Inside the Market’s roundup of some of today’s key analyst actions
RBC Dominion Securities’ Drew McReynolds sees BCE Inc.’s (BCE-T) sale of its 37.5-per-cent stake in Maple Leaf Sports & Entertainment to rival Rogers Communications Inc. (RCI.B-T) as “a logical outcome and indicative of proactive balance sheet management that has provided improved visibility on the de-levering trajectory.”
In a research note released Thursday before the bell, the equity analyst said BCE is “successfully navigating a slower revenue environment” with the $4.7-billion move, which was made to pay down debt and invest in its telecom business.
Tim Kiladze: Why BCE was forced into selling its MLSE stake to arch-rival Rogers
“We continue to believe that BCE is well equipped to navigate a slower revenue environment leaning on a scale advantage, continued FTTH investment and Internet market share gains, the realization of cost efficiencies, and an extensive array of tactical initiatives across wireless, wireline, and media,” said Mr. McReynolds. “Financially, we believe that recent proposed divestitures (Northwestel, MLSE stake) have provided much-needed visibility around the de-levering trajectory, while strategically we continue to believe that BCE is well positioned to benefit from network convergence and longterm growth in 5G B2B (IoT, MEC, private network, cloud, security).
“Pro-active balance sheet management continues with MLSE proceeds higher than expected. Management indicated that net proceeds aftertax are expected to be approximately $4.1-billion and will be directed toward debt repayment and supporting the company’s ongoing transformation from telco to techco. While we believe this transaction should not come as a surprise to many investors: (i) gross proceeds of $4.7-billion are higher than our assumed FMV [fair market value] of approximately $3-billion for the stake (and much higher than the $1.5-billion ‘placeholder’ we had in our NAV, representing a considerable gain versus the $533-million paid in aggregate for the 37.5-per-cent stake in 2011); and (ii) the timing of such a transaction (at close) is approximately 6–12 months earlier than we would have anticipated.”
The analyst emphasized the visibility on BCE’s de-levering trajectory has improved “significantly” with the deal, believing free cash flow is likely to benefit from lower cash interest costs.
“Bigger picture, we believe this transaction significantly improves the visibility around BCE’s balance sheet de-levering trajectory through the medium term while benefiting FCF and providing the company added financial flexibility (for spectrum auctions, further tuck-in M&A, etc.),” said Mr. McReynolds.” Specifically: (i) net proceeds after-tax of $4.1-billion equate to a 0.4 times turn reduction in leverage with estimated net debt/EBITDA (including 100 per cent of the preferred shares) declining to 3.4 times by the end of 2025E (versus 3.8 times previously and management’s target leverage in the low-3s); and (ii) simplistically, net proceeds of $4.1-billion fully directed toward debt repayment would equate to $200-million in lower annualized cash interest costs (assuming a 5 per cent cost of debt).”
Reiterating his “sector perform” rating for BCE shares, he raised his target to $53 from $51. The average target on the Street is $50.46, according to LSEG data.
Elsewhere, other analysts making target changes include:
* National Bank’s Adam Shine to $52 from $50 with an “outperform” rating.
“There’s now less urgency to explore further divestitures at least in the very near term, but we can also stop wondering about a DRIP discount like peers that would have proven rather dilutive,” said Mr. Shine. “We think the safety of the dividend has been further secured for those that continue to fear a cut. While the payout remains elevated, declining capex and coming reductions in interest costs position the payout calculated by BCE at sub-100 per cent post-2025 while our math puts it just above 100 per cent in 2027E when including lease payments.”
* Canaccord Genuity’s Aravinda Galappatthige to $52 from $50 with a “buy” rating.
“We see this as positive for BCE due to the resultant de-levering of 0.4 times net debt/LTM [last 12-month] EBITDA,” he said. “The impact on Rogers is less straightforward and depends on further clarity on financing mechanisms and its longer-term plans for the sports asset base.
* Desjardins Securities’ Jerome Dubreuil to $53 from $51 with a “buy” rating.
