Inside the Market’s roundup of some of today’s key analyst actions
National Bank Financial analyst Adam Shine reset his valuations for Canadian telecommunications stocks on Friday in response to recent tax-loss selling and his expectations for 2025 ahead of the next round of quarterly reports, acknowledging the Street has “been doing repeatedly over the past 21 months.”
“Since the closing of the Shaw/Freedom deals on April 3, 2023, BCE has dropped 45 per cent and lost nearly $25-billion of market cap, with Rogers off 29.5 per cent and $7.8-billion, Telus down 27.4 per cent and $11-billion, and Quebecor down 5.7 per cent and $0.3-billion, while Cogeco (CCA) gained 2.3 per cent and $0.1-billlion,” he said.
“Amid tax-loss selling over the past six weeks, we saw Rogers fall 12.3 per cent (down $6.20), BCE down 11.9 per cent ($4.49), and Telus down 8.9 per cent ($1.90), with more muted moves by Cogeco at down 2.9 per cent ($2.01) and Quebecor down 1.6 per cent (50 cents ). Will we get a snap back of these stocks early in the new year? The extent and timing of any share appreciation will likely be dictated by 2025 outlooks still to come and any sign of pricing discipline which was abandoned, especially in wireless, nearly two years ago.”
Canadian telecom companies had a very bad year. Will 2025 be any better?
Mr. Shine lowered his targets for four of the five stocks in the space. They are:
* BCE Inc. (BCE-T, “sector perform”) to $35 from $37. The average on the Street is $40.46, according to LSEG data.
Analyst: “We reduced the multiple we use for wireless in our NAV by 25 basis points to 6.5 times given competitive pressures and raised the beta in our DCF 5 bps to 1.20.”
* Quebecor Inc. (QBR.B-T, “outperform”) to $38 from $40. Average: $38.17.
Analyst: “We lowered our target for Quebecor to $38 from $40, as we decreased the wireless multiple used in our NAV by 25 basis points to 6.5 times given ongoing elevated competitive intensity.”
* Rogers Communications Inc. (RCI.B-T, “outperform”) to $54 from $62. Average: $63.90.
Analyst: “The $7-billion structured equity financing deal didn’t close in 4Q as telegraphed by Rogers on Oct. 24, so we’ll see if it does in 1Q25. On Dec. 23, the Competition Bureau sued Rogers for “allegedly misleading claims about unlimited data” offers going back to mid-2019. The Globe and Mail reported that the regulator initiated its review into ‘unlimited data plans three days after its takeover of Shaw closed.’ The company said it ‘will fight this litigation’ and noted that ‘these plans represent the norm in Canada and the Bureau’s decision to single out Rogers after five years is quite concerning.’ After the Competition Bureau’s efforts to thwart the Shaw acquisition proved futile, though quite costly given consent fees Rogers had to pay to bondholders, we’ll see what comes of this latest salvo against the cableco. Regardless of what the Competition Tribunal may end up deciding, it’s very likely that this application will be taken to the Federal Court of Appeal and dragged out beyond 2025.”
* Telus Corp. (T-T, “sector perform”) to $21 from $22. Average: $23.97.
Analyst: “We dropped the multiple we use for TTech in our NAV by 25 basis points with ARPU pressure persisting and lowered the terminal growth rate in our DCF 25 basis points given slowing growth trends.”
Mr. Shine maintained an “outperform” recommendation and Street-high $85 target for shares of Cogeco Communications Inc. (CCA-T). The average is $79.25.
“The next round of quarterly reporting will begin with Cogeco’s 1Q25 in two weeks (conference call and AGM on Jan. 14), as we wait to see if a fourth consecutive EBITDA beat materializes with the company entering year one of its three-year transformation program,” he said.
“While we had occasion to raise estimates for low-margin wireless product sales, this was due to greater handset subsidies being more pervasive and happening sooner than expected during the yearend holiday period. Of course, aggressive plan promotions persisted through the end of December.”
Elsewhere, TD Cowen’s Vince Valentini cut his BCE target to $32 from $37 with a “hold” rating (unchanged), citing “elevated uncertainty surrounding dividend sustainability and the company’s M&A strategy.”
