Inside the Market’s roundup of some of today’s key analyst actions
Citing European Residential REIT’s (ERE.UN-T) “rapid pace of dispositions completed at prices consistent with or above net asset value,” Ventum Capital Markets analyst David Chrystal said he has “enhanced confidence” in management’s ability to narrow the net asset value discount over the next few quarters.
On Monday, the Toronto-based REIT announced a trio of “strategic” dispositions worth approximately €748-million and encompassing 3,179 residential suites, representing approximately half of its portfolio, and one office property.
“We believe this is a significant transaction for several reasons: (1) the REIT has now sold or agreed to sell more than half of its portfolio at prices that are consistent with or above IFRS value (IFRS NAV is $4.40), validating the underlying value of the REIT’s equity, (2) management plans to return considerable capital (€175M) to unitholders through a special distribution (€0.75 or $1.13/unit) crystalizing the value, and (3) balance sheet risk is reduced materially with significant near-term debt repaid, and D/GBV dipping into the low-to-mid 30-per-cent range, from the mid-to-high 50-per-cent range at Q2/24,” said Mr. Chrystal. “Further asset sales should continue to narrow the NAV discount over time.”
While the analyst cautioned there is no certainty on the timing and pricing of the disposition of the REIT’s remaining assets, he thinks “declining interest rates and enhanced regulatory clarity have resulted in a significant increase in institutional appetite for Dutch multi-family assets.”
Emphasizing the deals prove value, return unitholder capital and bolster its balance sheet, he raised his target to $4 from $3.25, keeping a “buy” rating. The average on the Street is $3.41.
Elsewhere, others making target adjustments include:
* Scotia’s Mario Saric to $3.75 from $2.25 with a “sector perform” rating.
* CIBC’s Dean Wilkinson to $3 from $3.50 with an “outperformer” rating.
Analysts making target changes for European Residential’s parent Canadian Apartment Properties REIT (CAR.UN-T) include:
* BMO’s Michael Markidis to $61 from $57 with an “outperform” rating. The average is $57.41.
“The impact to our FFO outlook is not expected to be material. However, these transactions should reduce CAR’s weighting to Europe and allow it to repatriate $172-million of cash. The resulting simplification and increased focus on CAR’s core business warrants a higher multiple, in our view,” said Mr. Markidis.
* Mr. Saric to $55.75 from $54.25 with a “sector outperform” rating.
* Mr. Wilkinson to $58 from $55 with a “neutral” rating.
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After the recent underperformance of shares of MEG Energy Corp. (MEG-T), TD Cowen analyst Menno Hulshof sees a “discounted valuation on [a] top-tier name,” adding it to the firm’s “Canada Best Ideas” list.
“MEG has materially underperformed its Integrated/oil sands peers since the XEG [iShares S&P/TSX Capped Energy Index ETF] last peaked in April (and year-to-date), partially driven by investor capex concerns as it grows CL capacity to 125mbbl/d and wider-than-expected heavy differentials post-TMX,” he said in a research note. “However, consensus now captures the top-end of management’s 2025/2026 capex range, and with MEG trading at a multiple discount to peers, it is now our top pick.”
Mr. Hulsof noted MEG shares are down 27 per cent since the peak of XEG in April (versus a 16-per-cent decline for the ETF), which is the largest pullback in his Integrated/oil sands coverage.
“Since then, its strip 2025 estimated EV/DACF [enterprise value to debt-adjusted cash flow] multiple vs. its closest peers (ATH/SCR), has shrunk to a 0.2 times discount (from 1.0 times premium) while strip 2025 FCF yield (total capex) has shifted from being 1.2 per cent higher (i.e., cheaper) to 4.0 per cent higher,” he added. “We consider the current MEG discount (2025 FCF yield of 10.3 per cent vs. ATH/SCR at 6.0 per cent/6.6 per cent) unjustifiably large. We think MEG likely recently achieved its US$600-million ND target, triggering 100-per-cent return of FCF with Q3/24 results.
