Inside the Market’s roundup of some of today’s key analyst actions
While acknowledging growth is “challenging” across the Canadian telecommunications industry, TD Cowen analyst Vince Valentini thinks it was “not meaningfully worse than expected” during the first quarter of the current fiscal year.
Ahead of earnings season, he does not expect any carrier to report a decline in wireless subscriber additions “as some had feared” and now sees both financial results and key performance indicators landing close to the Street’s expectations.
“Subsequent to our final review of pricing and promotional trends on the last weekend of the quarter, plus our analysis of recent investor conference commentary by the management teams, we have fine-tuned some of our Q1/25 and full year estimates for BCE, TELUS, Rogers, and Quebecor,” said Mr. Valentini. “While a couple of estimate metrics increased, the majority of the slight changes are to the downside, largely owing to both sluggish sales activity in wireless in Q1, and a return to more aggressive promotional behavior by most carriers in the final weeks of the quarter. That being said, buy side expectations have been quite negative recently, including calls for negative wireless sub adds for one or more incumbent (which we do not expect to occur), so we will be somewhat relieved if Q1 results are no worse than the new estimates we have established.”
“Updates on capital allocation and balance sheet management could be more important than actual results on upcoming quarterly calls. Given the continued balance sheet uncertainty (especially regarding sports team equity) at Rogers, contrasted with a relatively clean debt/FCF/payout ratio picture at Quebecor, we have moved QBR.B ahead of RCI.B in our pecking order.”
The analyst made one change, raising his target for Quebecor Inc. (QBR.B-T) to $45 from $40, keeping a “buy” rating. The average target on the Street is $39.04, according to LSEG data.
Mr. Valentini’s pecking order is now:
1. Telus Corp. (T-T) with a “buy” rating and $25 target. Average: $22.18.
Analyst: “Keep in mind that Q1 results will be concurrent with both the AGM and the expected new three-year target for annual dividend growth. We would not be shocked to see asset sale plans and debt reduction targets strongly reiterated on that day. TELUS remains our top pick in the sector, especially with the balance sheet and capital allocation uncertainty overhanging two of its main peers.”
2. Cogeco Communications Inc. (CCA-T) with a “buy” rating and $90 target. Average: $78.15.
Analyst: “We hope for news soon on a potential sale of fiber assets in Florida, which could draw attention to the positive catalyst potential for this name over the next 2-3 years. There are other Breezeline assets that could be monetized at valuations above the current trading multiple of 4.9 times 2025 estimated EV/EBITDA, and there is wireless spectrum that could be monetized. These transactions should be additive to an arguably strong and underappreciated baseline story of FCF increasing about $150-million in 2027 when rural subsidized capex projects sunset, which puts the current share price at a FCF yield of 16.6 per cent on 2027.”
3. Quebecor Inc. (QBR.B-T) with a “buy” rating and $45 target. Average: $39.04.
Analyst: “Given elevated confidence in the company’s balance sheet and FCF profile, we are willing to shift our valuation horizon forward to 2026 versus 2025 at this time (typically we would do this sometime in the May to July timeframe), and we reiterate that the FCF yield implied by our target price remains arguably attractive on both an absolute and a relative basis, at 10 per cent (FCF/share estimate of $4.45 in 2026, which is aided by our assumption of continued share buybacks with excess cash, now that debt leverage is nearing 3.0 times).”
4. Rogers Communications Inc. (RCI.B-T) with a “buy” rating and $64 target. Average: $54.43.
Analyst: “We are aware that our TP points to material upside potential for RCI.B shares, which we believe is very possible over the next year, but we predict continued volatility and negative sentiment towards the name until we find out if/how they plan to monetize sports equity to reduce debt, which we suspect could be another few months. Some clarity on the infrastructure funding could be a mild positive as well, in our view.”
5. BCE Inc. (BCE-T) with a “hold” rating and $33 target. Average: $35.27.
Analyst: “We continue to believe that dividend, asset sale, and funding partner issues will have a lot more bearing on BCE shares in the near-term, versus slight tweaks in operating results/estimates. We continue to expect (but to be clear we have no way to be certain) that BCE will eliminate its discount DRIP program and lower its dividend by 50 per cent (to $2.00 annualized) concurrent with Q1/25 results on May 8.”
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Rogers Communications Inc.’s (RCI.B-T) “weak cash generation needs to improve,” according to Scotia Capital analyst Maher Yaghi, who lowered his rating for its shares to “sector perform” from “sector outperform” previously.
