Inside the Market’s roundup of some of today’s key analyst actions
Citing its “strong” 2021 results, continued “solid” 2022 growth and limited competition in the ultra-long-range business jet segment, Citi analyst Stephen Trent thinks Bombardier Inc.’s (BBD.B-T) share price weakness “seems temporary – especially if the carrier delivers on its solid, expected growth for this year.”
Raising his 2023 and 2024 earnings expectations, Mr. Trent said the Montreal-based company’s fundamentals “seem on track.”
“With both 2022 estimated EBITDA growth of 56 per cent and meaningful FCF improvement, Bombardier appears to be heading in the right direction,” he said. “On an industry level, inventories of used business jets remain low and continued high oil prices could provide ongoing support for aircraft replacement. In light of these factors, an adjusted 2023 EBITDA of 7 times seems undemanding.”
The analyst emphasized Bombardier’s “solid” EBITDA growth and “positive” first-quarter free cash flow make it look “stronger/simpler than it used to be.”
“For these reasons, the shares should trade above their pre-pandemic average, even as global top down uncertainty prompts a slightly more cautious stance on fair value,” he added.
Maintaining a “buy” rating for Bombardier shares, Mr. Trent trimmed his target to $2 from $2.10. The current average is $2.30, according to Refinitiv data.
“Forecast adjustments for Bombardier include the incorporation of stronger expected sales mix, modestly higher forecasted margins and 1Q’22 results into our model,” he said. “Although Citi’s 2023 estimated EBITDA for the Canadian business jet manufacturer increases mildly, our 12-millopn target multiple declines from 9 times to 8.75 times, with the EV/EBITDA fair value range shifting from 9 times to 9.5 times to a new range of 8.5 times to 9 times. The revised target multiple still reflects an 8-per-cent premium to the stock’s historical, pre-pandemic average.”
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Despite the sale of a “significant portion” of its assets, The Flowr Corp. (FLWR-X) remains in a “challenging” capital position, according to ATB Capital Markets’ Frederico Gomes.
That led the equity analyst to downgrade the Toronto-based cannabis company on Tuesday following weaker-than-anticipated fourth-quarter results, reducing his financial projections to “factor in a weaker sales growth outlook given the challenging conditions in the Canadian cannabis market and the Company’s liquidity position, which might impair further investments to grow the business at a faster pace.”
On May 2, Flowr completed the sale of its wholly owned subsidiary Holigen Holdings to Akanda Corp. (AKAN-Q) for $35-million. Holigen’s operations include an EU GMP facility in Sintra and an outdoor facility in Aljustrel, both in Portugal.
“We believe management is executing well in cleaning up the balance sheet and downsizing the business to focus on Canada; however, material liquidity and going concern risks remain,” said Mr. Gomes. “As of today, we estimate a pro-forma fully diluted capital position of $11.8mm (incl. marketable securities), which compares to a cash burn (cash from ops. minus CapEx) of $4.1-million in Q4/21. While the cash burn may dEcline over the coming quarters due to downsizing, we view pronounced risks given the flat market share trend in Canada, the headwinds impacting LPs, and the challenging macro environment. Considering these factors, we are reducing our price target and moving to an Underperform [from “sector perform”].”
After the bell on Friday, Flowr reported revenue of $3.8-million, up 50 per cent quarter-over-quarter and exceeding Mr. Gomes’s $3.5-million estimate. However, an adjusted EBITDA loss of $5.2-million was higher than anticipated (a $3.5-million deficit), due, in part, to an inventory impairment charges and lowered average selling prices.
“We have reduced our estimates to factor in a weaker sales growth outlook given the challenging conditions in the Canadian cannabis market and the Company’s liquidity position, which might impair further investments to grow the business at a faster pace,” he said. “Based on our estimates, Flowr will become adj. EBITDA positive in 2025. Our long-term estimates imply FLWR would remain a niche player in Canada, with approximately 1 per cent share of the market.”
Moving it to “underperform” from “sector perform,” Mr. Gomes, currently the lone analyst covering the stock, cut his target for Flowr shares to 4 cents from 8 cents.
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Canaccord Genuity analyst Matt Bottomley predicts revenue headwinds will continue to face Canopy Growth Corp. (WEED-T) in the near term, leading him to suggest “further operational rightsizing could be in the cards.”
He think those changes, which may include “sizable cost-cutting initiatives and/or the realignment of its strategic priorities,” could be announced as early as Friday with the release of its fourth-quarter 2022 results before the bell.
“As telegraphed in its prior earnings call, we believe as part of FQ4/22 reporting, the company may also announce new cost saving endeavors and strategic updates, which could include additional infrastructure closures, operational right-sizing, and potential management changes at the top (in our view),” he said.
For the quarter, Mr. Bottomley is forecasting total net revenues of $125.7-million, down 10.9 per cent sequentially. That leads to an adjusted EBITDA estimate of US$69.8-million, falling 3.6 per cent from the third quarter.
“Although we expect the company to see growth headwinds in all its business units, most notably, we believe the quarter will represent another period of sequentially lower sales from its Canadian adult-use penetration,” he said.
Making “moderate downward revisions” to his near-term forecasts and believing “the prospect of profitability continues to get kicked down the road,” Mr. Bottomley cut his target for Canopy shares to $6 from $10, maintaining a “sell” rating. The average is $8.95.
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Desjardins Securities analyst John Sclodnick said his visit to Orla Mining Ltd. (OLA-T) Camino Rojo oxidemine in Zacatecas, Mexico “corroborated the near flawless development reported so far.”
