Inside the Market’s roundup of some of today’s key analyst actions
Scotia Capital analyst Robert Hope sees Enbridge Inc.’s (ENB-T) $19-billion acquisition of three natural gas distribution utilities from Dominion Energy Inc. (D-N) as “a large tuck-in, not a pivot.”
“Overall, we have a positive view of the transaction as it checks many boxes in our eyes,” said the analyst after resuming coverage on Friday following the company’s $4.6-billion common equity offering.
“The transaction improves the overall quality and stability of Enbridge’s asset base, while also increasing the predictability and visibility of its growth outlook. We see the transaction as being approximately 1 per cent accretive to EPS and distributable cash flow in 2025. Though, the upfront equity financing is dilutive to our 2023 and 2024 estimates. Longer term, this accretion increases given the acquired utility assets should grow faster than Enbridge’s base business. At recent levels, we see limited downside in the shares given its well covered 7.9-per-cent dividend yield and visible growth outlook.”
Enbridge’s big U.S. acquisition comes with a trade-off: Prioritizing revenue mix over debt load
In a research note, Mr. Hope acknowledged the acquisition is “of course very large,” however he sees it as a complementary addition to its $175-billion asset basis rather than a significant change in strategic direction.
“Gas distribution utilities is an asset class that Enbridge knows well given its existing Ontario operations,” he said. “The acquisition of the Dominion assets increases our 2025 estimated EBITDA weighting from gas utility assets to 21 per cent from 13 per cent. With rate base growth of 8 per cent per year and a long runway of growth, we see the transaction as increasing the visibility and confidence in Enbridge’s growth profile. The transaction moves down our 2025 Liquids EBITDA weighting to 49 per cent from 54 per cent, which could be well-received by some investors. With the Dominion assets having $1.7-billion of investment opportunities per year, we now see over $3-billion of stable and visible annual utility capital expenditures per year. Given this, we expect Enbridge’s gas pipeline and gas utility business will continue to grow at rates faster than its Liquids business.”
Mr. Hope sees the company’s financing plan as “achievable while maintaining leverage in its targeted range” and emphasized its accretive to his 2025 estimates.
“We view the 7.9-per-cent dividend yield as safe,” he added. “The decline in our 2024 estimates pushes our payout ratio to 69 per cent, which is towards the upper end of management’s targeted 60-70-per-cent band. However, this improves to 66 per cent once there is a full year contribution from the utility assets. Overall, we see the dividend as well-supported and view the 7.9-per-cent yield as safe. Looking forward, we assume 3-per-cent dividend growth as the company may prefer to continue to push down its payout ratio. We no longer include any share repurchases in our model.”
After “slightly” trimming his valuation multiple, Mr. Hope reduced his target for Enbridge shares to $52 from $54, keeping a “sector perform” recommendation. The average on the Street is $56.42, according to Refinitiv data.
“We have a positive bias on the shares longer term, however, the remaining financing and regulatory approvals (which we view as manageable) could be a headwind for the shares into 2024,” he concluded.
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Following stronger-than-anticipated first-quarter 2024 financial results, Alimentation Couche-Tard Inc. (ATD-T) appears to have “better control” on its gasoline margins than in the past, according to Stifel analyst Martin Landry, who thinks they may be “sustainable long-term.”
After the bell on Wednesday, the Montreal-based company reported adjusted earnings per share of 86 cents, up 1.2 per cent year-over-year and exceeding both Mr. Landry’s Street-low estimate of 67 cents as well as the consensus forecast of 78 cents. He attributed the beat to higher U.S. gasoline margins (contributing 20 cents per share) as well as “slightly” higher gross margins and lower SG&A expenses.
“Both merchandise margins and gasoline margins were strong in Q1FY24, making for an exceptional quarter,” the analyst said.
“Couche-Tard increased its Q1FY24 EPS year-over-year despite a difficult comparable period resulting in a strong EPS growth of 21 per cent over two years, a good performance despite the economic slowdown. The main surprise during Q1FY24 was the strongest-ever gasoline margins in the U.S.. Strong gasoline margins may be more sustainable than previously thought as management appears to have a much better handle on margins than in the past given the low variation seen in the last six quarters. As a result, we have increased our long-term gasoline margin assumption to US$0.40 per gallon up from US$0.37 per gallon previously. Our new assumption may still be too conservative given the rise in industry breakeven margins. Couche-Tard’s M&A pipeline appears active and management has capacity for further acquisitions in Asia and North America despite the integration of TotalEnergies in Europe which should start in calendar 2024..”
