Inside the Market’s roundup of some of today’s key analyst actions
RBC Dominion Securities analyst Darko Mihelic thinks Sun Life Financial Inc.’s (SLF-T) “earnings volatility is comparatively low with higher than average earnings growth,” leading him to use the highest valuation multiple in his coverage universe and raise his recommendation for its shares to “outperform” from “sector perform.”
“While Q1/23 results were weaker than we forecast in Wealth Management and Corporate, core earnings in the other segments were above our expectations,” he said in a research note released Monday titled Good quarter, good capital, good outlook, easy upgrade.
“We model the Wealth business to improve from here with good growth almost everywhere. SLF had the highest ROE [return on equity] among peers this quarter (with pretty much the highest capital) and also has the highest medium-term ROE target.”
After last week’s release of quarterly results that fell in line with expectations, Mr. Mihelic raised his 2023 forecast while introducing 2024 and 2025 estimates. His underlying earnings per share estimate for the current fiscal year rose to $6.80 from $6.47, increasing to $7.55 in 2024 and $8.15 in 2025.
“SLF’s underlying ROE of 17.3 per cent this quarter was the strongest among peers, higher than the peer average of 14.5 per cent,” he said. “SLF reaffirmed its underlying ROE target of 18 per cent-plus in the medium-term, the highest underlying ROE target among the Canadian lifecos, and the Q1/23 high ROE was achieved with a very high capital ratio. While investment performance bears watching (with a focus on commercial real estate and the potential for credit losses), this was a good quarter to remind us that business mix is favourable with good growth prospects with in theory, low volatility relative to peers.
“The Q1/23 total LICAT ratio at the holding company level was 148 per cent, the second highest ratio among peers this quarter. SLF disclosed that it has $1.1-billion in cash held at the holding company. SLF plans to continue prioritizing dividends and organic growth, and pursue M&A opportunities if they meet the lifeco’s financial targets. Buybacks are considered based on the M&A pipeline.”
Mr. Mihelic raised his target for Sun Life shares to $79 from $76. The average on the Street is $73.57.
“SLF is trading at a P/B multiple of 1.84 times, above its historical average and peer average of 1.37 times,” he said. “On a P/E basis, SLF is trading at 9.6 times, below its longterm average of 11.0 times but above the peer average of 9.2 times. This is the first quarter we are seeing under IFRS 17, so we note that consensus estimates (and our own) could have more estimation error than normal. SLF’s stock has underperformed peers this year, yet its fundamental earnings performance very much outperformed peers this quarter and in our view, we think this type of outperformance can continue all else equal.”
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After lowering his call for the Property and Casualty insurance sector to “market weight” from “overweight,” Desjardins Securities analyst Doug Young downgraded Definity Financial Corp. (DFY-T) to “hold” from “buy,” citing “various trends and concerns with the Canadian personal auto market” and a “deceleration” at Sonnet.
“That said, we still like DFY’s strategy, excess financial capacity (positions it to make acquisitions) and the firming market conditions,” he added,
The change came following last week’s release of first-quarter results that Mr. Young deemed “negative” with operating earnings per share of 54 cents falling a penny below his estimate and 4 cents under the consensus forecast on the Street.
“Personal auto had a 100.9-per-cent combined ratio (vs our 97.4-per-cent estimate),” he said. “The division suffered from an increase in frequency (should stabilize going forward), elevated severity due to inflation pressure (but stabilizing, according to management) and heightened levels of theft (increased the loss ratio 2ppts year-over-year). Management is taking actions (both rate and non-rate) to improve profitability, earned rate growth should surpass inflationary loss cost trends by the end of this year and there was no change to its high-90-per-cent combined ratio guidance for this division for the full year.
“Sonnet premiums grew only 6 per cent year-over-year as management continues to focus on rate adequacy over unit growth, and the rate freeze in Alberta was a significant contributor to the deceleration.”
Mr. Young reduced his target for Definity shares to $39 from $42. The average is $42.86.
Elsewhere, CIBC World Markets’ Paul Holden upgraded his recommendation to “outperformer” from “neutral” with a $39.50 target.
