Thursday’s analyst upgrades and downgrades
for September 19, 2024
Thursday’s analyst upgrades and downgrades for September 19, 2024
David Leeder
Published 15 minutes ago Updated 3 minutes ago
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Inside the Market ’s roundup of some of today’s key analyst actions
RBC Dominion Securities’ Drew McReynolds sees BCE Inc. ’s ( BCE-T ) sale of
its 37.5-per-cent stake in Maple Leaf Sports & Entertainment to rival
Rogers Communications Inc. ( RCI.B-T ) as “a logical outcome and indicative of
proactive balance sheet management that has provided improved visibility on
the de-levering trajectory.”
In a research note released Thursday before the bell, the equity analyst said
BCE is “successfully navigating a slower revenue environment” with the
$4.7-billion move, which was made to pay down debt and invest in its telecom
business• Экономика » Бизнес.
Tim Kiladze: Why BCE was forced into selling its MLSE stake to arch-rival
Rogers
“We continue to believe that BCE is well equipped to navigate a slower revenue
environment leaning on a scale advantage, continued FTTH• Телекоммуникации и связь » Компьютерная сеть » Интернет » ADSL investment and
Internet• Телекоммуникации и связь » Компьютерная сеть » Интернет market share gains, the realization of cost efficiencies, and an
extensive array of tactical initiatives across wireless, wireline, and media,”
said Mr. McReynolds. “Financially, we believe that recent proposed
divestitures (Northwestel, MLSE stake) have provided much-needed visibility
around the de-levering trajectory, while strategically we continue to believe
that BCE is well positioned to benefit from network convergence and longterm
growth in 5G B2B• Экономика » Бизнес (IoT• Телекоммуникации и связь » Компьютерная сеть » Интернет » Интернет вещей, MEC, private network, cloud, security).
“Pro-active balance sheet management continues with MLSE proceeds higher than
expected. Management indicated that net proceeds aftertax are expected to be
approximately $4.1-billion and will be directed toward debt repayment and
supporting the company’s ongoing transformation from telco to techco. While we
believe this transaction should not come as a surprise to many investors: (i)
gross proceeds of $4.7-billion are higher than our assumed FMV [fair market
value] of approximately $3-billion for the stake (and much higher than the
$1.5-billion ‘placeholder’ we had in our NAV, representing a considerable gain
versus the $533-million paid in aggregate for the 37.5-per-cent stake in
2011); and (ii) the timing of such a transaction (at close) is approximately
6–12 months earlier than we would have anticipated.”
The analyst emphasized the visibility on BCE’s de-levering trajectory has
improved “significantly” with the deal, believing free cash flow is likely to
benefit from lower cash interest costs.
“Bigger picture, we believe this transaction significantly improves the
visibility around BCE’s balance sheet de-levering trajectory through the
medium term while benefiting FCF and providing the company added financial
flexibility (for spectrum auctions, further tuck-in M&A, etc.),” said Mr.
McReynolds.” Specifically: (i) net proceeds after-tax of $4.1-billion equate
to a 0.4 times turn reduction in leverage with estimated net debt/EBITDA
(including 100 per cent of the preferred shares) declining to 3.4 times by the
end of 2025E (versus 3.8 times previously and management’s target• Объект бренды » Бренды на t » Target leverage in
the low-3s); and (ii) simplistically, net proceeds of $4.1-billion fully
directed toward debt repayment would equate to $200-million in lower
annualized cash interest costs (assuming a 5 per cent cost of debt).”
Reiterating his “sector perform” rating• Рейтинги for BCE shares, he raised his target• Объект бренды » Бренды на t » Target
to $53 from $51. The average target• Объект бренды » Бренды на t » Target on the Street is $50.46, according to LSEG
data.
Elsewhere, other analysts making target• Объект бренды » Бренды на t » Target changes include:
* National Bank’s Adam Shine to $52 from $50 with an “outperform” rating• Рейтинги.
