Other changes include: BMO’s John Gibson to $54 from $52 with an “outperform” rating and RBC’s Luke Davis to $54 from $53 with an “outperform” rating. The average is $50.31.
“We attended Parkland’s 2023 investor day in Toronto where management outlined an updated 5-year outlook, key strategic priorities, and a prescriptive capital allocation framework. In our view, the team did a good job underscoring historical execution, the benefits of an integrated and nimble supply network, and continued tailwinds from years of investment in key geographies. While we expect a near-term focus on leverage reduction, management re-opened the door for M&A, which likely remains a key facet of the long-term business model,” said Mr. Davis.
* Canaccord Genuity’s Yuri Lynk cut his Shawcor Ltd. (MATR-T) target to $23.50 from $24.50 with a “buy” rating. Other changes include: National Bank’s Zachary Evershed to $20 from $20.50 with an “outperform” rating and TD Securities’ Aaron MacNeil to $17 from $18 with a “hold” rating. The average is $22.81.
* RBC’s Sabahat Khan reduced his target for Sleep Country Canada Holdings Inc. (ZZZ-T) to $24 from $27 with a “sector perform” rating. The average is $27.17.
“Sleep Country Canada Holdings Inc. reported Q3 results that were largely in line with RBC/consensus estimates. Overall, we continue to maintain our cautious outlook on Sleep Country given the uncertain macro backdrop, which is continuing to weigh on consumer demand,” said Mr. Khan.
* In response to its deal to sell its coal business to Swiss commodities trading giant Glencore PLC and two Asian steelmaker, Eight Capital’s Ralph Profiti trimmed his Teck Resources Ltd. (TECK.B-T) to $70 from $75 with a “buy” recommendation. Other changes include: Scotia’s Orest Wowkodaw to $69 from $72 with a “sector outperform” rating and Canaccord Genuity’s Dalton Baretto to $63 from $66 with a “buy” rating. The average is $65.39.
“This transaction achieves the clean separation between the Metals and the Coal businesses as originally promised,” said Mr. Baretto. “The gross-up valuation implied by the GLEN portion of the transaction is in line with what we valued the business at as of the end of Q3/24; that said, the net realized cash proceeds from the transaction are 13 per cent below this valuation. The major cash inflow sets the Board up to announce a major cash dividend post-closing (more on this below), and we believe we could see a 1.0-2.0 times increase in TECK’s EBITDA multiples post the closing of this transaction (offset by the loss of EBITDA from EVR, of course).”
* Desjardins’ Jerome Dubreuil cut his WELL Health Technologies Corp. (WELL-T) target to $5.25 from $5.50 with a “hold” recommendation, while Stifel’s Justin Keywood trimmed his target to Street-high target to $11 from $12 with a “buy” rating. The average is $7.96.
“WELL reported results which were slightly ahead of expectations,” said Mr. Dubreuil. “The company also provided 2024 revenue guidance which slightly beat consensus. However, profitability growth is lagging top-line improvement and management appears to be tilting capital allocation toward primary care. Although attractive consolidation opportunities exist in this segment, we believe these operations are not as scalable as pure technology, and therefore we do not think the 13 times EV/2024 EBITDA is particularly attractive.”
David Leeder