“We think the worst quarter for personal auto should now be behind us and expect sequential improvements in the combined ratio,” he said. “Results in other lines of business remain strong and management is executing on its organic growth strategy. Excess capital remains a big positive. We also like the stability of the P&C insurance business in a period of elevated macro risk.
Others making target changes include:
* Barclays’ John Aiken to $42 from $43 with an “overweight” rating.
“Despite solid results in commercial and personal property, disappointing results in personal auto overshadowed the results, generating lower-than-anticipated earnings. However, the outlook remains solid and a recovery in auto provides incremental upside,” said Mr. Aiken.
* RBC’s Geoffrey Kwan to $48 from $49 with an “outperform” rating.
“We think DFY is executing well on its growth strategy with brokerage distribution acquisitions augmenting growth,” said Mr. Kwan. “We think DFY’s shares are attractively valued given the uncertain macro environment and the significant discount to its closest publicly traded peer.”
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Seeing an “unclear path to realizing embedded value,” Desjardins Securities analyst Kyle Stanley downgraded European Residential Real Estate Investment Trust (ERE.UN-T) to a “hold” recommendation from “buy” following last week’s release of largely in-line quarterly results.
“While ERE continues to deliver robust operating results, higher interest costs have eliminated near-term earnings growth,” he said. “Moreover, its larger and more liquid European peers trade at a materially wider valuation discount (more than 60-per-cent NAV discount vs ERE’s 32-per-cent discount). However, ERE’s management team appears highly motivated to maximize unitholder value, and near-term progress on this goal presents a risk to our call.”
“Notwithstanding (1) the robust fundamental backdrop, (2) the operational expertise of its external asset manager and largest unitholder (CAR), and (3) substantial embedded value upside, we do not see a compelling argument for putting new money to work in the story today. The inflation-induced rate hike cycle from the ECB and associated increases in ERE’s borrowing costs have more than offset its healthy NOI growth; our 2023 FFOPU outlook calls for a 3-per-cent year-over-year decline. Moreover, European multifamily peers trade at a materially deeper discount (more than 60-per-cent NAV discount, 7–10 times 2024 FFO vs ERE at a 32-per-cent NAV discount and 12.4 times FFO). Lastly, 40bps of utilized cap rate expansion (to 4.4 per cent) drove a 15-per-cent reduction in our spot NAV (to $4.40).”
Mr. Stanley thinks the only way for the REIT to take advantage of “the currently trapped value upside” is through M&A activity, noting the commentary from its quarterly conference call “suggests management is motivated to maximize unitholder value and is evaluating all options.
“While market participants’ current cost of capital is likely not conducive to an en bloc portfolio acquisition, a near-term privatization presents a risk,” he said. “Moreover, ERE’s implied per-suite trading value of EUR212,000 sits well below Dutch market values (more than EUR350,000). A program to stratify and sell suites individually could also capture the embedded value.”
After trimming his 2023 and 2024 funds from operations estimates, he lowered his target for the REIT’s units to $3.75 from $4.50. The average is currently $4.15.
“Notwithstanding a 30-per-cent total potential return, we have downgraded our rating to Hold–Average Risk given ERE’s (1) negative earnings trajectory; (2) premium valuation relative to European peers; (3) limited public float and liquidity; and (4) outside of M&A, limited ability to capture embedded value,” he concluded.
Elsewhere, Raymond James’ Brad Sturges cut his target to $4 from $4.25 with an “outperform” rating.
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The recent drop in unit price for Automotive Properties REIT (APR.UN-T) has brought an “attractive entry point” for investors, according to Canaccord Genuity analyst Mark Rothschild, leading him to raise his recommendation to “buy” from “hold” previously.
“Automotive Properties REIT’s (APR) continued steady operating performance reflects the defensive nature of its assets, strong tenant profile and long lease terms,” he said. “However, while operating performance was solid as expected, it was offset by the impact of refinancing debt at higher rates. We continue to expect internal growth in the low single-digits going forward, driven mostly by contractual rent escalations, as the REIT has no lease maturities in the near term.”
