Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analyst Mohamed Sidibé is constructive on both the uranium market and prices going forward, seeing the chemical “powering the energy revolution.”
“The renewed global focus on nuclear energy as a key source of low carbon power has pushed the demand for nuclear energy and propelled the uranium market back into focus,” he said. “This, coupled with rising geopolitical tensions affecting supply security and an underinvestment in new mines and projects since the Fukushima incident has led to a tight market, pushing uranium prices higher. With demand expected to continue to grow as the number of reactors under construction increases, we expect prices to remain higher for longer to incentivize the right supply response.”
In a research report released Wednesday, Mr. Sidibé said demand is largely supported by new reactor builds “dominated by China and India and elevated uncovered uranium requirements.” However, he thinks the primary supply will remain “tight” in the near-term, “driven by geopolitical tensions and [a] lack of investment in exploration/development.”
“Uranium supply is heavily concentrated geographically and by companies with Kazakhstan, Canada and Australia representing 69 per cent of total 2023 primary production of 143 million pounds,” he said. “Over the past decade, primary supply has not been able to meet the total uranium demand from reactors driven by a decrease in reinvestment into exploration, brownfield and greenfield projects, as well as production curtailments, following the Fukushima accident in 2011 which pushed countries to rethink their nuclear strategies. This was further exacerbated by geopolitical events such as the Russia-Ukraine conflict and the Niger military coup which impacted overall supply. Uranium supply remains tight near term with no new major projects expected to come online until later in the decade, but that could still be impacted by permitting and financing issues. We expect uranium production to continue to not be able to meet total uranium demand in the near term, with the secondary supplies expected to continue to fill the gap but not for too long given energy security concerns. All eyes will be on greenfield projects that will be key in closing the supply gap starting in 2029. We forecast a CAGR [compound annual growth rate] of 6 per cent to reach production of 232 million pounds by 2030, primarily driven by new production out of Canada and Kazakhstan.”
With that expectations of prices remaining “higher for longer to incentivize supply growth that will be needed to fill the deficit,” Mr. Sidibé thinks there’s “plenty of upside left” in uranium-related equities. He initiated coverage of “a proven leader” as well as two “rising stars in the space.”
Calling it “a fully integrated player with the uranium/nuclear space,” he gave Cameco Corp. (CCO-T) with an “outperform” rating and $74 target. The average on the Street is $74.90, according to LSEG data.
“We use a 1.7 times NAV [net asset value] target multiple and an 18 times EV/EBITDA 2025 vs. the company’s current valuation of 1.35 times and 13 times, respectively,” he said. “Our target multiples represent a premium to our coverage universe given Cameco’s position as one of the largest uranium producers and refiners in the world and a key player in the nuclear fuel cycle through its fuel services business and Westinghouse ownership.”
“We believe that Cameco is well-positioned in the uranium market to capture meaningful value in the nuclear fuel cycle. The company maintains a disciplined approach to operations at every cycle of its involvement in the nuclear fuel cycle and provides investors with upside to the overall positive outlook in the uranium market, while limiting downside. It often faces criticism for its overly cautious approach to contracting given the lower leverage provided to the uranium spot price; however, this strategy does provide investors good visibility into earnings and profitability over a meaningful period of time. When looking at the last three years, CCO has outperformed peers and uranium spot prices, despite its lower leverage profile. We would also note that 57 per cent of the company’s total reserves of 485 million pounds of U3O8 remain uncontracted, providing exposure to potentially higher spot prices. We expect the company could rerate towards our target multiple as it enters new contracts at higher prices, return to its tier-one cost structure within its portfolio and advance organic growth opportunities within its existing portfolio.”
Touting the potential from its Arrow depot in Saskatchewan, Mr. Sidibé started coverage of NexGen Energy Ltd. (NXE-T) with an “outperform” rating and $11 target. The average is $13.26.
“NexGen owns the Rook I Project, host to the flagship Arrow deposit, one of the world’s largest undeveloped high-grade uranium deposit that is basement-hosted with the ability to be processed using conventional mining and processing methods, removing some of the engineering risks,” he said. “The project is also nearing completion on permitting, with IBAs already signed and the final draft EIS submitted to the Saskatchewan Ministry of Environment and the CNSC and provincial EA approval received. Despite its extensive size, NexGen still has immense exploration potential underlined by the recent discovery at in the Patterson Corridor East (PCE), 3.5km east of Arrow, where initial drill results are highlighting intensity of uranium mineralization and size bigger than Arrow at the same stage. Permitting and financing remain the key near-term catalysts for the company.”