“At recent industry conferences, RCI has been discussing its longterm vision for its sports and media assets, mentioning that it needed to find a way to surface and optimize the value of its sports franchises, potentially through an IPO,” he said. “However, BCE’s 37.5-per-cent interest in MLSE made it more challenging for RCI to realize this objective without either buying BCE’s stake or convincing the latter to commit additional capital to the structure. We believe BCE may not have been open to adding more capital given its current leverage and dividend. RCI now has time to consider its options before the expected close in mid-2025, and we believe an IPO of MLSE would be the way forward that would maximize the odds that the value of the MLSE shares is eventually reflected in RCI’s share price.”
* TD Cowen’s Vince Valentini to $51 from $50 with a “hold” rating.
“While we do not have funding details and timing around approvals, we are a lot more confident around BCE’s debt leverage following this transaction. Bell Media also secured access to content rights for the two main assets for 20 years. The transaction gives us more confidence around BCE’s dividend going forward, and reduces their FY26E payout ratio based on the TD definition of FCF to 105 per cent,” said Mr. Valentini.
* BMO’s Tim Casey to $51 from $48 with a “market perform” rating.
“We do NOT expect a dividend cut at BCE despite elevated payout ratios expected through 2025. Restructuring initiatives will insulate near-term margins. We believe the company faces competitive pressures in QC in the near term. The TPIA framework represents a notional negative, pending final tariffs in 2025. Media is transitioning to digital platforms but legacy operations remain under pressure,” said Mr. Casey.
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While the purchase price for the stake in MLSE was “slightly” higher than he anticipated and also on an accelerated timeline versus his expectations, Mr. McReynolds sees the acquisition as “a logical outcome” for Rogers Communications Inc. (RCI.B-T), calling it “otherwise fairly straightforward” and consistent with its strategy and desire to invest in sports assets.
“While we believe this transaction should not surprise most investors, the $4.7-billion purchase price for the 37.5-per-cent equity stake is slightly higher than our assumed FMV of $3-billion with the timing of such a transaction (at close) 6–12 months earlier than we would have anticipated,” he said. “Management indicated that precedent transactions and the multi-team aspect of MLSE combined with Toronto being one of the most attractive and high-growth sports markets in North America alongside Rogers’ 100-per-cent ownership of the Blue Jays underpinned valuation.”
“Focus shifts to funding plan and then asset crystallization. Management indicated that the transaction would not impact the company’s leverage and that financing will include private investors (details of this funding plan along with potential options were not provided). Management reiterated the desire to ultimately combine and then crystallize a minority stake in its aggregate sports/media assets through the medium term in order for Rogers’ public market valuation to more accurately reflect the intrinsic value of these assets.”
Scott Stinson: With MLSE purchase, Rogers makes a bold bet on the big bucks of sports broadcasting
Mr. McReynolds now sees further progress on cable revenue growth, balance sheet de-levering, and “asset crystallization” as the key drivers of upside in Rogers shares moving forward.
“With an eye on our 2025 and 2026 estimated NAVs [net asset value] of $61 per share and $69 per share, respectively, we believe current share price levels continue to represent an attractive entry point reflecting: (i) the full flow-through impact of run-rate Shaw cost synergies alongside what should be improving cable revenue growth and margins and continued wireless outperformance; (ii) a steady de-risking of the stock as the Shaw integration winds down, the competitive landscape post-Rogers-Shaw-Quebecor transactions finds a new equilibrium, leverage declines, and management’s track record of improved execution lengthens; and (iii) option value on non-core and/or non-telecom asset sales/crystallizations,” he said.
With an “outperform” recommendation (unchanged) for Rogers shares, Mr. McReynolds bumped his target to $66 from $65. The average is $68.21.
“We see room for further NAV upside in a successful crystallization scenario,” he conclude. “While we await further MLSE disclosures prior to consolidating MLSE as well as details on the funding plan, we have updated our forecast to factor in the NAV impact of the transaction. Our NAV simplistically incorporates a value of $10– 11-billion for Rogers’ combined sports/media assets, intentionally applying a pre-crystallization discount of 25 per cent to estimated FMV (down from 33 per cent previously) to continue to reflect the still embedded nature of these assets within Rogers while acknowledging the incremental visibility around the crystallization path following this transaction.”
Elsewhere, other changes include:
* TD Cowen’s Vince Valentini to $74 from $73 with a “buy” rating.