After the bell on Thursday, the Toronto-based REIT reported funds from operations per diluted unit of 24 cents, matching the consensus expectation on the Street and flat year-over-year. Internal growth of 2.4 per cent offset by arise in interest expense from refinancing debt at higher rates.
“Following Q1/23 results which were largely in-line with expectations, we have not made any material changes to our outlook,” the analyst said. “We continue to forecast FFO per diluted unit of $0.99 for 2023 and now forecast FFO per unit of $1.02 for 2024 (from $1.03), equating to an increase of 5.1 per cent and 3.8 per cent, respectively. Our forecast assumes continued steady internal growth from contractual rent escalations and a modest level of accretive acquisitions.”
“On the conference call, management indicated that while the pace of external growth may be slow in the near term, cap rates are generally in-line with the current cost of financing for automotive dealership operators, which should allow for more acquisition opportunities.”
Mr. Rothschild reiterated a $12.50 target for REIT units. The average is $12.72.
Elsewhere, TD Securities’ Jonathan Kelcher lowered his target to $13 from $13.50 with a “hold” rating.
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After a “challenging” first quarter, including a “substantial” EBITDA miss and the retirement of “well-respected” CEO Constantine Karayannopoulos, Stifel analyst Ian Gillies downgraded Neo Performance Materials Inc. (NEO-T) to “hold” from “buy” based on a “much weaker” near-term outlook.
Before the bell on Friday, the Toronto-based company reported EBITDA of $1-million, fell below Mr. Gillies’s $11-million estimate and the consensus expectation of $13-million.
“The miss emanated from higher cost inventory from prior periods being sold at lower prices during the current period,” the analyst said. “We had expected this to occur, but not at this magnitude.”
“Magnequench volume related issues in 1Q23 have persisted into 2Q23 and are expected for at least the next few quarters. In an effort to manage this risk, the company has significant reduced its head count in this segment. Moreover, it is working to identify ways to structurally improve the business, such as reducing the lead-lag time of 3-5 months. Margin issues are expected to persist through 3Q23E, but should return to a normalized level in 2024. C&O volumes remain healthy, but REO pricing has been very weak in recent months which will continue to impact margins through at least 3Q23.”
Mr. Gillies also thinks the departure of Mr. Karayannopoulos could “continue to weigh on the stock, and would irrespective of who was named CEO as a replacement.”
“There was a view amongst those investors close to the rare earth space that Mr. Karayannopoulos had a great handle on how to manage those markets and see trends emerging,” he said. “His departure will be considered a significant loss for the firm.”
Reducing his 2023 and 2024 estimates, Mr. Gillies lowered his target for Neo shares to $8.25 from $13. The average is $14.85.
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In other analyst actions:
* Based on its valuation, Credit Suisse’s Andrew Kuske upgraded TransAlta Renewables Inc. (RNW-T) to “outperform” from “neutral” with a $14.50 target, exceeding the $13.42 average.
“For RNW, recent share price performances of up 6.6 per cent, down 3.6 per cent and down 5.2 per cent on year-to-dayte, Q2 to date and month to date bases, respectively, creates sufficient excess potential return to our unchanged $14.50 target price and largely unchanged estimates,” he said. “Despite some of the issues related to RNW, our already discounted NAV scenario translates into sufficient excess potential return to justify an Outperform rating versus the prior Neutral.”
* Mr. Kuske raised his target for TransAlta Corp. (TA-T) to $18.50 from $17 with an “outperform” rating. The average is $16.13.
“A’s Q1 results were impressive at multiple levels and provided further support to our favourable valuation views. As a result, our TA target price moved to $18.50,” he said.
* Scotia’s Konark Gupta raised his Air Canada (AC-T) target to $31 from $30 with a “sector outperform” rating. Other changes include: CIBC’s Kevin Chiang to $32 from $31 with an “outperformer” rating and RBC’s Walter Spracklin to $23 from $22 with a “sector perform” rating. The average target is $28.52.
“Q1 beat was impressive considering elevated fuel prices and vulnerability due to weather. AC is managing the business quite well, playing into its strengths, despite new entrants and cost inflation,” said Mr. Gupta. “Continued solid demand drove bookings to an all-time record and a large FCF beat, which brought net debt down faster than we had anticipated. Margins should expand substantially over the coming quarters, nearly closing the gap to pre-pandemic levels, driven by solid demand and falling fuel prices. Against this backdrop, we expect the leverage ratio to continue to improve beyond AC’s unchanged 2024 goal as its FCF target looks conservative.”