Mr. Landry noted Couche-Tard’s merchandise same-store-sales increased by 2 per cent year-over-year south of the border, which he said “appears low given that inflation was at least double that level.”
“Management indicated that cigarettes continue to be a headwind and that excluding cigarettes merchandise same-store-sales would have been up mid-single digits. ATD does not appear to be loosing market share but rather experiencing similar decline vs. the category,” he said. “Management wants to increase its focus on the category given that it is an important traffic driver.”
However, he emphasized its U.S. gas margins stood out in quarterly report, noting: “Couche-Tard appears to have more control than historically on its U.S. gasoline margins with a variation of only US$0.05 per gallon between the highest levels and lowest levels of the last 6 quarters. Five years ago, the variation was US$0.10 per gallon or near 40 per cent vs. 15 per cent currently. This lower volatility could suggest that high gasoline margins in the U.S. may be more sustainable than previously thought. The industry consolidation has also had a beneficial impact with remaining players being more disciplined. As a result, we have increased our long-term gasoline margin assumption by US $0.03 to US$0.40 per galllon, still below recent averages of $0.45 per gallon for conservativeness purposes. A one cent increase in U.S. gasoline margins increases EPS by $0.08 per share according to our model.”
Both higher gasoline margins as well as higher merchandise margins, reflecting “reflect recent trends and success of the Fresh Food program and increased automation of checkout terminals,” led Mr. Landry to raise his fiscal 2025 EPS estimate by 6 per cent to $3.23 from $3.05.
Keeping a “buy” recommendation for Couche-Tard shares, he also increased his target to $81 from $76. The average target on the Street is $81.78.
Elsewhere, other analysts making target adjustments include:
* National Bank’s Vishal Shreedhar to $81 from $78 with an “outperform” rating.
“We believe that ATD will benefit from: (i) Robust fuel margins, which will continue to show strength, particularly in the U.S. (ii) Value-enhancing acquisitions, and (iii) Numerous efficiency and merchandising improvement programs,” said Mr. Shreedhar. “The M&A backdrop remains favorable. ATD’s leverage ratio is below the 2.25 times threshold (we calculate 2.1 times, including proforma estimates for TotalEnergies and MAPCO acquisitions).”
* Raymond James’ Bobby Griffin to $82 from $78 with a “strong buy” rating.
“F1Q results came in nicely above expectations (ours and consensus), primarily driven by higher fuel gross profit,” said Mr. Griffin. “We were particularly encouraged by F1Q24′s U.S. fuel margin outperformance versus the OPIS industry average (even above the historically strong outperformance achieved last quarter), highlighting Couche-Tard’s scale advantage and benefit from ongoing supply chain optimization initiatives. Overall, as one of the largest players in a highly fragmented industry, we continue to see room for Couche-Tard to benefit from future M&A and organic market share gains from smaller operators. Moreover, Couche-Tard still has a handful of company-specific initiatives (fuel and non-fuel related) that will contribute to EBITDA growth over time. Lastly, the company’s balance sheet remains in great shape, providing management ample flexibility for shareholder-friendly capital allocation.”
* BMO’s Tamy Chen to $78 from $75 with an “outperform” rating.
“Overall a solid quarter,” she said. “We believe [Thursday’s] stock reaction ... may be some profit taking with the shares at all-time highs. We continue to like the name as we expect continued organic growth from fuel rebranding and gradual improvements in fresh food profitability. Recent results also show good execution in merchandise margin, Canada comps, and opex management. Lastly, there is the potential for M&A.”
* CIBC’s Mark Petrie to $79 from $78 with an “outperformer” rating.
“Strong FQ1 results were driven by U.S. fuel margins, which hit an all-time high, as did ATD’s outperformance vs. the industry benchmark. U.S. merchandise same-store sales slowed, though we are comfortable with the fact this is driven by accelerating industry-wide tobacco headwinds as opposed to more fundamental issues. ATD’s cost control remains excellent,” said Mr. Petrie.
* TD Securities’ Michael Van Aelst to $79 from $76 with a “buy” rating.
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Scotia Capital analyst Jonathan Goldman isn’t concerned about BRP Inc.’s (DOO-T) revenue guidance reduction.
