A weekly look at some small-cap stocks making news - or about to.
Canada’s S&P/TSX Small Cap Index hit a record 900.12 in early Friday trading and was up more than 17 per cent over the past 52 weeks. The Russell 2000 in the U.S. is up 3.5 per cent over the past 52 weeks as of early Friday trading.
Small-cap spotlight
Investors in Transat AT Inc. (TRZ-T) will be watching for travel demand trends and an update on the company’s cost-cutting program when the airline and tour company reports its second-quarter earnings next week (June 12).
The company’s debt, also high on the list of shareholder concerns, was partially addressed this week, leading to a surge in the stock price. However, one analyst said the company “still has work to do to improve its leverage and profitability.”
Transat shares closed up 16 per cent on Thursday - the stock remains down 36 per cent over the past 12 months - after the Montreal-based company announced an agreement with Canada Enterprise Emergency Funding Corp. (CEEFC), a Crown corporation incorporated in May, 2020, to restructure its pandemic-era debt under the Large Enterprise Emergency Funding Facility (LEEFF) program.
“We are pleased to have been able to reach this agreement, which will substantially deleverage our balance sheet and pave the way for Transat to further implement its long-term sustainable strategic plan and complete the implementation of its elevation program,” Transat CEO Annick Guérard said in a release before markets opened on Thursday. (The elevation program is a cost-saving initiative aimed at improving annual adjusted EBITDA by $100-million by mid-fiscal year 2026).
The deal will see Transat’s total debt with the CEEFC reduced from $772-million to $334-million -including about $380-million of debt forgiven - while also providing annual interest savings in excess of $40-million, noted National Bank analyst Cameron Doerksen, who kept his “underperform” (sell) rating on Transat shares but increased his target to $1.75 from $1.50 after the announcement.
“Notwithstanding these ongoing concerns, the uncertainty over the debt restructuring had been an overhang on the stock, so resolution on what we view as quite generous terms for Transat is positive,“ he wrote in a June 5 note. ‘In addition, Transat has been negotiating with the Federal Government for 18 months, so finalizing the deal will free management to focus more on improving the underlying business.”
Mr. Doerksen added that the company “still has work to do to improve its leverage and profitability, adding that ”even after the debt restructuring and assuming a material improvement in profitability, we still forecast Transat to have negative net income."
Under the debt refinancing deal, Transat will put $41.4-million in cash toward its debt. It will also consolidate part of its credit into a single $175-million, 10-year facility and issue a $158.7-million 10-year debenture to the CEEFC. Transat will issue the Crown corporation $16.3-million in shares for a 19.9 per cent stake in the company under a debt-for-equity swap.
The restructure comes on “highly favourable terms” — including no interest for the first five years of the debenture — for Transat given the red ink on its balance sheet, ATB Capital Markets analyst Chris Murray told The Canadian Press.
The company’s debt has been a major concern for investors, and the reason CIBC analyst Kevin Chiang also has an “underperformer” (sell) rating on the stock.
In a May 29 note - before the June 5 news and ahead of the June 12 earnings report, Mr. Chiang increased his price target to $1.50 from $1.20.
He’s forecasting revenue of $1.02-billion for the quarter ended April 30 versus $973-million for the same quarter last year. Consensus is $1.01-billion.
Mr. Chiang is estimating EBITDA of $58-million versus $38-million last year and consensus of $57-million. He’s also forecasting earnings per share to come in at a loss of $1.08 for the quarter versus a loss of $1.02 last year. Consensus is a loss of 96 cents.
“The key focus will be on demand trends, an update on the elevation program, and its refinancing plans,” he said in the note.
Mr. Chiang said the company’s capacity guidance is 2 per cent growth this year and he expects the airline to hold at that level.
“While Canadians are boycotting travel into the U.S., we expect TRZ to reiterate that demand for sun destination and transatlantic travel remains healthy, echoing the comments we heard from [Air Canada] when it reported [first quarter] results,” he wrote.