“To state the obvious ... 2024 was a painful year for almost every Canadian telco/cable name (CCA being the lone name coming close to matching the TSX return),” he said in a Friday report. “Please recall that we already reset our estimates lower for 2025 on December 3, so we have confidence that valuation math can be performed on our estimates without much risk that 2025 guidance or actual results will be meaningfully lower than where we already sit. Also recall that we believe non-core asset sales could be a tailwind for sentiment and valuations going forward, but we are not including any divestitures in our models except assets already identified by management teams.”
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TD Cowen analyst Daniel Chan was surprised by the late Thursday announcement of the departure of Docebo Inc.’s (DCBO-Q, DCBO-T) chief financial office Sukaran Mehta, viewing it as “slightly negative” from an investing perspective “given his strong reputation and track record.”
After the bell, the Toronto-based company, which operates a cloud-based learning platform, said Mr. Mehta has accepted an undisclosed leadership role in a private equity portfolio company outside of the learning and education technology industries. Senior vice president of finance Brandon Farber will serve as interim CFO, but Mr. Chan thinks the appointment could become permanent, noting he is “well-acquainted with investors and is regarded to be very knowledgeable of the company and industry.”
“While the optics of Mr. Mehta’s departure are likely to be perceived negatively, we estimate that Mr. Mehta could be leaving behind less than $1-million of equity-based awards,” the analyst said. “We believe this supports our view that his departure may not signal a worsened outlook on the company’s performance. His departure does come as a surprise to us, but the company explicitly announced that it was not the result of a disagreement about the company’s financial results or operating performance; the company reiterated guidance. The friendly departure is also supported by Mr. Mehta staying on until February 28th to help with the transition.
“Our discussions with the company did not provide additional colour on where Mr. Mehta is headed, but he will be assuming a leadership role at a private equity portfolio company outside the learning and education technology industries. While Docebo will be losing a well-respected executive with significant experience in the technology sector, we take consolation that Mr. Mehta is not joining a competitor.”
Mr. Chan kept a “buy” recommendation and Street-high US$63 target for Docebo shares. The average is US$55.57.
Elsewhere, Stifel’s Suthan Sukumar kept a “buy” rating and US$60 target.
“While this news comes as a surprise, we believe Mr. Mehta’s strong financial and operating discipline over the past 3+ years as CFO (5+ years in total at Docebo) has set the company with a strong foundation for durable, highly profitable growth, and we see good continuity with SVP, Finance Brandon Farber’s appointment as interim CFO. Docebo reaffirms their prior FQ4/FY guidance, and we see little risk to our thesis that calls for a path to rule-of-40 given a growing enterprise pipeline, strengthening GTM and partner momentum, and increasing operating leverage. Upside catalysts remain from U.S. government/FedRAMP penetration, new product/pricing cycles, and large (big-fish) enterprise deals. Docebo remains our Top Pick,” he said.
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Scotia Capital analyst Divya Goyal sees Quisitive Technology Solutions Inc.’s (QUIS-X) $169.1-million agreement to be acquired by H.I.G. Capital as a “positive” move, touting the potential for the Ottawa-based company to “maximize its current potential while strengthening its future prospects as a private company.”
Accordingly, in response to Thursday’s announcement, she moved her rating for Quisitive to “sector perform” from “sector outperform” previously.
“As per our estimates the proposed transaction price implies Quisitive valuation of approximately 7.5 time NTM [next 1-month] EV/EBITDA against our one-year forward estimates and generates a sizable premium for Quisitive’s shareholders,” said Ms. Goyal.
She added: “Given the financial nature of H.I.G. Capital, Quisitive will be added as a portfolio company to H.I.G. Capital’s Technology Services portfolio with current management to continue operating the business as is. The Transaction has been unanimously supported by the Board of Directors of Quisitive (with an interested director abstaining). Directors and officers, as well as certain shareholders of the company, holding an aggregate of 84,226,447 Shares and representing 30.4 per cent of the voting rights attached to the Shares, are in favour of the Transaction, with the completion of the Transaction subject to shareholder approval at a special meeting of the company’s shareholders expected to be held in March 2025. The Rollover Shareholders will roll certain of their Shares in the company for equity interests in an affiliated entity of H.I.G and the Purchaser. All rollovers will occur at a value per Share equal to the cash purchase price.”
Her target for Quisitive shares rose to 57 cents to reflect the purchase price from 50 cents but below the 63-cent average on the Street.