“There’s now less urgency to explore further divestitures at least in the very
near term, but we can also stop wondering about a DRIP discount like peers
that would have proven rather dilutive,” said Mr. Shine. “We think the safety
of the dividend has been further secured for those that continue to fear a
cut. While the payout remains elevated, declining capex• Экономика » Бизнес » Бизнес-планирование and coming reductions
in interest costs position the payout calculated by BCE at sub-100 per cent
post-2025 while our math puts it just above 100 per cent in 2027E when
including lease payments.”
* Canaccord Genuity’s Aravinda Galappatthige to $52 from $50 with a “buy”
rating• Рейтинги.
“We see this as positive for BCE due to the resultant de-levering of 0.4 times
net debt/LTM [last 12-month] EBITDA,” he said. “The impact on Rogers is less
straightforward and depends on further clarity on financing mechanisms and its
longer-term plans for the sports asset base.
* Desjardins Securities’ Jerome Dubreuil to $53 from $51 with a “buy” rating• Рейтинги.
“At recent industry conferences, RCI has been discussing its longterm vision
for its sports and media assets, mentioning that it needed to find a way to
surface and optimize the value of its sports franchises, potentially through
an IPO,” he said. “However, BCE’s 37.5-per-cent interest in MLSE made it more
challenging for RCI to realize this objective without either buying BCE’s
stake or convincing the latter to commit additional capital to the structure.
We believe BCE may not have been open to adding more capital given its current
leverage and dividend. RCI now has time to consider its options before the
expected close in mid-2025, and we believe an IPO of MLSE would be the way
forward that would maximize the odds that the value of the MLSE shares is
eventually reflected in RCI’s share price.”
* BMO’s Tim Casey to $51 from $48 with a “market perform” rating• Рейтинги.
=====
While the purchase price for the stake in MLSE was “slightly” higher than he
anticipated and also on an accelerated timeline versus his expectations, Mr.
McReynolds sees the acquisition as “a logical outcome” for Rogers
Communications Inc. ( RCI.B-T ), calling it “otherwise fairly straightforward”
and consistent with its strategy and desire to invest in sports assets.
“While we believe this transaction should not surprise most investors, the
$4.7-billion purchase price for the 37.5-per-cent equity stake is slightly
higher than our assumed FMV of $3-billion with the timing of such a
transaction (at close) 6–12 months earlier than we would have anticipated,” he
said. “Management indicated that precedent transactions and the multi-team
aspect of MLSE combined with Toronto being one of the most attractive and
high-growth sports markets in North America alongside Rogers’ 100-per-cent
ownership of the Blue Jays underpinned valuation.”
“Focus shifts to funding plan and then asset crystallization. Management
indicated that the transaction would not impact the company’s leverage and
that financing will include private investors (details of this funding plan
along with potential options were not provided). Management reiterated the
desire to ultimately combine and then crystallize a minority stake in its
aggregate sports/media assets through the medium term in order for Rogers’
public market valuation to more accurately reflect the intrinsic value of
these assets.”
Scott Stinson: With MLSE purchase, Rogers makes a bold bet on the big bucks of
sports broadcasting
Mr. McReynolds now sees further progress on cable revenue growth, balance
sheet de-levering, and “asset crystallization” as the key drivers of upside in
Rogers shares moving forward.
“With an eye on our 2025 and 2026 estimated NAVs [net asset value] of $61 per
share and $69 per share, respectively, we believe current share price levels
continue to represent an attractive entry point reflecting: (i) the full
flow-through impact of run-rate Shaw cost synergies alongside what should be
improving cable revenue growth and margins and continued wireless
outperformance; (ii) a steady de-risking of the stock as the Shaw integration
winds down, the competitive landscape post-Rogers-Shaw-Quebecor transactions
finds a new equilibrium, leverage declines, and management’s track record of
improved execution lengthens; and (iii) option value on non-core and/or
non-telecom asset sales/crystallizations,” he said.
Reiterating an “outperform” recommendation for Rogers shares, Mr. McReynolds
bumped his target• Объект бренды » Бренды на t » Target to $66 from $65. The average is $68.21.
