Inside the Market’s roundup of some of today’s key analyst actions
After Whitecap Resources Inc. (WCP-T) announced a cut to its capital expenditure program, Canaccord Genuity reduced its cash flow projections for the oil and gas company.
“The company has decided to take a cautious approach for the remainder of the year and is reducing its back-half spending to $250-million (from $300-million) with full-year spending to come in at $400-million (from $450-million). Production guidance of 70,000-72,000 boe/d [barrels of oil equivalent per day] remains unchanged,” said analyst Anthony Petrucci.
“The company’s 2019 program was designed with a flexible H2/19 in mind, given the volatility of the market. The company’s objective was to protect the balance sheet, maintain a sustainable dividend and generate a moderate growth rate. Its cautious approach to spending for the remainder of the year is a prudent move, in our view,” he said.
“Volatility in oil pricing along with lack of egress has weighed heavily on oil stocks in the space, and WCP is no exception. We note WCP benefits from one of the lowest decline rates in the space (about 19 per cent) and invests heavily in EOR projects to keep its decline rate at low levels,” he said.
He reduced his 2019 cash flow per share estimate to $1.66 from $1.67 and his 2020 estimate to $1.83 from $1.91.
He kept his “buy” rating on the stock and his $7.50 target price “which is NAV [net asset value] based and maps to a 2020E EV [enterprise value]/ [debt-adjusted cash flow] DACF of 5.1 times,” he said. The median target price is $7.88, according to Zack’s Investment Research.
However, CIBC cut its price target on the company to $7.25 from $7.50 “based on changes in strip pricing,” said analyst Dave Popowich. He kept his “outperformer” rating on the company.
“Given that Whitecap has one of the more flexible capital programs in our coverage universe, we would expect the company to allocate spending higher or lower as commodity prices dictate. Whitecap has maintained a relatively strong balance sheet throughout the ongoing industry downturn, and we see that as a competitive advantage worth preserving, even if it comes at the expense of growth (which the market seems to be actively discouraging at this point, anyway),” he said.
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Canaccord Genuity initiated coverage of O3 Mining Inc. (OIII-X), a gold miner that was spun off from Osisko Mining (OSK-T).
It has assets in north east Ontario (Garrison) and the Abitibi gold mining district of Quebec (Marban).
“Since the new company was announced but before the deal was closed, O3 had been actively consolidating property east of Val d’Or in Quebec,” said analyst Tom Gallo.
“We have long been optimistic about the region’s exploration potential as we currently cover Probe Metals, which is a top pick in the exploration space,” he said.
He initiated coverage with a “speculative buy” rating and a price target of $4.50.
Key reasons we are interested in O3:
- Quickly becoming the largest landholder in Val d’Or East, which is underexplored
- Already established, large (about 5 million oz) company-wide resource with potential to grow
- Hidden high-grade potential at Marban
- M&A optionality at both Garrison or through more Quebec-based acquisitions
- Proven management team and support from the Osisko house leads us to believe O3 has the drive, capital and knowledge to make a meaningful impact in the camp
“O3’s potential to grow its already large resource (111 Mt averaging 1.40 g/t Au for 4.96 Moz) makes it a very compelling M&A candidate, in our view, and provides it with the scale to participate in additional consolidations, which could strengthen its portfolio. Numerous quality junior gold explorers exist in the district, which we outline further below. O3’s propensity to be transactional leads us to believe it will be opportunistic should a value proposition arise,” the analyst said.
“We round our target NAVPS [net asset value per share] of $4.59 to $4.50, generating a 74 per cent 12-month projected return which justifies our 'speculative buy’ rating. We qualify the rating as ‘speculative’ due to the company’s small market cap, early stage, and reliance on exploration success which may or may not materialize.”
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CIBC resumed coverage of Inact Financial Corp. (IFC-T) after it completed an equity offering.
Analyst Paul Holden kept his “neutral” rating but increased his price target to $138 from $134. The median is $133.
