Inside the Market’s roundup of some of today’s key analyst actions
Allied Properties REIT’s (AP-UN-T) decision to explore the potential sale of its urban data centre (UDC) portfolio located in downtown Toronto “is a significant opportunity to surface value for unitholders,” said Canaccord Genuity analyst Mark Rothschild.
The UDC portfolio comprises three properties, which generated $62.6 million in annualized net operating income during the third quarter of this year, equating to 16 per cent of total net operating income for the REIT.
“There is no guarantee that a sale will occur but considering the REIT’s unit price and the attractiveness of these assets, we believe there is a good chance a transaction takes place,” said Mr. Rothschild. “Should the REIT sell its UDC portfolio, management will have various opportunities to redeploy capital, including repurchasing units, a special distribution and the repayment of debt. With the REIT’s units currently trading at a 48.8% discount to its most recently disclosed IFRS net asset value, repurchasing units could be highly accretive.”
He maintained a “buy” rating and C$35.50 target price, which is based on a slight discount to his net asset value estimate on the REIT.
Mr. Rothschild believes the sale of the portfolio will largely depend on the strength of the offers received, as management has generally been bullish on this segment of its portfolio and financial performance from the assets has been strong.
iA Capital Markets analyst Gaurav Mathur, who reaffirmed a C$38 price target and “buy” rating, said he believes the REIT would benefit the most by divesting a non-controlling stake in the assets through a joint venture structure. That would allow Allied to unlock liquidity while partnering with a strategic partner with strong operating experience. “A strong strategic partner could also potentially add to the UDC platform, not only in terms of operations but also with regard to expansion in new markets,” Mr. Mathur said.
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TD Securities analyst Graham Ryding raised his price target on EQB Inc. (EQB-T) to C$80 from C$75 in the wake of its alternative financing peer, Home Capital Group, receiving an offer from Smith Financial Corp. to buy its outstanding shares. He reiterated a “buy” rating.
Mr. Ryding’s financial estimates on EQB are unchanged. The increased price target reflects a higher multiple he is applying to EQB following the Home Capital offer.
Mr. Ryding’s latest views on EQB comes after meetings with company management.
“Management views the proposed Home Capital acquisition as a positive read-through for EQB and the wider Alt-A (lending) industry. EQB is currently trading at 0.9x price-to-book, which compares favourably with Smith Financial Corp’s offer for Home Capital,” he said.
Over the last three years, EQB has traded at 1.1x P/B, while Home Capital has traded at 0.9x. “We believe EQB should trade at a premium, given its more diversified business, quality digital bank, and strong earnings growth/return on equity track record. EQB management sees the proposed offer for Home Capital Group as a fair endorsement for the long-term attractiveness of the Alt-A industry,” he said.
In a note to clients, Mr. Ryding concluded, “We are encouraged with the strong results in 2022 to-date (ahead of guidance) and constructive outlook for earnings and book value per share growth in 2023 (including Concentra). Management is executing well on net interest margin expansion in a rising rate environment. Loan growth is strong, but it is expected to moderate in line with guidance. Credit trends continue to be solid, though we continue to expect some deterioration. The digital EQ Bank is a valuable and differentiating asset, in our view.”
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Analysts are impressed with the latest financial results of Calian Group Ltd. (CGY-T) and the release of its fiscal year 2023 forward guidance.
The business services firm that operates in the four areas of advanced technologies, health, learning, and information technology reported fiscal fourth-quarter revenue of $161-million, up 26 per cent from a year earlier and beating consensus estimates of $151-million. Adjusted EBITDA of $19.1-million was also above the consensus forecast of $16.4-million.
Management expects revenue of between $630–million to $680-million for fiscal 2023, which suggests the consensus estimate of $644-mllion may be too conservative. Guidance on adjusted EBITDA and adjusted EPS also were in target ranges above the consensus estimate - and come despite widespread predictions of a recession in early 2023.
“This suggests management has strong visibility on the backlog as well as its quality for the year ahead,” said Desjardins Securities analyst Benoit Poirier, who reaffirmed a “buy” rating and C$61 price target on the stock.
“Overall, we are very pleased with CGY’s performance in 4Q, which demonstrated the success of management’s strategy to gain exposure to higher-margin business. Accordingly, we encourage investors to revisit the story and buy the shares ahead of the continued acceleration of capital deployment toward M&A. In our view, the challenges faced by the advanced technology segment are temporary and should pass,” Mr. Poirier said.
Acumen analyst Jim Byrne reiterated his “buy” rating and C$78 price target. “We view the Q4 results as positive with strong growth in the quarter despite the impacts from lower revenue in the Advanced Tech and Health segments due to ongoing supply chain issues and positive impacts from COVID in 2021. Margins continue to move higher, and we view the FY23 guidance as positive as they forecast strong top line growth of about 12.5% at the midpoint,” Mr. Byrne said.
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In other analyst actions:
* Equinox Gold Corp (EQX-T): National Bank of Canada raises target price to C$5 from C$4
* Green Impact Partners Inc (GIP-X): RBC cuts target price to C$12 from C$14
* Stella-Jones Inc (SJ-T): CIBC raises target price to C$54 from C$49
* Transcontinental Inc (TCL-A-T): National Bank of Canada cuts target price to C$22 from C$23
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