“We see room for further NAV upside in a successful crystallization scenario,”
he conclude. “While we await further MLSE disclosures prior to consolidating
MLSE as well as details on the funding plan, we have updated our forecast to
factor in the NAV impact of the transaction. Our NAV simplistically
incorporates a value of $10– 11-billion for Rogers’ combined sports/media
assets, intentionally applying a pre-crystallization discount of 25 per cent
to estimated FMV (down from 33 per cent previously) to continue to reflect the
still embedded nature of these assets within Rogers while acknowledging the
incremental visibility around the crystallization path following this
transaction.”
Elsewhere, BMO’s Tim Casey raised his target• Объект бренды » Бренды на t » Target to $70 from $67 with an
“outperform” rating• Рейтинги.
=====
National Bank Financial analyst Richard Tse sees Altus Group Ltd. ( AIF-T )
“thinking big” after attending its annual user group conference this week,
touting “positive” product vision and execution.
“What we heard this year built on recent years when it comes to the Company’s
big ambitions to becoming a leading data and intelligence platform in CRE
[commercial real estate],” he said. “That vision is being executed through the
Company’s foundational Altus Intelligence Platform. The first product on this
platform is Argus Intelligence (AI), which will connect various applications
like Argus Enterprise (AE) — Asset Manager, Portfolio Manager, Benchmarking,
Altus ID (data), among others managed through a single dashboard. In our view,
this appears to represent the culmination of a vision set back even prior to
the current Management team. We’d view the formal release of Argus
Intelligence as positive when it comes to executing on a product that is
Generally Available (GA). In our opinion, it has the potential to offer more
value to customers while reducing upsell friction from a formerly siloed
product portfolio. In turn, that offers the potential for accelerating revenue
growth.”
Mr. Tse did warn it may be too early to evaluate the reaction to Argus
Intelligence and the scale of any potential growth, particularly within its
existing customer base.
“While we noted some large customers already trialing/converted, our
conversations with other customers over the past few days had a number taking
an optimistically cautious view at this point,” he added. “From what we heard,
the areas of caution stem from (incremental) price to those customers already
having an existing process to handoff data/analysis from their existing Argus
Enterprise deployments to other analytics/tools like Excel or incumbent
applications.
“The potential upside? The offset to the above is that Argus Intelligence will
be the only available option to accessing Argus Enterprise as early as the new
year (perhaps sooner) when it comes to new sales while existing customers will
be converted to Argus Intelligence with accompanying price increases to those
customers who are on discounted Argus Enterprise. We’d also note that is based
on a new asset-based pricing model from a per-user seat model. As typical with
such conversions, there will likely be a work-in period when it comes to
capturing full value from conversion.”
Maintaining a “sector perform” recommendation for the Toronto-based company’s
shares, Mr. Tse raised his target• Объект бренды » Бренды на t » Target to $55 from $50. The current average on the
Street is $56.13.
“We believe the work-in period for Argus Intelligence against our customer
feedback may take some time to scale,” he concluded. “In addition, it did not
appear based on the various CRE sessions that the CRE market has thawed
particularly in Office which appears consistent with Altus lowered guidance
presented with its FQ2 results. As such, we think the name looks reasonably
valued at this point.”
Elsewhere, Scotia Capital’s Kevin Krishnaratne maintained a “sector perform”
rating• Рейтинги and $51 target• Объект бренды » Бренды на t » Target.
“Following presentations and new product demos, we gained a better
understanding of how Altus’ new ARGUS Intelligence Platform can help clients
drive more intelligence and actionable CRE investment decisions, and help
increase the company’s share of wallet over time,” he said. “Our discussions
with many industry participants throughout the conference also helped
reinforce our view that there remains uncertainty in the timing of the rebound
in CRE transaction activity. We continue to believe it is more a matter of
when, not if, a recovery will resume given the company’s prior period
bookings. Recall recent outlook provided with Q2 earnings (Aug. 9) suggested
that while management is cautiously optimistic of a stronger selling
environment in 2H/24 and 2025, it assumes a slower recovery this year vs.
prior guidance. Furthermore, new product releases announced at Altus Connect,
although promising, won’t have as big an impact until at least 2025, in our
view. We continue to remain SP rated until clearer signs of a CRE recovery are
more evident.”
