Inside the Market’s roundup of some of today’s key analyst actions
Believing the pullback in Boyd Group Services Inc. (BYD-T) following the release of its first-quarter results “appears overdone,” National Bank Financial analyst Zachary Evershed now sees an “attractive risk/reward dynamic at current levels.”
Emphasizing its “roll-up runway, profitability catalysts ahead (continued traction on rate hikes, S&C [scanning and calibration] internalization) and defensive characteristics of the business,” he raised his recommendation for the Winnipeg-based collision repair chain to “outperform” from “sector perform” previously.”
On Wednesday, Boyd shares dropped 7.1 per cent after it reported quarterly revenue of $786.5-million, up 10 per cent year-over-year and below both Mr. Evershed’s $805.4-million estimate and the consensus projection of $788.6-million. Adjusted EBITDA of $81.7-million and earnings per share of 44 cents both fell below expectations ($88.6-million and 69 cents and $88.4-million and 71 cents, respectively) as milder winter weather hurt same-store sales growth results.
“SSSG trends in Q2 thus far are poor, as spring months usually benefit from a winter backlog to tide them over until summer driving picks up,” said Mr. Evershed. “As the exceptionally mild weather bucked the trend this year, SSSG trends in April sounded less-than-positive with management suggesting May did not hold any substantial improvements either. We therefore revise our Q2 organic growth estimates lower to negative 3 per cent (was a gain of 1 per cent), followed downward by our Adj. EBITDA estimates on the back of negative operating leverage.”
“Looking farther ahead, as total loss rates rise with falling used vehicle prices, heavier hit vehicles drop out of repairable claims and the mix of repairable vehicles shifts towards repair labour vs. part replacements, an incremental margin positive in the face of overall operating deleverage. We also highlight that year-to-date, Boyd has increased its in-house scanning and calibration workforce by over 60 per cent, allowing for labour rates to be earned in place of outsourcing such revenue, which we believe to be a significant driver of long-term margin expansion. We are therefore more bullish on margin expansion opportunities than we are anxious on the reduction in repairable appraisal volumes at the edges.”
After making modest reductions to his forecast to account for the latest industry data and management commentary, Mr. Evershed maintained his target for Boyd shares of $310. The average target on the Street is $310.50, according to LSEG data.
“A weaker Canadian dollar keeps our $310 target fully intact despite the marginally lower forecasts, and with a 30.3-per-cent return to our target following the share price reaction to Q1 results, we upgrade to Outperform,” he said. “Since our downgrade to Sector Perform in August 2023, BYD has declined 4.3 per cent vs. a 9.5-per-cent gain from the S&P/TSX Composite Index over the same time period.”
Elsewhere, Desjardins Securities’ analyst Gary Ho upgraded his rating to “buy” from “hold” with a $290 target, down from $310.
“BYD reported a 1Q miss with a weak EBITDA margin, mainly driven by softer demand from a mild winter. We cut our estimates but believe these headwinds are transitory,” said Mr. Ho. “We believe the 25-per-cent drop in BYD in the last two months has more than priced in these challenges while resetting expectations lower. We remain constructive on demand normalizing in 2H24, along with BYD’s S&C and G/B expansion strategy. Our $290 target (was $310) offers a 22-per-cent return; we have thus upgraded BYD to Buy (from Hold).”
Analysts making target revisions include:
* Scotia’s Michael Doumet to $275 from $325 with a “sector outperform” rating.
“Given the comments made by several industry peers regarding unfavorable weather and higher total loss frequency, it does not come as a surprise that BYD ‘missed’ 1Q and talked down 2Q (vs. Street),” said Mr. Doumet. “The ‘negative’, in our view, has more to do with the lowered visibility on the post-2Q SSS growth and related margin recovery story — i.e. (i) at this point, it is difficult to determine the extent weather played in slowing SSS growth in 1Q (vs. normalizing/climbing total loss frequency and tough comps) and (ii) given much of the ‘old’ margin expansion story was predicated on higher opex leverage (i.e. higher SSS growth), slowing growth means more help may be needed from cost structure adjustments.
