Inside the Market’s roundup of some of today’s key analyst actions
Desjardins Securities analyst Jerome Dubreuil is now taking a “not as positive” view on Rogers Communications Inc.’s (RCI.B-T) plan to to raise $7-billion by selling a minority stake in its wireless backhaul operations as his initial assessment of the deal, announced on Oct. 24.
Previously, he thought the “surfacing of infrastructure value would more than offset the expensive financing costs.” Now, he sees it as “financing that is cheaper than pure corporate-level equity (thanks to the infrastructure component), but more expensive than corporate debt as RCI’s balance sheet is relatively tight.”
Andrew Willis: Where Rogers goes with $7-billion infrastructure sale, Bell and Telus will follow
“We believe RCI’s tight balance sheet — due to slower-than-expected organic deleveraging and the MLSE consolidation — has led the company to explore financing alternatives that are more expensive than traditional debt,” said Mr. Dubreuil. “The ‘surfacing of infrastructure value’ materializes in that the equity deal on the newly created infrastructure entity will likely cost 6–8 per cent in the first year ($420–560-million per year) vs the 9–10-per-cent cost of equity for an outright equity issuance at the Rogers level. We have increased our annual distribution assumption on the deal to $500-million (from $400-million), increasing by 3 per cent annually thereafter. Overall, the transaction is creative but the lack of tax deductibility and the potential growth of distributions over time will be expensive for RCI shareholders vs traditional debt.”
“We still believe there are ways to create value from infrastructure monetization. Increasing infrastructure utilization (eg allowing more tenants on a tower, opening fibre or generally sharing infrastructure with another operator) can unlock infrastructure value, in our view. However, such transactions must be considered carefully as they can alter the competitive landscape.”
Mr. Dubreuil also revisited Rogers’ decision to acquire rival BCE Inc.’s (BCE-T) stake in Maple Leaf Sports & Entertainment for $4.7-billion, saying the internal rate of return “will depend on ultimate ownership strategy.”
“Setting up a costly financing could make investors demand more from the company’s MLSE investment,” he said. “As we estimate MLSE generates a relatively low FCF yield, it could prove challenging for RCI to generate strong returns on the investment unless management finds a way to dramatically increase the reflection of the asset’s value in RCI’s share price.”
Maintaining a “buy” rating for Rogers shares, the analyst cut his 12-month target to $61 from $68. The current average on the Street is $67.47, according to LSEG data.
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Upon the closing of its definitive agreement to acquire the Musselwhite underground gold mine in Ontario from Newmont Corp. (NGT-T) for up to US$850-million, Orla Mining Ltd. (OLA-T) will “become a multi-asset gold producer with exposure to some of the best mining jurisdictions globally,” according to Scotia Capital analyst Ovais Habib.
After coming off research restriction following the Nov. 18 announcement of the deal, he raised his rating for the Vancouver-based company to “sector outperform” from “sector perform” previously.
“We view the announcement as positive for OLA shares as the acquisition diversifies the company into a tier 1 jurisdiction, more than doubling annual production without diluting existing shareholders,” he said. “Given that only 1.0 Mtpa of Musselwhite’s 1.5 Mtpa mill capacity is currently being utilized, we see the opportunity to fill the excess mill capacity as a key long-term value creation opportunity for OLA. In the interim, OLA will focus heavily on delineating additional ounces from surface and underground drilling at Musselwhite to extend the mine’s life.”
Orla plans to finance the deal entirely from new and existing debt facilities that includes convertible notes and a gold pre-pay. It is expect to more than double the company’s annual gold production to over 300,000 ounces per year and provide immediate free cash flow.
“OLA’s exploration focus for 2025 is to have 4 or 5 drill rigs turning on the PQD Extension zone. Exploration work is planned to target the first kilometer of this extension (known as Ext. 2 and Ext. 3) from underground drill rigs, and target the next two kilometers (known as Ext. 4) from surface directional drilling,” said Mr. Habib. “The ultimate goal is to delineate a sufficient quantity of resources (we expect more than 1 Moz) in these zones to support investment in a shaft and conveyor system needed to fill the excess capacity in the mill. Over the longer term, we see exploration potential as the primary driver of value creation for this asset.”