=====
TD• Объект бренды » Бренды на t » TD Cowen analyst Mario Mendonca thinks Trisura Group Ltd. ( TSU-T ) “provides
a unique investment opportunity in a pure-play specialty insurer• Страхование » Страховщик in Canada• Канада,
one capable of materially outgrowing the larger P&C and life insurance• Страхование
companies.”
In a research report released Thursday, he initiated coverage of the
Toronto-based specialty insurance company• Страхование » Страховые компании with a “buy” recommendation, calling
its “stable, high ROE and strong capital generation engine in Canada• Канада as well
as U.S• Соединённые Штаты Америки (США). Fronting” as TSU’s “key growth story.”
“While Trisura’s businesses and risks are different and more complex than a
traditional standard P&C insurer• Страхование » Страховщик, the key drivers of the stock’s
performance over the next few years are straight forward. We see solid upside
under the following scenarios: 1) Canada• Канада continues to generate a ROE that is
500-1000 basis points higher than the average ROE in Canada• Канада’s P&C sector,
2) the company exploits the significant growth opportunities in the U.S• Соединённые Штаты Америки (США).
through market share gains and de novo expansion in other product sets; and 3)
the business avoids large hits to book value like the Q4/22 write-down to
insurance• Страхование recoverable,” said Mr. Mendonca.
“The complexity and tailored nature of the specialty insurance• Страхование market lends
itself to materially better profitability metrics like combined ratio and ROE.
We forecast an operating ROE of 18-20 per cent over the next three years.”
The analyst is also projecting top-line growth of “consistently better” than
15 per cent as Trisura gains market share south of the border.
“Fronting and expands into other product suites in the U.S• Соединённые Штаты Америки (США). including
Corporate Insurance• Страхование and Surety. Note that the U.S• Соединённые Штаты Америки (США). Surety business• Экономика » Бизнес is
currently reported in Trisura Specialty,” he said. “Modest market share gains
and selective acquisitions should drive strong top line growth in the U.S• Соединённые Штаты Америки (США)., in
our view.
“Top line growth and ROEs well above 15 per cent should drive 15-per-cent-plus
book value per share growth, well above the other P&C and life insurance• Страхование
companies in Canada• Канада, provided there are no material charges. We believe the
circumstances that led to the material charge in Q4/22 have been addressed
through the write-downs and changes in the business model.”
He set a target• Объект бренды » Бренды на t » Target of $52 for the company’s shares. The average is currently
$58.63.
=====
While softer trends in production linger, Canaccord Genuity analyst Aravinda
Galappatthige thinks WildBrain Ltd. ’s ( WILD-T ) fourth-quarter results and
management commentary “suggest an uptick in demand for content production and
distribution.”
“The company had previously indicated an increase in staffing levels to
accommodate new greenlights, and Q4 comments corroborate an upswing in the new
production commissioning,” he said. “Furthermore, there is increased optimism
around recent launches by Apple TV• Объект организация » Организации по алфавиту » Организации на Ap » Apple Inc. » Оборудование Apple Inc. » Apple TV+, including a new Peanuts series ( Camp
Snoopy ) as well as the August premiere of the Yo Gabba brand ( Yo Gabba
GabbaLand !).”
Before the bell on Wednesday, the Toronto-based kids’ and family entertainment
reported revenue of $130-milllion, up 4.1 per cent year-over-year and in line
with Mr. Galappatthige’s $129.9-million projection , which he attributed to
“steady” 7-per-cent growth in its Content Creation and Audience Engagement
segments and “robust” growth in Global Licensing. Adjusted EBITDA was up 25
per cent to $23.9-million, exceeding the analyst’s $23-million expectation.
WildBrain also provided fiscal 2025 guidance of 10-15-per-cent revenue growth
and 5-10-per-cent adjusted EBITDA growth, which topped pre-quarter
expectations.
