Air Transat looks to cut $20-million in operating costsBayne Stanley
Inside the Market's roundup of some of the Canadian small caps making news and on the move today. This post will be updated through the morning.
Desjardins Securities initiated coverage on Mandalay Resources Corp. with a "top pick" rating and $1.50 (Canadian) price target.
Mandalay Resources currently operates three mines: the flagship Cerro Bayo underground silver-gold mine in southern Chile, the gold-antimony Costerfield underground mine in Victoria State, Australia, and the Björkdal gold mine in Sweden, which was acquired from Elgin Mining Inc. this week.
Desjardins analyst Michael Parkin commented, "In our opinion, Mandalay is deserving of a higher price-to-cash-flow multiple given the excellent low-cost production growth potential, history of paying a good sustainable annual dividend (6 per cent of gross revenue, introduced in 2012), secure balance sheet, assets located in low-risk jurisdictions with favourable mining policy, and management's strong track record and history of making accretive acquisitions."
"We believe Mandalay shares have the potential to trade more in line with the intermediate producer peer group average on a P/CF basis, which is currently at a market cap average of 9.9x our 2015 estimates. Currently, Mandalay is trading at 0.90x our NAV (net asset value) on a cash-adjusted basis, and 5.3x and 3.9x our 2014 and 2015 cash flow per share estimates, respectively. We expect Mandalay's reserve update in the first quarter of 2015 to prove positive for the mine lives of the various assets, which could result in an increase to our NAV; thus, at current share price levels, it could be trading at a discount to the P/NAV peer group average," he added.
Separately, Mandalay issued a news release last night providing an update on its Challacollo feasibility study. Shares today were down 7 per cent in afternoon trading.
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Avigilon Corp. has been named as defendant in a patent lawsuit filed in a Texas court. The plaintiff maintains that Avigilon's video analytics features (acquired through VideoIQ) infringe on a patent, and is seeking damages. Avigilon's management believes that the suit is without merit and is not material.
Cantor Fitzgerald Canada analyst Justin Kew commented, "We believe that this suit will most likely be resolved in a settlement and the settlement is most likely not material. This patent has been asserted in 12 previous suits with seven ending in settlements within an average of four to five months (excluding two outliers). The potential impact is minimized since the patent is on analytics only and not on Avigilon's core imaging technology. Lastly, we believe that as Avigilon continues to build its patent estate, patent infringement law suits (such as this one) will become more common."
Mr. Kew maintained a "buy" recommendation and $34 (Canadian) price target.
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Tourism company Transat A.T. Inc.'s revenue rose 1.6 per cent to $941.7-million in the quarter ended July 31, 2014, while its net income was $25.8-million, or 66 cents a share, compared with $41.1-million, or $1.07 a share, a year earlier. Transat reported adjusted profit of 69 cents per share, beating Street expectations for 67 cents.
"The corporation is continuing to implement its initiatives to reduce operating costs, improve margins, and make changes to its systems and processes, including internalization at Air Transat of a flexible fleet of narrow-body aircraft. These measures had, as expected, a favourable impact of $20-million on the margin in 2012 and one of $15-million in 2013. The corporation expects to generate another $20-million in 2014, as well as in 2015, when internalization of the narrow-body fleet will produce its full benefits," the company said. Transat expects to post satisfactory results in the fiscal fourth quarter of 2014, although lower than last year.
Desjardins Securities analyst Benoit Poirier reiterated his "buy" rating and $16 (Canadian) price target after reviewing the results. "From a trading perspective, we anticipate a positive reaction to Transat's 3Q FY14 results due to the beat on adjusted EPS in view of negative market sentiment and the positive comments about 4Q FY14. We like management's disciplined approach to improving margins by focusing on capacity management and higher selling prices," he commented in a note.
Shares in Transat opened up 16 cents, or 1.8 per cent, at $9.
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Bellatrix Exploration Ltd. has provided an operational update, reporting that a couple of temporary gas plant closures will cut into its production this month.