* Canaccord Genuity’s John Bereznicki moved his Anaergia Inc. (ANRG-T) target to 75 cents from $2.10, below the $4.19 average, with a “hold” rating. Other changes include: BMO’s John Gibson to $1 from $3 with a “market perform” rating and National Bank’s Dan Payne to $1 from $2 with an “underperform” rating.
“ANRG’s Q1/23 results were relatively in line with expectations, although the company lowered 2023 revenue and EBITDA guidance to $180-220 million and negative $10 million to positive $10 million, respectively (from $280 million to $340 million and $25-35 million prior),” said Mr. Gibson. “Despite ANRG’s significant share price drop (down 80 per cent year-to-date), we continue to take a cautious view until the company can improve operational and financial performance.”
* RBC’s Jimmy Shan cut his Artis REIT (AX.UN-T) target to $8 from $9, below the $9.50 average, with a “sector perform” rating.
* BMO’s Michael Markidis increased his Boardwalk REIT (BEI.UN-T) target to $70 from $64 with an “outperform” rating. The average is $74.05.
* Scotia Capital’s Himanshu Gupta cut his BSR REIT (HOM.U-T) target to US$18 from US$18.50 with a “sector outperform” rating. The average is US$17.96.
* RBC’s Jimmy Shan increased his Canadian Apartment Properties REIT (CAR.UN-T) to $60, exceeding the $56.15 average, from $59 with an “outperform” rating.
“While value is being ‘trapped’ with lower turnover rate, we continue to believe that asset value is growing with the increasing embedded MTM potential,” he said. “Turnover rent growth now sits at 27 per cent ... to think that only last fall, it was approximately 15 per cent. CAR’s other activities are incrementally additive to value, including rezoning to monetize on excess density, NCIB match funded with asset sales and trading out of the old into the new as a risk mitigation strategy.”
* Mr. Shan cut his H&R REIT (HR.UN-T) target to $14 from $15.25 with a “sector perform” rating. Other changes include: CIBC’s Dean Wilkinson to $14 from $16 with an “outperformer” rating, National Bank’s Matt Kornack to $12 from $13 with a “sector perform” rating and TD Securities’ Sam Damiani to $15 from $15.50 with a “buy” rating. The average is $14.75.
“The quarter was overshadowed by the news of the departure of President Philippe Lapointe, with Donald Clow, recently-appointed independent lead trustee, making an appearance on the call. CEO’s message: Strategy has not changed,” he said. “Lead Trustee’s message: Board is supportive of strategy & management, who will be held accountable. Ex-President’s message? Sum-of-the-parts analysis suggests valuation highly discounted but not excessively so when compared with segmented comps. Any re-rating now comes down to execution in our view.”
* National Bank’s Endri Leno cut his CES Energy Solutions Corp. (CEU-T) target to $4, below the $4.14 average, from $4.50 with an “outperform” rating
* RBC’s Geoffrey Kwan cut his target for Chesswood Group Ltd. (CHW-T) to $9 from $11 with a “sector perform” rating. The average is $10.38.
“Q1/23 normalized EPS was well below our forecast in part due to provisions for credit losses being much worse than forecast as conditions in CHW’s U.S. business weakened, although its Canadian businesses are still performing relatively well. We think the weakening macro environment is likely to constrain the share price,” he said.
* Mr. Kwan raised his CI Financial Corp. (CIX-T) target to $20, matching the average, from $18 with a “sector perform” rating.
“The U.S. RIA investment by a group of investors helps to materially delever CIX’s balance sheet, which we view as a positive,” said Mr. Kwan. “However, the terms and conditions pertaining to the convertible preferred securities add some uncertainty around the valuation impact to CIX shareholders upon an eventual IPO or sale of the U.S. Wealth business. Big picture, we think fundamentals at CIX continue to trend positively and the U.S. Wealth investment has the potential to ultimately create significant value for shareholders. We increase our target ... due to higher financial forecasts.”
