Inside the Market’s roundup of some of today’s key analyst actions
The 9.7-per-cent surge in share price for Computer Modelling Group Ltd. (CMG-T’) on Friday following the release of “strong” in-line fourth-quarter 2024 results “reflected investor optimism as the Company drove accelerated organic growth while steadily strengthening its balance sheet in preparation for another acquisition,” according to National Bank Financial analyst John Shao.
“While the Company is transitioning to a Tech roll-up, Management has reiterated the importance of organic growth,” he added. “That view in combination with the recent organizational and compensation changes lead us to believe the current momentum will be well maintained.”
After the bell on Wednesday, the Calgary-based company, which produces reservoir simulation software for the oil and gas industry, reported revenue of $32.3-million for its fourth quarter of fiscal 2024, up 59.3 per cent year-over-year and above both Mr. Shao’s $32.2-million estimate and the Street’s expectation of $32-million. Earnings per share of 9 cents was 2 cents above the analyst’s projection and a penny ahead of the consensus.
“CMG reported in-line FQ4 results with data points suggesting solid executions in driving organic growth and capturing energy transition opportunities,” said Mr. Shao. “The Company also reversed its working capital investments to report a strong cash balance. While the tone of the CEO’s shareholder letter suggests it is in no rush to make another acquisition, the strong balance sheet and the base simulation business conveniently position CMG when future opportunities open up.”
In response to the result and a subsequent meeting with the company’s management team, he raised his full-year 2025 sales expectation while lowering his adjusted EBITDA projection (by 3.3 per cent to $44.6-million from $46.2-million).
“When it comes to our estimate revisions, our full-year revenue estimates remain essentially unchanged,” said Mr. Shao. “It’s just the timing of the revenue recognition associated with the legacy perpetual license has us believe FQ1 will likely be a seasonally light quarter (both revenue and EBITDA). To be clear, our estimate revisions are simply timing-related, and the overall business remains fundamentally strong, not to mention the potential contribution from future M&A.”
The analyst reaffirmed an “outperform” recommendation and $12.50 target for Computer Modelling Group shares. The average on the Street is $12.33.
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ATB Capital Markets analyst Tim Monachello thinks CES Energy Solutions Corp.’s (CEU-T) $200-million senior note issuance “ultimately secures its debt capital structure with a highly manageable debt load at attractive rates, while providing visibility to a new phase of capital allocation materially more focused on accelerating shareholder returns and strategic growth initiatives (high-return organic growth and tuck in acquisitions).”
In a research report released Monday, Mr. Monachello resumed coverage of the Calgary-based company following the close of the offering of unsecured 6.875-per-cent senior notes maturing in 2029. The proceeds, along with drawings on its senior syndicated credit facility, will be used to repay its outstanding $250-million secured floating rate Canadian Term Loan facility at more attractive terms.
“The issuance transitions CEU’s debt capital structure from 100-per-cent bank debt to roughly 70-per-cent/30-per-cent term debt/bank debt, which will essentially set a fixed baseline for gross leverage through 2029 while reducing exposure to interest rate volatility, and providing downside protection by replacing secured bank debt with covenant light unsecured term debt,” he said. “Our modeling suggests CEU will generate ample FCF to fully repay its senior syndicated facility by mid-2025, at which point we forecast CEU’s net leverage ratio will have declined to 0.6 times trailing adj. EBITDAS (1.3 times at March 31, 2024). Given CEU’s highly sustainable leverage position, we believe its term debt issuance sets the stage for its capital allocation priorities to begin pivoting away from deleveraging and toward high-return growth opportunities and accelerating returns to shareholders, with an emphasis on share repurchases.”
Mr. Monachello reiterated his EBITDA projections while making modest reductions to his free cash flow estimates (approximately 2 per cent) to reflect “increased interest payments despite materially lower effective rates, given higher absolute leverage compared to our previous modeling that contemplated bank debt repayment below the principal amount of the new $200-million senior note.”
