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

After “materially” reducing his financial estimates for both the remainder of 2023 and 2024 as advertisement sales continue to deteriorate and the Hollywood writers’ strike threatens the new television season, National Bank Financial analyst Adam Shine downgraded Corus Entertainment Inc. (CJR.B-T) to an “underperform” recommendation from “sector perform” previously.

“Though TV ad sales began to drop in July 2023, Q4/23 spending appeared worse than expected which caused us to reduce our estimates and drop EBITDA below consensus,” he said.

Mr. Shine lowered his revenue projection for the fourth quarter to $331.6-million from $336.1-million, falling in line with the current consensus of $331-million. His adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) estimate dropped to $47.4-million from $60-million, below the Street’s $55-million expectation. Those reductions came alongside a lower television ad sales forecast (now down 8 per cent year-over-year versus a previous estimate of negative 2 per cent).

The analyst also warned Corus is likely to be hurt from a delay to the 2023-2024 television season, which he thinks may not start until March or later.

“Hollywood writers have been on strike since May 2 and actors since July 14 with no end in sight for this labour strife,” said Mr. Shine. “Once resolved, it will take time for new TV output to materialize for a much truncated new season. Amid this dynamic, we materially contracted our f2024E such that total revs drop to $1.410-billion (down 6.2 per cent) from $1.508-billion, with TV revs $1.311-billion (was $1.407-billion), and Adj. EBITDA declines to $278.1-million (we’re now at $335.1-million in f2023) from $383.7-million. We reduced Adj. EPS to -$0.02 from $0.31 vs. $0.08 in f2023E and FCF to $89.6 from $293.5-million (included Toon Boom proceeds). This could prove overdone, but H1 will see pressure due to the delayed start of the new TV season, while any H2 traction may not be enough to cover the early shortfall.”

“How could the 2024-2025 TV season unfold? It should benefit from some kind of post-strike & cyclical recovery, but we don’t know about any lingering audience (cord-cutting/shaving) & advertising implications to exacerbate secular issues, so it’s best to be prudent. We forecast total revs in f2025 up 4 per cent to $1.467-billion, Adj. EBITDA up 24 per cent to $355-million, Adj. EPS $0.29, and FCF at $166-million.”

With a reduction to his net asset value calculations, he lowered his target for Corus shares to $1.30 from $2. The average on the Street is $2.29, according to Refinitiv data.

“We assume the dividend gets eliminated in H2/24,” he warned.


RBC Dominion Securities analyst Keith Mackey sees Precision Drilling Corp. (PD-T) “adding scale at a reasonable price” with its $141-million cash and stock acquisition of CWC Energy Services Corp. (CWC-X).

“Netting off about $57-million for the service rig business, we estimate PD has paid approximately $5-million per working drilling rig,” he said. “This is well below new build cost plus PD has not added additional market capacity. The acquired rigs are primarily not super spec rigs, which has likely been reflected in the price, but may compete for additional capital in a higher-demand environment. We believe improving OFS valuations should unlock additional consolidation across the sector.”

Mr. Mackey views the deal as a step for Precision toward achieving its current debt reduction strategy “as opposed to a pivot.”

“Based on our estimates we see the deal adding $42-million of EBITDA post synergies in FY24,” he said. “We assume a mid 4Q23 closing date. The transaction also aligns with PD’s debt reduction target of $500-million by 2025. We estimate that PD’s net debt will be reduced by $149/324-million in 2023/24, with the transaction 7-per-cent accretive on CFPS in FY24.”

Maintaining an “outperform” rating for Precision shares, Mr. Mackey raised his target to $125 from $118 after increasing his 2024 and 2025 revenue and earnings expectations. The average is $130.20.

“Our price target is based on a rounded 4.5 times our revised 2024 estimated EBITDA,” he said. “We see room for modest multiple expansion from current levels as PD’s balance sheet improves and its Internationally diversified business provides growth optionality.”


Noting Stingray Group Inc. (RAY.A-T) “trades like a traditional media stock,” Desjardins Securities analyst Jerome Dubreuil thinks “this portrayal increasingly diverges from the company’s reality and overlooks the attractive prospects provided by its growth ventures.

“RAY’s strong FCF yield (our definition) of 16 per cent gives management the means to achieve its ambitions while maintaining healthy shareholder distributions,” he added.

In a research report released Wednesday titled Crescendo of growth ventures, he initiated coverage of the Montreal-based company with a “buy” rating.

“We believe retail media offers investors solid growth prospects,” said Mr. Dubreuil. “It can be challenging to launch a new type of advertising amid an uncertain macroeconomic environment, but we believe that RAY’s service being at the intersection of its expertise in music and advertising, and its ability to generate strong value for all stakeholders, represent an attractive value proposition. In-car entertainment was an unforeseen area of growth until recently, but good things come to a content catalogue with global rights and a flexible digital platform. We believe RAY’s strong operational leverage despite modest investment requirements illustrates what it does best—leveraging owned assets in new verticals.”