Bellatrix said it has been put on notice that two of its third party-operated gas plants in the Ferrier/Willesden Green area will be going offline for the third week of September. Assuming the plants are offline for the expected length of time, the temporary outages should result in its September production dropping by 1,000 barrels of oil equivalent per day.
Bellatrix's third-quarter average production is now expected at about 40,500 barrels of oil equivalent per day, down from the company's previous guidance at 41,000-42,000 boe/d. The company still expects to exit 2014 with production of about 48,000 boe/d.
AltaCorp Capital Research analyst Jeremy McCrea commented, "We'll remind investors that, given its joint venture partners, individual well paybacks are within 6-12 months, and that even under lower AECO prices, economics still stand to be top tier in the basin. With PPS growth expected at 20% into 2015; CFPS growth at 32%, leverage at 0.7x and management's 3-year compounded annual growth rate growing PPS, CFPS and PDP net asset value by about 30 per cent year/year, the company continues to be a very attractive buy for long-term investors." He reiterated an "outperform" rating and $14 (Canadian) price target.
Dundee Securities analyst Brian Kristjansen reiterated a "buy" rating but cut his price target to $14.75 from $16.60. "The bottom line, from our perspective, is that the light at the end of the tunnel remains clearly in sight and approaching. The cloud of third-party impacts will be materially lifted upon plant commissioning in July 2015 and the stock's valuation remains very compelling with a forecast 2015E EV/DACF multiple of 4.3x and $40,156 per BOE/d," he said.
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New Gold Inc. has provided additional exploration results to those released on July 7 for the C-Zone deposit at the New Afton mine in Canada. The C-Zone deposit is a deep extension of the B-Zone deposit, which is currently being mined.
Desjardins Securities analyst Michael Parkin commented, "The recent drill results continue to confirm a robust and growing resource in the C-Zone, and management is pleased with the continuity of the mineralization and the relatively high gold and copper grades." He reiterated a "hold" rating and $7.50 (Canadian) price target.
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Colabor Group Inc. announced that it has acquired a majority of the assets of Marcotte Alimentation, a leading distributor of food and non-food products based in Trois-Rivières, Quebec. Terms were not disclosed.
Colabor Group also announced the award of a large multi-year contract to supply the Popeyes Louisiana Kitchen restaurant chain in Ontario, as well as the long-term renewal of a supply agreement with Ben Deshaies inc.
Shares in the company were up nearly 4 per cent in early TSX trading.
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Northern Blizzard Resources Inc., which recently completed an initial public offering, provides investors with exposure to a unique heavy oil company with above-average forecast production growth potential from projects with minimal risk, said TD Securities analyst Aaron Bilkoski in a research note today
"Moreover, investors purchasing shares today benefit from previously sunk capital that is likely to result in material production additions within the next year," he added.
Mr. Bilkoski thinks that over the medium term, cash savings resulting from investor participation in the company's dividend reinvestment plan, combined with its flexible balance sheet, will provide a source of financing to accelerate growth beyond his current forecasts.
He initiated coverage with a "hold" rating and $21.50 (Canadian) price target - which reflects his shorter-term view on the company for the next 12 months.
Elsewhere, RBC Dominion Securities initiated coverage on Northern Blizzard Resources with a "sector perform" rating and $21 (Canadian) price target.
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Carfinco Financial Group Inc. is showing considerable strength in both its Canadian and U.S. operations, Industrial Alliance Securities analyst Dylan Steuart said. He upgraded the stock to "strong buy" from "buy" and maintained an $11 (Canadian) price target. Shares in the company were up more than 8 per cent in late afternoon trade.
On Wednesday, the auto lender announced a cash dividend and provided performance data for the month of August, showing that loan balances grew at an annualized rate of 21.8 per cent, the strongest growth since October 2012.