“For TRZ, the weakness in transborder leisure travel demand has not been a significant headwind given its low exposure to this market,” he added, noting that the company said on its first-quarter earnings call that it hadn’t yet seen any negative impact on bookings after the tariff announcements.
In the past 52 weeks, the stock has traded between a high of $3.03 and a low of $1.41.
Small-cap summary
Other small caps making news this week:
High Liner Foods Inc. (HLF-T) announced before markets opened on Friday that it’s buying the Mrs. Paul’s and Van de Kamp’s brands of frozen breaded and battered fish products from Conagra Brands for US$55-million. It said the price includes about US$36-million in inventory.
“This is a highly strategic and compelling opportunity for High Liner Foods that will serve as a catalyst for further growth in the U.S retail market,” said High Liner CEO Paul Jewer in a statement. “By taking full ownership of these well-established and respected brands, we will capture additional value for our shareholders and ensure a seamless transition for existing customers.”
High Liner said it currently co-manufactures products for Mrs. Paul’s and Van de Kamp’s brands at its U.S.-based manufacturing facilities, an average of 25 million pounds annually. The company said the deal secures the volume within its current contract with Conagra, set to expire in 2027. The company said the deal will increase its annual volume from this business to a total of approximately 29 million pounds of fish procured, processed and sold in the U.S, which it said is aligned with its strategy to diversify its global supply chain further.
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Enghouse Systems Ltd. (ENGH-T) reported second-quarter results that missed expectations.
After markets closed on Thursday, the company reported revenue of $124.8-million for the quarter ended April 30, down from $125.8-million in the same quarter last year. The result was below expectations of $129.5-million, according to S&P Capital IQ estimates.
Net income was $13.5-million or 24 cents per share compared to $20-million or 36 cents a year ago. The expectation was for 37 cents. Adjusted EBITDA decreased to $28.6-million compared to $35.7-million a year ago.
In the past 52 weeks, the stock has traded between a high of $34.42 and a low of $22.72.
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Ballard Power Systems (BLDP-T) shares closed up 3 per cent on Thursday after the company said it signed a new agreement with California-based rail operator Sierra Northern Railway to supply 1.5 MW of fuel cell engines, expected to be delivered in 2025.
“As part of Sierra Northern Railway’s efforts to decarbonize its operations across California, 12 Ballard FCmove-XD engines will be supplied to convert three diesel switching locomotives to hydrogen-fueled, zero-emission locomotives,” the company stated.
In the past 52 weeks, the stock has traded between a high of $4.01 and a low of $1.44 on the Toronto Stock Exchange.
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Transcontinental Inc. (TCL-A-T) reported second-quarter results that beat expectations.
After markets closed on Wednesday, the printer and flexible packaging provider reported revenues of $684.1-million for the quarter ended April 27, down slightly from $683.2-million a year earlier. The result was ahead of expectations of $662.7-million.
Net earnings attributable to shareholders came in at $33.8-million or 40 cents per share compared to $15.9-million or 18 cents a year earlier.
Adjusted earnings of $48.2-million or 58 cents per share compared to $45.3-million or 52 cents a year ago. The expectation was for adjusted earnings per share of 54 cents.
National Bank Financial analyst Adam Shine increased his target price to $24 from $23 but kept his “underperform” (sell) rating after the earnings report.
He said revenue was ahead of his forecast of $665-million and adjusted earnings were ahead of his expectations of 52 cents.
In the past 52 weeks, the stock has traded between a high of $22.33 and a low of $13.67.
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Canaccord Genuity Group Inc. (CF-T) reported fourth quarter earnings that were below expectations.
After markets closed on Wednesday, the company reported revenue of $461.2-million for the quarter ended March 31, an increase of 12.8 per cent compared to the same period in the prior year. The expectation was for revenue of $467-million.
Net income of $11.9-million or 12 cents per share compared to $17.4-million and 15 cents a year ago. The expectation was for earnings of 18 cents.
Ventum Capital Markets analyst Rob Goff maintained his “buy” rating and $12 target after the earnings report.