On Thursday, shares of the Valcourt, Que.-based recreational vehicle manufacturer slid 1.5 per cent after it said it now expects revenue growth of between seven and 10 per cent for the current fiscal year, down from an earlier projection of nine to 12 per cent.
“The headline revenue guidance cut is fueling the macro narrative but that totally misses the point,” said Mr. Goldman in a research note titled Seeing the Forest for the Trees.” First, the Marine segment accounted for approximately 75 per cent of the lowered guide. Not surprising, given weaker demand in the boating industry and a slower production ramp due to component shortages. Second, the powersports business continues to demonstrate structural earnings growth momentum. Retail sales were up 40 per cent compared to the industry up mid-teens marking 31 out of the last 34 quarters of outperformance. Further, on the call, management said that it expects to exceed its F25 target of 30-per-cent SSV share (currently 28 per cent) next year. Management noted that every point of share equates to $190 million of incremental revenues.”
That guidance change, which came alongside an increase to its normalized earnings per share expectation ($12.35-$12.85 from $12.25-$12.75), overshadowed better-than-expected second quarter results. Sales, adjusted EBITDA, and adjusted EPS of $2.778 -billion, $473-million and $3.21 all topped the consensus projections of $2.697-billion, $455-million and $2.97.
“Shares are trading at 5.5 times EV/EBITDA on our sub-Street F25E – near all time lows,” said Mr. Goldman. “Besides pricing-in too dire an economic scenario, the market is giving the company no credit for realized and potential structural earnings growth supported by recent capacity additions, product launches, and higher R&D spend. Year-to-date the company generated $500 million of FCF and repurchased 2 million shares (avg. price $103). We forecast an additional $550 million of FCF in the 2H, which could support additional buybacks.”
Pointing to a lower share count as well as modest adjustments to his financial forecast, he raised his target for BRP shares by $3 to $145, reiterating a “sector outperform” recommendation. The average target on the Street is $134.61.
“BRP is an original equipment manufacturer (OEM) of powersports products that was a COVID-19 pandemic winner,” he concluded. “Those benefits have mostly faded, but concerns about the company over-earning have lingered. Rising rates have also raised concerns about a slowdown in consumer spending. Both concerns are valid – we are Street low for F2024 and below consensus for F2025 – but are overly discounted in the shares.”
Other analysts making changes include:
* Citi’s James Hardiman to $111 from $108 with a “neutral” rating.
“Despite a strong 2Q beat, management maintained EBITDA guidance on lower sales,” he said. “The good news is that with BRP taking its medicine during the back half of the year with regards to the $1-billion replenishment headwind, we feel much better about the top-line opportunity headed into FY25. As such, our FY25 revenue estimate is up from $11.1-billion to $11.9-billion. And while there are some offsets in our model with respect to costs/margin, our FY25 EBITDA estimate is up from $2.0 to $2.1-billion. Meanwhile, based on the higher estimates, we are nudging our price target from $108 to $111, or 11-per-cent upside from here.”
* Raymond James’ Joseph Altobello to $125 from $124 with a “strong buy” rating
“Our constructive stance on the stock is based on our belief that the company’s growth opportunities, including further SSV market share gains, 3WV market expansion and its refocused efforts in the marine space should help it to navigate any potential slowdown in powersports demand and uptick in promotion activity, while valuation remains compelling,” said Mr. Altobello.
* BMO’s Tristan Thomas-Martin to $150 from $154 with an “outperform” rating.
“Retail demand beat our expectation and management continues to sound very confident about recent trends as well as upcoming new products,” he said. “Management noted it is comfortable with its FY25 targets as long as consumer sentiment stays at current levels, BUT we think investors weren’t convinced and remain skeptical given macro headwinds. We are trimming our target price and estimates mainly to reflect lower Marine and P&A expectations.”
* CIBC’s Mark Petrie to $138 from $137 with an “outperformer” rating.
“BRP continues to execute and delivered strong Q2 results even amidst a slowing economy and shifting consumer behaviours. Demand for powersports vehicles remains resilient and continues to skew to higher-income consumers and higher-price-point goods. BRP also continues to materially outpace peers and build market share across categories. Even with macro uncertainty, we see shares as attractive,” said Mr. Petrie.
* TD Securities’ Brian Morrison to $115 from $110 with a “hold” rating.