After updating his model, the analyst raised his target for Orla shares to $7.75 from $6. The current average is $7.82.
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Ahead of its Dec. 4 earnings release, Canaccord Genuity’s Luke Hannan is expecting “another solid” quarter from Dollarama Inc. (DOL-T).
The analyst is projecting revenue of $1.56-billion for the Montreal-based discount retailer, up 6 per cent year-over-year and in line with the Street’s expectation. His 99-cent earnings per share forecast is a gain of 7 cents from the same period in the last fiscal year and a penny above the consensus estimate.
“We expect Dollarama’s focus on providing affordable everyday items to continue resonating with Canadian consumers, which are still feeling budget pressures brought on by recent inflation,” he said. “To illustrate this point, the Bank of Canada’s latest Survey of Consumer Expectations reported 65 per cent of Canadians feeling worse off due to recent high inflation during Q2/24, compared to a year ago.
“Last quarter, Dollarama delivered same-store sales (SSS) growth of 4.7 per cent year-over-year, or 20.2 per cent on a two-year stack basis, primarily driven by strength in consumables, noting softer demand for seasonal products with general merchandise holding steady. From a category perspective, we expect this quarter to be no different, particularly considering retail peer Canadian Tire Corp. (CTC.A-TSX, “hold” rating, $157.00 target price) which highlighted outperformance of essential vs. discretionary categories during recent Q3/24 reporting. As a result, we expect consumables to continue accounting for an above average portion of consumer baskets. For the balance of the year, Dollarama expects the shift of two key Halloween selling days to tilt SSS growth towards Q4/F25 from Q3/F25. Accordingly, we forecast same-store sales growth of 3.0 per cent, in line with management’s expectations for sequential normalization towards the 3.5-4.5-per-cent annual guidance range.”
Maintaining a “hold” rating for Dollarama shares, Mr. Hanan raised his target to $140 from $138. The current average is $145.
“While we still believe in Dollarama’s long-term growth profile — a result of its lack of meaningful competition, industry-leading profitability and free cash flow generation, and healthy ROIC — we believe the shares are appropriately valued at current levels,” he said.
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Seeing “good traction” across all of its business lines in its third-quarter results, RBC Dominion Securities analyst Pammi Bir thinks Extendicare Inc. (EXE-T) is “standing tall after some major realignment work.”
“Our outlook on EXE has improved following another better-than- forecast print,” he said. “Supported by enhanced government funding and further progress in curbing costs, we increased our NOI outlook in LTC [long-term care]. Progress in ParaMed is also encouraging, with EXE better equipped to handle rising demand. Bottom line, after a multi-year realignment of its business to a more capital light model, we see its stronger valuation as well-supported by an improving earnings picture.”
On Nov. 12, the Markham, Ont.-based provider of care and services for seniors reported quarterly funds from operations per share of 26 cents, exceeding the 19-cent projection of both Mr. Bir and the Street. Calling the results and outlook “positive,” he said the beat was “partly aided by retroactive government funding.”
“Nonetheless, operating momentum continues to improve across business lines, while the balance sheet remains in solid shape,” he said.
“Q3 NOI in LTC rose a robust 48 per cent year-over-year from government funding increases, timing of spend, higher occupancy, and a normalizing cost structure,” said the analyst. “Even after stripping out some retroactive funding, NOI [net operating income] and margins were ahead of our call, partly aided by a reduction of agency staffing costs in Western Canada. Looking ahead, we increased our NOI forecast as the impacts of improved funding and operational enhancements continue to surface, with annualized growth anticipated to stabilize in the 2-per-cent range. We also raised our outlook at ParaMed, with the Q3 print ahead of us. NOI rose 34 per cent year-over-year from higher ADV and rate increases, while margins remain in the low-double-digit range (11.3 per cent). Of note, despite the typical summer slowdown, ADV was up 1 per cent quarter-over-quarter (up 10 per cent year-over-year) on rising demand and EXE’s increased capacity from successful recruitment and retention. In managed services, our NOI forecast is largely unchanged, though results were solid nonetheless (NOI up 41 per cent year-over-year).”