Believing its “diversified portfolio and strong balance sheet set the stage for success,” the analyst handed Denison Mines Corp. (DML-T) an “outperform” rating and $3.50 target. The average is $4.02.
“Denison owns a diversified portfolio of low-cost uranium projects, including the tier-one Phoenix deposit, strategic interest in key asset such as the McClean Lake mill and mine through its joint venture partnership with Orano Canada,” he said. “The company also has a strong exploration portfolio and interest in key mines and projects, all primarily located in the attractive Athabasca Basin of Northern Saskatchewan, operated by majors in the space. Finally, the company’s strong balance sheet with over $400-million in cash, physical uranium and investments with no debt, minimizes the funding gap needed to fully fund its main flagship Phoenix project. Per our estimates, DML will need to raise $150 million or just approximately 8 per cent of its current market cap vs. developer peers that usually need to raise a much higher proportion of their market cap in a market environment that is not always the friendliest to the funding of mining projects. Permitting and financing remain the key near-term catalysts for the company. Denison Mines is our top pick in the space.”
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Following the recent $885-million sale of its UK portfolio, NorthWest Healthcare Properties REIT (NWH.UN-T) is “on the right path to reaching steady ground within the next year,” according to National Bank Financial analyst Giuliano Thornhill.
In research report released Tuesday in which he assumed coverage of the Toronto-based REIT, he emphasized balance sheet improvements from the sale, which concluded its strategic review process.
“The refreshed management team/board of directors has divested $1.6 billion in assets across geographies and lowered leverage by $1.2 billion,” he said. “Going forward, the biggest pain point for NWH’s outlook are its $125-million series G convert maturing March 2025, which has already been extended and is the highest costing debt within its capital stack (10 per cent). When accounting for an additional $180-million in dispositions within North America, proceeds from unit sales, and assuming lenders will be helpful regarding maturing lines/debt, we see NWH being in a liquidity position to address current maturities.”
“Looking out to next year, we estimate leverage metrics to be positively trending towards levels, albeit lower, near our coverage universe.”
Mr. Thornill thinks Northwest will get “interesting” for investors following the conclusion of the last batch of financing, which is currently under negotiations.
“We like NWH above the EBITDA line, and completing this last tranche of financing could provide some near-term earnings certainty that market participants can begin to rely on (street 2025 FFO/u [funds from operations per unit] estimates range from $0.44-$0.52, averaging $0.48),” he said. “In time, we see complaints concerning its balance sheet being put to bed, and NWH’s predictable lease structures begin to work for unitholders’ benefit. Lastly, we would not be surprised to see alternative assets like NWH start to catch a bid if the cracks that have sprung up in industrial/multi-family manifest into something else.
“There is lots to like in NWH, including its top-line visibility (long WALT), strong asset/tenant type (healthcare), and a refreshed management team/board to retell the story. We are keenly watching, and see NWH settling back towards normality in due course.”
“Turning increasingly confident” in his expectations for NWH, the analyst reiterated the firm’s “sector perform” recommendation and $5.50 target for its units. The average target is $5.71.
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Desjardins Securities analyst Chris Li thinks Parkland Corp.’s (PKI-T) move to divest its Florida-based retail and commercial businesses is “not entirely surprising given recent operational challenges related to fuel pricing software and unfavourable fuel supply contracts that have negatively impacted volume and margins.”
“PKI’s supply advantage and link into its International business have not been as strong as expected,” he added. “Greater scale is needed to compete, and management sees better-return opportunities in other parts of the business with higher growth potential and synergies with its core business.”
Mr. Li emphasized the change to its Florida strategy was not part of Parkland’s previously announced non-core asset divestment program, and it can now expect to garner proceeds that “significantly” exceed its original target of $500-million by the end of 2025.”
“The company did not provide any guidance on the size of potential proceeds, but assuming $40-million of EBITDA and applying 9‒10 times EV/EBITDA would imply sale proceeds of $360‒400-million,” he said. “Assuming the proceeds are used for debt reduction, this would accelerate deleveraging by 0.2 times and take our leverage forecast to 2.3 times from 2.5 times by the end of 2025 (vs management’s target of the low end of 2‒3 times).
“To the extent that the faster pace of deleveraging would increase share buybacks, we would view this as a positive, especially given PKI’s inexpensive valuation (trough level of 6.3 times NTM [next 12-month] EBITDA). Finally, the company remains on track to achieve its $2.5-billion adjusted EBITDA and $8.50 per share cash flow targets by 2028.”
The analyst reiterated his “buy” rating and $46 target for Parkland shares. The average on the Street is $51.33.
Elsewhere, ATB Capital Markets’ Nate Heywood maintained his “buy” recommendation and $52 target.