“Rogers Bank has been a significant drain on Rogers’ cash generation over the last two years.,” he said. “Our analysis show that the ongoing costs to finance the new credit card more than offset the relative churn reduction that was likely gained from this endeavor. Without the DRIP, organic deleveraging would not have been possible in 2024. In addition, the wireless industry’s subscriber loading is decelerating faster than our previous expectations, and we have cut our estimates as a result. Obviously if Rogers is able to close its infrastructure deal, it will materially improve leverage, however this will not impact real cash generation nor change the trends that the wireless business is facing. Given that we don’t see a quick recovery in wireless pricing or expect a turnaround in subscriber trends, we are downgrading the stock. We recognize that this call might be late, however until we start to see positive earnings revisions (expecting negative revisions entering reporting season) we don’t see an impetus to remain bullish. We have reduced our target as we lowered our multiples on the wireless segment.”
In a report released before the bell, Mr. Yaghi said Rogers’ accounts receivables have “increased significantly” and its payout ratio has “also deteriorated requiring the implementation of a DRIP.”
“Over the last 2 years, Rogers’ reported accounts receivable balance increased significantly, by $1.6-billion (or $1.3-billion net the assumption of AR related to the Shaw transaction). This material increase was not an issue of AR collection,” he explained. “Rather, it was largely driven by the launch of the Rogers Mastercard in 2023, which provides 3-per-cent cash back value for Rogers customers and allows consumers to finance up to the full cost of the device over a 36 or 48-month term at 0-per-cent interest. The goal of this new initiative was to make the cost of new wireless devices more affordable for consumers while also reducing churn. Whether we can say this was a worthwhile investment or not, it’s evident that it significantly raised financing receivables and thus total accounts receivables by mid double digits y/y in 2023 and 2024. As a result, changes in net working capital assumed an increasingly greater portion of the company’s reported FCF, accounting for 9 per cent in 2022 to 29 per cent in 2024.”
“The company’s payout ratio as a percentage of Scotia’s standardized FCF has increased steadily in the last few years, approaching just under 100 per cent as at 2024 year-end. We believe having a distribution ratio near 100 per cent is not sustainable longer term. The large net working capital usage in the last 2 years, driven by receivables, have contributed to widening the gap between the company’s reported FCF and our standardized definition of FCF. Similar to other Canadian telco peers, if we continue to see the payout ratio staying this high, it will likely be difficult to remove the DRIP that was put in place in 2023 and therefore we would likely continue to see equity dilution. Additionally, if we continue to see almost 30 per cent of FCF consumed by changes in operating assets and liabilities, we fear that this won’t leave much room for organic deleveraging. Eventually, when the account receivables related to the card get large enough, we could see a move to securitize them through a special purpose vehicle, but timing is difficult to forecast at this point.”
With adjustments to his forecast, Mr. Yaghi dropped his target for Rogers shares to $50 from $58. The current average is $54.43.
“As we enter Q1 reporting season, we have reduced our estimates for wireless customer loading to take into consideration the faster than expected industry wide reduction in customer growth while keeping our ARPU [average revenue per user] estimates essentially unchanged,” he said. “Our new estimates for Rogers imply 2-per-cent subscriber growth in 2025 down from 3 per cent previously. Historically, Rogers benefited from immigration growth and students entering Canada given the company’s strong market share in Ontario and BC. In a period when those two growth drivers are decelerating quickly we believe Rogers will have a harder time outperforming peers on loading as the company did over the last 2 years. We believe that Quebecor has been able to hold its own much better vs incumbents in Q1 due to their lower price point and churn rate.”
Elsewhere, National Bank Financial analyst Adam Shine thinks the first-quarter results from Rogers will feature “weak” wireless additions and expects the Street’s full-year expectations to move lower.
“We sit lower than Street on Service Revs for Wireless & Cable amid weaker immigration, competitive intensity and lighter loading, but above on Media revs with help from Four Nations Face-Off. For Adj. EBITDA, we had to soften Wireless for weaker top line, reduce Cable because of added investment for coming new Xfinity products, and increase Corporate Items & Eliminations amid ongoing spending for Rogers Bank and corporate brand,” said Mr. Shine. “We forecast capex of $950-million (consensus estimate $1026-million) and FCF of $640-million (CE $628-million).”
Maintaining an “outperform” recommendation, Mr. Shine cut his target by $1 to $53.