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After assuming RBC Dominion Securities’ coverage of the global pulp market, analyst Matthew McKellar lowered Canfor Pulp Products Inc. (CFX-T) to “sector perform” from “outperform” on Friday.
“Lower pulp pricing will present issues for most pulp producers under our coverage, with recent labour disruptions at B.C. ports and maintenance at Northwood also likely to weigh on Canfor Pulp’s export volumes, production, and overall results in Q323,” he said. “While Canfor Pulp’s valuation is attractive, we struggle to see a catalyst for share price momentum in the near term and downgrade our rating.”
Mr. McKellar also cut his target for Canfor Pulp shares to $2.50, below the $2.69 average on the Street, from $6 previously.
“Canfor Pulp is well positioned to meet the long-term growth in Chinese demand for softwood pulp given its mills in Western Canada, although we expect BC to be a tricky operating environment for some time,” he said. “Over the medium-to-long term, we believe Canfor Pulp is well positioned to benefit from growing global demand trends for softwood pulp, particularly with limited near-term softwood capacity additions.”
He added:” While we remain cautious on Canfor Pulp, we take a favourable view of Outperform-rated Canfor Corporation and its geographically diversified lumber business, strong balance sheet, and attractive valuation.”
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National Bank Financial analyst Adam Shine is “pleased” Thomson Reuters Corp. (TRI-T, TRI-N) is “accelerating the pruning down of its stake” in London Stock Exchange Group.
However, he said the “more rapid sale process is naturally dissipating some of the added value we’d assumed would materialize over the next year or two via possible gains in LSEG’s stock price.”
On Thursday, investors in the bourse operator, which includes Thomson Reuters, Blackstone Inc (BX-N) and the Canada Pension Plan Investment Board (CPPIB), announced the sale of 35 million shares at a price of £79.50 per share. Of the shares sold, approximately 15.0 million were indirectly owned by Thomson Reuters, which expects to receive pre-tax net proceeds of approximately $1.5-billion and will own approximately 16.9 million LSEG shares.
The parties also entered into agreements to sell call options on about 8.2 million shares with maturity dates in both 2023 and 2024. Thomson Reuters portion covers approximately 3.5 million shares.
“We estimate that TRI’s cash balance jumps to $3.7-billion in Q3 from $2.9-billion in Q2 and $1.1-billion in 2022,” said Mr. Shine. “Leverage appears to be tracking toward what we think might be just over 0.8 times with leases from 1.2 times in Q2 and 1.7 times in 2022. While management continues to telegraph expectations of another dividend increase next year of around 10 per cent, TRI remains on the hunt for M&A to complement organic growth and could get active again with share repurchases.”
Maintaining his “sector perform” recommendation for Thomson Reuters shares, he cut his target to $186 from $194. The current average on the Street is $186.20.
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BMO Nesbitt Burns analyst Ben Pham adjusted his list of preferred energy infrastructure stocks on Friday after updating his valuation base to 2025 and introducing his 2026 estimates for the sector.
“After considering 2023 year-to-date actual performance, relative valuations, and the roll, we are tweaking our pecking order, with Top 5 Best Ideas now: ALA, TA, NPI, H, and PPL vs. ALA, TA, NPI, PPL, and EMA,” he said.
His ratings and targets for his top five are:
1. AltaGas Ltd. (ALA-T) with an “outperform” rating and $36 target. The average is $31.60.
“ALA shares are the best performing in our coverage this year (14.1-per-cent return year-to-date vs. utilities index down 4.2 per cent), due to what we believe is mean reversion (down 15 per cent last year), improved LPG export margins as evidenced by 1H/23 results, positive revisions to future EPS growth (MVP construction re-start and the recent Pipestone acquisition), and continued debt reduction,” he said. “Yet, the shares still offer attractive value (11.5 times forward P/E vs. 15.5 times for utilities and 15 times for pipeline/midstream). ALA was one of the few names where our target price was unchanged ($36) following the roll, with anticipated growth robust enough to fully offset valuation friction (we now use 15.5 times P/E to value the shares vs. 17 times previously).”
