Inside the Market’s roundup of some of today’s key analyst actions
After Shopify Inc.’s (SHOP-N, SHOP-T) second-quarter results missed a “low bar heading into a difficult year,” Citi equity analyst Tyler Radke warned “it’s difficult to see how the worst is priced in given the rapidly evolving macro environment and significant changes to the company’s outlook and operating structure.”
Shares of the Ottawa-based e-commerce giant have been on a roller-coaster ride this week, plummeting 13.6 per cent on Tuesday after a 10-per-cent reduction in its workforce before jumping just over 11 per cent a day later following the premarket release of its results.
Despite Wednesday’s investor enthusiasm, Mr. Radke thinks the quarterly release showed “signs of rapidly slowing growth driven by e-commerce normalization and broader consumer spending challenges.”
Total revenue of US$1.295-billion and an earnings per share loss of 3 US cents fell short of both Mr. Radke’s estimates (US$1.304-billion and 1 US cent loss) and thE consensus projections on the Street (US$1.328-billion and a 2-cent profit).
However, he thinks slowing growth metrics are a cause for greater concern. Gross merchandise volume rose 11 per cent year-over-year, missing expectations (14 per cent and 16 per cent, respectively).“
“While headline growth metrics missed street expectations .... the implied outlook was particularly weak with a 6-7 point cut to second-half street GMV/revenue assumptions, based on continuation of 2Q demand/e-commerce dynamics,” he said. “Profitability was lighter in Q2, and guided below for Q3/Q4, despite the recent rest.”
“SHOP reported Q2 results that missed the already low expectations driven by a challenging e-commerce environment and a host of macro headwinds that are likely to persist/worsen into the back half of the year. Q2 GMV decelerated faster than expected with inflation/shifting budget preferences causing lower consumer spending particularly among Shopify’s most exposed industries of style and fashion and technology. Compounding the macro headwinds, the e-commerce uptrend bet by management last year did not pan out as expected forcing the company to layoff 10-per-cent workforce this Q lowering investors’ confidence in the turnaround.”
Mr. Radke said it was “prudent” to make significant cuts to his forecast for Shopify, thinking they “may be more welcomed by investors.”
“The updated guidance was worst than we expected in our first cut in our preview, with commentary suggesting 2H22 seasonality will be similar to FY21,” he said. “Based on the seasonality seen in 2H21, we see the implied 2H22, GMV growth to be in the low teens (another 5-6-per-cent cut to our estimates). We see FY22 total revenue growth now decelerating into the high teens, as a result of another 3-5-per-cent cut to our previously cut revenue numbers in 2H. 2H22 OPM% was also meaningfully impacted by the Deliverr’s acquisition and expenses from the restructuring. Given all the moving parts in the quarter, our post 2022 3-YR CAGR [compound annual growth rate] of 27 per cent remains relatively unchanged, albeit on a lower base (Note: we cut our 3YR CAGR from 32 per cent previously earlier this week).”
With those reductions, Mr. Radke cut his target for Shopify shares to US$36 from US$37. The average on the Street is US$51.78, according to Refinitiv data.
“We maintain our Neutral/High Risk rating given concerns around consumer spending slowdown and lack of profitability,” he said.
Elsewhere, Piper Sandler’s Brent Bracelin downgraded the stock to “neutral” from “overweight” with a US$32 target, down from US$38.
Others making target adjustments include:
* RBC’s Paul Treiber to US$60 from US$70 with an “outperform” rating, calling the quarter “potentially a clearing event.”
“Shares rallied 12 per cent [Wednesday] following Q2 below consensus and Shopify’s revised guidance,” he said. “The Q2 shortfall, change in Shopify’s guidance and tone were widely anticipated following news of Shopify’s headcount reductions yesterday. While we see slower growth over the next several quarters, given macro headwinds, our outlook calls for growth reaccelerating through CY23.”
* Barclays’ Trevor Young to US$30 from US$35 with an “equal-weight” rating.
“Stock closer to a bottom, but not time to step in yet,” he said.
* Mizuho’s Siti Panigrahi to US$33 from US$40 with a “neutral” rating.
“Shopify reported another disappointing quarter, with revenue and GMV below consensus on a continued normalization of e-commerce and increasing headwinds from the macro environment with high inflation and FX,” he said. “Furthermore, the increased payment penetration and expanding into SFN will likely pressure margins. While we believe in Shopify’s long-term growth opportunity, we see top-line growth deceleration due to macro headwinds, and ecommerce normalization with margin contraction, likely pressuring the shares.”
* Credit Suisse’s Timothy Chiodo to US$34 from US$41 with a “neutral” rating.
* Jefferies’ Samad Samana to US$40 from US$47.50 with a “hold” rating.
* Baird’s Colin Sebastian to US$47 from US$51 with an “outperform” rating.
* TD Securities’ Daniel Chan to US$39 from US$40 with a “hold” rating.
While its second-quarter results topped expectations driven by “what should be industry-leading wireless performance,” RBC Dominion Securities analyst Drew McReynolds remains focused on the financial impact of Rogers Communications Inc.’s (RCI.B-T) July 8 network outage.
“Management indicated that Q3/22 results will be impacted by $150-million in bill credits granted to all customers with the previously announced $250 -million in additional network investment being absorbed by a $3-billion annual capex budget,” he said. “In addition, management is acknowledging a continued elevated level of customer churn since the July 8th outage (equally in both wireless and cable) but with churn levels now seeing steady improvement with an overall degree of normalization expected in Q4/22.”
Rogers shares rose 0.6 per cent on Wednesday after announcing before the bell consolidated revenues and EBITDA of the quarter of $3.868-billion (up 8.0 per cent year-over-year) and $1.592-billion (up 15.9 per cent), respectively. Both topped Mr. McReynolds’s estimates ($3.786-billion and $1.543-billion).