“We came away from the site tour impressed as management showcased a professional and well-run operation to match the impressive execution reported so far,” he said.
“How did they do that? Management was able to complete the build US$8.6-million under budget, a rare feat at the best of times in the mining industry, let alone through a pandemic and inflationary environment. Management cited a number of contributing factors toward beating the budget; beyond the phenomenal execution, a key reason was anticipating COVID-19-related costs and incorporating sufficient contingency to the capex estimate and schedule.”
Mr. Sclodnick said the mine’s ramp-up has “gone without a stumble” and sees the potential for additional capacity.” He also sees Orla as an attractive option for larger peers.
“Agnico Eagle owns 9.5 per cent of the shares outstanding; recall it became involved through its interest in Panama when it made an equity investment in Pershimco Resources,” the analyst said. “However, much has changed since its initial investment in Pershimco for exposure to exploration upside at the Cerro Quema property. Agnico now has a large operating portfolio with a dwindling contribution from its Southern Business unit. And while it is likely still digesting the Kirkland Lake acquisition, at some point in the future, acquiring Orla could solve the dilemma of what to do with the Southern Business unit.
“However, Orla will not be sitting around waiting for a larger producer to acquire it, in our view; after the successful build at Camino Rojo oxides, it is one of the very few precious metals companies which may have licence from investors to build, and its current premium valuation vs peers could enable it to be acquisitive if the right opportunity comes along.”
After increasing his 2022 earnings per estimates, Mr. Sclodnick raised his net asset value projection. That led him to bump up his target for Orla shares to $7.50 from $7.25 with a “buy” recommendation. The average is $7.21.
“The stock is trading at 0.73 times NAV vs junior producer peers at 0.57 times; we believe a larger premium is justified as management has demonstrated impressive execution in a challenging environment while showing internal growth, and it is a clear takeout candidate,” he said.
Elsewhere, Stifel’s Ian Parkinson said he came away from the tour “impressed and confident in the future of the company.” He reiterated a “buy” rating and $6.75 target.
“The oxide mine is just scratching the surface of a 9.5M oz Au deposit and represents just a small portion of the 163K ha land package that has seen little exploration outside the immediate deposit area,” he said.
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Seeing it “tuned up for resilient growth,” Canaccord Genuity analyst Luke Hannan initiated coverage of Uni-Select Inc. (UNS-T), a Quebec-based distributor of auto products, with a “buy” rating.
“In our view, the sharp top-line and EBITDA margin recovery realized by UNS in 2021 (9.6 per cent and 280 basis points year-over-year, respectively) as it navigated pandemic-related headwinds demonstrates an underrated degree of resilience within the company’s business model,” he said. “Despite sales remaining below prepandemic levels, UNS’ EBITDA margin has never been stronger, owing to several cost optimization initiatives completed in recent years.
“We see ample potential for further margin expansion across UNS’ operations (and particularly within the company’s US segment) as the overall number of miles driven and, consequently, vehicle service volumes approach pre-pandemic levels. Augmenting this organic growth profile is a solid balance sheet (2.0 times as of Q1/22) supportive of accretive small and/or large-scale M&A, allowing the company to defend its leading share position across its footprint and serving as a potential catalyst for the stock.”
Mr. Hannan set a target of $35 per share. The current average is $36.08.
“Management’s view is that revenue and adjusted earnings for 2022 will be ‘modestly higher,’ consistent with consensus forecasts, positioning the company well to meet and potentially exceed its targets, in our view,” he said. “Despite UNS shares outperforming, up 18 per cent year-to-date (vs. the S&P/TSX Consumer Discretionary index falling 16 per cent YTD), the stock trades at 9.8 times our 2022 EBITDA estimate vs. peers, which trade at 10.7 times. At current levels, we believe UNS shares are attractively valued.”
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In other analyst actions:
* Seeing an “attractive risk vs. reward profile” for copper minters, Scotia Capital’s Orest Wowkodaw raised his Capstone Copper Corp. (CS-T) target to $7.50 from $7, below the $8.48 average, with a “sector outperform” rating.
“Escalating global macroeconomic concerns from COVID-19 lockdowns in China, rising interest rates, and higher energy prices, along with heightened geopolitical risk tension from Russia’s war in Ukraine, have all placed significant downside pressure on most commodity prices, including copper (Cu),” he said. “While we clearly see growing downside risks to our near-term copper consumption expectations, we note that the supply side also remains under significant pressure due to relatively low visible inventories (approximately 9 days), growing risks to Russian supply (4 per cent of global output), ongoing fiscal uncertainty in Chile and Peru (a combined 36 per cent of global output), continuing supply-chain constraints, and rising inflation (impacting both opex and capex). Overall, we believe that copper prices more than $4.00 per pound remain well supported despite heightened demand uncertainty, particularly given the large projected structural market shortage ahead.”
* RBC Dominion Securities’ Luke Davis raised his Cardinal Energy Ltd. (CJ-T) target to $10 from $8 with a “sector perform” rating. The average is $9.70.
* BMO Nesbitt Burns’ Rene Cartier raised his Filo Mining Corp. (FIL-T) target to $30 from $28, above the $25.14 average, with an “outperform” rating.
“Filo continues to highlight success with the drill bit, especially with its long intersections, and as it better defines the structure, including the higher-grade section. Assays are pending, and a number of holes are currently underway,” he said.
David Leeder