2. TransAlta Corp. (TA-T) with an “outperform” rating and $17 target, down from $20. Average: $16.91
“A shares have also worked well this year (up 7.4 per cent vs. utilities down 4.2 per cent) on positive revisions to 2023 guidance (strong Alberta power prices), the accretive RNW take-in announced on July 11 (and expected to close early October), and continued momentum on the Clean Electricity Growth Plan (targeting renewables to be 70 per cent of EBITDA by 2025 vs. 48 per cent 2022). An upcoming investor day should reinforce these recent positive trends, supporting our view on further relative valuation expansion from discounted levels (approximately 8 times 2025 estimated EBITDA vs. 11 times for entire coverage),” he said.
3. Northland Power Inc. (NPI-T) with an “outperform” rating and $34 target, down from $38. Average: $36.20.
“We are lowering our target to $34 (vs. $38) to reflect broader renewable valuation compression and the roll to 2025 placing sharper focus on a heavier capex cycle,” he said. “However, we remain bullish on the shares as the planned capex investment will ultimately result in significantly higher adj. EBITDA in the 2026/27 timeframe (40-45 per cent vs. 2023 levels). Also, we believe that upcoming expected financial close of Hai Long and Baltic Power before the end of 2023 could improve visibility to future growth, relieve the lingering funding overhang, and drive relative valuation expansion.”
4. Hydro One Ltd. (H-T) with an “outperform” rating and $42 target. Average: $39.04.
“We are maintaining our Outperform rating and $42 target on the H shares and moving it up into our Top 5 Best Idea roster with 21-per-cent potential total return,” he said. “While the shares trade at a 15-per-cent premium to the utility group average (2025 estimates), we believe the premium is justified and will be sustained as we anticipate positive revisions to the 5-7-per-cent EPS CAGR guidance through 2027 (likely by 1H/24E), asset quality is strong (99-per-cent regulated and 100-per-cent electric), the capital investment program is self-funded, regulatory risk is limited, and payout ratio is below long-term average (65 per cent 2023 vs. 70-80-per-cent target).”
5. Pembina Pipeline Corp. (PPL-T) with an “outperform” rating and $50 target. Average: $51.03.
“PPL’s projected growth rate is not too different than the average industry levels, but return on invested capital is rising, there is increased emphasis on low capital intensive, higher return projects, and the balance sheet is in good shape (2023 estimated 3.6 times debt/EBITDA) with excess FCF generation to fund new growth and/or accelerate capital return initiatives,” he said.
His other target changes were:
- Algonquin Power & Utilities Corp. (AQN-N/AQN-T, “market perform”) to US$8 from US$8.50. The average on the Street is US$9.14.
- Atco Ltd. (ACO.X-T, “outperform”) to $50 from $51. Average: $49.
- Canadian Utilities Ltd. (CU-T, “market perform”) to $37 from $38. Average: $38.67.
- Emera Inc. (EMA-T, “outperform”) to $59 from $60. Average: $59.14.
- Fortis Inc. (FTS-T, “market perform”) to $58.50 from $59. Average: $59.57.
- Innergex Renewable Energy Inc. (INE-T, “outperform”) to $17.50 from $18. Average: $17.40
“We have rolled forward the basis for our target prices from calendar 2024 to 2025 resulting in reductions to the majority of our coverage (approximately 1 per cent on average for pipelines, 2 per cent for utilities; and 7 per cent for renewables),” he said. “An increase in our cost of capital assumptions drove the downswing, which more than offset anticipated growth. The only names that didn’t see target reductions were ALA, CPX, H, KEY, PPL, and TRP. On our 2025 estimates, we expect the highest growing utility to be ALA (up 9.5 per cent year-over-year), followed by H (up 8.5 per cent) and also expect solid growth in most of the renewable companies (up 10 per cent). On the other hand, we are projecting low single digit year-over-year growth for the majority of the pipeline and midstream names for 2025; as such we are reaffirming our relative sub-sector preference for utilities over pipelines within Cdn. Energy Infrastructure.”
“While both the S&P/TSX Utilities Index (down 4.2 per cent) and the S&P/TSX Oil & Gas Storage/Transportation Index (down 11.4 per cent) have underperformed the broader Canadian index’s 3.9-per-cent return year-to-date 2023, the utility subgroup has outpaced pipeline and midstream equities on what we attribute to defensive market positioning, relatively stronger growth rates, and company specific negative catalysts at the majority of the pipeline and midstream names we cover. More specifically, the top 3 best performing stocks in our coverage YTD 2023 are: ALA (up 14 per cent), KEY (up 11 per cent), and AQN (up 9 per cent). Conversely, the worst performing stocks in our coverage have mainly been the renewable power names NPI (down 36 per cent), INE (down 24 per cent), and BLX (down 21 per cent).”