“We believe this is a good first step in the process to force investors to recognize the material value of sports teams within Rogers (MLSE, plus 100 per cent of the Blue Jays). Third party funding sources are not confirmed yet (they have 9-12 months to finalize details), but Rogers management is adamant that this purchase will be structured with minimal impact on debt leverage,” said Mr. Valentini.
* BMO’s Tim Casey to $70 from $67 with an “outperform” rating.
“Rogers continues to over index vs. its peer group in wireless fundamentals. We believe the key to share price appreciation is 1) a return to organic revenue growth in cable; and 2) enough progress on leverage metrics to offer line of sight to a 4.0 time or lower debt/EBITDA ratio. We believe Rogers’ FWA offering represents a unique incremental market expansion opportunity in QC and ON,” said Mr. Casey.
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National Bank Financial analyst Richard Tse sees Altus Group Ltd. (AIF-T) “thinking big” after attending its annual user group conference this week, touting “positive” product vision and execution.
“What we heard this year built on recent years when it comes to the Company’s big ambitions to becoming a leading data and intelligence platform in CRE [commercial real estate],” he said. “That vision is being executed through the Company’s foundational Altus Intelligence Platform. The first product on this platform is Argus Intelligence (AI), which will connect various applications like Argus Enterprise (AE) — Asset Manager, Portfolio Manager, Benchmarking, Altus ID (data), among others managed through a single dashboard. In our view, this appears to represent the culmination of a vision set back even prior to the current Management team. We’d view the formal release of Argus Intelligence as positive when it comes to executing on a product that is Generally Available (GA). In our opinion, it has the potential to offer more value to customers while reducing upsell friction from a formerly siloed product portfolio. In turn, that offers the potential for accelerating revenue growth.”
Mr. Tse did warn it may be too early to evaluate the reaction to Argus Intelligence and the scale of any potential growth, particularly within its existing customer base.
“While we noted some large customers already trialing/converted, our conversations with other customers over the past few days had a number taking an optimistically cautious view at this point,” he added. “From what we heard, the areas of caution stem from (incremental) price to those customers already having an existing process to handoff data/analysis from their existing Argus Enterprise deployments to other analytics/tools like Excel or incumbent applications.
“The potential upside? The offset to the above is that Argus Intelligence will be the only available option to accessing Argus Enterprise as early as the new year (perhaps sooner) when it comes to new sales while existing customers will be converted to Argus Intelligence with accompanying price increases to those customers who are on discounted Argus Enterprise. We’d also note that is based on a new asset-based pricing model from a per-user seat model. As typical with such conversions, there will likely be a work-in period when it comes to capturing full value from conversion.”
Maintaining a “sector perform” recommendation for the Toronto-based company’s shares, Mr. Tse raised his target to $55 from $50. The current average on the Street is $56.13.
“We believe the work-in period for Argus Intelligence against our customer feedback may take some time to scale,” he concluded. “In addition, it did not appear based on the various CRE sessions that the CRE market has thawed particularly in Office which appears consistent with Altus lowered guidance presented with its FQ2 results. As such, we think the name looks reasonably valued at this point.”
Elsewhere, Scotia Capital’s Kevin Krishnaratne maintained a “sector perform” rating and $51 target.
“Following presentations and new product demos, we gained a better understanding of how Altus’ new ARGUS Intelligence Platform can help clients drive more intelligence and actionable CRE investment decisions, and help increase the company’s share of wallet over time,” he said. “Our discussions with many industry participants throughout the conference also helped reinforce our view that there remains uncertainty in the timing of the rebound in CRE transaction activity. We continue to believe it is more a matter of when, not if, a recovery will resume given the company’s prior period bookings. Recall recent outlook provided with Q2 earnings (Aug. 9) suggested that while management is cautiously optimistic of a stronger selling environment in 2H/24 and 2025, it assumes a slower recovery this year vs. prior guidance. Furthermore, new product releases announced at Altus Connect, although promising, won’t have as big an impact until at least 2025, in our view. We continue to remain SP rated until clearer signs of a CRE recovery are more evident.”
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TD Cowen analyst Mario Mendonca thinks Trisura Group Ltd. (TSU-T) “provides a unique investment opportunity in a pure-play specialty insurer in Canada, one capable of materially outgrowing the larger P&C and life insurance companies.”