“While we lowered our estimates, BYD is not a broken story. We expect margins to gradually return to ‘normal’ and for BYD to continue to roll-up a fragmented industry (that continues to be challenged). BYD trades at 10.9 times EV/EBITDA on our 2025E and has a FCF yield of more than 5 per cent, the lowest levels since the post-pandemic margin shock.”
* Raymond James’ Steve Hansen to $350 (high on the Street) from $375 with a “strong buy” rating.
“We are trimming our target price on Boyd Group Services ... based upon the firm’s: 1) weaker-than-expected 1Q24 results (margins); and 2) lingering headwinds associated with an abnormally warm—and generally less volatile—winter season. Notwithstanding these revisions, we reiterate our constructive view on BYD shares based upon constructive view of the firm’s proven growth algorithm, compelling long-term industry fundamentals, and increasingly attractive valuation,” said Mr. Hansen.
* ATB Capital Markets’ Chris Murray to $340 from $345 with an “outperform” rating.
“While the results and guide for Q2/24 came in weaker than expected for the second consecutive quarter, we view the weather-related issue as largely transitory, with the underlying business remaining intact and positioned to deliver more normal performance levels in H2/24. While shares may be range-bound until Q2/24 reporting, we believe the recent weakness allows longer-term investors to acquire shares of a quality compounder at attractive valuations,” said Mr. Murray.
* RBC’s Sabahat Khan to $308 from $337 with an “outperform” rating.
“Boyd reported Q1 Adjusted EBITDA that was below RBC/consensus forecasts as the business was impacted by weaker demand trends,” said Mr. Khan. “Looking ahead, while Q2 is likely to reflect negative same-store sales growth, demand trends should improve through H2. Overall, we believe Boyd remains well positioned to deliver MSD% SSS growth over the medium-term, driven by incremental contribution from new store openings and M&A.”
* CIBC’s Krista Friesen to $290 from $304 with an “outperformer” rating.
* Jefferies’ Bret Jordan to $325 from $340 with a “buy” rating.
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National Bank Financial analyst Don DeMarco downgraded K92 Mining Inc. (KNT-T) to “sector perform” from “outperform” in response to a stretch of share price strength.
Seeing the Vancouver-based junior producer, which is focused on its flagship Kainantu underground mine in Papua New Guinea, rallying toward his target and returns narrowing, he thinks it’s time to “step off the gas.”
“We also consider potential headwinds on remaining Stage 3 development, not unlike peers Torex (TSX: TXG) and Calibre (TSX: CXB) both Sector Perform and similarly advancing though development,” added Mr. Evershed. “We maintain sight lines for a return to Outperform upon successful de-risking of development and executing on production growth and/or resource accretion. After model updates, our company NAVPS increased to $10.31 (was $9.94) up 4 per cent.”
The rating changes comes after the release of largely in-line first-quarter financial resullts on Monday and does come with risk, according to Mr. DeMarco.
“We could be on the verge of a generational gold bull market, with higher gold prices driving NAV accretion, development schedule and budget risks less relevant, downside volatility mitigated and added torque for those with production growth/exploration upside,” he said.
“We rolled the DCF forward and updated our model with Q1/24A. We model production back-end loaded, grades peaking in Q4/24 per KNT’s typical mine development cycle, with mining operations ramping up ahead of the commissioning of the 1.2 million tpa [tons per annum] plant, now scheduled for late April 2025 (was late Q1/25) due to a wetter and longer than average rainy season. We increased exploration upside by $50-million in light of emerging prospectivity at Arakompa. For FY24, we estimate production of 130k oz AuEq at AISC of $1,485/oz, aligned with respective annual guidance midpoints. In terms of costs, we mirror the company’s expectations for an elevated AISC over the balance of the year as they catch up on budgeted sustaining capex.”
The analyst raised his target for K92 shares to $9.25 from $9. The current average is $10.77.