Also seeing LTC redevelopments “moving along well,” Mr. Bir raised his funds from operations per share projections for 2024 and 2025 by 9 cents each to 97 cents and 92 cents, respectively, while he increased his 2026 estimate by 10 cents to 96 “with revisions for higher NOI and lower G&A, partly offset by higher interest costs and current taxes.”
Maintaining a “sector perform” rating for Extendicare shares, he increased his target to $11, matching the average on the Street, from $9.50.
“On the back of strong year-to-date performance, EXE’s NAV discount has narrowed to 8 per cent (12 times 2025 estimated AFFO), below its seniors housing comps (6-per-cent NAV premium), but ahead of the sector (18-per-cent discount). From our perspective, current levels reasonably balance the shifting composition of its business mix, an improving earnings picture, and strong balance sheet,” he concluded.
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During a tour of its Chilean operations last week, Paradigm Capital analyst Jeff Woolley saw “substantial progress” in operational ramp-ups to Capstone Copper Corp.’s (CS-T) flagship Mantoverde mine as well as its Mantos Blancos project.
“We continue to forecast consolidated copper production to increase 20 per cent for the Q4 period,” he said in a report released Thursday. “The ramp-up at Mantoverde is continuing at pace and faster than comparable benchmark projects with full production levels expected to be achieved in H1/25, and the Mantos Blancos mine has met or exceeded nameplate mill capacity throughput rates more than 50 per cent of operating days post the July shutdown – a material improvement versus the 2023 and H1/24 struggles.”
Mr. Woolley said the Mantos Blancos open-pit mine in the Antofagasta region is “turning the corner,” while Mantoverde within the Atacama Fault System is seeing its ramp-up “progressing quickly.”
“Mantos Blancos is achieving a marked improvement in operational performance since the installation of a fourth Positive Displacement Pump and a new surge tank in July to further debottleneck the backend of the plant,” he said. “Mill throughput rates have materially increased to 18.5Ktpd [thousand tons per day] in October and to 20.5Ktpd month-to-date in November versus design throughput of 20.0Ktpd. Improvements to metallurgical recovery rates, which currently average 78–80 per cent (target 82 per cent) and mill availability currently averaging 92 per cent (target 97 per cent), remain a work in progress but are similarly trending in the right direction.”
“The new concentrator [at Mantoverde] was declared commercial in late September and in October the mill averaged 27Ktpd throughput or 84 per cent of the 32Ktpd nameplate, with metallurgical recovery averaging 75 per cent versus 88-per-cent design levels. November has seen ore throughput rates exceed 36Ktpd and recovery rates up to 89 per cent for numerous days, bolstering confidence in the ramp-up success to steady-state design production targets being met in H1/25. Modifications and/or upgrades to the mill motors as well as the safety sensor monitoring systems are still being worked through, but overall the ramp-up is surpassing comparable peer projects. The recently announced Mantoverde Optimized Feasibility Study which targets increasing mill throughput an additional 40 per cent to 45Ktpd and increasing copper production by 20Ktpa is expected to receive required permit amendments in mid-2025 with the expansion in place in 2026.”
Reaffirming a “buy” recommendation for Vancouver-based Capstone’s shares, Mr. Woolley maintained his production growth forecast “and look for 2025 consolidated production of 255Kt Cu (up 35 per cent year-over-year), and for the company to be materially free cash positive by $380-million next year.”
“Capstone continues to have among the most robust growth pipelines in the peer group,” he added.
The analyst has a 12-month target of $12 for its shares. The current average is $13.42.
“Capstone is a premier mid-cap copper producer and has a portfolio of producing and development assets all located in politically stable jurisdictions (U.S./Chile/Mexico). Major expansion programs have recently been completed at the Chilean operations with ramp-up of new concentrator facilities currently underway and targeting full production by year-end 2024. At full capacity, these expansions are expected to increase copper production 60 per cent to a run-rate 260ktpa starting FY25 while the project pipeline remains packed,” he concluded.
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TD Cowen analyst Michael Van Aelst thinks Parkland Corp.’s (PKI-T) new guidance for the next fiscal year “offers some upside” to the Street’s expectations.