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After raising his 2023 and 2024 oil price assumptions to match the move in forward prices, Raymond James analyst Jeremy McCrea upgraded Kelt Exploration Ltd. (KEL-T) to “outperform” from “market perform,” citing “improved egress capacity, production growth plans, and what we suspect could be strong Montney wells.”
His target for Kelt shares rose by $1 to $9. The average on the Street is $8.71.
Mr. McCrea also made these target changes to intermediate oil and gas companies in his coverage universe:
- Advantage Energy Ltd. (AAV-T, “outperform”) to $13 from $11. Average: $11.95.
- ARC Resources Ltd. (ARX-T, “outperform”) to $26 from $21. Average: $23.56.
- Baytex Energy Corp. (BTE-T, “market perform”) to $6.75 from $5.25. Average: $6.94.
- Birchcliff Energy Ltd. (BIR-T, “outperform”) to $11.50 from $10.50. Average: $9.80.
- Crescent Point Energy Corp. (CPG-T, “outperform”) to $16 from $13. Average: $13.70.
- Enerplus Corp. (ERF-N/ERF-T, “outperform”) to US$24 from US$23. Average: $24.92 (Canadian).
- Freehold Royalties Ltd. (FRU-T, “outperform”) to $20 from $19. Average: $19.02.
- NuVista Energy Ltd. (NVA-T, “outperform”) to $18 from $16. Average: $15.40.
- Paramount Resources Ltd. (POU-T, “outperform”) to $40 from $37. Average: $38.25.
- PrairieSky Royalty Ltd. (PSK-T, “outperform”) to $33 from $30. Average: $25.98.
- Tamarack Valley Energy Ltd. (TVE-T, “outperform”) to $5 from $4.50. Average: $5.77.
- Topaz Energy Corp. (TPZ-T, “strong buy”) to $27 from $26. Average: $27.33.
- Tourmaline Oil Corp. (TOU-T, “strong buy”) to $90 from $85. Average: $80.75.
- Vermilion Energy Inc. (VET-T, “outperform”) to $26 from $24. Average: $24.57.
- Whitecap Resources Inc. (WCP-T, “strong buy”) to $16 from $15. Average: $13.70.
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Calling its Blackwater Gold mine in British Columbia “a rare project of scale due for a re-rate,” Stifel analyst Stephen Soock resumed coverage of Artemis Gold Inc. (ARTG-X) with a “buy” recommendation on Friday.
“Artemis is mid-way through the construction of the open pit Blackwater Gold project in British Columbia and in a strong liquidity position,” he said. “When in production, it will be one of the largest gold assets in North America by production. We believe the stock will re-rate as the project is de-risked through construction over the next 18 months – a common trajectory for single asset developers. The high grade early-in-the-mine plan, soft ore at the top of the orebody, grade control drilling and downhill haul to the mill should ensure a quick payback period and robust early FCF. The Phase 2 expansion is expected to be funded from this, bringing production to more than 400,000 ounces per year, with optionality around expansion timing depending on the margin environment. The stock trades at a spot P/NAV of 0.37 times vs the more than 100 koz/yr junior producer average of 0.54 times.”
Touting its “robust” early returns and “optionality at every turn,” Mr. Soock sees the potential for significant gains for investors as it proceeds with development.
“From the start of construction to first gold, recent single asset developers beat the GDXJ [VanEck Junior Gold Miners ETF, GDXJ-A] by 66 per cent on average and we strongly believe that Artemis will follow the same trajectory,” he said. “Blackwater’s current mid-development stage (~30% complete) presents a compelling opportunity from a Lassonde curve perspective. The company is on track to pour first gold in the fall of 2024. We believe the market will reward the de-risking through construction by bidding up the stock.”
“The mine plan has exceptionally high grades through the first four years, averaging 1.64 grams per ton, differentiating it from other recent large open pit gold projects in Canada. One-third of this material has been drilled off at a grade control level, substantially de-risking the production profile. Pairing this with a soft upper portion of the orebody and a downhill haul from the pit to the mill gives us comfort in our FCF forecast of $800-million through this period. We model a payback period of 2.25 years at current spot prices.”
