Inside the Market’s roundup of some of today’s key analyst actions
Reiterating his bullish long-term view on copper, Citi analyst Alexander Hacking raised his recommendation for First Quantum Minerals Ltd. (FM-T) to “buy” from “neutral” previously., citing “some easing” in the metal’s price after a decline of almost 12 per cent since May as well as an “idiosyncratic” valuation discount.
“FM is pricing close to zero value on Panama which is too bearish, in our view,” he said.
“We calculate $14 per share value for FM ex-Panama and current $17 per share price seems overly discounted, in our view. The stock was at $28 per share in Oct 1 2023 and would be priced at $37 per share today assuming the same 30-per-cent upside as FCX. Our updated target price incorporates Panama at 50 per cent value (approximately US$7-billion). Our base case is for the mine to return in 2026-27, based on approval from the broader population and Supreme Court.”
Noting the firm’s view on copper is “near-term cautious ($9,000-ish possible) but mid-term bullish ($12,000 in 2025),” Mr. Hacking hiked his target for First Quantum shares to $26 from $14. The average target on the Street is currently $19.48, according to LSEG data.
“We see more upside than downside from the current situation in Panama,” he added. “The stock currently discounts Panama close to zero value, in our view; with very little consideration for potential upside. Downside risks would include a protracted stalemate at Panama or lower copper prices.”
“Mid-term growth options would include Taca Taca (Argentina) and La Granja (Peru) once Panama is resolved & the balance sheet is stronger. We also note that FM is the most acquirable name in our coverage given its size & shareholder base, in our view. There are less than 5 realistic deals for more than 500,000 tons of current copper production and FM is one of them.”
In the same research report, Mr. Hacking raised his target for Vancouver’s Ivanhoe Mines Ltd. (IVN-T) to $24 from $15, maintaining a “buy” recommendation. The average is currently $23.49.
“Ivanhoe has successfully delivered the 600ktpa Kamoa-Kakula mine – maybe the best mining project of the past 20 years,” he said. “De-bottlenecking will likely creep output higher-near term but grades are peak & Phase IV will ultimately be required to offset this with more tonnage. The main valuation differentiator for IVN vs peers is exploration upside at Western Foreland. The odds of finding another Kamoa-Kakula are low but the odds of finding a lesser deposit with strong economics at $10,000/ton appear reasonably high, e.g. Makoko, Kiala and Kitoko. This exploration upside is unique amongst our coverage & gives IVN incremental leverage to the copper price.”
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CIBC World Markets analyst Bryce Adams raised his price forecast for both copper and uranium on Thursday, believing the outlook for both metals continues to improve.
“In our last base metals update we were more constructive on copper pricing and shifted from a cautious tone that we held from mid-2022 to late-2023,” he said. “In hindsight, we should have been more positive on copper fundamentals as pricing increased from roughly $3.80/lb at the time of our report and surpassed $5/lb in May 2024, well ahead of our forecast. Since then, copper prices retreated back to around $4.50/lb and we forecast upside potential in pricing over the next three years.
“We prefer uranium over copper and reiterate our Outperformer and top pick status on Cameco. A key catalyst is a potential reaction by Russia to halt enriched uranium deliveries to the U.S., ahead of the U.S.’s sanctions fully effective in 2028. Our top picks for copper exposure are Capstone, Ero Hudbay and Filo.”
For uranium, Mr. Adams said pricing was strong to start 2024 and “has since been volatile but resilient.” He increased his 2024 term price by 8 per cent to $79 per pound. His 2025 and 2026 projections rose to $90 and $95, respectively, from $80 previously for both. His long-term price is now $80, up from $75.
His copper price forecast for 2024, 2025 and 2026 increased by 10 per cent, 6 per cent, and 12 per cent, respectively, with his long-term price rising to $4.00 per pound from $3.80.