In a research report released Thursday, he initiated coverage of the Toronto-based specialty insurance company with a “buy” recommendation, calling its “stable, high ROE and strong capital generation engine in Canada as well as U.S. Fronting” as TSU’s “key growth story.”
“While Trisura’s businesses and risks are different and more complex than a traditional standard P&C insurer, the key drivers of the stock’s performance over the next few years are straight forward. We see solid upside under the following scenarios: 1) Canada continues to generate a ROE that is 500-1000 basis points higher than the average ROE in Canada’s P&C sector, 2) the company exploits the significant growth opportunities in the U.S. through market share gains and de novo expansion in other product sets; and 3) the business avoids large hits to book value like the Q4/22 write-down to insurance recoverable,” said Mr. Mendonca.
“The complexity and tailored nature of the specialty insurance market lends itself to materially better profitability metrics like combined ratio and ROE. We forecast an operating ROE of 18-20 per cent over the next three years.”
The analyst is also projecting top-line growth of “consistently better” than 15 per cent as Trisura gains market share south of the border.
“Fronting and expands into other product suites in the U.S. including Corporate Insurance and Surety. Note that the U.S. Surety business is currently reported in Trisura Specialty,” he said. “Modest market share gains and selective acquisitions should drive strong top line growth in the U.S., in our view.
“Top line growth and ROEs well above 15 per cent should drive 15-per-cent-plus book value per share growth, well above the other P&C and life insurance companies in Canada, provided there are no material charges. We believe the circumstances that led to the material charge in Q4/22 have been addressed through the write-downs and changes in the business model.”
He set a target of $52 for the company’s shares. The average is currently $58.63.
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While softer trends in production linger, Canaccord Genuity analyst Aravinda Galappatthige thinks WildBrain Ltd.’s (WILD-T) fourth-quarter results and management commentary “suggest an uptick in demand for content production and distribution.”
“The company had previously indicated an increase in staffing levels to accommodate new greenlights, and Q4 comments corroborate an upswing in the new production commissioning,” he said. “Furthermore, there is increased optimism around recent launches by Apple TV+, including a new Peanuts series (Camp Snoopy) as well as the August premiere of the Yo Gabba brand (Yo Gabba GabbaLand!).”
Before the bell on Wednesday, the Toronto-based kids’ and family entertainment reported revenue of $130-milllion, up 4.1 per cent year-over-year and in line with Mr. Galappatthige’s $129.9-million projection , which he attributed to “steady” 7-per-cent growth in its Content Creation and Audience Engagement segments and “robust” growth in Global Licensing. Adjusted EBITDA was up 25 per cent to $23.9-million, exceeding the analyst’s $23-million expectation.
WildBrain also provided fiscal 2025 guidance of 10-15-per-cent revenue growth and 5-10-per-cent adjusted EBITDA growth, which topped pre-quarter expectations.
“We were encouraged by the 4-per-cent growth in Global Licensing, following a decline in Q3. Importantly, Peanuts saw good growth in the U.S. supported by new licensing partnerships,” said Mr. Galappatthige. “We expect growth in this line item to pick up through F2025 as some other brands contribute incrementally. Management comments suggest good prospects around Strawberry Shortcake with licensees up 50 per cent and retail sales up 80 per cent. Meanwhile, on the engagement front, the company noted increased views on YouTube and on FAST channels, with total view reaching 1 billion.
“Meanwhile, Teletubbies is also trending well, with over 1 billion views on YouTube last year and continued licensee traction in China. Management believes that this too could be a driver of licensing growth, helping diversify beyond Peanuts.”
Seeing its near-term balance sheet risks addressed with the recent issue of debt maturities with a new credit agreement extending to 2029, the analyst raised his target for WildBrain shares to $1.40 from $1 with a “hold” rating. The average target on the Street is $2.08.
“Our target price increases as we roll forward to F2026 (from F2025), and on the back of more robust expectations for F2025/2026,” said Mr. Galappatthige. “With that said, as alluded to above, the risk profile of the stock remains elevated to due to high balance sheet leverage and minimal underlying FCF. We continue to value the stock using 8 times for the Content segment and 4.5 times for Broadcast (EV/EBITDA), and now use F2026E. This drives up the target price from $1.00 to $1.40 per share.”