“That said, our modeling also includes CEU’s cash balance growing to $300-million by year-end 2026 ($115-milion previously) and does not contemplate any material return on that cash either,” he added. “That said, our modelling methodology does not include share repurchases in future periods, and we believe CEU could allocate upward of $150-million per year to share repurchases which would absorb the vast majority of its accumulated cash balances and could ultimately prologue its path toward the full repayment of its bank debt.”
The analyst maintained his “outperform” recommendation and $8.25 one-year price target for CES shares. The average is $8.17.
Elsewhere, Stifel’s Cole Pereira maintained a “buy” rating and $8.50 target.
“While we view this update as neutral to our investment thesis, we reiterate our view on the company as our favourite name in Canadian OFS. CEU continues to screen well given its track record of growing revenue and improving margins in a declining U.S. activity environment, while trading at a significant discount to recent peer transactions and generating top-tier FCF conversion and ROIC with in the space,” said Mr. Pereira.
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While acknowledging Baylin Technologies Inc. (BYL-T) continues to deal with balance sheet risk, Paradigm Capital analyst Daniel Rosenberg thinks its “outlook is improving now that growth is back in the picture.”
“Baylin reported a positive Q1 that showed growth returning to the top line,” he said. “Recall, the company recently discontinued its struggling Mobile division and continues to search for buyers. Revenue from continuing operations grew 7.0 per cent owing to higher sales in the Embedded Antenna and Wireless Infrastructure business lines. Subsequent to the quarter, Baylin was selected to supply its DAS antennas to London Heathrow Airport, the first airport outside of North America for the company. Management continues to focus on its differentiated, higher-margin products, expecting Q2 to be similar to Q1.”
On May 8, the Toronto-based wireless technology company reported first-quarter revenue of $20.1-million, up 7 per cent and above Mr. Rosenberg’s $16.6-million estimate. Adjusted EBITDA of $0.5-million was also stronger than anticipated (a loss of $1.7-million).
“We view these results as positive and suggest a sooner-than-expected turnaround for the core business,” the analyst said.
“Management expects revenue and adjusted EBITDA will be stronger this year compared to 2023. It continues to aim for self-sustainability, a move we view favourably but believe will require more scale and time.”
After making modest changes to his full-year 2024 and 2025 forecast, Mr. Rosenberg maintained a “hold” rating and 25-cent target for Baylin shares. The average on the Street is 30 cents.
“We are seeing management’s efforts to right the company’s trajectory take root,” he said. “However, this turnaround will take time and it will still have to navigate a stretched balance sheet.”
He added: “COVID impacts and supply-chain disruptions have had severe impacts on Baylin’s operations. New management has taken several positive steps to control costs, improve margins and position the company toward growth opportunities. The balance sheet remains a concern but demand across business lines is seeing meaningful improvement with a record backlog. With share prices sitting near all-time lows, we see value for investors willing to see through a turnaround that appears to be taking root.”
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Citing “ongoing issues in Quebec that have negatively impacted revenue and margins,” Acumen Capital analyst Jim Byrne downgraded Premier Health of America Inc. (PHA-X) to “speculative buy” from “buy” previously.
On Thursday after the bell, the Montreal-based health technology company reported revenue of $46.3-million, up from $21.8-million during the same period a year ago and above the analyst’s $21.8-million. However, gross margins of 18.4 per cent missed his 20.2-per-cent projection due to impacts from the acquisition of B.C.-based Solutions Staffing Inc. as well as a delay in activating its new contract with Indigenous Services Canada. Adjusted EBITA of $2.6-million also fell short of expectations ($3.8-million).
“The company noted its per diem revenue in Quebec was down 14.6 per cent from last year and the new hourly rate caps began in April, which should put further pressure on margins going forward,” said Mr. Byrne.
“Our estimates come down considerably given with the lower gross margin outlook. While cost-saving initiatives should improve in the coming quarters we will remain conservative in our outlook for the time being.”
He trimmed his target for the company’s shares to 65 cents from 95 cents. The average is $1.10.
“The company’s newly acquired SSI has performed well, and we look forward to further diversification outside of Quebec,” he said. “The quarterly results did show a solid reduction in accounts receivable and coincident reduction in debt.”