Elsewhere, Ventum Capital Markets’ Rob Goff moved his rating to “tender” from “buy” with a 57-cent target, up from 55 cents.
“Our Tender rating reflects our view that there is limited deal risk associated with the offer,” said Mr. Goff. “While a competing offer should not be ruled out, the extensive sale process suggests a relatively low probability. While the deal terms represent an aggressive premium to recent trading levels and are consistent with our valuation range, there remains room for a potential competing offer (particularly where the preferred share holdings are more fully reflected).”
Raymond James’ Stephen Boland increased his target by 3 cents to 57 cents with a “market perform” rating (unchanged).
“Throughout the past year, the company had been positioning itself as an AI-led solutions center for commercial enterprises, laying the groundwork for growth in the second half of 2025. While the potential was evident, we suspect the guaranteed return proved too compelling,” Mr. Boland said.
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Ms. Goyal also lowered Softchoice Corp. (SFTC-T) to “sector perform” from “sector outperform” in reaction to its move to go private after agreeing to a $1.8-billion takeover by World Wide Technology Holding Co. LLC.
“While Softchoice has a robust Software & Cloud business, recent weakness in its hardware business impacted the overall VAR industry and the company’s financial performance, pressuring the stock,” she sai. “However, over the recent quarters Softchoice has shown signs of improvement, including increased traction across its Software & Cloud business, and the has traded at $23/share post–Q3 earnings, implying a limited premium at the proposed acquisition price.
“The company stated that the proposed transaction was extensively marketed, and the current offer was cited as the best available. Although the company is open to reviewing additional offers, Softchoice could be subject to $49 million in termination fees under the current agreement. Considering Softchoice’s recent performance, we believe the company is on a path to becoming a prominent software VAR in the North American SMB/commercial segment and could prove to be a long-term profitable investment for any prospective buyer.”
Her target rose to $25.50, matching the average on the Street, from $24.
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In other analyst actions:
* CIBC’s Scott Fletcher raised his target for Thomson Reuters Corp. (TRI-N, TRI-T) shares to US$165 from US$164 with a “neutral” rating (unchanged) following Thursday’s announcement of the acquisition of tax automation software company cPaperless LLC, which does business under the SafeSend brand, in a US$600-million cash deal. The average is US$171.17.
“TRI announced it had acquired SafeSend for $600-million, a purchase price that represents approximately 10 times 2025 estimated sales before fair value and other adjustments,” he said. “SafeSend looks to be directly in the center of TRI’s M&A sweet spot, with a price tag similar to recent medium-sized deals, a product that complements and extends TRI’s tax return workflow products, and a business that TRI has already partnered with and has experience selling. SafeSend’s ‘last mile’ tax return capabilities are a clean fit with SurePrep’s ‘first mile’ capabilities, and TRI will be able to offer improved end-to-end tax return functionality to its accounting firm customers. After the deal, we expect TRI will have $3.7-billion of available near-term liquidity in cash and room on its credit facility, and leverage of only 0.5 times. With ample capacity and a healthy balance sheet, we expect TRI to continue to look at similar deals where it acquires companies with complementary product offerings that can be cross-sold into its large customer base.”
* Believing recent sector consolidation “highlights significant upside,” Ventum Capital Markets’ Rob Goff raised his Converge Technology Solutions Corp. (CTS-T) to $6 from $5.20 with a “buy” rating. The average is $5.04.
“We see further consolidation within the space as industry participants look for improved demand within the next 6-9 months and valuations are attractive,” he said.
“We look for improved macro conditions over the next 6-9 months as the sector clears the negative headwinds faced in H2/24 when it was negatively impacted by delayed IBM hardware and Windows refresh cycles. We are maintaining our BUY rating given compelling valuations and looking for stronger, sustained growth with Q3/25. Our bullish view reflects on the Company’s position to capture share within the SMB market as it benefits from the secular growth of IT Services. The negative impact of IBM deferring its mainframe cycle represents a headwind that will become a tailwind in H2/25 with stronger demand then set to be benchmarked against depressed levels. Similarly, a Windows refresh anticipated in H2/25 is expected to represent a positive tailwind. We see the potential for further sector consolidation given depressed valuations, deleveraged balance sheets, and peer expectations of strengthening fundamentals.”