“The acquisition of Guarantee Co. is not the scale play we had contemplated in our recent M&A report, but it is strategically on point and financially accretive. Our price target increases from $134 to $138 as a result of expected accretion. However, we maintain our Neutral rating as the implied return to target of 10 per cent is close to the average for our coverage universe,” he said.
“We estimate that the transaction is 3 per cent accretive to operating EPS [earnings per share] including the full benefit of targeted synergies ($20-million). Full synergies will take 24 months to realize, and hence our 2020E operating EPS increases by 1 per cent. With this note, we also introduce our 2021E operating EPS of $8.70, which includes the full benefits of the transaction. Our 2021E results in an operating ROE of 14.4 per cent, which is close to the company’s target of mid-teens,” he said.
“Intact is trading at 2.4 times P [price]/BV [book value], pro forma the 3 per cent expected accretion from the Guarantee transaction. The five-year trailing average P/BV is 2.2 times and the 10-year average is 2.1 times. Intact’s P/E on our 2021E is 14.5 times. PGR trades at 3.4 times P/BV and 12.6 times P/E (2021E).”
Desjardins also resumed coverage of Intact. It kept its “hold” rating but raised its target to $126 from $120.
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Beacon Securities reduced its target price on packaging company Imaflex Inc. (IFX-X) after it reported slightly disappointing quarterly results.
“IFX reported Q2/FY19 results, with total revenue of $21.3-million marginally below our forecast of $22.2-million. Revenue in the core business was down by more than 1 per cent year over year and Shine N’Ripe XL sales were about $250,000 less than we anticipated, contributing to the miss vs our forecasts. Despite this, IFX reported better-than-expected adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] (excluding FX [foreign exchange] losses of $366,000) of $1.6-million (vs. $1.3-million forecast), helped by strong gross margins (12.8 per cent vs 11.1 per cent forecast). Continued strength in volumes and favourable product mix helped more than offset the slight increase in S,G&A expenses. IFX reported $0.00 in FD EPS (vs $0.01 forecast),” said analyst Ahmad Shaath.
He kept his “buy” rating on the stock but trimmed his price target to $1 from $1.20. The median is $1.20.
“We have reflected the aforementioned delays as well as pushed back our assumptions for Shine N’Ripe XL revenues (nil for the remainder of this year vs $1.5-million previously, $3-million for FY20E vs $4.5-million previously). We have also tweaked our margin assumptions to reflect the ramp up period of the new equipment in the U.S. as well as the lower sales of the higher margin Shine N’Ripe XL film. Consequently, our price target is revised to $1.00 (from $1.20) (10x FY20E EBITDA, unchanged).”
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Cantor Fitzgerald cut its price target for RNC Minerals Corp. (RNX-T) after it announced an $18-million financing.
“RNC Minerals announced yesterday that it will issue 45 million shares at a price of 40 cents per share on a bought deal basis for total gross proceeds of $18-million. Use of net proceeds was stated for the continued ramp up of production at Beta Hunt and integration with the Higginsville Gold Operations, and for working capital and general corporate purposes,” said analyst Matthew O’Keefe.
“The financing comes on the heels of the company’s Q2/19 financial and operating update released on Aug. 15 which revealed a working capital deficit of $8.3-million but also solid progress in ramping up Beta Hunt and integrating the Higginsville gold operation. While we had expected the deficit to be managed through accelerating cash flow and a debt refinancing following an updated reserve and mine plan (due in the next two weeks), management has preferred not to wait. This either signals that the revised mine plan may be more modest than expected or simply that management took the opportunity to reduce a potential financing overhang with a readily available equity offer. Either way, the coming updated guidance will be a key catalyst and provide a reset of expectations for the company,” he said.
He kept his “buy” rating on the stock but lowered his target to $1 from $1.30 “on share dilution and re-alignment of our Price/Net Asset Value multiple.” The median price target is 80 cents.
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