He’s forecasting first-quarter revenue of $475.6-million, above the consensus of $471.1-million and earnings per share of 22 cents, in line with the consensus.
“We support the fundamental value in CF underpinned by the consistent, reliable growth in Wealth, while the Capital Markets division provides aggressive leverage to improved market conditions,” he wrote in a June 5 note, adding that the company’s global platform “enables significant revenue and cost synergies through its distribution and scale capabilities.”
Mr. Goff said he believes the shares are “significantly undervalued, where improved market conditions would represent a significant positive catalyst or alternatively, potential liquidity events in the UK or parent level could represent revaluation catalysts.”
In the past 52 weeks, the stock has traded between a high of $11.50 and a low of $7.45.
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Corus Entertainment Inc. (CJR-B-T) announced a shakeup in its C-suite this week.
After markets closed on Wednesday, the company said co-chief executive officer Troy Reeb is moving on from the company after more than 25 years. John Gossling, who had been co-CEO and chief financial officer, will remain CEO on his own. He will also remain interim CFO.
“In light of the evolving industry landscape as well as the actions taken to date to stabilize the capital and debt structure of the company, the board has decided to transition back to a single CEO structure,” Mark Hollinger, co-chair and lead independent director, stated in a release.
In the past 52 weeks, the stock has traded between a high of 54 cents and a low of 7.5 cents.
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VersaBank (VBNK-T) reported second-quarter results that beat revenue expectations, but missed on earnings per share.
Before markets opened on Wednesday, the London, Ont.-based digital bank said its revenue increased 6 per cent year-over-year to a record $30.1-million for the quarter ended April 30. The result was ahead of expectations of $29.8-million.
Net income was $8.5-million or 26 cents per share compared with $11.8-million or 45 cents for the second quarter of last year. The result was below expectations of 28 cents.
In the past 52 weeks, the stock has traded between a high of $25.75 and a low of $12.18.
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Pet Valu Holdings Ltd. (PET-T) announced a $576-million secondary bought deal offering this week.
After markets closed on Tuesday, Pet Valu said Roark Capital and its affiliates are selling close to 20 million shares in the company for $28.85 each. The underwriters are RBC Capital Markets and CIBC Capital Markets. Pet Valu said the net proceeds will be paid directly to the selling shareholders.
“This transaction marks a significant milestone after a successful relationship between Pet Valu and Roark,” stated Pet Valu CEO Richard Maltsbarger, adding that Roark helped the company transform from a regional 350-store network into Canada’s largest pet specialty retailer.
In the past 52 weeks, the stock has traded between a high of $31.99 and a low of $22.53.
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Dye & Durham Ltd. (DND-T) announced the appointment of a permanent chief executive officer Monday, more than five months after an activist investor campaign led to an overhaul of the board and the departure of CEO Matt Proud, the Globe’s Sean Silcoff reports.
The Toronto legal software company said George Tsivin, senior vice-president and general manager of software and corporate markets and strategy with LexisNexis Legal – and before that chief product officer with Nielsen – will lead an overhauled management team. Former D&D chief financial officer Avjit Kamboj is returning to the post, taking over from Frank de Lisio, while Nikesh Patel, another former Nielsen executive, is joining as chief product officer, replacing Scott Bleasdell.
Read the full story from the Globe’s full story here
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Upcoming small-cap earnings:
June 10: Stingray Group Inc. (RAY-A-B), ADF Group Inc. (DRX-T)
June 11: Major Drilling Group International Inc. (MDI-T), The North West Company Inc. (NWC-T)
June 12: Transat AT Inc. (TRZ-T)
June 16: High Tide Inc. (HITI-X)
June 17: Groupe Dynamite Inc. (GRDG-T), Reitmans (Canada) Ltd. (RET-X)
June 18: Aurora Cannabis Inc. (ACB-T)
June 25: AGF Management Ltd. (AGF-B-T)
With reports from Reuters and The Canadian Press