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Desjardins Securities analyst Benoit Poirier thinks negative stock reaction to the first-quarter earnings release from AtkinsRéalis (ATRL-T) was “unjustified” and sees the weakness as “a buying opportunity ahead of the investor day on June 13, where ATRL will be unveiling new 2025–27 targets.”
“The shares were likely pressured by the limited operating leverage achieved in 1Q despite the top-line beat,” said Mr. Poirier. “Margins should improve and with the greater visibility on FCF, a call option on nuclear, the upcoming credit rating increase and subsequent 407 sale, we see several company-specific catalysts on the horizon.”
Shares of the Montreal-based company, formerly known as SNC-Lavalin, fell 4.6 per cent after its adjusted core EBITDA from its professional services and project management of $175-million, fell below the consensus forecast of $185-million and Mr. Poirier’s $186-million estimate. PS&PM core earnings per share of 42 cents was a penny ahead of the projection of both the analyst and Street.
Calling the results “solid,” the analyst continues to see the company’s unchanged growth guidance for its core Engineering Services business of 17.9 per cent as “conservative.”
“Margin in Canada will be an important data point as ATRL continues to burn through the less profitable backlog it has built up in the country over previous years,” said Mr. Poirier. “We now forecast 10.9-per-cent revenue growth for 2024 to $7.060-billion and adjusted EBITDA margin (as a percentage of net revenue) of 15.8 per cent ($793-million).
“Nuclear — organic growth guidance increased following strong 1Q; management provided bullish commentary on upcoming CANDU wins on the call. We now forecast 16.3-per-cent revenue growth for 2024 to $1.214-billion and adjusted EBIT margin of 13.9 per cent ($169-million).”
Seeing better-than-expected cash flow increasing investor visibility with the company believing it is now in the required range for an investment-grade credit rating, Mr. Poirier raised his target for AtkinsRéalis shares by $3 to $68, reiterating a “buy” rating. The average is $62.50.
“Following ATRL’s 1Q24 results, the changed guidance and management’s comments, we are adjusting our estimates,” he said. “We now expect core PS&PM adjusted EPS of $2.17 in 2024 and $2.69 in 2025, and adjusted core PS&PM EBITDA of $834-million in 2024 and $922-million in 2025. Highway 407 reported strong 1Q results and a dividend increase on April 25. Traffic grew by 7.1 per cent and revenue by 11.8 per cent despite an increased new toll rate schedule implemented on February 1 following a four-year rate freeze. Given these results and the potential for interest rate cuts, we have increased our traffic assumption and subsequent valuation to $10.65 per share (up from $9.38 per share). We have also adjusted for the new 66-per-cent capital gains inclusion rate, but this had only a minimal negative impact (also, ATRL likely has other capital losses in its portfolio that can be carried forward to offset this burden). Having said that, we believe that there remains some upside to our new estimate given the attractive attributes of the asset (see our note), the implied value from ATRL’s last divestiture (in 2019) of $10.88 per share and that prior to the pandemic the consensus value was $11.00 per share.”
Other analysts making changes include:
* National Bank’s Maxim Sytchev to $61 from $57 with an “outperform” rating.
“Investors have been positioned for another material outperformance but instead we got a miss in Capital due to a revaluation on a financial asset and in line in Engineering and Nuclear (note that the updated outlook will not move the financial needle). For shares that are up +31% YTD this is likely not enough even though structurally we continue to advance, especially with less pronounced working capital drag that led to a positive OCF in Q1/24 of $37 million vs. -$57 million last year. At some point we also believe 407 will be monetized in order to fund future M&A growth. We very much hope that “accretion” will trump “strategic” considerations when it comes to capital deployment here. With enough of a delta to the consulting cohort, the multiple expansion story remains unabated as FCF visibility is much more real now (on top of cheerleading into the Investor Day in June); our target price goes to $61.00 (from $57.00) on less FCF drag and absorption of O&M into Engineering that carries a structurally higher multiple, as well as stronger near-term growth for the 407 ETR.
* Scotia’s Michael Doumet to $67 from $66 with a “sector outperform” rating.
