Inside the Market’s roundup of some of today’s key analyst actions
While he thinks Lassonde Industries Inc.’s (LAS.A-T) acquisition of The Zidian Group holds “strategic merit,” National Bank Financial analyst Vishal Shreedhar warns the deal “adds complexity at pivotal time.”
On Friday, the Rougemont, Que.-based company announced a definitive agreement to acquire Zidian Group, which operates Summer Garden Food Manufacturing, an Ohio manufacturer and distributor of specialty food, for US$235.0-million. A further payment of up to US$45.0-million is also possible over the next three years based on the achievement of financial targets and other conditions.
“We hold an incrementally positive view on this deal,” he said. “Our concern lies with the prioritization/timing of the deal and the ongoing turnaround. Given tepid operational performance over several years, which necessitated a turnaround in the U.S operations, our preference would’ve been for LAS to demonstrate better traction with its improvement initiatives before introducing more complexity into the business. That said, we acknowledge the longer-term need for a higher margin, higher growth vector (given ongoing declines in low margin juice), and believe the specialty food segment is an appropriate strategic focus.
“We await more details before updating our model; we estimate pro forma NTM [next 12-month] EPS accretion of 7-12 per cent, not reflecting tax adjustments, undisclosed synergies or undisclosed investment.”
Mr. Shreedhar maintained his view of Lassonde following the deal’s announcement, continuing to see “meaningful turnaround potential (predominantly the U.S. operations).”
“If the U.S. business returns to historical EBIT margins (6 per cent), we estimate upside to our 2026 EPS estimates,” he added. “Though there remains near-term uncertainty surrounding consumer health, cost inflation and operational performance (we see green shoots), we hold a positive view given favourable valuation and expectations of improving performance.”
He reaffirmed an “outperform” recommendation and $182 target for Lassonde shares. The average target on the Street is $179.
Elsewhere, Canaccord Genuity’s Luke Hannan raised his target to $180 from $175 with a “buy” rating.
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Desjardins Securities analyst Gary Ho is expecting AGF Management Ltd. (AGF.B-T) to report “decent” second-quarter financial results on Wednesday, emphasizing the positive contribution from the recent acquisition of a majority interest in Kensington Capital Partners Ltd.
“With softer retail flows reported through IFIC in the last two months, we reduced our net flows assumption to negative $123-million,” he said. “However, our recovery outlook for the end of 2024 and into 2025 is unchanged as lower rates push GIC-type assets back to investment funds. AGF’s 2Q results will benefit from its Kensington acquisition.”
Mr. Ho raised his earnings per share forecast for the quarter by 2 cents to 34 cents, which is just a penny below the consensus estimate on the Street and down 11 cents from the same period a year ago.
“Industry trends (per IFIC) were weak following a rebound through RRSP season, with April long-term fund redemptions of $2.4-billion (May not yet available),” he said. “However, year-to-date 2024 net outflows of $49-million are much improved vs $9.9-billion over the same period in 2023. We raised our AGF net outflows to $123-million (vs $71-million previously). As the markets grind higher and expectations for lower rates in 2H24 settle in, this should drive money from cash/GICs back into investment funds (likely fixed income/balanced funds first, then equity mandates), benefiting asset managers, including AGF. Asset managers provide significant torque in a robust market environment as they leverage their relatively fixed cost base (outside of performance-driven compensation/commissions).”
Raising his 2024 and 2025 earnings per share projections to $1.55 and $1.44, respectively, from $1.52 and $1.42 previously, Mr. Ho increased his target for AGF shares to $12 from $11.50, keeping a “buy” recommendation. The average is $10.96.
“We foresee a few near- or medium-term positive catalysts: (1) retail net flows trending at or above industry; (2) redeployment of capital for organic growth, to seed new private alt strategies and for share buybacks; (3) growth in fees/earnings from its private alt platform; and (4) M&A should be EPS-accretive,” he said.
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RBC Capital Markets analyst Ken Herbert said a recent tour of MDA Space Ltd.’s (MDA-T) satellite manufacturing facility near Montreal increased his confidence in both its execution and margin outlook.
“The primary satellite facility is undergoing a substantial expansion, and the level of automation provided incremental confidence in the margin outlook,” he said in a research note. “Management remains confident on incremental new business as well as the potential for the expansion of the Telesat and Globalstar contracts. As the focus for investors shifts from top-line to margin and execution, the expanding satellite facility supports a bullish view, in our view.”
Mr. Herbert said the Brampton, Ont.-based company’s management remains “confident in the outlook for the overall business (the mid-term revenue outlook calls for 25-per-cent organic growth) as well as new business opportunities.”
“In 2H24, the company expects to be in a position to announce the next production phase of the Canadarm3 program, as well as to identify the customer for its Authorization to Proceed (ATP) contract,” he added. “The outlook for new satellite contract announcements remains on track, expected in 1H25.
“The level of automation in the facility is impressive. MDA outlined a learning curve for the Aurora satellites, targeted a 60-per-cent reduction in production hours from satellite 1 to satellite 200. We believe investor confidence in the long-term high-teens margin potential is important for continued stock multiple expansion.”
The analyst reaffirmed his “outperform” recommendation and $16 target for MDA shares. The average is $16.29.