“After a challenging 2024, we believe management is getting back to under promising on near-term guidance, so that it can absorb unexpected volatility and still meet or exceed expectations as the year progresses,” he said. “At the same time, the sell-side appears to be taking a conservative approach of its own — the midpoint of 2025 guidance is 2 per cent above TD/consensus, increasing the possibility of a beat in 2025.”
After the bell on Tuesday, the Calgary-based company revealed 2025 adjusted EBITDA guidance of $1.8-$2.1-billion and reiterated its leverage target (low-end of 2-3 times range due, in part, to another $700-million of asset sales) by end of the year as well as its 2028 adjusted EBITDA goal of $2.5-billion.
“As the midpoint assumes $300-million from Refining, well below the $425-million mid-cycle level, we argue that the bottom end of the range (assumes $200-million from Refining + softness elsewhere) is quite conservative,” he said.
“Potential upside to our 2025 marketing businesses estimates. Our $301-milion Refining adj. EBITDA forecast (includes the planned abbreviated 20-25-day shutdown) seems reasonable and the midpoint of management’s consolidated 2025 adj. EBITDA guidance is 2 per cent above TD/consensus of $1.9-billion, suggesting our marketing businesses forecasts may be conservative relative to PKI’s 4-per-cent growth target (store refreshes, leveraging JOURNIE loyalty program, network expansion, and expanded product offerings) and $50-million of cost optimization/synergies.”
Mr. Van Aelst kept a “buy” rating and $52 target. The current average is $48.42.
“PKI is trading at 6.7 times our NTM [next 12-month] EBITDA, a material discount to the 9.1 times weighted peer-group average as elevated leverage and temporary profit headwinds taint investor optimism. Much of the weakness relates to weak crack spreads and capture rates, which should recover once industry-wide refinery downtime normalizes, although soft demand is also magnifying the oversupply challenges. 2025 guidance is for adj. EBITDA of $1.8-2.1-billion (vs. 2024 guidance of $1.70-1.75-billion) and mgmt remains confident in achieving its $2.5-billion target by 2028 with multiple avenues for growth. Support for activists or Simpson could get a boost from the additional near-term challenges, although the latter may have to await the court’s decision on the validity of its governance agreement (expected in Q1/25) before supporting a proxy battle or another takeover attempt. FCF yields of 8 per cent/10 per cent in 2025E/2026E look attractive, and we see this ultimately allowing valuation to return closer to historical averages as PKI deleverages.”
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In other analyst actions:
* Stifel’s Stephen Soock initiated coverage of Halifax-based Silver Tiger Metals Inc. (SLVR-X) with a “buy” rating and 70-cent target. The current average is 95 cents.
“We think the market is mispricing permit risk for Silver Tiger,” he said. “While the company is pushing forward with permitting its low capex, open pit heap, leach gold project, there is also a fully permitted, high-grade underground project in the offing at El Tigre. The value of this de-risking optionality is not priced into the SLVR shares. We think it is likely the open pit project will get permitted, providing an avenue to generating cash flow for exploration and development of the multiple high-grade underground orebodies. The company also has yet to fully demonstrate the value of the exploration potential along the 7km long prospective trend.”
* Stifel’s Justin Keywood lowered his Quipt Home Medical Corp. (QIPT-X) target to $7.50 from $8.50 with a “buy” rating. The average is $9.90.
“We see QIPT’s valuation at private-company levels; recent M&A has occurred at 40-50 per cent higher,” he said. “We think consolidation is likely to continue in the space and QIPT could also be a takeout candidate, although we have no knowledge of any M&A discussions. QIPT trades at 3.5 times NTM [next 12-month] EBITDA and 10 times FCF, vs. peers at 5 times and 19 times, a 30-per-cent/50-per-cent discount, respectively. We attribute the wide discount partly to an overhang of a DOJ investigation of QIPT’s sleep segment, where there is no claim of wrongdoing. However, settlements are typically in the $3-$6-million range, and we see the $100-milion market-cap drop year-to-date as too punitive, warranting a fresh look.”