Inside the Market’s roundup of some of today’s key analyst actions
After Cargojet Inc. (CJT-T) signed a strategic agreement with Amazon.com NV Investment Holdings LLC, an affiliate of Amazon.com.ca, Inc., Echelon Wealth Partners has raised its target price on the stock.
“Cargojet is a key air cargo carrier for Amazon’s middle mile transportation in Canada and we believe today AMZN represents roughly 15 per cent of direct and indirect CJT revenue. This agreement is in conjunction with Amazon’s and Cargojet’s existing commercial agreement for overnight air cargo services and charters and to incentivize growth in Amazon’s utilization of those services to support fast delivery for Amazon customers in Canada,” said Echelon.
“Under the new strategic agreement, Cargojet will issue warrants to Amazon to purchase variable voting shares that will vest based on the achievement of commercial milestones related to Amazon’s business with Cargojet. Cargojet expects the agreement to generate additional revenue growth and be meaningfully accretive to Cargojet’s earnings and cash flows over time. Growth in e-commerce and recent industry announcements for even faster deliveries as well as seven days-a-week deliveries will drive Cargojet to further strengthen its premium domestic network – the company currently operates six days/week for its core overnight business and notes it does not need another aircraft to expand to seven days/week; margin torque associated with this move when ready would be notable,” said Echelon.
Echelon kept its “buy” rating on Cargojet and raised its discounted cash flow target to $130 from $120. The median price target is $105 according to Zack’s Investment Research.
“Our $130 PT values CJT on a 2020 [enterprise value] EV/Revenue, EV/EBITDA [earnings before interest, taxes, depreciation and amortization] and Price/Cash Flow of 4.2x/13.4x/14.4x, respectively, versus its U.S. based peers average of 3.7x/10.9x/10.7x and Amazon at 2.8x/17.5x/18.0x, respectively. We believe as Amazon growth in Canada accelerates, CJT will directly benefit and thus so should its valuation better reflect that.”
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Desjardins has reinstated coverage of Osisko Mining Inc. (OSK-T) following the completion of the company’s recent equity financing.
“The financing puts Osisko in a comfortable position to advance the Windfall project and undertake additional exploration. The company has increased the Windfall exploration program by another 200,000 metres. It has discovered four new extensive zones of mineralization that could contribute further upside to the already sizeable existing Windfall resource of ~3.1moz [about 3.1 million ounces],” said analyst Raj Ray.
“New discoveries at Windfall include (starting with most recent) the Triple Lynx, Windfall North, the Lynx depth extension and the Triple 8 zone. Given the recent exploration successes, the company announced a 200,000-metre expansion of its exploration program (now 1,000,000 metres) and it expects some of these zones to contribute to a larger resource later this year,” he said.
“The high-grade, near-surface Lynx corridor is strategically important for a potential future mine plan. Therefore, it has been a priority drill target and led to a new resource (1.08moz at 8.97g/t) late last year, which was [about] 28 per cent larger and had a [approximately] 20 per cent higher grade. Importantly, the positive grade reconciliation at Lynx could serve as a bellwether for the remaining mineralized corridors at Windfall given positive infill drill results to date,” he said.
“At the end of 2Q19, Osisko had cash of $32-million and another $44.9-million in taxes receivable. With gross proceeds of $44.5-million from the recently completed financing, Osisko is well funded to carry out planned exploration and complete a feasibility study expected in 2020.”
He resumed coverage with a rating of “buy-speculative” and a target price of $4.50, which is based on 1.00 times its base-case NAVPS [net asset value per share] of $4.50. The median price target is $4.15.
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CIBC initiated coverage of Sundial Growers Inc. (SNDL-Q) saying its “ ‘craft at scale’ strategy likely presents a cultivation advantage versus competitors, and the company’s accelerated rampup combined with a quality management team put the company on solid footing."
The stock’s valuation places it as the sixth most valuable cannabis producer “ahead of peers that have reached more de-risking milestones, including nationwide distribution agreements, consumer awareness, and meaningful market share,” said analyst John Zamparo.
He initiated coverage with a “neutral” rating and a price target of US$11.
“Sundial’s strengths include management with a strong background in adjacent industries and a focus on cannabis as a CPG item, with similar strategies employed for shelf space attainment, brand management and customer loyalty. Furthermore, its primary cultivation facility is first-rate and its Q2 revenue performance ($19-million) was impressive,” he said.