"Carfinco remains well positioned in a very high margin business, while paying a very sustainable dividend yield of 6.3 per cent," Mr. Steuart said. "Continued loan growth momentum will allow management to leverage increased infrastructure spend in Canada and the U.S. and help to improve bottom line margins overall."
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Rogers Sugar Inc. said it would reduce the workforce at its Lantic refinery in Montreal by 59 employees through a combination of layoffs, early retirements and voluntary departures. The company expects to incur $2-million in additional administrative costs in the fourth quarter of fiscal 2014 for consulting fees and severance costs.
"In order to remain competitive in this challenging environment, we need to improve production efficiencies. As a result, a process improvement consulting firm was hired to review the Montreal refinery cost structure and its manufacturing process. Following their analysis and a thorough review of our operations with our production team, we are now proceeding with a reorganization which will have no impact on our commitment to supply quality products and to reliably service our customers," Lantic CEO Ed Makin said.
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UEX Corp. announced that it has entered into an agreement with Raymond James under which UEX will offer common shares on a flow-through basis at a price of 43 cents each. The financing should raise $2-million, which is expected to be used to fund exploration of the company's uranium properties.
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Quaterra Resources Inc. announced it has agreed to sell its U.S. subsidiaries' interest in three non-core copper and molybdenum assets to Freeport-McMoRan Mineral Properties Inc. for $5-million (U.S.). In connection with the deal, purchase warrants will be issued to Freeport.
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Selwyn Resources Ltd. has entered into a definitive agreement to sell its subsidiary ScoZinc Limited to Scotian Zinc Mines Ltd. Scotian will purchase all of the shares of ScoZinc for $17.5-million (Canadian).
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Canadian Imperial Venture Corp. has entered into a Letter of Intent to acquire Beothuk Energy Inc. Under the terms of the LOI, CIVC will issue one common share for every issued and outstanding share of BEI, up to a maximum of sixty-two million common shares.
BEI has been developing an offshore wind power project in St. George's Bay, western Newfoundland and Labrador. BEI's proposed 180 MW offshore wind farm will be located in an area of the Gulf of St. Lawrence, and the company estimates that the clean green energy produced will cost less than ten cents per kilowatt-hour.
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Due to lower flight-based activity in the second quarter, Discovery Air Inc. was in breach of a loan covenant with several lenders, the company said in a statement. "While all lenders involved have waived the covenant for the second quarter, and preemptively amended or waived the covenant for the next quarter, the waiver was obtained after July 31. As a result, the portion of the related debt that is not due within 12 months has been reclassified as a current liability. The corporation's flight activity increased considerably in the month of July, but this increase was not sufficient to offset the slower than expected May-June time period."
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GuestLogix Inc., which provides merchandising, payment and business intelligence technology to airlines and the passenger travel industry, announced a five-year agreement to deploy its retail platform and handheld devices across Curacao's flag carrier, InselAir, and Aruba-based carrier, InselAir Aruba. This agreement represents more than 1.8 million passenger trips annually, the company said.
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Aureus Mining Inc., which is building Liberia's first commercial gold mine, the New Liberty gold project, said New Liberty is on track to deliver output for the first time in the first quarter of 2015 and to be fully commissioned and operating at a steady-state nameplate capacity by 30 June, 2015. "Whilst there continues to be no reported or suspected cases of the Ebola virus across the company's operations or in areas in proximity to where the company operates, the recent escalation of the Ebola outbreak across Liberia and West Africa is a growing concern," the company said in a statement.
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Construction firm ADF Group Inc. posted a second-quarter net loss of $0.3-million, or 1 cent a share, compared with net earnings of $1.2-million, or 4 cents a share a year earlier. "ADF's markets continue to show positive signs of improvement and we are bidding actively. This being said, we remain committed to our prudent and selective approach adopted in the past years and continue to privilege profitable and long-term growth. Our strategy may, from time to time, postpone the conclusion of certain agreements; however it allows us to assure our shareholders of a long-term profitability," said CEO Jean Paschini.
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