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While Lifespeak Inc.’s (LSPK-T) fourth-quarter results exceeded expectations, Canaccord Genuity analyst Doug Taylor warns the Toronto-based company “still faces significant growth and debt challenges.”
“ARR [annual recurring revenue] continues to contract on a sequential and annual basis leaving the company to aggressively manage costs to preserve profitability,” he said. “Until such time as there is visibility to LifeSpeak arresting its revenue decline and revealing a path to relief from under its $82-million debt load, we believe the company is likely to continue to trade at a steeply discounted valuation. Management continues to work with lenders to address its default status; the ultimate conclusion remains challenging to predict.”
On Monday, LifeSpeak, which provides online mental-health content for employees of its corporate customers, reported revenue of $11.8-million, matching Mr. Taylor’s estimate, and EBITDA of $3.2-million that was ahead of his expectation of $3-milllion. However, ARR declined sequentially to $45.0-million (from $45.9-million), representing an overall 11-per-cent year-over-year decline and its net customer base slid sequentially to 841 (from 847).
While Mr. Taylor sees “a handful of green chutes,” he warned its balance sheet remains an “obstacle.”
“The company noted several new clients in the quarter including Allstate, Cenovus Energy, and ADP Canada,” he said. “The company noted that its new multi-product agreement with Greenshield, which was discussed with Q3 results, is expected to continue to ramp in financial contributions to LifeSpeak. Given the declining revenue trajectory YTD, we believe investors will want to see firm evidence of stabilization and growth before reflecting it in the associated multiple being given to LifeSpeak’s business.”
“LifeSpeak’s $1.0-million in Q4 FCF before the $2.4-million in interest paid concluded Q4 at $81.7-million in debt with $0.8-milion in cash. The company has been in default of its debt, however, the lenders have not yet demanded repayment or commenced liquidation proceedings, instead continuing to work with the company to renegotiate agreements. At this point, visibility as to the outcome of this renegotiation remains low.”
Lowering his financial estimates “with ongoing cost containment blunting the impact on [his] EBITDA forecast,” Mr. Taylor reduced his target to 30 cents from 40 cents with a “hold” rating. The average target is 31 cents.
Elsewhere, others making changes include:
* RBC’s Paul Treiber to 10 cents from 20 cents with an “underperform” rating.
“LifeSpeak has substantial leverage and low liquidity,” he said. “Q4 results showed continued headwinds, with revenue down 9 per cent year-over-year and ARR declining 12 per cent year-over-year. Although Q4 adj. EBITDA was slightly above our expectations, cashflow was light and not sufficient to cover interest costs during the quarter. LifeSpeak has not repaid or refinanced its term loan, which matured in February. At this point, there is low investor visibility to potential debt resolution outcomes.”
* TD Cowen’s David Kwan to 30 cents from 35 cents with a “hold” rating.
“Macro pressures continue to weigh on LSPK’s growth and leverage levels remain high (approximately 7 times). With the company still in negotiations to extend its term loan (expired Feb. 25), we believe a return to growth, aided by its GreenShield partnership, will be critical in its ability to operate as a going concern,” said Mr. Kwan.
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Emphasizing the “size, scale and strategic value” of its large-scale, long-life Cangrejos gold/copper project in Ecuador, RBC Dominion Securities analyst Michael Siperco initiated coverage of Lumina Gold Corp. (LUM-X) with an “outperform” recommendation on Tuesday, calling it “one of the largest undeveloped gold projects globally.”
“We expect the upcoming feasibility study (2Q25) to outline a more than 25 year mine life at 450kozpa AuEq, with costs at around $1,000/oz and initial capex of $1.2-billion, solid economics on our $2,200/oz long-term gold price (stronger still at spot+), making LUM a potential M&A target,” he said. LUM trades at a significant discount to peers, which we see shrinking as milestones are reached, including project financing and final permitting through 2026.”
Mr. Siperco sees Cangrejos, located in El Oro province, as a top 10 gold project by resource and production based on the company’s 2023 prefeasibility study.
“Management is experienced, and the company is supported by mining entrepreneur Ross Beaty (28 per cent) as part of the Lumina Group,” he added.
The analyst set a target of $1.50 per share. The current average is $2.16.
“LUM trades at 0.15 times NAV at spot, a more than 50-per-cent discount to peers, and $8/oz in situ vs. peers we track at $38/oz,” he said. “Coming milestones including the FS (2Q) and final permits (early 2026) could be strong valuation catalysts.