“We have seen retail transactions near the $1-million per site more recently, however, we would note that PKI’s assets include high-value positioning in Miami, including real estate at 54 strategic sites,” said Mr. Heywood. “Based on the previous transactions of Urbieta Oil and Tropic Oil, the cost base for the Florida business is close to $400-million. The Florida business has typically accounted for 2 per cent of corporate EBITDA, which implies an EBITDA profile near $40-million per year. Applying a 6-8 times multiple would imply a valuation near $240-$320-million. With a formal process underway for the sale, there are likely to be considerations around the buyers and real estate value that causes varying valuation, but we would assume that management will make a best effort to recapture its cost base.”
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TD Cowen real estate analysts Sam Damiani and Jonathan Kelcher raised their targets for equities in their coverage universe on Wednesday.
Their changes include:
- Artis REIT (AX.UN-T, “hold”) to $7 from $6.50. The average on the Street is $6.75.
- Automotive Properties REIT (APR.UN-T, “hold”) to $12 from $11. Average: $12.22.
- Boardwalk REIT (BEI.UN-T, “buy”) to $100 from $95. Average: $90.70.
- CAP REIT (CAR.UN-T, “buy”) to $62 from $60. Average: $56.51.
- Chartwell Retirement Residences (CSH.UN-T, “buy”) to $18 from $17. Average: $15.93.
- Choice Properties REIT (CHP.UN-T, “buy”) to $16 from $15. Average: $15.25.
- Crombie REIT (CRR.UN-T, “buy”) to $16 from $15. Average: $15.33.
- CT REIT (CRT.UN-T, “hold”) to $16 from $15. Average: $15.42.
- Dream Industrial REIT (DIR.UN-T, “buy”) to $16 from $15. Average: $15.91.
- Dream Office REIT (D.UN-T, “hold”) to $20 from $18. Average: $18.56.
- Dream Residential REIT (DRR.UN-T, “buy”) to $9.50 from $9. Average: $9.
- Dream Unlimited Corp. (DRM-T, “buy”) to $35 from $33. Average: $36.50.
- European Residential REIT (ERE.UN-T, “buy”) to $3.75 from $3.50. Average: $3.38.
- Extendicare Inc. (EXE-T, “hold”) to $9.50 from $9. Average: $9.50.
- First Capital REIT (FCR.UN-T, “buy”) to $20 from $18. Average: $18.39.
- Granite REIT (GRT.UN-T, “buy”) to $91 from $87. Average: $87.78.
- H&R REIT (HR.UN-T, “buy”) to $12 from $11. Average: $11.17.
- Killam Apartment REIT (KMP.UN-T, “buy”) to $23 from $22. Average: $22.52.
- Morguard North American Residential REIT (MRG.UN-T, “buy”) to $23 from $22. Average: $21.
- Morguard REIT (MRT.UN-T, “hold”) to $6 from $5.50. Average: $5.67.
- Primaris REIT (PMZ.UN-T, “buy”) to $17 from $16. Average: $16.64.
- RioCan REIT (REI.UN-T, “buy”) to $22 from $21. Average: $20.65.
- SmartCentres REIT (SRU.UN-T, “hold”) to $26 from $24. Average: $25.
- Storagevault Canada Inc. (SVI-T) to $6.50 from $6. Average: $5.72.
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Canaccord Genuity analyst Robert Young thinks Haivision Systems Inc.’s (HAI-T) “substantial” U.S. navy contract “underscores [its] military opportunity.”
On Tuesday before the bell, the Montreal-based provider of real-time video streaming and networking solutions announced subsidiary Haivision MCS has been awarded a “significant” five-year production agreement by the Naval Sea Systems Command with an estimated total value of US$61.2-million.
“Management has been focused on positioning the company to provide further U.S. military solutions, which is further evidenced by the announcement,” said Mr. Young. “We believe the contract win underscores the value of Haivision’s offering in the defense space and could also indicate a pickup in spend in the defense sector, which in recent quarters has been weaker due to U.S. government budgetary delays.
“In our view, H2/24 is likely to see continued strength in government and defense, which historically has been stronger given the alignment with the U.S. government fiscal year-end (Sept 30) that typically drives an uptick in budget decisions.”
After raising his 2025 sales and earnings expectations, he increased his target for Haivision shares to $8.50 from $7, keeping a “buy” recommendation, ahead of Wednesday’s quarterly earnings release. The current average is $7.86.
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In other analyst actions:
* CIBC’s Anita Soni assumed coverage of Lundin Gold Inc. (LUG-T) and raised the firm’s target to $28 from $25 with an “outperformer” rating. The average target on the Street is $27.27.