* Canaccord Genuity’s Aravinda Galappatthige raised his Cineplex Inc. (CGX-T) target to $12.25 from $11.50 with a “buy” rating, while RBC’s Drew McReynolds bumped his target to $14 from $12 with an “outperform” rating. The average is $13.29.
* In response to the end of its strategic review, National Bank’s Endri Leno cut his Dentalcorp Holdings Ltd. (DNTL-T) target to $14.50 from $15 with an “outperform” rating. Other changes include: BMO’s Stephen MacLeod to $12.50 from $13 with an “outperform” rating, Canaccord Genuity’s Tania Armstrong-Whitworth to $13 from $13.50 with a “buy” rating, Desjardins Securities’ Gary Ho to $12.50 from $14.50 with a “buy” rating and RBC’s Douglas Miehm to $13 from $15 with an “outperform” rating. The average is $13.80.
“Following the conclusion of dentalcorp’s strategic review, the focus comes back to fundamentals. Q1 was solid and the 2023 outlook remains unchanged, for doubledigit revenue and EBITDA growth, and FCF generation to fund deleveraging,” said Mr. MacLeod. “We believe progress on margin expansion and de-leveraging could be positive for the stock. We continue to appreciate the recurring and essential characteristics of the Canadian dental market, as well as dentalcorp’s multi-year opportunity to grow its network of dental clinics. Attractive risk-reward (9.7 times 2024 estimated EV/EBITDA vs. 13.5 times peer average), although could see near-term price volatility.”
* TD Securities’ Linda Ezergailis increased his Emera Inc. (EMA-T) target by $1 to $65, above the $59.86 average, with a “buy” rating. Other changes include: CIBC’s Mark Jarvi to $60 from $58 with a “neutral” rating, Raymond James’ David Quezada to $62 from $61 with an “outperform” rating and iA Capital Markets’ Matthew Weekes to $61 from $60 with a “hold” rating.
“We maintain our constructive view of EMA—driven by strong rate base growth, the company’s premium utility footprint, and attractive valuation. More broadly, we like EMA’s Florida-centric growth strategy and see solid progress on the company’s credit metrics supporting trading multiple expansion in coming quarters,” said Mr. Quezada.
* RBC’s Mark Dwelle raised his target for Fairfax Financial Holdings Ltd. (FFH.UN-T, FFH-T) to US$875 from US$775 with an “outperform” rating. The average is $1,246.74 (Canadian).
“Q1 results were solid all around with continued top-line growth, low 90s combined ratios, modest cat losses and continued strong growth of investment and associate income,” said Mr. Dwelle. “Management has taken steps to lock in investment income for the next couple of years and combined with a still very favorable underwriting environment provides unusually high visibility to Fairfax earnings. With shares still trading at a discount to book value (even after solid gains last year) we continue to find Fairfax shares as among the most attractive opportunities in the P&C insurance space.”
* TD Securities’ Derek Lessard lowered his GDI Integrated Facility Services Inc. (GDI-T) target to $50 from $52 with a “hold” rating. Other changes include: Desjardins Securities’ Frederic Tremblay to $60 from $64 with a “buy” rating and CIBC’s John Zamparo to $54 from $60 with an “outperformer” rating. The average is $58.36.
* Desjardins Securutues’ Kyle Stanley increased his Granite REIT (GRT.UN-T) target to $100, above the $97.90 average, from $97 with a “buy” rating, while Raymond James’ Brad Sturges raised his target to $96 from $95 with an “outperform” rating.
* TD Securities’ Steven Green bumped his Iamgold Corp. (IMG-T) target to $6 from $5.50 with a “buy” rating. The average is $4.42.
* RBC’s Geoffrey Kwan lowered his Intact Financial Corp. (IFC-T) target to $229 from $232 with an “outperform” rating. The average is $216.15.