“While 1Q was noisier than desired, it was hardly a negative, in our view,” said Mr. Doumet. “Our inclination is to buy the weakness — in what we continue to see as a cheap name, with superior organic growth, margin expansion opportunities, and divestiturerelated catalysts. The headwinds in 1Q were one-time in nature. And the tailwinds, which including outsized growth in Engineering Services and Nuclear, have positive read-throughs for the balance of 2024 (and 2025). Given that dynamic, we raised our 2024E/25E. In our view, the strong start to 2024 underscores the upside potential to ATRL’s Engineering Services and Nuclear organic growth guide (despite already raising the latter). While upside to the margin guide feels more limited at this time, we expect ATRL’s initiatives to drive more margin expansion in the 2H (in the seasonally busier quarters) and drive solid momentum into 2025. Following our revisions, we increased our target; ‘core’ ATRL Services trades at 10.7 times on our 2024E vs. its peers at 15 times.”
* ATB Capital Markets’ Chris Murray to $63 from $60 with an “outperform” rating.
“Organic growth remained robust across Engineering Services (ES) and Nuclear, with margins trending positively and management increasing full-year revenue guidance for Nuclear. Leverage continues to fall, positioning the Company for credit upgrades and accelerated growth over the near term, which we expect to be the focal point at the June 13 investor day. ATRL delivered strong results, and we remain constructive about the Company’s outlook. We believe the stock should be bought before the upcoming investor day, particularly given relative valuations,” said Mr. Murray.
* RBC’s Sabahat Khan to $65 from $63 with an “outperform” rating.
“Q1 reflected good top-line progress while headline earnings reflected the impact of LT compensation costs (given recent uptick in share price). Overall, Q1 results reflected good progress toward the company’s full-year targets (including a strong organic growth print in the Engineering business and a record backlog). Looking ahead, we believe the June 13 investor day could serve as a catalyst, as the company is likely to provide updated targets,” said Mr. Khan.
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In a research report released Thursday titled Nice dividend you got there (but can pay down debt a little bit faster), Desjardins Securities analyst Chris MacCulloch said he was impressed by the first-quarter results from Peyto Exploration & Development Corp. (PEY-T), believing the integration of the Repsol Canada assets “continues bearing fruit, providing the company with an opportunity to improve upon its position as the lowest-cost producer in the WCSB, underwritten by a lucrative hedge book.”
“Once might be considered lucky, but twice could be viewed as the start of a new trend,” he said.” We refer, of course, to PEY’s strong 1Q24 financial results, which positively surprised for a second consecutive quarter, highlighted by the successful integration of the Repsol assets. We were particularly impressed by the 30 percent improvement in well productivity vs historical corporate performance and the 10-per-cent cost-reduction target, which further solidified the attractiveness of the acquisition. We have reflected some of these improvements in our estimates, which was the key driver of our target price bump. Meanwhile, PEY continues reaping the benefit of a mechanical hedging program in a depressed natural gas price environment, which has undoubtedly contributed to recent outperformance.”
While Mr. MacCulloch raised his cash flow expectations through 2025, he did have a warning for the Calgary-based company.
“The hedge book can only do so much heavy lifting within the context of a lofty dividend payout, which continues funnelling most capital away from balance sheet deleveraging,” he said. “For context, even following our estimate revisions, based on current strip prices and assuming capex continues trending near the lower end of the $450– 500-million capital budget range, we see debt levels remaining relatively static through the balance of 2024, which would result in PEY exiting 2024 with a D/CF of 1.9 times, near the top of the Desjardins E&P coverage universe. Ostensibly, debt repayment will remain on the backburner until 2025 given the overriding preference for highly capital-efficient growth projects and lucrative dividends. Fair enough.”
Keeping a “buy” recommendation, the analyst bumped his Street-low target for Peyto shares to $14.50 from $13.50. The average is $17.82.
“However, we see superior opportunities for investors to deploy capital elsewhere for exposure to the natural gas price recovery,” he added.