Elsewhere, National Bank’s Adam Shine bumped his target to $1.50 from $1.20, keeping a “sector perform” recommendation.
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In other analyst actions:
* JP Morgan’s raised his targets for Alimentation Couche-Tard Inc. (ATD-T) to $87 from $83 and Parkland Corp. (PKI-T) to $60 from $53 with “overweight” recommendations for both. The average targets on the Street are $90.65 and $51.33, respectively.
* BoA’s Craig Bijou removed his rating and target for Bausch & Lomb Corp. (BLCO-N, BLCO-T).
“In multiple reports this week, the Financial Times (FT) reported that Bausch + Lomb is exploring a potential sale of the company and has reportedly drawn interest from private equity groups,” he said. “The FT report [Wednesday] morning identified a handful of private equity groups which have held meetings with BLCO management in recent weeks. The article also suggested that preliminary bids could come as early as later this week with the goal of moving to exclusive talks before the end of October. The reports did not mention a potential acquisition price other than to say it would likely be a premium to BLCO’s current value. BLCO shares are up 29 per cent this week on the reports. As a result of the news reports, we view BLCO as no longer trading on fundamentals and we move to No Rating. Investors should no longer rely on our previous rating or price objective.”
* Raymond James’ Brad Sturges raised his European Residential REIT (ERE.UN-T) target to $4 from $3.25 with an “outperform” rating. The average is $3.66.
* Following its $25-milllion equity raise, Canaccord Genuity’s Yuri Lynk cut his Exro Technologies Inc. (EXRO-T) target to 30 cents from 40 cents with a “hold” rating. The average is 77 cents.
“Exro has firm orders in hand from Mack and Hino for 8,500 propulsion systems over the next several years that should drive positive EBITDA in 2025,” he said. “However, the company’s liquidity position remains weak, even after the raise, putting into question Exro’s ability to finance the working capital required to execute on its pipeline. We wish to remain on the sidelines.”
* Morgan Stanley’s raised his First Quantum Minerals Ltd. (FM-T) target to $20.20 from $19.40 with an “equal-weight” rating. The average is $20.28.
* Raymond James’ Theo Genzebu bumped his Hydro One Ltd. (H-T) target to $45, exceeding the $43.33 average, from $41 with a “market perform” rating.
“Earlier this week, we hosted Hydro One for investor meetings in Vancouver, BC,” he said. “Representing what we consider to be the key takeaways of the day’s meetings, are its strong rate base growth, low earnings volatility, several large-scale, longer-term opportunities for upside in rate base growth, and a constructive regulatory backdrop. We’ve increased our target price ... reflecting a higher assumed multiple due to these factors, while maintaining our Market Perform rating due to the stock’s premium valuation.”
* BMO’s Jeremy McCrea resumed coverage of Parex Resources Inc. (PXT-T) with a “market perform” rating and Street-low $13 target. The average is $22.20.
“Colombia hasn’t been kind to CDN-listed E&P names,” he said. “Government regulation, drilling exploration risk, and social unrest have historically warranted caution. This may explain the valuation, but for Parex specifically, despite multiple years of success, it has recently been upended by underwhelming production results. It’s likely that investors stay sidelined given the uncertainty for 2025 (including pending well results). That said, with insider buying, a low valuation, and potentially a high deliverability fairway to be explored, there should be plenty of upside for higher-risk investors. We reinstate coverage at Market Perform.”
* Following its fourth-quarter earnings release, TD Cowen’s David Kwan raised his Sangoma Technologies Corp. (STC-T) target to $10 from $8 with a “buy” rating, while Acumen Capital’s Jim Byrne hiked his target to $10.25 from $8 with a “buy” rating. The average is $9.75.
“Given the strong run into the Q4 release (up 20 per cent in the last week, including 14 per cent this week), we believe the stock could take a pause given the slightly disappointing Q1 guidance,” Mr. Kwan said. “However, we remain bullish, as we expect STC to return to growth this year, with improving margins, continued strong FCF (mid-teens FCF yield), and declining leverage levels.”