Elsewhere, Leede Jones Gable analyst Douglas Loe maintained his “buy” rating and $1.25 target.
“We believe that even with transient gross/EBITDA margin softness as driven not just by the [SSI] B.C. acquisition but also from sustained softness in QC-based billable hours, we still believe that PHA is trading at an excessive discount to its peer group of EBITDA-positive Canadian healthcare services firms and to its U.S. healthcare staffing peers specifically – Cross Country Healthcare (CCRN-Q, NR) and AMN Healthcare Services (AMN-Q, NR),” said Mr. Loe. “Both are trading at or above 7 times F2025 consensus EBITDA forecasts while Premier is trading at less than half of that value.”
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In other analyst actions:
* CIBC’s Kevin Chiang raised his Bombardier Inc. (BBD.B-T) target to $102, exceeding the $88.67 average on the Street, from $91 with an “outperformer” recommendation.
“BBD announced the further partial redemption of its 2026 and 2027 Notes along with the issuance of new Senior Notes due 2032. The new issuance comes with a lower interest rate and effectively pushes maturities further out to the right. We continue to see BBD de-risk its balance sheet. As such, with this note, we increase our target multiple from 6.25x to 6.75x and our price target rises,” he said.
* CIBC’s Todd Coupland increased his target for Celestica Inc. (CLS-N, CLS-T) to US$58 from US$49 with a “neutral” rating. The average is US$54.78.
“Celestica CFO Mandeep Chawla participated in a fireside chat at CIBC’s Technology & Innovation Conference 12.0 (TIC 12.0) on May 22,” he said. “There, the company confirmed that it continues to benefit from GenAI data spending by hyperscalers. In fact, it is seeing stronger-than-expected switch demand that should offset slowing server demand in 2024. The company also indicated that it is possible one or two other customers could reach 10 per cent of revenue due to demand for Celestica’s switch products. While Celestica’s 2024 guidance, our own forecast, and FactSet consensus assume that switch demand will offset slowing server demand, the assumptions could prove to be conservative. We expect Celestica’s shares to move up given the CFO’s comments and, therefore, we increase our target multiple.
“While we consider Celestica an excellent company, we would need to see a reacceleration in its growth, including within Enterprise, supported by rising GenAI-related hyperscaler capex spend in 2025 before we reconsider our Neutral rating. Recent news reports indicate that NVIDIA has cut the pricing of its most advanced China AI chip because of heightened competition from Huawei’s comparable chip (Reuters). This situation bears watching.”
* TD Cowen’s Graham Ryding lowered his EQB Inc. (EQB-T) target to $98, below the $103.50 average, from $105 with a “buy” rating.
* JP Morgan’s Patrick Jones lowered his First Quantum Minerals Ltd. (FM-T) target to $17 from $18, keeping a “neutral” recommendation. The average is $18.62.
* CIBC’s Bryce Adams cut his Hudbay Minerals Inc. (HBM-T) target to $14.50, below the $15.39 average, from $15.50 with an “outperformer” rating, while Cormark Securities’ Stefan Ioannou bumped his target to $15 from $13.50 with a “buy” rating.
“We resume coverage of Hudbay Minerals as we come off restriction following its recent $402-million bought-deal financing,” said Mr. Adams. “Use of proceeds are listed as accelerating Copper Mountain optimizations, debt repayments under the company’s 3P plan, potential sanctioning of Copper World, evaluation of mill expansions at Constancia and New Britannia, and general corporate purposes.
“Overall, we did not see an immediate need for the financing, but at the same time we were unsurprised by the update as several of Hudbay’s copper peers have raised equity in recent periods and been well supported. We view Hudbay as a deleveraging story and this deal accelerates the company’s net debt reductions, as do strong FCF from the high-grade Pampacancha pit in Peru and commodity strength.”
* BMO’s Michael Markidis raised his Northwest Healthcare Properties REIT (NWH.UN-T) target to $5.25 from $5 with a “market perform” rating. The average is $5.79.
* Eight Capital’s Felix Shafigullin cut his Silver Mountain Resources Inc. (AGMR-X) target to 40 cents from 60 cents with a “buy” rating. The average is 42 cents.