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In other analyst actions:
* Calling them “proven mine builders executing on growth,” CIBC’s Allison Carson initiated coverage of G Mining Ventures Corp. (GMIN-T) with an “outperformer” rating and $3.50 target, exceeding the $3.14 average on the Street.
“G Mining is a Canadian gold developer focused on becoming a mid-tier gold producer,” she said. “With construction nearing completion at its Tocantinzhino (TZ) mine in Para, Brazil, G Mining is extending its growth pipeline with the proposed all-share acquisition of the Oko West project in Guyana through its combination with Reunion Gold (RGD). Since acquiring the construction-ready, permitted TZ project from Eldorado Gold in 2021, G Mining has advanced it through construction, and first gold is expected at the end of Q2/24 and commercial production in H2/24. We expect the company to leverage its mine-building expertise and knowledge of the Guiana Shield to repeat its success at the Oko West project, with first gold expected from the asset in 2028.
“G Mining trades at a premium to peers at 0.6x P/NAV vs. peers at 0.5x at spot prices, which we believe is warranted as the company is led by an experienced team of mine builders who are on track to build TZ on time and on budget while adding to the development pipeline and executing on a strategy to become a mid-tier gold producer. We expect G Mining to continue to re-rate upwards as it transitions from developer to producer and completes the Oko West acquisition”
* Stifel’s Stephen Soock increased his Aya Gold & Silver Inc. (AYA-T) target by 25 cents to $16, reiterating a “buy” recommendation. The average is $17.89.
“Aya Gold & Silver released its 1Q24 operating and financial results,” he said. “Production came in at 366koz Ag vs our modeled 453koz and consensus of 465koz, driven by 31 per cent lower grades and much lower recovery (81 per cent vs our modeled 87 per cent). This near term operational hiccups is normal for any operating mine going through the transition phase just ahead of expansion commissioning and ramp up. We would be a buyer on this pullback as the 2ktpd expansion coming online will likely provide an inflection point and support long-term growth. We believe the stock is set up for a re-rate as the expansion ramps up through 3Q and management continues to expand and de-risk Boumadine. Our NAVPS has increased by 1.6 per cent to $10.02. Applying our long-term FX rate assumption of 0.75 and target P/NAV multiple of 1.20 times, we arrive at our new target price of $16.00/sh.”
* National Bank’s Maxim Sytchev raised his Bird Construction Inc. (BDT-T) target to $21 from $18 with a “sector perform” rating. Other changes include: Raymond James’ Frederic Bastien to $25 from $20.50 with an “outperform” rating, Stifel’s Ian Gillies to $25 from $24 with a “buy” rating and CIBC’s Jacob Bout to $22 from $20 with a “neutral” rating. The average is $23.23.
“We are feeling a little bit like the rhymes of the ‘06 - ‘08 cycle when every single end-market, geography, and vertical was firing on all cylinders amid the structural pull of Chinese mega growth (stock went from $6 to $15 then),” said Mr. Sytchev. “Now, we have different mega-trends (decarbonization, nuclear revival, commodities and government work on less onerous terms) but the parabolic share price rise appears to impute the positive backdrop. It’s hard to gauge when / if such momentum can plateau as management expects double-digit topline advancement in 2025 as well, but at 6.6 times 2025 estimated EV/EBITDA on increased numbers, we believe shares do not represent mispricing when it comes from upside / downside dynamic.”
* CIBC’s Mark Jarvi moved his target for Boralex Inc. (BLX-T) to $39 from $38 with an “outperformer” rating. The average is $38.70.
* RBC’s Paul Treiber increased his target for Calian Group Ltd. (CGY-T) to $75 from $72 with an “outperform” rating. Other changes include: Acumen Capital’s Jim Byrne to $80 from $78 with a “buy” rating and Canaccord Genuity’s Doug Taylor to $80 from $75 with a “buy” rating. The average is $78.63.