Calling its 2025 free cash flow yield “impressive,” Mr. Adams upgraded Ero Copper Corp. (ERO-T) to “outperformer” from “neutral” on Thursday with a $36 target, up from $32 and exceeding the $35.06 average on the Street.
“Ero has a strong growth profile, with Tucumã set to achieve first production in the near-term,” he said. “In our view, the project has been well managed, and is now well positioned to ramp up into year-end. Delivery on the growth plans remains key to share appreciation, and de-risking of the Tucumã development project has been positive. We expect first production around the middle of 2024 and a ramp-up into year-end, which bodes well for 2025 estimates. At Caraíba operations, Q1/24 results were a weaker start to the year, but are expected to improve through the remainder of the year.”
He also made these other target adjustments to stocks in his coverage universe:
- Cameco Corp. (CCO-T, “outperformer”) to $80 from $74. The average is $76.48.
- Capstone Copper Corp. (CS-T, “outperformer”) to $12 from $10.50. Average: $13.08.
- Filo Corp. (FIL-T, “outperformer”) to $40 from $38.50. Average: $34.08.
- First Quantum Minerals Ltd. (FM-T, “neutral”) to $18 from $15. Average: $19.48.
- Hudbay Minerals Inc. (HBM-T, “outperformer”) to $15.50 from $14.50. Average: $16.01.
- Lundin Mining Corp. (LUN-T, “neutral”) to $16 from $15. Average: $17.97.
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Ahead of the release of its second-quarter results next Wednesday morning, Scotia Capital analyst Phil Hardie predicts AGF Management Ltd. (AGF.B-T) will continue to face a fund flow headwind.
“We anticipate operating EPS of 33 cents, slightly below the Street at 34 cents,” he said. This will be the first quarter with Kensington’s results being consolidated into AGF’s and included as part of the AGF Capital Partners segment. We believe this introduces a degree of forecasting error for the quarter. We expect Adjusted EBITDA of 52 cents per share, predominantly driven by Core Investment EBITDA of 43 cents per share and AGF Capital Partners EBITDA at 8 cents per share.
“The sales environment remains challenging, with the mutual fund industry remaining in outflows. We do not expect AGF to be an exception and forecast retail mutual fund net redemptions of $320-million. This will mark the fourth straight quarter of outflows, after AGF ended a solid run of 11 consecutive quarters of positive flows. AGF pre-announced its total AUM [assets under management] and fee-earning assets of $47.8 billion, rising 6 per cent sequentially and a solid 16 per cent year-over-year, with the sequential rise driven by mutual fund AUM and Kensington consolidation, partially offset by the previously disclosed $800 million institutional redemptions.”
Reiterating his “sector perform” recommendation for AGF shares, Mr. Hardie bumped his target to $10.75 from $10.50 after raising his estimates to reflect an upward revision to the expected contribution from AGF Capital Partners. The average is $10.89.
“In a scenario where the market makes a stronger-than-expected rebound and sentiment related to the sector improves, we believe AGF can offer significant upside potential above our target price,” he said. “AGF’s high exposure to equities is likely to provide torque to the stock price in an upward equity market swing, with its strong balance sheet providing a floor to the stock.
“Despite its demonstrated resilience and strategic progress, AGF continues to trade at a steep discount relative to its peers. AGF has developed an alternative asset management platform where it has co-invested its own capital. We estimate that, including the value of these investments, AGF stock trades at just 2.7 times Adj. EV/EBITDA (NTM), around 3.2 times turns lower than what the conventional calculates. This represents a 67-per-cent discount to its peers.”
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While seeing Andrew Peller Ltd.’s (ADW.A-T) fourth-quarter 2024 as “mixed,” Acumen Capital analyst Nick Corcoran emphasized the winemaker’s business “continues to progress to historical levels of performance: targeted sales growth of 2-3 per cent, gross margins of 41-43 per cent, SG&A of 25-27 per cent, and EBITA margins of 15-16 per cent.”
