Inside the Market’s roundup of some of today’s key analyst actions
Touting its “consistent profitability in a volatile silver sector,” Echelon Capital analyst Gabriel Gonzalez initiated coverage of Silvercorp Metals Inc. (SVM-T) with a “buy” recommendation, seeing “transformative organic, investment and M&A growth potential.”
“Silvercorp is among the most consistently profitable silver companies, with positive recurring EPS in 14 out of the last 15 years, in a sector often marked by volatile swings over the commodity cycle,” he said in a research report. “That profit stability means that since Silvercorp last raised capital in 2010 (a $116.8-million bought deal), it has been able to return over $145-million in cash dividends and share repurchases to investors. The Company has a rock-solid balance sheet with over $221-million in cash and equivalents and no debt.”
Mr. Gonzalez thinks an expansion to its flagship Ying silver-lead-zinc mine in China, which is expected in 2024, will allow Silvercorp to “significantly increase its production and cash-generating ability” and place it in a position for “potentially transformative organic growth and M&A opportunities.”
“We also see the potential for shareholders to benefit from Silvercorp’s portfolio of subsidiary companies, including its 28.3-per-cent interest in New Pacific Metals (NUAG-T) and 29.5-per-cent interest in Whitehorse Gold Corp. (WHG-X),” he added.
The analyst said Silvercorp’s current share price presents a “good entry point” and leverage to silver, reiterating his “moderately bullish” stance on the precious metal “given increasing expected industrial demand for photovoltaics, and in electric vehicles where increasing amounts of electronics are raising per car silver content.”
“SVM shares have turned sharply lower in the last month, we believe largely on tax-loss selling,” said Mr. Gonzalez. “The current share price is near a 52-week low, off 40 per cent, versus the Global X Silver Miners ETF which is down 15 per cent. Operationally we see no reason for such a divergence, nor in our opinion do political risk considerations warrant such an overhang. On the other hand, Silvercorp presents good leverage to silver prices with 15 per cent to our NAV for a 10-per-cent increase in silver prices, and the potential Ying expansion provides transformative growth potential that has possibly lacked in the story. The Company’s share repurchase program could also provide share price support.”
He set a target of $10 per share. The average on the Street is $8.05.
“We believe the shares are undervalued and given substantial production growth and shareholder value potential, could re-rate to a higher valuation as that potential becomes recognized in the market,” he said.
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After weaker-than-anticipated third-quarter financial results, Stifel analyst Ian Gillies lowered his rating for Legend Power Systems Inc. (LPS-X) to “speculative buy” from “buy,” expecting supply chain issues to persist.
“Near-term headwinds continue to challenge the company’s unit delivery and margins albeit medium-term demand and opportunities remain unchanged,” he said. “Slower-than-anticipated unit delivery and sales conversion create uncertainties in the company’s ability to achieve rapid growth expectations in the next few quarters.”
Before the bell on Wednesday, the Vancouver-based energy management platform provide reported quarterly revenue of $0.2-million, missing Mr. Gillies’s $1.3-million projection. A gross loss of $0.1-million also fell below his expectation (a profit of $0.2-million), due largely to lower revenue and higher costs.
“Supply chain issues continued to create challenges in procurement of materials resulting in weakening margins due to increased component costs for C3Q21,” the analyst said. “Management indicated the disruptions are likely to last for 12-18 months, but they have managed to reduce the risks by building additional inventory and working with new and existing suppliers.”
“The company disclosed that the sales opportunities are being converted into bookings at a slower pace than anticipated, largely due to supply chain issues, lengthier timelines for larger opportunities and slower-than-expected customer acceptance. With that said, the management indicated there has been no loss in business opportunities while the primary impact is mainly longer lead times. In our view, the negative near-term outlook will likely impact the company’s results for the next 2 quarters. Moreover, supply chain issues are also impacting its customers, in regard to potential installation delays and longer-than-usual decision-making process.”
Expecting lower fourth-quarter sales due to delivery delays, Mr. Gillies dropped his calendar 2022 revenue projection by 4.6 per cent. However, he largely maintained his 2023 estimates, believing “system delivery and margins will start to normalize as supply chain issues ease over the next few quarters.”
Currently the lone analyst on the Street covering the stock, he cut his target for to 85 cents from $1.25.