“Calian reported Q2 above RBC/consensus, with better than expected 19-per-cent year-over-year revenue growth and 53-per-cent year-over-year adj. EBITDA growth,” said Mr. Treiber. “The upside reflects stronger than expected performance at acquisitions (Decisive, HPT). Calian raised its FY24 guidance to reflect contribution from recent acquisitions (MDA, Mabway). Calian has been deploying capital in FY24 at lower multiples (higher IRR) than what’s embedded in its 3-year target.”
* RBC’s Pammi Bir bumped his Chartwell Retirement Residences (CSH.UN-T) target to $15 from $14 with an “outperform” rating. The average is $15.10.
“Our outlook on Chartwell (CSH) continues to improve post a betterthan-expected start to the year relative to our call. A combination of its significant operating enhancements and a favourable backdrop in fundamentals has set the stage for a robust earnings recovery through 2025. In conjunction with the portfolio optimization process underway, we see a path to materially lower leverage. Bottom line, still good money on the table in our view,” said Mr. Bir.
* In response to a “strong” first-quarter beat, Desjardins Securities’ Gary Ho increased his Chemtrade Logistics Income Fund (CHE.UN-T) target to $13 from $12.50 with a “buy” rating. The average is $12.07.
“Management now expects 2024 EBITDA at the higher end of its $395–435-million guidance, offset by no new update on the Arizona UPA project (still on hold),” he said. “We raised our 2024 and 2025 estimates. We are encouraged by CHE’s intention to buy back stock, but we will need additional clarity on its M&A ambitions (targeting $10–50-million EBITDA candidates). We prefer share repurchases given the current attractive valuation.”
* Scotia’s Phil Hardie raised his Element Fleet Management Corp. (EFN-T) target to $27 from $26 with a “sector outperform” rating. Other changes include: CIBC’s Paul Holden to $26 from $25 with an “outperformer” rating and National Bank’s Jaeme Gloyn to $33 from $31 with an “outperform” rating. The average is $28.22.
“Element kicked off 2024 with continued earnings and operational momentum that drove Core EPS ahead of Street expectations,” said Mr. Hardie. “The solid results strongly support our investment thesis that, over the next 12 months, EFN can deliver upperteens shareholder returns through a combination of EPS growth and dividend yield alone. Multiple expansion, supported by growing confidence in EFN’s ability to sustain solid earnings momentum over the mid-term, provides additional upside potential to our target price and outlook. Despite the strong start to the year, management reiterated guidance but commented that they are confident in the company’s ability to meet or exceed the upper range of targets across most metrics. Given the current operational momentum, we see a high probability that management will raise its targets next quarter, which we view as the next catalyst for the stock.”
* Citi’s Spiro Dounis raised his Keyera Corp. (KEY-T) target to $40 from $37 with a “buy” rating, while Stifel’s Cole Pereira moved his target to $40 from $39 with a “buy” rating. The average is $37.57.
“Marketing continues to outperform run rate expectations and would be a record if not for maintenance,” Mr. Dounis said. “We now estimate an improved 10-per-cent average FCF yield through ‘28 vs. 9 per cent prior. Excess cash flows help fund several identified potential expansion projects beyond ‘24 along with basin growth opportunities. While no projects were sanctioned yet, mgmt appears confident KAPS Zone 4, Frac de-bottleneck, and Frac 3 expansion projects will all move forward. Reinvesting in the business remains the preferred use of excess cash flow; however, mgmt also emphasized buybacks remain an option for cash flow if projects don’t emerge.”
* Canaccord Genuity’s Carey MacRury increased his Kinross Gold Corp. (K-T) target to $13.50 from $12.50, exceeding the $12.32 average, with a “buy” rating.
* Following a first-quarter adjusted EPS beat, National Bank’s Zachary Evershed raised his Mattr Corp. (MATR-T) target to $23 from $21.50, keeping an “outperform” rating, while Stifel’s Ian Gillies trimmed his target to $27 from $28 with a “buy” rating. The average is $22.22.