“We believe investor sentiment should benefit from several tailwinds, including improving 2025-2026 top-line visibility, increasing confidence in execution, visibility on peak capex, and strong industry fundamentals,” said Mr. Herbert.
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National Bank analyst Mike Parkin thinks Agnico Eagle Mines Ltd.’s (AEM-T) plan to add an underground mine to its flagship Detour Mine in Northern Ontario is “a good move by management, as it should prove relatively low-risk to execute on and brings access to higher valued tonnes sooner in the mine life, and thus boost medium-term cash flows.”
Updating his estimates to account for the latest life-of-mine plan for Detour, Mr. Parkin said he’s “upside to come.”
“The additional capital requirement of the u/g is also spread out over multiple years, allowing the company to finance the development through cash flow from operations,” said the analyst. “Ongoing exploration work continues to support the potential for significant resource growth in the u/g to the west. The LOM update did prove modestly negative to our prior NAV estimate due to the higher capital intensity for the open pit, offset somewhat by the quality u/g project now factored in. Overall, we view the LOM update for the Detour Lake asset as a good first step in identifying the potential of the u/g, and we believe future updates could prove positive with respect to building back up the NAV/sh of the company.
“Our analysis shows that additional tonnes discovered for the u/g should prove more economic vs additional open pit tonnes (assuming similar grades for each on a go forward basis). As management noted, there exists a considerable mineralized envelope to the west of the current u/g resource shell that should significantly boost the overall underground resource as infill drilling work is completed.”
Mr. Parkin reiterated an “outperform” rating and $104 target for Agnico shares. The average is currently $106.19.
Elsewhere, Eight Capital’s Ralph Profiti kept a “buy” rating and $105 target.
“[The preliminary economic assessment (PEA2024)] demonstrates the potential to increase Detour Lake gold production to an average of 1Moz per year over a 14yr period starting in 2030,” he said. “The underground project provides earlier access to a high-grade core of mineralization at depth below the reserve pit through underground development and displaces lower-grade open-pit production at the end of mine life. PEA2024 also sets the stage for future underground expansion along the western plunge of the mineralization. PEA2024 assumes an underground mining rate of approx. 11.2Ktpd (4Mtpa), mill expansion to 79.45Ktpd (29Mtpa) starting in 2028, and a mine life extension to 2054, with an expected annual gold production increase of 300koz per year from 2030-2043 to reach a 1Moz annual gold production (up 43 per cent vs. 2024-2029 production).”
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Stifel analyst Ian Gillies said he’s “looking past” significant near-term reductions to his estimates for Algoma Steel Group Inc. (ASTL-T) following last week’s release of lower-than-expected guidance for the first quarter of its fiscal 2025.
“If we were to put Algoma on the Lassonde Curve today it would be imminently transitioning to the development/start-up phase from the orphan period as it finishes construction of its $850-million electric arc furnace,” he said. “At which point, the company’s capex spend will decline meaningfully and free cash flow should inflect higher, indicative of a period of significant share price appreciation on the Lassonde Curve. Moreover, the possibility for significant share buybacks are higher given our forecast of a post EAF FCF yield of 35 per cent at US$800 HRC and US$975 plate.”
He added: “The Lassonde Curve is often referred to when judging mining company investments as there are specific times in a company’s life cycle where significant share price appreciation occurs. One of those periods is post feasibility and development, and into start-up and production. This applies to Algoma because it is nearing completion of its $850-million EAF project, and we expect significant share price appreciation can occur due to (1) an increase in production capacity to 2.7 mmstpa from 2.2 mmstpa; (2) a more profitable product mix as plate will become a larger percentage of production (FY23: 9 per cent, FY26E: 24 per cent); (3) better stability of margins resulting from EAF operations; and (4) valuation expansion because of the previous factors.”
Citing depressed HRC and plate pricing combined with higher costs, Mr. Gillies cut his estimates for Algoma. However, he raised his target for its shares to $16 from $15 with a “buy” rating (unchanged), pointing to improving debt levels and higher earnings expectations for 2026. The average is $14.25.
“Algoma Steel is a growth stock as it is embarking on a $825-875-million (prior: $700-million) capital investment to convert its BOF to an EAF,” he said. “This will likely increase the company’s effective production capacity by 0.7 mmtpa, or 25 per cent. It should also reduce the company’s risk related to a rising carbon tax in Canada. The company’s strong balance sheet and government support leave it well positioned to fund this growth plan.”
Elsewhere, 0ther analysts making changes include:
* BMO’s Katja Jancic to $13 from $14 with an “outperform” rating.
* Cormark Securities’ David Ocampo to $14.50 from $17 with a “buy” rating.
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In other analyst actions:
* TD Securities’ Michael Van Aelst raised his Empire Co. Ltd. (EMP.A-T) target to $38 from $36, keeping a “hold” recommendation. The average on the Street is $38.43.
“Considering Empire’s low valuation, it was not completely surprising to see a very modest earnings beat and lower eComm investment lifting the shares 5 per cent [on Friday],” he said. “We do not see consumer health strengthening enough in F25 to meaningfully lift basket size within Empire’s fullservice banners, but a slow move toward tonnage stabilization coupled with a 4-5-per-cent NCIB should lift EPS for the first time in 3 years.”
David Leeder