In justifying his bullish view, he said investors’ “common pushbacks are addressable.”

“We believe the reasons for RAY’s low valuation include a lack of public peers for growth ventures, the complexity of its model for new investors, the lack of history in what we consider to be RAY’s most promising ventures, leverage and the significant changes in its business model since its IPO,” he said. “We believe RAY’s deleveraging profile, its ability to adapt and the modest investments required for new growth avenues should alleviate these concerns.”

“We are slightly more bullish than the Street. Our forecast for some business units is more conservative than management’s — the company does not release formal guidance but often comments on its financial prospects during conference calls. We forecast adjusted EBITDA of $132-million in FY25 while current consensus is $125-million. The weakening Canadian dollar vs the U.S. dollar has supported top-line growth recently, but we nonetheless anticipate mid- to high-single-digit organic growth despite pressure in traditional media businesses.”

Seeing several potential catalysts, Mr. Dubreuil set a Street-high target of $9 per share. The average on the Street is currently $8.

“At 5.5 times EV/CY24 EBITDA vs media peers at 6.0 times, RAY is undervalued given its better growth prospects and higher margins (EBITDA margin of approximately 35 per cent for RAY vs average of 20 per cent),” he said. “Furthermore, we believe RAY’s growing exposure to high-margin growth businesses is overlooked by the market.”


Touting its improving oil sands margin structure and “significant” potential in Duvernay play in Alberta,. Stifel analyst Michael Dunn initiated coverage of Athabasca Oil Corp. (ATH-T) with a “buy” recommendation on Wednesday.

“With a rapidly improved balance sheet that should be in a net cash position by month-end, the nearing 5 mbbl/d expansion at Leismer, recent lasting improvements to Hangingstone’s margins, an attractive Duvernay position, our outlook for $0.7-billion ($1.22 per share) of FCF [free cash flow] over the next two years at the strip, the recent commencement of share buybacks, and a relatively low institutional shareholder following currently, we expect institutional investors will be taking a fresh look at the stock. From a macro perspective, Athabasca fits our view that the biggest beneficiaries of the nearing start-up of the TMX pipeline will be those Canadian heavy oil producers with no export pipeline commitment.”

Expecting “strong” free cash flow with an active share buyback program going forward, Mr. Dunn set a target of $5 per share, matching the high on the Street and exceeding the $4.39 average.


Haywood Securities analyst Christopher Jones reaffirmed his view of Bonterra Energy Corp. (BNE-T) as “a top high beta and correlation idea to benefit from higher crude prices” after Tuesday’s announcement of a rebranding of its corporate strategy with “a focus on returning to a capital returns model.”

“In addition, the Company announced a RoC framework where upon hitting its net debt target of $135-million, it will return 25 per cent of FCF to shareholders via base and special dividends with 75 per cent of FCF allocated towards growth capital and further debt repayment,” he said, “Finally, we consider that M&A may represent a larger part of the Company’s strategy than the previous one.”

Declaring “the day is finally upon us,” Mr. Jones said he’s forecasting the Calgary-based company to hit its net debt target in the first-quarter of 2024, which will trigger that framework and lead to base and special dividends.

“Based on our capex estimate of $110-million in 2024, we estimate this implies a competitive annualized dividend of $0.41 per share or a dividend yield of 6 per cent,” he said. “For context BIR, BTE, CPG, FRU, HWX, PNE, SGY, TVE, and WCP yields of 9.4 per cent, 10 per cent, 3.6 per cent, 7.4 per cent, 5.6 per cent, 9.5 per cent, 5.5 per cent, 4 per cent, and 6.3 per cent, respectively.”

After raising his production forecast for the second half of the year to 14,100 barrels of oil equivalent per day from 13,700, slightly above the consensus forecast of 13,900 boe/d, Mr. Jones increased his target for Bonterra shares to $10 from $9.50, keeping a “buy” rating. The average is $9.80.

“We continue to see BNE as a small-cap beta play on improving oil prices,” he said. “While carrying higher-than-average debt on the balance sheet, improving commodity price expectations should place BNE as a top-quartile stock given the share price has historically been a high-beta play on a recovery in oil prices.”


UBS’s Joseph Spak initiated coverage of Magna International Inc. (MGA-N, MG-T) with a “neutral” rating on Wednesday, seeing its stock “mostly fairly valued in the mid US$60s.”

However, the analyst, formerly at RBC Dominion Securities, said he wouldn’t be surprised if the auto parts manufacturer sees a “snapback” following the resolution of the United Auto Workers labour dispute.