“We think IFC delivered very good Q1/23 results,” he said. “Operating EPS was ahead of our forecast and consensus and results were largely in line with our forecasts across IFC’s segments. Of note, we think there is some investor concern about Personal Auto given commentary from certain U.S./U.K. auto writers, but IFC’s Personal Auto’s results and commentary did not suggest they are experiencing the same issues. Big picture, IFC continues to deliver positive fundamentals and we think the shares could benefit in the current market environment given increasing market uncertainty. While IFC’s shares may not perform as well in a market recovery scenario, we still view IFC as a core holding, reflecting positive company/ industry fundamentals and strong track record of growth and profitability; potential catalyst(s); defensive attributes; and a reasonable valuation.”
* RBC’s Andrew Wong cut his Largo Inc. (LGO-T) target to $8 from $10 with an “outperform” rating. The average is $10.60.
“We continue to see value in Largo’s various businesses — top-tier vanadium asset that has performed well in the past; developing battery business that can meet growing demand for energy storage; and value-add pigments byproducts,” said Mr. Wong. “The company also has a solid financial position to work through the current transition. We think management is taking the right steps, but execution will be key to unlocking value.”
* Desjardins Securities’ Frederic Tremblay increased his target for Lassonde Industries Inc. (LAS.A-T) to $130 from $125 with a “hold” rating.
* BMO’s Stephen MacLeod raised his Leon’s Furniture Ltd. (LNF-T) to $24, matching the average, from $22 with a “market perform” rating.
“Leon’s reported a Q1/23 miss. Revenues declined more than expected (SSS down 6 per cent year-over-year) as a soft macro environment weighed on consumer spending; improving GM (up 70 basis points year-over-year) was offset by higher SG&A costs,” said Mr. MacLeod. “Leon’s did not provide an update on its intention to create a REIT; we continue to believe a potential transaction could surface hidden real estate value. In the meantime, Leon’s appears well-positioned to weather macroheadwinds, and we see an opportunity for share gains given strong brand equity and value proposition to customers.”
* Scotia’s Mario Saric cut his Minto Apartment REIT (MI.UN-T) target to $18.50 from $19.25 with a “sector perform” rating, while Desjardins Securities’ Kyle Stanley raised his target to $20 from $19 with a “buy” rating. The average is $19.31.
* Scotia’s Justin Strong cut his Northland Power Inc. (NPI-T) target to $42.50, below the $41.97 average, from $45.75 with a “sector outperform” rating.
* RBC’s Geoffrey Kwan cut his Onex Corp. (ONEX-T) target to $81 from $86 with a “sector perform” rating. Other changes include: CIBC’s Nik Priebe to $70 from $75 with a “neutral” rating, Scotia’s Phil Hardie to $90 from $95 with a “sector outperform” rating and Canaccord Genuity’s Scott Chan to $81 from $89 with a “buy” rating and . The average is $85.40.
“Fundamentally, a relatively weak quarter with more negatives than positives, but management is taking advantage of these challenging times by setting Onex on the right course for when conditions improve,” said Mr. Hardie. “We believe the combination of the CEO succession and a fixed three-year sunset for the multiple voting shares will serve as catalysts to create an unprecedented focus on efforts to create and surface shareholder value over the next three years.”
* Barclays’ J. David Anderson cut his Pason Systems Inc. (PSI-T) target to $12 from $14, below the $17.25 average, with an “underweight” rating.
“1Q23 marked the highest levels of revenue, EBITDA, margins, and revenue per industry day for Pason since the 2014 downturn, but we expect this to be the high point for the year as U.S. land drilling activity softens in 2Q (though Pason expects a slow and steady rebound in drilling activity ‘through 2H23 and beyond’),” he said.
* RBC’s Pammi Bir lowered his SmartCentres REIT (SRU.UN-T) target to $33 from $34 with an “outperform” rating. The average is $30.25.
“Supported by the strength of Walmart’s tenant and consumer draw, SRU’s portfolio is putting up solid operating metrics, with momentum expected to carry through the year. While the development program is delivering as expected, we believe SRU’s more measured approach on new starts is appropriate and are also encouraged by an anticipated pick-up in capital recycling. Bottom line, we see a nice mix of cash flow durability, steady growth, and discounted valuation,” he said.