“We were encouraged by the 4-per-cent growth in Global Licensing, following a
decline in Q3. Importantly, Peanuts saw good growth in the U.S• Соединённые Штаты Америки (США). supported by
new licensing partnerships,” said Mr. Galappatthige. “We expect growth in this
line item to pick up through F2025 as some other brands contribute
incrementally. Management comments suggest good prospects around Strawberry
Shortcake with licensees up 50 per cent and retail sales up 80 per cent.
Meanwhile, on the engagement front, the company noted increased views on
YouTube• Объект бренды » Бренды на y » Youtube and on FAST channels, with total view reaching 1 billion.
“Meanwhile, Teletubbies is also trending well, with over 1 billion views on
YouTube• Объект бренды » Бренды на y » Youtube last year and continued licensee traction in China. Management
believes that this too could be a driver of licensing growth, helping
diversify beyond Peanuts.”
Seeing its near-term balance sheet risks addressed with the recent issue of
debt maturities with a new credit agreement extending to 2029, the analyst
raised his target• Объект бренды » Бренды на t » Target for WildBrain shares to $1.40 from $1 with a “hold” rating• Рейтинги.
The average target• Объект бренды » Бренды на t » Target on the Street is $2.08.
“Our target• Объект бренды » Бренды на t » Target price increases as we roll forward to F2026 (from F2025), and on
the back of more robust expectations for F2025/2026,” said Mr. Galappatthige.
“With that said, as alluded to above, the risk profile of the stock remains
elevated to due to high balance sheet leverage and minimal underlying FCF. We
continue to value the stock using 8 times for the Content segment and 4.5
times for Broadcast (EV/EBITDA), and now use F2026E. This drives up the target• Объект бренды » Бренды на t » Target
price from $1.00 to $1.40 per share.”
Elsewhere, National Bank’s Adam Shine bumped his target• Объект бренды » Бренды на t » Target to $1.50 from $1.20,
keeping a “sector perform” recommendation.
=====
In other analyst actions:
* JP Morgan’s raised his targets for Alimentation Couche-Tard Inc. ( ATD-T )
to $87 from $83 and Parkland Corp. ( PKI-T ) to $60 from $53 with “overweight”
recommendations for both. The average targets on the Street are $90.65 and
$51.33, respectively.
* Following its $25-milllion equity raise, Canaccord Genuity’s Yuri Lynk cut
his Exro Technologies Inc. ( EXRO-T ) target• Объект бренды » Бренды на t » Target to 30 cents from 40 cents with a
“hold” rating• Рейтинги. The average is 77 cents.
“Exro has firm orders in hand from Mack and Hino for 8,500 propulsion systems
over the next several years that should drive positive EBITDA in 2025,” he
said. “However, the company’s liquidity position remains weak, even after the
raise, putting into question Exro’s ability to finance the working capital
required to execute on its pipeline. We wish to remain on the sidelines.”
* Morgan Stanley• Объект организация » Организации по алфавиту » Организации на Mo » Morgan Stanley’s raised his First Quantum Minerals Ltd. ( FM-T ) target• Объект бренды » Бренды на t » Target to
$20.20 from $19.40 with an “equal-weight” rating• Рейтинги. The average is $20.28.
* BMO’s Jeremy McCrea resumed coverage of Parex Resources Inc. ( PXT-T ) with
a “market perform” rating• Рейтинги and Street-low $13 target• Объект бренды » Бренды на t » Target. The average is $22.20.
* Following its fourth-quarter earnings release, TD• Объект бренды » Бренды на t » TD Cowen’s David Kwan raised
his Sangoma Technologies Corp. ( STC-T ) target• Объект бренды » Бренды на t » Target to $10 from $8 with a “buy”
rating• Рейтинги, while Acumen Capital’s Jim Byrne hiked his target• Объект бренды » Бренды на t » Target to $10.25 from $8
with a “buy” rating• Рейтинги. The average is $9.75.
“Given the strong run into the Q4 release (up 20 per cent in the last week,
including 14 per cent this week), we believe the stock could take a pause
given the slightly disappointing Q1 guidance,” Mr. Kwan said. “However, we
remain bullish, as we expect STC to return to growth this year, with improving
margins, continued strong FCF (mid-teens FCF yield), and declining leverage
levels.”
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