“While capacity growth to 125mbbl/d, and then 135mbbl/d, is well understood, management believes resource in the NW flank of Christina Lake (CL) may be superior to the SE, offering growth optionality to 145-150mbbl/d (when combined with facility optimization). Further, investors expressed concern when MEG first talked about a capex ceiling of $650-milliob through 2026 to fund growth to 125mbbl/d ($20k-$25k/bbl/d). However, ‘last 45-day’ 2025/2026E consensus capex estimates are now $640-million ($620-$650-million)/$660-million ($640-$680-million), suggesting ‘top-end’ scenario capex is now captured.”
The analyst reaffirmed his “buy” rating and $35 target for MEG shares. The current average is $34.25.
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Analyst Jonathan Kelcher named Chartwell Retirement Residences (CSH.UN-T) as his top pick for TD Cowen’s “Canada Best Ideas” list, touting a “long runway for growth supported by favourable fundamentals.”
“SPNOI [same-property net operating income] growth turned positive in Q4/22 and has accelerated to 20-per-cent-plus levels as occupancy has recovered to pre-pandemic (high 80 per cent) levels,” he said. “We see further gains (to 95 per cent) driving near-term AFFO [adjusted funds from operations] growth with favourable industry supply/demand fundamentals driving earnings/NAV growth in 2026+. We do not believe this growth is fully reflected in the current valuation.”
Mr. Kelcher expects Chartwell to deliver above-average earnings/NAV growth over his forecast period, seeing “retirement fundamentals set to remain strong over the next several years (on the back of very little new supply and 4-per-cent annual growth in the 80+ population).
“We also see potential upside to our NAV estimates. While not officially forecast, we expect to see NAV growth of 30 per cent over the next two years with the potential of it being materially higher should cap rates compress or NOI growth be stronger than forecast (see sensitivity analysis),” he added.
He has a “buy” rating and Street-high $18 target for Chartwell. The average is $16.21.
“While CSH has had strong recent share price performance (up 90 per cent since Dec ‘22), it still trades at a 27-per-cent discount to its U.S. peers (LTA: 13 per cent) despite having a significantly higher growth profile (25 per cent vs. 11-per-cent 23-26 AFFO CAGR),” the analyst said. “CSH trades at a 108 per cent of our current NAV estimate vs. US peers at 167 per cent.”
“We have a very favourable view of Canadian retirement home fundamentals over both the short and medium terms. As the largest pure-play publicly traded seniors housing provider, we believe Chartwell is best-positioned to benefit from these fundamentals. In the near term, we expect above-average occupancy growth and margin expansion to drive high-single/highdouble-digit SPNOI growth metrics and above-average earnings growth. Despite a better near-term earnings growth outlook, Chartwell is trading at a significant discount to its U.S. peers. Near-term potential catalysts include earnings growth, positive estimate revisions, and acquisitions.”
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Ahead of the release of AGF Management Ltd.’s (AGF.B-T) third-quarter results on Sept. 25, Scotia Capital analyst Phil Hardie expects mutual fund redemptions to recede, seeing “an inflection point on the horizon.”
“We are forecasting Q3/F24 mutual fund outflows of $71-million (0.3 per cent of Begin. AUM), compared to net redemptions of $112-million (0.4 per cent of Begin. AUM) last quarter and $151 million (0.6 per cent of Begin. AUM) from Q3/F23,” he said. “However, the strong market performance in June led to a higher average AUM balance during the quarter which bodes well for management fees. We anticipate 2024 full-year mutual fund net outflows of $370-million, with a strong rebound to net sales of $575-million in 2025.”
For the quarter, Mr. Hardie is projecting operating earnings per share of 35 cents, a penny below the consensus on the Street but up 1 cent from the same period a year ago.
“For the upcoming reporting, we anticipate investors are likely to see the key focus areas as: (1) growth progress in AGF Capital Partners given the focus on accelerating the alternatives business, (2) updated capital allocation strategies with the closing of two acquisitions in 2024, and (3) sales and AUM outlook in the near term,” he said.
“We also recently hosted AGF as part of the Scotiabank GBM 25th Annual Financials Summit with the CEO discussing a few topical areas of the business that included the following key themes: (1) the operating environment and outlook, (2) growth strategies in alternatives, and (3) near-term capital priorities.”
Maintaining a “sector perform” recommendation for AGF shares, Mr. Hardie increased his target to $11.25 from $10.75. The average is $11.21.
