Inside the Market’s roundup of some of today’s key analyst actions
Though he deemed BlackBerry Ltd.’s (BB-N, BB-T) in-line first-quarter 2022 financial results to be “solid,” Canaccord Genuity analyst T. Michael Walkley lowered his rating for the Waterloo, Ont.-based tech firm’s “volatile” shares to “sell” from a “hold” recommendation, citing valuation concerns after recent price appreciation.
After the bell on Thursday, BlackBerry reported GAAP revenue of US$174-million, exceeding Mr. Walkley’s US$170-million due largely to improving performance from its BlackBerry Technology Solutions (BTS) unit. However, the result representing a fall of 2 per cent year-over-year as licensing declined due to negotiations on sale of part of its mobile device patent portfolio.
“Should management reach a deal to sell the licensing business, we believe this could help unlock value and provide a capital infusion to drive accelerated software and services growth,” said the analyst. “While we believe management has created a cogent long-term strategy and the business is turning the corner toward stronger trends, we await more proof in execution on the new product roadmap, evidence of cross-selling opportunities emerging, growing overall software and services revenue, and the potential for upside to our estimates before becoming more constructive on the shares. We believe software and services fundamentals should improve throughout F2022 and beyond.”
Though he raised his 2022 and 2023 earnings projections, Mr. Walkley kept a US$10 target for its shares. The average on the Street is US$7.75, according to Refinitiv data.
“While we believe Blackberry has a strong product portfolio and improving long-term growth potential, the share price remains volatile and is currently 27 per cent above our price target,” he said. “Given the uncertainty surrounding the sale of the licensing business and softer 1H/2022 software and services revenue, we believe the shares are ahead of the fundamentals. Therefore, we downgrade to SELL, and we await more proof in execution on the new product roadmap, evidence of crossselling opportunities emerging, growing overall software and services revenue, and the potential for upside to our estimates before becoming more constructive on the shares.”
Elsewhere, TD Securities analyst Daniel Chan cut BlackBerry to “reduce” from “hold” with an US$8.50 target.
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In the wake of the release of weaker-than-anticipated second-quarter results, Canaccord Genuity analyst Doug Taylor continues to view the long-term prospects for Blackline Safety Corp. (BLN-T) “favourably.”
However, despite seeing signs of a strengthening revenue in the second half of the year, he downgraded the Calgary-based technology company to “hold” from “buy,” emphasizing it shares have advanced “significantly” in anticipation of that acceleration and wanting to see further evidence of growth to drive valuation expansion.
On Thursday, Blackline reported revenue for the quarter of $11.7-million, falling short of Mr. Taylor’s $12.5-million estimate. An adjusted EBITA loss of $1.5-million also missed his forecast (a profit of $1.9-million).
“Revenue grew 38 per cent year-over-year supported largely by 140-per-cent product revenue growth while recurring service revenue (up 8 per cent year-over-year) was impacted by several COVID-related workforce reductions and pauses,” the analyst said. “With that said, we point to the increase in the number of control center monitored devices (37K from 34.5K or a 7-per-cent sequential uptick), contract wins and expansions with wastewater/utilities customers post quarter-end as evidence of better service growth ahead. The company remains consistent that service revenue growth should reaccelerate in H2/21 and into F2022.”
Mr. Taylor maintained a $10 target for Blackline shares, falling short of the $12 consensus.
“Given a more modest projected return to our unchanged target, we believe investors should look for confirmation of a higher revenue growth trajectory or a more attractive entry point to build positions further,” he said.
Elsewhere, others making target changes include:
* Raymond James analyst Bryan Fast to $11.50 from $10.50 with an “outperform” rating.
“Our thesis for Blackline remains intact, which is based on a very large and lucrative long-term opportunity,” said Mr. Fast. “Sales growth is still the key measure of success as the company quickly builds scale, creates a network-effect, and capitalizes on its first-mover advantage. Looking forward, we are forecasting a resumption of high double-digit revenue growth in the back half of F2021. We believe Blackline is well positioned to capitalize on a normalized operating environment, through an expanded sales team, key executive appointments and a product pipeline that will round out the companies offering. We would also point to Blackline’s data service offering as an important piece of the value proposition. Through their suite of connected devices, the company is years ahead of the competition in harnessing and collecting data. For these reasons we view Blackline as a top pick in our coverage list.”
* TD Securitie’s David Kwan to $12.50 from $13 with a “speculative buy” rating.
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Neighbourly Pharmacy Inc.’s (NBLY-T) in-line fourth-quarter results and subsequent management comments reinforce Desjardins Securities analyst Chris Li’s view that it is “a compelling growth story driven by acquisitions in a highly fragmented industry as well as aging demographics.”
Before the bell on Thursday, the Toronto-based company release its first earnings report as a publicly traded company, featuring year-over-year revenue and adjusted EBITDA growth of 58 per cent and 115 per cent, respectively.
“Modest same-store sales (up 0.4 per cent) and prescription growth (down 0.75 per cent) were impacted by panic buying in March 2020,” said Mr. Glen. “Trends should normalize in 2Q FY22.”
