Inside the Market’s roundup of some of today’s key analyst actions
Centerra Gold Inc.’s (CG-T) share-buy program and updated life-of-mine plan for its Mt. Milligan project this week represent “an inflection point” in the company’s history, said Canaccord Genuity analyst Dalton Baretto.
The company announced Tuesday the extension of the life of the mine by over four years to 2033, and put a program in place that will allow it to buy back about 15.6 million common shares or about 10 per cent of the public float.
The actions follow a difficult couple of years for Centerra that saw the expropriation of their flagship asset Kumtor, the suspension of their secondary cash cow project known as Oksut, and the recent departure of CEO Scott Perry.
A number of large shareholders had been asking for a share buyback given that the company had enough cash on hand to represent about 70% of its market cap, Mr. Baretto noted. It leaves “comfortable balance sheet capacity” for other strategic initiatives, he said. The updated Mt. Milligan mine plan was as expected.
“We have updated our estimates to reflect the new Mt. Milligan mine plan, with more conservative capex and opex estimates. Nonetheless, our asset valuation has increased by 12%, while our overall CG net asset value has increased by C$0.30/sh, to C$10.37/sh,” Mr. Baretto said in a note.
As such, he increased his 12-month target price to C$8.50 from $8, and reiterated a “buy” rating.
Elsewhere, Raymond James raised its target price to C$11 from C$10.50.
The average analyst price target is C$8.37, according to Refinitiv Eikon.
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Desjardins Securities analyst Kyle Stanley trimmed his price target on Flagship Communities REIT (MHC-U-T) following a tour last week of its MHC and RV resorts in Cincinnati and northern Kentucky. Flagship is the only pure-play, Canada-listed REIT that is focused on U.S. manufactured housing communities.
“The tour reinforced our view that Flagship is well-positioned to weather economic headwinds given (1) its relative affordability; (2) its highly stable cash flow profile; and (3) its 4–5% revenue growth potential,” Mr. Stanley said in a note.
But he reduced his multiple on Flagship Communities to reflect its limited trading liquidity and public float, “two restricting factors in periods of heightened market volatility.” As a result, his price target was cut to US$22.50 from US$24.00.
Mr. Stanley said he believes fundamentals for the REIT remain strong despite the economic headwinds.
“The relative affordability of the portfolio offering, the cost-prohibitive nature of moving a home and the fact that the bulk of Flagship’s tenants are homeowners create a sticky tenant base. This, in addition to robust leasing demand across the portfolio, provides confidence in the REIT’s ability to achieve revenue growth of 4–5%, irrespective of the economic environment. Manufactured housing is among the most resilient real estate asset class and has historically outperformed other US real estate sub-sectors during periods of economic distress. Specifically, MHCs have delivered positive same-property NOI growth in each year since 2000, notwithstanding the material economic shock of the global financial crisis,” the analyst said in a note.
The average analyst price target on the stock, which trades in U.S. dollars, is US$22.07.
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Despite achieving more than 15 years of success, Boyd Group Services Inc (BYD-T) has “become a show me story through the last several quarters,” said Scotiabank analyst Michael Doumet, who cut his price target on the stock.
But most macro indicators, such as higher insurance premiums and slowing labour and parts inflation, remain supportive of Boyd’s margin-recovery story. He believes that Street margin expectations are too low and positive revisions will lead to higher valuations of the stock going forward.
“Boyd continues to make progress restoring margins to historical levels,” Mr. Doumet said in a note. “In 2Q22, the main contributor to margin recovery was the normalization of gross margins (after receiving ‘unprecedented’ rate increases from insurers). Rate increases continue as inflation is still present; further increases will enable the industry/Boyd to raise wages and attract more talent. Supply chain challenges are easing. Whereas our discussions with investors in 1H22 pertained mostly to the dynamic of labour rate pass-throughs from insurers, we believe Boyd has several controllables that will drive margin momentum in the next three to nine months.”
He termed Boyd as “a defensive name with catalysts” and said shares may actually be cheaper than some investors realize once the impact of the strong U.S. dollar is considered.
“BYD shares are down 9% since it reported its 2Q22 beat (relatively in line with S&P), but including the forex impact, BYD shares have gotten 14% cheaper. BYD trades at an EV/EBITDA of 10.1x on our 2023E, reflecting margins that are still 6% below pre-pandemic margins,” he said.
The analyst raised his target price to C$225 from C$215 while maintaining a “sector outperform” rating.
The average analyst price target is C$212.17.
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At least two analysts cut their price targets on Victoria Gold Corp (VGCX-T) after a conveyor failure at its Dublin Gulch gold property in the Yukon at the end of September.
The company plans to replace the belting on the conveyor, and as a result, crushing, conveying and stacking operations will be down between two to three weeks. The company anticipates it will no longer achieve its production or cost guidance.
Both BMO and CIBC cut their target price to C$15 from C$18.
“We will be watching for updates on the conveyor replacement and keeping a close eye on stacking rates once operations are back online. We expect further detail on operational performance alongside the Q3 financials in mid-November,” said BMO analyst Andrew Mikitchook.
The average analyst price target is C$17.54.
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RBC analyst Greg Pardy reaffirmed his “buy” rating on MEG Energy Corp. (MEG-T) after meeting with company executives and believes the market is undervaluing the stock.
“Our recent update with MEG Energy’s President & CEO, Derek Evans, and new CFO, Ryan Kubik, was upbeat, and pointed towards favourable progress in terms of its operating performance, debt reduction and shareholder returns initiatives,” Mr. Pardy said in a note to clients Wednesday.
Based on the meetings, RBC learned that current bitumen production rates are running above 100,000 bbl/d, consistent with the bank’s second-half production estimates. Meanwhile, MEG’s operating costs are benefitting from relatively high Alberta power prices.
His one-year target price remains at $24. That’s slightly below the average analyst price target of C$24.32.
“MEG is trading at a 2022E debt-adjusted cash flow multiple of 2.3x (vs. our oil sands peer group average of 3.1x) and free cash flow yield of 40% (vs. our peer group at 27%). We believe that MEG should trade at an average/above average cash flow multiple given its capable leadership team, strengthening balance sheet, top quartile Christina Lake operations and emerging shareholder returns,” the analyst said.
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In other analyst actions:
Ballard Power Systems Inc. (BLDP-Q;BLDP-T): Citigroup cuts price target to US$7.5 from US$10
First Quantum Minerals Ltd (FM-T): Deutsche Bank cuts target price to C$30 from C$32
Vermilion Energy Inc (VET-T): JP Morgan cuts target price to C$38 from C$40
Dupont (DD-N): Citigroup cuts price target to US$67 from US$75
Eastman Chemical Co (EMN-N): Citigroup cuts price target to US$80 from US$93
Snap Inc (SNAP-N): Barclays raises target price to US$21 from US$15
Twitter Inc (TWTR-N): Citigroup raises price target to $54.2 from $40; Wedbush raises target price to $54.2 from $50
Freeport-Mcmoran Inc (FCX-N): Deutsche Bank cuts target price to US$30 from US$35
Sherwin-Williams Co (SHW-N): Citigroup cuts price target to US$215 from US$248
With files from Reuters
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Darcy Keith