After the bell on Tuesday, the Grimsby, Ont.-based company reported sales of $85-million for the quarter, up 9.4 per cent year-over-year and in line with the analyst’s expectation. Adjusted EBITDA of $9.3-million was up from a loss of $1.2-million a year ago and above Mr. Corcoran’s $8-million projection.
He said: “FY/25 guidance. Revenue will be flat with continued margin expansion. Weakness in premium has been partially offset by value. Margins are expected to improve from: (1) cost saving initiatives that are progressing as planned with $10-million expected to be realized in both FY/24 and FY/25, (2) SG&A reduced by $8-10-milllion from a headcount reduction, and (3) the federal Wine Sector Support Program and Ontario VQA Support Program.”
“The search for a new CEO is a top priority with ADW well through the process. We expect an announcement in the next three months.”
Pointing to “slightly more conservative margin assumptions,” Mr. Corcoran, who remains the lone analyst covering the company, lowered his full-year 2025 and 2026 earnings expectations, leading him to trim his target by $1 to $10 with a “buy” recommendation.
“ADW is trading at a discount to the alcoholic beverages peer group on both EV/EBITDA and P/E,” he said. “Despite inflationary pressures in the short- to mid-term, we continue to believe that ADW’s scalable business model, brand recognition, and significant barriers to entry will allow it to trade closer to the peer group.”
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Eight Capital analyst Puneet Singh initiated coverage of F3 Uranium Corp. (FUU-X) with a “buy” rating, seeing its ability to define multiple zones at its Patterson Lake North project in the Athabasca Basin potentially leading to a takeout offer.
“The stock has been range-bound since its initial discovery,” he said. “For the stock to break out again we believe FUU needs to prove out the project beyond the JR zone, and if it does so, then this may also be the takeout trigger for the Company. The Athabasca Basin has shown time and again, that if an additional pod or shear zone of mineralization is found, then there is further likelihood that multiple zones of uranium beyond this exist. Nexgen’s Arrow, for example, is comprised of sub-parallel shear zones that were discovered over time after one another. FUU’s catalysts for the rest of the year include radioactivity and assay results from the A1 & B1 areas. Key investment risks include commodity price (uranium), exploration risk, and key management/personnel risk.”
Mr. Singh thinks the Kelowna, B.C.-based is “aptly located at the next major centre of development in the Athabasca Basin, near Fission’s PLS project and NexGen’s (NXE-T, Buy, Target $21.00) Rook I project.”
“In Oct/23, Denison (DMLT, Not Rated) made a $15-million strategic investment into F3 through convertible debentures,” he added. “Denison is the first to make a bet, but we believe there are many in the Basin that would potentially be interested in FUU, as it proves out the true extent of the PLN property. Management’s current corporate restructuring exercise involving spinning out properties outside of PLN into a separate vehicle (named F4 Uranium; transaction to close in Q3/24; see more here) may be telling that management is potentially lining up F3/PLN for a future acquisition.”
He set a target of 70 cents per share. The average is currently 63 cents.
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In other analyst actions:
* In response to its revised Detour Lake mine plan and initial underground study, Jefferies’ Matthew Murphy bumped his Street-low target for shares of Agnico Eagle Mines Ltd. (AEM-N, AEM-T) to US$59 from US$58 with a “hold” recommendation. Conversely, BMO’s Jackie Przybylowski cut her target to US$77 from US$79 with an “outperform” rating. The average on the Street is US$78.84.
“Highlights of an updated PEA-level technical study continue to build on Detour Lake’s large, bulk, low-cost operation with expansion of the mill to 29Mtpa (from 28Mtpa) and an initial underground project,” said Ms. Przybylowski. “Detour expansion is a low-risk operation at an existing site and managed by an experienced team. This update represents a snapshot in time, based on drilling completed before the October 2023 cutoff. Agnico Eagle will host a site tour to Detour Lake on June 20, 2024. We look forward to seeing the site’s growth potential in situ [Thursday].”
David Leeder