“Our thesis on MATR is unchanged, and we view revenue timing issues as immaterial to our overall outlook,” said Mr. Gillies. “Moreover, international oilfield services orders are notoriously fickle and a modest shift to the right in timing does not leave us concerned. With that said, a few clean quarters in a row is likely required for the valuation to re-rate higher. Other primary catalysts include: (1) M&A funded by cash on hand and (2) a re-start of the NCIB in late June 2024 for 10 per cent of the free float. We have modestly reduced our target ... while our BUY rating is unchanged. The stock remains our Best Idea.”
* RBC’s Jimmy Shan cut his Nexus Industrial REIT (NXR.UN-T) target to $8 from $8.50 with a “sector perform” rating. Other changes include: Raymond James’ Brad Sturges to $8.50 from $9 with an “outperform” rating, Desjardins Securities’ Kyle Stanley to $8.75 from $9 with a “buy” rating and CIBC’s Sumayya Syed to $9 from $9.75 with an “outperformer” rating. The average is $8.36.
“We view Nexus as Canadian industrial REIT in transition in 2024, as the REIT seeks to backfill temporary vacancies, complete and stabilize its ongoing Canadian industrial facility pipeline, and execute on non-core asset sales. We expect Nexus’s FD AFFO/unit payout ratio to remain elevated over the balance of 2024, before recovering back to normalized levels by the end of 2025. We believe that successful execution of Nexus’ planned non-core asset disposition program can serve to improve Nexus’: 1) balance sheet strength with net proceeds likely earmarked for debt repayment; 2) Canadian industrial portfolio quality; and 3) future FD AFFO/unit growth prospects,” said Mr. Sturges.
* CIBC’s Dean Wilkinson raised his Northwest Healthcare Properties REIT (NWH.UN-T) target to $5.75 from $5 with a “neutral” rating, while National Bank’s Matt Kornack bumped his target for $5.75 from $5.25 with a “sector perform” rating. The average is $5.75.
“Year-to-date, NWH has raised $184-million in proceeds from assets sales,” said Mr. Kornack. “The latest salvo featured during Q1 pertained to a portfolio of five U.S. micro-hospitals for US$86-million (US$540/sf) and Atlantic Canada properties. We see the move to breakout Brazil as a separate operating segment setting the stage for a portion of the properties to be sold and consistent with what has been communicated. Additional levers to right-size the balance sheet include selling the remaining U.S. and/or UK Portfolio. We see the most likely path forward consisting of a combination of select U.S. property dispositions (which have so far been in line with pricing), a sale of its UK portfolio (which is likely to garner a higher price from the asset quality) and the sale of all/or a portion of its Brazil segment. Needless to say, the outlook and accretion of such capital moves hinge on a favourable rate path outlook.”
* Following a “solid” first-quarter print, Scotia’s Mario Saric trimmed his SmartCentres REIT (SRU.UN-T) target to $24.50 from $25 with a “sector perform” rating. The average is $24.94.
“There’s minimal change to our Neutral thesis, with relatively high financial leverage and rising debt refinancing costs limiting recurring AFFOPU [adjusted funds from operations per unit] growth, which was part of our REI downgrade rationale [Tuesday], and despite SRU firing on most cylinders operationally (high occupancy and improving lease spreads). That said, we think SRU has lagged year-to-date (down 6 per cent vs. down 2 per cent peer avg.) partly because of limited expected low-cap rate asset dispositions (a la FCR). Combined with its higher floating rate debt (approximately 19 per cent of total debt vs. sub-10-per-cent sector avg.; a good portion of which we think is capitalized though) and general market aversion to debt, we think ‘FFOPU-accretive’ sales is perhaps a more meaningful catalyst than maintaining sector-high occupancy/growing lease spreads. SRU hinted it is willing and able (to sell density) once the land prices recover (no timing provided; we have no dispos in our forecast). Until then, we still believe the 8-per-cent distribution yield will comprise a majority of the near-term return.”
* Canaccord Genuity’s Luke Hannan, currently the lone analyst covering Taiga Motors Corp. (TAIG-T), trimmed his target to 40 cents from 50 cents with a “hold” rating.
David Leeder