“Potential acquisition target. We believe Cangrejos is the type of project that should appeal to larger producers for the long life and consistent production/FCF generation. While we do not factor acquisitions into our valuation/PT, we see potential for M&A ahead of construction, with further project/permitting milestones acting as catalysts.”
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In other analyst actions:
* Expecting “corporate and consumer sentiment to remain soft on swelling macro uncertainty” and tariff implementation to further dent investor confidence, Jefferies’ Sheila Kahyaoglu downgraded Air Canada (AC-T) to “underperform” from “hold” with a $12 target, falling from $18. The average on the Street is $25.20.
Predicting broad-based reductions to forecasts among North American airline companies, the firm also downgraded American Airlines Group (AAL-Q) and Delta Air Lines (DAL-N) to “hold” from “buy” and Southwest Airlines (LUV-N) to “underperform” from a “hold” rating.
“Consumer sentiment continues to disappoint, now at 4-yr lows, and tariffs take effect this week after delays affecting business confidence,” she said, adding that “GDP-driven businesses like airlines are in for short-term pain.”
* Canaccord Genuity’s Doug Taylor cut his Enthusiast Gaming Holdings Inc. (EGLX-T) target to 10 cents from 15 cents with a “hold” rating. The average is 31 cents.
“Enthusiast Gaming reported mixed Q4 results, which overall we view as below our expectations alongside new balance sheet risk,” said Mr. Taylor. “Given improvements in cost structure and re-orientation on higher-margin growth segments, the company does appear to be emerging from an extended transition towards a smaller, but more profitable company. Gross margins at 76 per cent, a high watermark, driven by mix of direct sales and subscription, were ahead of our view. This supported positive adj EBITDA ahead of our model despite a top-line miss. The positive EBITDA data point (and the beat) does depend on adding back one-time shutdown costs for a flagship NFL contract, which reduces the quality of EBITDA, in our view. Looking forward, management expects normal seasonality in Q1, which suggests a quarter-over-quarter decline in both revenue and, we suspect, a return to negative EBITDA. While macro uncertainties are a risk, management expects sequential seasonal improvement through 2025, a return to YoY revenue growth in Q2, and a path to positive EBITDA for the full year. Given the miss, uncertain ad spend environment, and new balance sheet challenges, we prefer to remain on the sidelines with a HOLD rating. Until Enthusiast provides a path to relief from its current covenant breach, we believe the company is likely to continue to trade at a discounted valuation”
* CIBC’s Anita Soni raised her G Mining Ventures Corp. (GMIN-T) target to $22 from $15, exceeding the $19.89 average, with an “outperformer” rating.
* TD Cowen’s Derek Lessard, currently the lone analyst covering Pizza Pizza Royalty Corp. (PZA-T), increased his target by $1 to $14 with a “hold” rating.
“PZA reported Q4/24 SSSG [same-store sales growth] of negative 3.8 per cent vs. 4.0 per cent last year, a touch below our negative 3.2-per-cent estimate,” he said. “That said, we argue that it remains one of the best placed Canadian QSRs to weather the macro turbulence, given its expansive network, a strong brand, core value offerings, and a sizeable cash buffer. We also do not expect a repeat of 2008/09 when SSS dropped 8 per cent, given what is today a much more nimble organization.”
* Canaccord Genuity’s Katie Lachapelle lowered her target for Sigma Lithium Corp. (SGML-X) to $22, below the $22.58 average, from $25 with a “buy” rating.
“We continue to like Sigma for its Tier 1 cost structure, amidst a challenging lithium price environment. Our estimates have been updated for SGML’s Q4 results and the latest technical report,” she said.
* RBC Capital Markets’ Christopher Dendrinos drops his Westport Fuel Systems Inc. (WPRT-Q, WPRT-T) target to US$4 from US$8 with a “sector perform” rating. The average is US$12.48.
“WPRT announced the divestment of its most mature biz line, the Light Duty segment for a total cash consideration of $73.1-million which includes the reduction of debt of $27-milllion associated with the LDV [light-duty segment] biz,” he said. “This decision positions WPRT 1) with a stronger BS, and 2) to begin a new phase of focus on new applications for HPDI and its earlier stage High-Pressure Controls & Systems business. PT to $4 from $8 based on pro forma balance sheet post LDV sale. We are not subscribing value to Cespira until we get greater visibility into earnings inflection.”