“The attention created by the recent IPO has increased inbound and outbound calls with potential sellers. NBLY has acquired 70 pharmacies over the past two years and expects the pace to be maintained. There is potential upside driven by aging pharmacy owners and succession challenges, limited competition and NBLY’s strong record of being an acquirer of choice. The pandemic has placed considerable stress on pharmacy owners, and the pace of deal activity will likely pick up. The balance sheet is in excellent shape, with PF leverage of 1.3 times, well below NBLY’s comfort zone of 2.5 times and max of 3.5 times. We believe NBLY’s premium valuation serves as a strong M&A currency and increases its flexibility for larger deals”
Citing concerns about that valuation, the analyst maintained a “hold” recommendation with a $27.50 target, falling short of the $28.70 average.
“Since its IPO on May 25, NBLY shares are up 55 per cent vs 3.3 per cent for the S&P/TSX and trade at 18.3 times forward EBITDA vs a 15-times average for other Canadian consumer growth companies,” he noted.
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Neptune Digital Assets Corp. (NDA-X) presents an “intriguing cross-section of crypto interests,” according to H.C. Wainwright & Co. analyst Kevin Dede.
He gave the Vancouver-based company, which began trading on the TSX Venture Exchange on Feb. 12., a “buy” recommendation, but warned both its scale and the volatility of cryptocurrencies will prove to be challenges.
“We are initiating coverage of Neptune Digital Assets given the company’s mix of partner-aided bitcoin mining complementing Neptune’s stash of staked cryptocurrencies totaling in excess of $10-12-million that yield as much as $300,000-400,000 in monthly staking earnings, or returns, that flow through the P/L in other income, not revenue; the combination of proof-of-work and proof-of-stake crypto mining naturally diversify Neptune’s earnings stream,” said Mr. Dede.
“Neptune has struck various partnerships in hosting, powering, and growing its bitcoin mining activities preferring to outsource skills in managing headcount. One hosting partnership with Link Global may expand to consume 5MW in Alberta, led to a power joint venture to bring another 20MW of green power online at afuture date. A second bitcoin-targeted agreement, this one with Luxor Technology Corp., a Seattle-based software house vertically integrating proof-of-work functionality, should enhance Neptune’s bitcoin mining program with hash rate delivered in the August quarter and in the U.S. Because details of deployment specifics remain hush on account of the early discussion, this deal was excluded from our projections. Although bitcoin mining activities are centered in locations exploiting power supply economically, Neptune manages its staking activities from its headquarters with minimal exposed headcount — two full-time employees run this entire company.”
Mr. Dede said he sees Neptune’s “crypto passion, diversified revenue streams, and portfolio of crypto assets we think create a unique composite investable for those interested in broad crypto exposure.”
Calling its concept “both proven and ultimately enticing,” he set a $1 target for its shares.
“An investment in Neptune, we think, pushes the boundaries of speculation given risks of investment that include all those associated with volatile cryptocurrencies, including hash rate and price, while also including hacking and other exposures exclusive to digital activities. Neptune too is not immune to a standard list of risks, such as dilution, operating, regulation, and currency exchange,” said Mr. Dede.
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Ahead of a feasibility study and “permitting milestones” for its 100-per-cent-owned Railroad-Pinion complex in Nevada, Canaccord Genuity analyst Tom Gallo thinks investors should take another look at Gold Standard Ventures Corp. (GSV-T)
He initiated coverage of the Vancouver-based company with a “speculative buy” rating on Friday.
“Though the stock experienced an exuberant valuation a few years ago, with speculation running well ahead of fundamentals, a pullback beginning in 2019 (with the PFS at that time showing an NPV well below the market cap at the time) now offers investors quite an attractive entry point, in our view,” he said. “Coupled with a catalyst-rich next nine months, we believe this makes Gold Standard Ventures a comeback story worth owning in what we continue to view as a strong gold tape (US$1,796/oz long-term pricing).”
Pointing to several factors in justifying his bullish stance, including near-mine upside and “deep, game-changer exploration potential,” Mr. Gallo set a $1.50 target for Gold Standard shares. The average is $1.63.
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Following its $100-million acquisition of Nabors Industries’ (NBR-N) 35 Canadian rigs plus related equipment and facilities, several analysts raised their target prices for shares of Ensign Energy Services Inc. (ESI-T).
Those making changes include:
* Raymond James’ Andrew Bradford to $2 from $1.75 with a “market perform” rating. The average target on the Street is $2.24.
“This is a significant transaction in that 1) helps to backfill ESI’s declining market share in Canada and 2) further consolidates the heavy rig market in Canada,” said Mr. Bradford.
* Stifel’s Cole Pereira to $2.30 from $1.65 with a “hold” rating.
“Operationally, we believe the transaction has significant benefits as it should effectively double ESI’s Montney footprint, and push the company’s second place WCSB market share closer to leader Precision’s. However, we also find the debt financing stretching an already leveraged balance sheet,” he said.