Also expecting “gains from the gold hedges, adjust for 10 years of expected cash G&A, the current balance sheet, and value of the in-the-money instruments,” Mr. Soock has a target of $11 per share. The average on the Street is $11.41.
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In other analyst actions:
* Credit Suisse’s Andrew Kuske raised his target for Acadian Timber Corp. (ADN-T) to $18.50 from $17, keeping a “neutral” rating. The average is $17.38.
“ADN looks to be coming closer to a potential inflection point associated with part of the overall business. More specifically, after considerable time and effort, Acadian’s progress on the carbon credit program can be evidenced with upside in recent numbers (1.9m credits) associated with the Q2 2023 results season,” he said.
* CIBC’s Krista Friesen raised her Magna International Inc. (MGA-N, MG-T) target to US$75 from US$73 with an “outperformer” rating. The average is US$67.13.
“It has been a challenging period for MGA and the auto industry as a whole contending with the pandemic, supply chain issues and the inflationary environment. While we had heard questions around the direction MGA was headed given its heightened level of capex as of late and the acquisition of the VNE active safety business, MGA used this investor day as an opportunity to reassure investors,” said Ms. Friesen.
* Echelon Partners’ Rob Goff trimmed his NowVertical Group Inc. (NOW-X) target to 90 cents from $1.20, keeping a “speculative buy” rating, to reflect “significantly higher external cost of capital limiting the Company’s ability to make accretive acquisitions where increased scale is a core element of platform efficiencies.” The average is 95 cents.
“Following the quarter, NOW announced a strategic partnership with PwC UK to leverage NOW Privacy, its data discovery and governance products, to its UK clients,” he added. “NOW was chosen for this partnership through an evaluation process and will be able to generate revenue on a per-client basis. We believe this reflects positively on the Company’s ability to expand within the UK market and focus on integrations that drive organic growth through cross-selling opportunities. We consider both the potential for NOW to expand the partnership with PwC beyond the UK and for similar partnerships to represent a key element of the Company’s distribution strategy. We note that clients will be aware that it is NOW’s technology and NOW will be able to use any contracts gained through PwC as reference contracts, as this has the potential to become another twist on the land-and-expand strategy.”
* Calling its deal to acquire CWC Energy Services for consideration of $140-million “another positive market endorsement of industry consolidation,” Stifel’s Cole Pereira increased his Precision Drilling Corp. (PD-T) target to $135 from $130 with a “buy” rating. Others making changes include: ATB Capital Markets’ Waqar Syed to $145 from $140 with an “outperform” rating and TD Securities’ Aaron MacNeil to $130 from $125 with a “buy” rating.The average is $128.31.
“We view the deal positively for four reasons: (1) The deal further consolidates the Canadian well service market, positioning PD as a leader with 25-30 per cent of the well service market share, with the top-5 players having nearly 53-58-per-cent market share. (2) Despite the merger-related cash costs and the acquisition of approximately $40-million of debt, PD is maintaining its 2023 ($150-million) and 2023-2025 ($500-million) debt reduction targets. (3) PD expects the deal to be accretive on a 2024 cashflow/share basis supporting its deleveraging goals, and (4) we estimate that the deal is attractively priced at roughly 1.8x EBITDA when adjusted for the planned asset sales ($20-million) and synergies ($20-million),” said Mr. Syed. “Assuming the marketed well service rigs are valued at $0.6-million to $1.0-million, we estimate the price paid for the 10 active CWC rigs in the $5.9-million to $10.4-million range, which is very attractive. Overall, we view the deal positively, and this drives our PT increase.”
* CIBC’s Hamir Patel lowered his Transcontinental Inc. (TCL.A-T) target to $17 from $18 with an “outperformer” rating. Others making changes include: BMO’s Stephen MacLeod to $15 from $17 with a “market perform” rating and RBC’s Drew McReynolds to $19 from $20 with an “outperform” rating. The average is $18.
“Adjusted EBITDA growth in Packaging (below forecast) and Media & Other (above forecast) were more than offset by a decline in Printing (below forecast),” said Mr. MacLeod. “2023E Packaging outlook for EBITDA growth unchanged, offset by an expected decline in Printing. We see opportunity for a valuation re-rating over time, but Transcontinental’s tilt towards growth would need to be accompanied by sustained ROIC improvement.”
David Leeder