"Execution risk exists across the cannabis space, but is particularly relevant at Sundial, in our view, as the company has little by way of a performance track record. Furthermore, SNDL’s cultivation advantage may be narrowing, as we estimate current market capacity of 330,000 kg/year grows to >1 million kg/year by 2020, enough to serve the entire Canadian market," he said.
“Our concerns are a lack of differentiation and required execution in both North America and the U.K. Our estimates assume a rapid ramp: our 2020E $348-million Canadian sales forecast implies ~14 per cent market share (including wholesale). However, the stock appears to already reflect this performance, leaving little room for upside, in our view.”
“For ease of comparability, we approach the entire cannabis space using EV/sales multiples as companies build brands and establish supply chains. In our valuation, Sundial earns a 4.5x multiple applied to F2020E revenues, +35 per cent versus the median of the larger/mid-sized Canadian producers, leading to our US$11 price target.”
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Desjardins has revamped its outlook for several precious metals mining stocks and has put Endeavour Mining Corp. (EDV-T) at the top of its list.
It kept its “buy rating” with “above average risk” and its $33 price target. The median is $32.50.
“The company has excellent potential for exploration upside at both its flagship operations, Ity CIL and Houndé. Upcoming catalysts include: (1) Maiden R&R estimates for Kari West and Center (Houndé) –4Q19/1Q20; (2) maiden reserves for the Le Plaque target (Ity CIL) – 4Q19/1Q20; (3) updated mine plans (with expanded reserves) for Houndé and Ity CIL –1Q20; and (4) planned start of mining at recently discovered higher-grade deposits (Houndé and Ity CIL) –2021,” said analyst Raj Ray.
This also comes as Desjardins updates its gold price assumptions. “With gold staying above US$1,500/oz, we have slightly increased our near-term (US$1,455/oz in 2H19 from US$1,365/oz, and US$1,400/oz in 2020 from US $1,350/oz) and long-term (US$1,350/oz from US$1,325/oz) gold price assumptions. With real rates remaining in negative territory, we see support for the gold price; however, we will look to review our forecasts following the U.S. Federal Reserve’s next interest rate decision on Sept. 18, 2019.”
Here are some other ratings on precious metals mining stocks.
OceanaGold Corp. (OGC-T). Buy rating with above-average risk and a $5.50 price target.
Golden Star Resources Ltd. (GSC-T). Downgraded to hold from buy, with above-average risk, with a $6.50 price target after a weak first half.
Kirkland Lake Gold (KL-T). Hold rating with above-average risk, $57 price target.
SEMAFO Inc. (SMF-T). Downgraded to hold from buy, with above-average risk, and a $6 price target after its Mana operation has a pit-wall failure that will impact its second half results due to a 10 week suspension of processing operations there.
TMAC Resources Inc. (TMR-T). Buy rating with above-average risk and a $10 price target.
Wesdome Gold Mines Ltd. (WDO-T). Hold rating “speculative” with a $6.50 price target.
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Desjardins reinstated coverage of SilverCrest Metals Inc. (SIL-X) and raised its price target after it recently completing an equity financing “which allows the company to maintain its strong exploration focus while it advances the Las Chispas project toward a construction decision in 2020,” said analyst Raj Ray.
“So far in 2019, SilverCrest’s shares have significantly outperformed peers, increasing 98 per cent vs 19 per cent for the Global Silver Miners ETF. Despite the significant outperformance, SilverCrest is still the name to own.”
“With gold and silver prices remaining strong and fund flows slowly starting to trickle into the precious metals sector, investors, whether they are bullish on (or still nervous about) the sector, should still look to own a name like SilverCrest. Las Chispas is an all-weather project that works in any commodity price environment, has strong growth potential over the near term and its development stage is well ahead of the curve. Consequently, as we highlight in this note, a project like Las Chispas should continue to command a healthy premium,” he said.
“After completing a recent equity financing, SilverCrest is now well funded (cash of $49-million) until a construction decision is reached in early 2020. With the rainy season ending, the company will be ramping up to 17 drills from the current 14 and estimates it can complete another 50,000 metres of drilling in 2H19. In our opinion, the Las Chispas resource could surpass 150moz Ageq (vs the current ~108moz) over the next 12–24 months.”
He resumed coverage with a “speculative buy” rating.
“Our target price for SilverCrest is based on 1.00x our base-case NAV 5 per cent. Our revised target price is based on our new gold price assumptions and an incremental increase in the size of our resource estimate. The net impact is an increase in NAVPS to $8.75 (from $7.25),” he said. The median is $7.95.
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