* RBC Dominion Securities’ Keith Mackey to $3 from $2.25 with a “sector perform” rating
* CIBC’s Jamie Kubik to $2.50 from $1.40 with a “neutral” recommendation.
“We see this transaction adding more than meets the eye, offering strategic importance in gaining market share in the Montney and Deep Basin,” he said.
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Canaccord Genuity analyst John Bereznicki said Loop Energy Inc. (LPEN-T) has “not escaped a broad sell-off in the hydrogen space.”
Accordingly, he sees a good entry point for the Burnaby, B.C.-based company, citing its positioning for long-term growth a the global fuel cell electric vehicle (FCEV) evolves. That led him to initiated coverage with a “speculative buy” rating.
“Loop enjoys a strong patent portfolio and believes its eFlow architecture can meaningfully lower the total cost of ownership (TCO) of FCEVs,” said Mr. Bereznicki. “Loop is one of very few early-stage fuel cell pure-plays with plans to become a top-five player in what it believes will be a $50-billion total addressable market (TAM) by 2030. In our view, Loop’s competitive proposition is underscored by two rounds of equity investment by Cummins (a 21-per-cent shareholder).”
Touting its large total addressable market as FCEV adoption grows, the analyst also sees a “well articulated” growth strategy, while also touting its “seasoned” leadership, “solid” cash positing and growing backlog.
“Loop intends to become a top-five fuel cell player by supplying fuel cell stacks and modules to OEMs, systems integrators and end users in high-growth commercial mobility markets,” he said. “Loop is focused on the medium- and heavy-duty truck, city bus and material handling markets in China and Europe. Loop operates through its InPower JV in China and is establishing a wholly owned presence in this market.”
Mr. Bereznicki set an $11 target for Loop shares, which falls 13 cents below the consensus.
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Citing an “improved financial outlook,” Stifel analyst Robert Fitzmartyn raised his rating for Journey Energy Inc. (JOY-T) to “buy” from “speculative buy.”
On Thursday, the Calgary-based company announced a deal to purchase a private company focused primarily in the Nordegg and Grande Cache areas of Alberta.
“We are pegging the net cost of the transaction at $6.5-million,” the analyst said. “The description of the E&P is consistent with that of Briko Energy Corp.”
Mr. Fitzmartyn raised his target to $1.90 from $1.35. The average is $1.14.
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In other analyst actions:
* CIBC World Markets analyst Cosmos Chiu initiated coverage of Triple Flag Precious Metals Corp. (TFPM-T) with a “neutral” rating and $18.50 target. The average on the Street is $20.11.
“Triple Flag certainly has all of the key ingredients to become a successful publicly traded royalty company, including a diversified portfolio of 75 assets (including 15 in production) at mines with long mine lives and low costs, including a cornerstone asset at the Northparkes stream. With that said, free float of its shares remains limited post-IPO, with Elliott Investment Management continuing to own 82.4 per cent of the outstanding shares of the company, which could be a near-term overhang on the shares. The limited trading liquidity at this time is a key hurdle for new investors wishing to build up a sizable position. Further, we would expect that the company needs time to solidify its brand recognition while establishing a track record of results within the public markets before ultimately leading to a re-rate of its shares,” said Mr. Chiu.
* After it announced it is in negotiations with a group of institutional investors to launch a private U.S. industrial fund, CIBC’s Dean Wilkinson raised his Dream Industrial REIT (DIR.UN-T) target by $1 to $16.50, reiterating an “outperformer” recommendation/ The average is $15.89.
“We expect the REIT to continue to remain active on the acquisition front into the back half of 2021, in addition to deploying capital from its Green Bond offering on eligible projects while expanding its value-add platform to take advantage of embedded intensification opportunities within its portfolio,” said Mr. Wilkinson. “We like the REIT’s growth prospects and we continue to view DIR favourably as it continues to execute on its growth initiatives. Institutional demand remains resilient for industrial assets in the REIT’s core markets, and reflecting recent market transactions, we increase our NAV estimate to $14.50 at a 5.0-per-cent cap rate (from $13.50 at a 5.25-per-cent cap rate).”
* RBC Dominion Securities analyst Darko Mihelic initiated coverage of Sagicor Financial Company Ltd. (SFC-T) with an “outperform” rating and $8 target. The average is $9.
“Sagicor’s profitability was significantly impacted in 2020 by the pandemic and we expect earnings to rebound over our forecast period. We find current valuation compelling and valuation could further improve with potential EPS/ROE upside as the company executes on its strategy of acquiring in the Caribbean and building scale in the U.S,” he said.
* Cormark Securities analyst Jeff Fenwick raised his Hardwoods Distribution Inc. (HDI-T) target to $53 from $47 with a “buy” rating, while CIBC’s Hamir Patel increased his target to $48 from $44 also with a “buy” recommendation. The current average is $54.
* Haywood Securities analyst Christopher Jones increased his Reconnaissance Energy Ltd. (RECO-X) to $16, matching the average, from $12.50.
* National Bank Financial analyst Tal Woolley raised his Tricon Residential Inc. (TCN-T) target to $16 from $14.50. The average is $15.48.
David Leeder