* Canaccord Genuity’s Yuri Lynk raised his Shawcor Ltd. (SCL-T) target to $19 from $15.75 with a “buy” rating. Other changes include: iA Capital Markets’ Matthew Weekes to $17 from $15.50 with a “buy” rating; ATB Capital Markets’ Tim Monachello to $18 from $16.25 with an “outperform” rating and RBC’s Keith Mackey to $16 from $15 with an “outperform” rating. The average is $16.84.
“Shawcor’s 1Q23 results were better than expected,” said Mr. Mackey. “Ahead of its planned name change to ‘Mattr’ in mid-2023, the company continues to focus on diversifying away from upstream oil & gas development, with a recent water handling acquisition and announcement of two new facilities for its Composites segment. Conclusion of the much-anticipated strategic review process for the Pipeline & Pipe Services (PPS) segment remains a key catalyst for the stock in our minds. We increase our 2023/24 EBITDA estimates by 8/4 per cent.”
* TD Securities’ Michael Tupholme raised his Stella-Jones Inc. (SJ-T) target to $72 from $65 with a “buy” rating. The average is $69.57.
* Scotia Capital’s Michael Doumet cut his Stelco Holdings Inc. (STLC-T) target by $1 to $53 with a “sector perform” rating. The average is $51.82.
“The 1Q bottom-line missed the Street – but not in any meaningful way,” said Mr. Doumet. “During 4Q22 and 1Q23, with HRC/ASPs at its lowest levels since 2020 and COGS/nt at its highest since 2020 (due to higher cost inventories), STLC’s financial performance proved relatively resilient. We expect higher ASPs to drive a significant profit ramp in 2Q (and healthy margins in 3Q). As a result, STLC will (further) build its cash position, enabling it to opportunistically deploy capital in the form of share repurchases or inorganic growth (or both). While we see value in the shares – as a spot player, we believe moderating steel prices will continue to weigh on sentiment. The offset: we think STLC will be active with its NCIB in the low-$40s.”
* Scotia’s Ben Isaacson bumped his Superior Plus Corp. (SPB-T) target to $13.50 from $13 with a “sector perform” rating. The average is $13.25.
* National Bank’s Don DeMarco trimmed his Torex Gold Resources Inc. (TXG-T) target to $25.50, above the $25.21 average, from $26 with a “sector perform” rating
* Scotia’s Phil Hardie raised his Trisura Group Ltd. (TSU-T) target to $55 from $53, keeping a “sector outperform” recommendation, while Raymond James’ Stephen Boland bumped his target to $53 from $52 with an “outperform” rating. The average is $53.86.
“Trisura shares have rebounded 20 per cent from recent lows but remain down from levels prior to the delay of their Q4/22 filing and a subsequent surprise write-down of reinsurance receivables,” said Mr. Hardie. “We continue to see the weakness as an attractive buying opportunity. While the write-down was one-time in nature, we expect a near-term transitional “de-rate” for the stock, as investors take a wait-and-see approach while rebalancing the risks with the management of a high-growth company with upside potential. We expect the multiple to recover over the coming quarters with a string of consistently solid quarters with no further surprises serving as the catalyst. The initial pre-release of better-than-expected earnings earlier this month, and a “no surprise” Q1/23 results with positive growth trends intact, likely support our thesis.”
* Eight Capital’s Adhir Kadve cut his Verticalscope Holdings Inc. (FORA-T) target to $7 from $13.50 with a “buy” rating. Other changes include: RBC’s Drew McReynolds to $12 from $15 with an “outperform” rating and Canaccord Genuity’s Aravinda Galappatthige to $5.50 from $6.50 with a “speculative buy” rating. The average is $9.79.
“VerticalScope reported Q1/F23 results that broadly missed Consensus and our expectations as an uncertain macroeconomic backdrop contributed to a softening advertising spend environment impacting both programmatic and direct advertising and Google algorithm changes reducing search traffic to VerticalScope’s properties, thus lowering MAUs,” said Mr. Kadve. “Further, key asset The Streamable was impacted by lower user acquisition budgets across the online streaming industry. All that said, VerticalScope noted that Q1 should be a trough for the year and that they are seeing some green shoots forming on the advertising side, though eCommerce will remain challenged in the near-term.”
David Leeder