“We expect MGA to show better than historical Growth over Market (GoM) over the coming years (5 per cent per year in 2024/25) as the company benefits from a faster part of the ADAS growth curve and electrification (battery enclosures),” he said. “However, the sheer size of MGA’s business makes it difficult for growth from these areas to lead to sustained above average GoM. While the better mid- term growth is positive, MGA needs to show they can get these “megatrend” businesses to profitability. Our 2024/25 forecasts are modestly below consensus. We note that given MGA’s high exposure to NA and the D3, UAW strike risk has hit the stock.”

In a research report, Mr. Spak launched coverage of 13 companies, including Aurora, Ont.-based Magna, seeing the potential for gains from the UAW dispute.

“Our framework leans towards focusing on growth opportunities such as the secular trends of electrification, software-enabled vehicles and automated driving but we are very cognizant that the cyclical nature of the industry can overwhelm those factors,” he said. “Our stock picks are aligned with these long-term trends, but we keep value (and expectations) in mind. Tactically, we launch at a point in time when the group at large has sold off owing in part to uncertainty around the UAW-D3 labour negotiations which has caused a limited bid on the group. For suppliers, our analysis suggests that on average, 4 weeks of a strike at each of the D3 has been priced in.

“But if a strike occurs, it too will pass. Lost volume is transient so we don’t believe this should fully be capitalized and some more attractive entry points have presented themselves for investors.”

Mr. Spak set a US$63 target for Magna shares. The average on the Street is US$66.88.


In other analyst actions:

* In the wake of the release of its quarterly results and a raise to its quarterly dividend (by 1 cent, or 2.6 per cent, to 39 cents a share) after the bell on Tuesday, TD Securities’ Michael Van Aelst upgraded North West Company Inc. (NWC-T) to “buy” from “hold” with a $41 target, rising from $39 and above the $38.75 average.

* Following an analyst presentation titled Value Today, Growth Tomorrow, BMO’s Jackie Przybylowski raised her Street-high Barrick Gold Corp. (GOLD-N, ABX-T) target to US$30 from US$29 with an “outperform” rating. The average is US$22.91.

“Barrick presented the webinar... to highlight the value of the projects in its existing portfolio, particularly those which management believes are undervalued by analysts and the market,” she said. “Assets featured will support valuegenerating organic growth in both gold and copper.

“Will Barrick see full value from projects today? Webinar messaging around organic growth should provide a better understanding of direction, but may not be sufficient to unlock ‘full’ value. The market is likely to continue to apply a risk discount to longerdated and more geopolitically risky projects.”

* After meeting with its management, Credit Suisse’s Andrew Kuske trimmed his target for Enbridge Inc. (ENB-T) to $51 from $52 with a “neutral” rating. The average is $55.99.

“Simply, postdeal share price performance is positive for the $4.6-billion gross equity value at a $44.70 per share price (approximately 7-per-cent discount) with the most recent close at $46.29 per share,” he said. “We view three near-term issues as being predominate: (a) the timing of deal close in 2024 for the minimization of the funding drag; (b) timing along with the actions necessary to reduce the current funding gap at close (hybrids, asset recycling, cash generation, etc.); and, (c) the achieved accretion in 2025 (first full year post close). Even on a more near-term basis, an index upweight should aid trading performance. Over the longer-term, the transaction supports ENB’s continued pivot towards lower carbon activities along with a broader asset network.”

“ENB is well positioned with a somewhat dichotomous business, but this transaction helps re-position the enterprise to lower carbon activities. In our view, the size and scale of the asset base across North America are helpful for network benefits with relatively lowrisk and high returning prospects with duration.”

* After a visit to its three Tier-1 assets, Eight Capital’s Puneet Singh raised his Ivanhoe Mines Ltd. (IVN-T) target to a Street-high of $19 from $18.50 with a “buy” rating. The average is $15.86.

“IVN is our top base metals pick due to its growth profile compared to its larger-cap peers,” he said. “The Chinese have long backed the DRC/IVN, but the Saudis and Americans are also showing interest in strategic metals in the country, which could prove beneficial for Ivanhoe.”

* In the wake of a recent update with its executive team, RBC’s Greg Pardy increased his Vermilion Energy Inc. (VET-T) target to $25, above the $24.93 average, from $22 with a “sector perform” rating.

“Vermilion continues to make progress towards reestablishing its premium framework characterized by free cash flow generation, a strong balance sheet and rising shareholder returns,” he said.

“We could become more bullish towards the company with improved operational execution and further portfolio streamlining.”

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 12/04/24 4:00pm EDT.

SymbolName% changeLast
Athabasca Oil Corp
Barrick Gold Corp
Bonterra Energy Corp
Corus Entertainment Inc Cl B NV
Enbridge Inc
Ivanhoe Mines Ltd
Magna International Inc
The North West Company Inc
Precision Drilling Corp
Stingray Digital Group Inc Sv
Vermilion Energy Inc

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