“LPS has an active power management product that allows real estate owners and operators to reduce power costs and GHG emissions by 4-6 per cent. In October 2020, the company introduced a new leading edge sales product called the Insight that has helped increase customer adoption. This new product rollout has coincided with a greater amount of attention by governments to increase building energy efficiency. The pillars of our investment thesis are: 1) Rapid growth expectations supported by top-down and bottom-up analysis; 2) low capital intensity; 3) at scale, FCF will create significant flexibility and shareholder benefits; 4) LPS CO2 emissions reduction capability makes it a good derivative play on ESG,” he said.
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Canaccord Genuity analyst Christopher Koutsikaloudis is looking “favourably” on BTB Real Estate Investment Trust’s (BTB.UN-T) $94-million acquisition of nine industrial properties and one office property in Alberta and Saskatchewan.
He said the Montreal-based REIT’s entrance into Western Canada aligns with management’s objective of broadening its geographic diversification, furthers its goal of doubling its portfolio to $2-billion within five years and increases exposure to its key industrial holdings.
“While entering new markets carries some additional risk and requires additional investments in operations, we believe the assets being acquired have limited risk as they are fully occupied by national tenants,” said Mr. Koutsikaloudis.
Raising his cash flow projections through 2023, the analyst maintained a “buy” rating and target of $4.50. The current average is $4.41.
“We believe BTB is attractive for investors looking for a sustainable 7.6-per-cent distribution yield that is supported by a stable cash flowing portfolio,” he said.
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In reaction to its recent US$1-billion equity raise, Citi analyst Jason Bazinet slashed his forecast and target price for shares of Peloton Interactive Inc. (PTON-Q), noting the sell side has turned more bearish on the popular U.S. exercise bike manufacturer that thrived during the early days of the COVID-19 pandemic.
“During fiscal 1Q22, PTON cut its FY22 guidance, citing weaker demand and suggesting lower price elasticity than previously anticipated,” he said. “The PTON share price has since fallen around 60 per cent. And the company has raised more than $1 billion of equity capital.
“The Street has also turned more cautious: the portion of Buy ratings has retrenched to around 50 per cent, the lowest level since PTON became a public company.”
Projecting the capital raise increased share count by almost 22 million, Mr. Bazinet also pointed to a recall to its Tread product and falling consumer demand causing inventory turnover to increase to approximately 215 days in the first quarter of 2022 (from 70 days previously).
“That is, PTON was carrying more than $1.3 billion of inventory at F1Q22, around 4 times the level compared to the prior year,” he said.
“Product revenue fell by 17 per cent in F1Q22. And, payables grew to around 170 days to help offset the cash use associated with the inventory build. Cash burn exceeded $500 million in F1Q22.”
To account for a “heavier” cost profile and “higher than previously expected marketing cadence,” he cut his adjusted EBITDA estimate for fiscal 2022 by 2 per cent to a loss of US$475-million (from US$463-million). His 2023 and 2024 projections dropped by 68 per cent and 24 per cent, respectively, to profits of US$84-million and US$473-million (from US$258-million and US$623-million).
That led him to slash his target for Peloton shares to a Street-low of US$38 from US$55 with a “hold” rating (unchanged). The average is US$75.52.
“Peloton has an attractive business model and may have many years of growth ahead. But the COVID pandemic may have caused an acceleration in growth. Street estimates have extrapolated recent strength for the next few years. We are concerned that moderating growth is possible as the pandemic fades (and gym visits resume),” said Mr. Bazinet.
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In other analyst actions:
* In the wake of releasing a fourth-quarter 2021 operational update late Wednesday, including EBITDA guidance of $87-million that falls below the Street’s forecast of $111-million, TD Securities analyst Sean Steuart downgraded Cascades Inc. (CAS-T) to “hold” from “buy” and reduced his target to $15 from $18. The average target on the Street is $19
* TD’s Craig Hutchison raised Trilogy Metals Inc. (TMQ-T) to “speculative buy” from “hold” with a $3.50 target, below the $3.79 consensus.
* After announcing it has entered into two long-term power purchase agreements for its White Rock wind project in Caddo County, Okla., ATB Capital Markets analyst Nate Heywood raised his target for TransAlta Corp. (TA-T) shares to $17 from $16.50 with an “outperform” rating. The average is
“Overall, we view the announcement as positive given that TA has successfully achieved the renewable contract it required ahead of sanctioning the White Rock wind project and can now add the 300 MW project to its construction schedule,” he said. “Additionally, the project announcement falls in-line with the recently announced clean energy strategy highlighted at its investor day, which includes 2 GW of additional capacity by 2025. "
* CIBC World Markets analyst Todd Coupland reduced his BlackBerry Ltd. (BB-N, BB-T) target by US$1 to US$9, maintaining an “underperformer” rating. The average is US$8.09.