“Given its demonstrated resilience and strategic progress, AGF continues to trade at an attractive discount relative to its peers,” he said. “AGF has developed an alternative asset management platform where it has co-invested its own capital. We estimate that, including the value of these investments, AGF stock trades at just 2.5 times Adj. EV/EBITDA (next 12 months), around 3.5 times turns lower than conventional metric. This represents an 70-pr-cent discount to its peers. While shares continue to trade at a significant discount compared to peers and provide an attractive 6-per-cent dividend yield, we remain on the sidelines given a challenging and uncertain market outlook.”
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Canaccord Genuity’s Katie Lachapelle sees Atha Energy Corp. (SASK-X) “positioned to become a go-to name for pure-play uranium exploration torque.”
She initiated coverage of the Vancouver-based exploration-stage uranium company with a “buy” rating on Wednesday, touting its “significant land package in two of the world’s most prominent basins for uranium discovery.”
“ATHA Energy owns 8.4 million acres of land across three uranium jurisdictions in Canada: the Athabasca Basin (4.8M acres), the Thelon Basin (3.1M acres), and the Central Mineral Belt (399k acres),” said Ms. Lachapelle. “The Athabasca Basin needs no introduction, boasting some of the world’s largest and highest-grade uranium deposits . ATHA is currently the largest single landholder in the Athabasca Basin. Its land position has the potential to contain multiple deposit types, including vein-hosted, high-grade sandstone-hosted unconformity, and high-grade basement-hosted.
“While we acknowledge that simply having more land does not inherently increase the chance of success, we believe that ATHA has the expertise and experience necessary to identify and secure high-quality, prospective land, generate real targets, and make discoveries (see management details below). Its current portfolio was assembled over years of strategic staking and M&A.”
Alongside its greenfield targets, she noted the company’s portfolio is anchored by two existing mineral resources: its Angilak project in Nunavut and CMB discoveries in Newfoundland & Labrador.
“For an early-stage exploration company, designing and executing efficient and effective exploration programs is crucial when looking to optimize both available resources and chances of success,” said Ms. Lachappelle. “In our view, ATHA’s strategic advantage — and a key differentiator versus peers — is the quality and depth of its management team.
“ATHA Energy, led by CEO Troy Boisjoli, has attracted a team with extensive experience in the uranium industry, including exploration, project development, permitting, and mine operation at many of the industry’s top players.”
Ms. Lachapelle set a $1.20 target. Consensus is $2.10.
“The company has no shortage of prospective targets, boasts a strong balance sheet, and the right team to execute, in our view,” she concluded.
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In other analyst actions:
* BMO’s Rene Cartier lowered his Foran Mining Corp. (FOM-T) to $5 from $5.25 with an “outperform” rating, while Ventum Capital Market’ Connor Mackay reiterated a “buy” rating and $6 target. The average is $5.21.
“Following a period of restriction owing to Foran’s financing announcement, we are resuming coverage. The strategic investment, coupled with the expanded project finance credit facility and expected tax credits, support a formally approved decision for construction of the McIlvenna Bay project led by G Mining. Commercial production is targeted in H1/26. The Tesla exploration target highlights exploration upside, which could underpin a larger operation with future phases. After incorporating the financing, updated capital costs and schedule, our target price lowers,” Mr. Cartier said.
* Following Tuesday’s release of a Preliminary Economic Assessment (PEA) on the restart of its Crean Hill mine, Canaccord Genuity’s Dalton Baretto increased his Magna Mining Inc. (NICU-X) target to $2 from $1.75 with a “speculative buy” rating. The average is $1.50.
“Our take: Positive; we note in particular an IRR more than 100 per cent on this re-start,” he said. “The capital efficiency of this project lies in its relative simplicity - this is a past-producing mine with underground infrastructure still in place and will rely on contract mining and toll-milling agreements with Vale and Glencore (both of whom have under-utilized processing capacity in the Sudbury basin). In addition, management’s approach is to bootstrap the asset back into production (echoes of the FNX Mining strategy here) by offsetting part of the cost of the new decline with pre-production revenue from one or more bulk samples and test mining. Finally, as highlighted in our note ‘FNX Deja Vu’ this morning, the pending acquisition of McCreedy West should add further cash flow over 2025 and further help bootstrap Crean Hill into production.”