“The positive revenue variance was mainly due to higher wireless network revenues on stronger ARPU growth,” he said. “The positive EBITDA variance was due to the related flow-through to wireless EBITDA as well as slightly higher media EBITDA. Both cable and media results were in line to slightly better than our forecast.”
The Toronto-based company also announced a deal with Shaw Communications Inc. (SJR-B-T) to extend the deadline for their $26-billion merger until the end of the year, as regulatory approvals continue to be elusive.
“While the timeline for receiving Competition Bureau approval, in our view, remains the biggest known unknown at this juncture, we are encouraged by the added visibility on the outside date under the Rogers-Shaw merger agreement, the options around the replacement or extension of existing transaction financing (i.e., alternative funding sources, extension of outside date through holder consent etc.) and what we believe is continued strong support for the proposed transactions from Rogers, Shaw and Quebecor,” he said. “Furthermore, we have not ruled out a negotiated settlement prior to proceeding to the Tribunal hearing given what we believe is the basis for the optimal remedy for all stakeholders (consumer, government, industry, investors) that is now in front of the Competition Bureau (or will fully be in due course), the importance of an expedited timeline in order to ensure Freedom Mobile sustains its effectiveness as a competitive fourth wireless player under new ownership, and what appears to be a strong position for Rogers in the eyes of the Tribunal with the proposed remedy.”
Though he said the release did not change his investment thesis on Rogers, Mr. McReynolds cut his target for its shares to $73 from $75 based on the impact of the outage and a higher capex trajectory, keeping a “sector perform” rating. The average on the Street is $75.47.
“At 7.7 times FTM [forward 12-month] EV/EBITDA, Rogers trades at a notable discount to large cap telco peers (8.6–9.5 times), which we attribute to a variety of factors including relative underperformance through COVID-19, execution risk on Shaw remedies and targeted integration synergies, higher proforma leverage at 5 times and the strengthening competitive positions of telco peers,” he said.
“While following the pullback in the shares we remain patient for more attractive entry points, we continue to see the potential for multi-year upside in the shares driven by: (i) a forecast 9-per-cent NAV CAGR [net asset value compound annual growth rate] through 2024 boosted by exposure to a recovery in roaming revenue, improved Rogers Media performance, and should the Shaw $1-billion in integration synergies be fully realized; and (ii) a potential narrowing of the discount to large cap peers as integration execution and the balance sheet are de-risked and with Rogers on a firmer competitive footing to compete with telco peers.”
Other analysts making target adjustments include:
* Desjardins Securities’ Jerome Dubreuil to $79 from $80 with a “buy” rating.
“Momentum from 1Q continued, with solid operational performance in each of wireless, cable and media. With the stock trading back to levels at the start of 2022 due to recent setbacks related to the SJR acquisition, the outage in early July and general market weakness, we view the current stock price as an attractive entry point. We still expect the SJR acquisition to close (albeit later than anticipated),” he said.
* Canaccord Genuity’s Aravinda Galappatthige to $67 from $68 with a “buy” rating.
“Rogers’ investment thesis remains an amalgam of industry tailwinds and countervailing speedbumps, which suggests significant volatility as well as an opportunity for investors. The key is to identify the main risk factors and related preceding milestones, as well as the valuation troughs and base accumulation of the stock along those lines. The case to own the stock is very much driven by the buoyant wireless conditions in Canada,” he said.
* National Bank Financial’s Adam Shine to $78 from $80 with an “outperform” rating.
* TD Securities’ Vince Valentini to $80 from $78 with a “buy” rating.
However, he removed his “top pick” designation for the country’s largest grocery and pharmacy chain, believing “moderating inflation and slowing growth suggest that future share price gains may not be as outsized as in the last 1.5 years.”
“That said, L remains the preferred stock selection amongst grocers, given: (1) Benefits from management’s improvement initiatives; (2) Solid EPS growth (we forecast 16 per cent year-over-year in 2022); and (3) Potential structural benefits, including longer-term stronger grocery demand,” said Mr. Shreedhar.
Shares of Loblaw slid 3.8 per cent on Wednesday despite a beat across most key metrics as investors expressed concern about “light” food same-store sales growth (0.9 per cent versus Mr. Shreedhar’s 3.0-per-cent projection). Adjusted earnings per share rose to $1.69, up from $1.35 a year ago and above the estimates of both Mr. Shreedhar ($1.60) and the Street ($1.61).
“Relative to NBF, Food Retail sssg was light (this suggests market share losses; however, we believe L’s hard discount business is holding share), while Drug Retail sssg was stronger than anticipated,” the analyst said.
With the results, Loblaw raised his 2022 EPS guidance to growth mid-to-high teens from its prior expectations of low-double-digits. That led Mr. Shreedhar to “modestly” increase his forecast to $6.47 from $6.37 in 2022 and $7.03 from $6.93 in 2023.
“Management suggested inflation is peaking – we have previously proposed that grocery stocks do well during periods of heightened inflation,” he said. “As such, moderating inflation could suggest that the period of significant grocery outperformance versus the broader market is coming close to an end.”
Maintaining an “outperform” rating for the company’s shares, Mr. Shreedhar raised his target to $127 from $125. The average is $128.20.
Other analysts making changes include:
* RBC’s Irene Nattel to $154 from $133 with an “outperform” rating.
“Strong and better than expected Q2 results underscore favourable momentum shift internally, and Loblaw’s strong positioning against the backdrop of accelerating inflation. Results and outlook supportive of our constructive view and relative ranking with Loblaw our top pick in the grocery space. Raising target multiples to reflect tangible progress and improvements in key drivers of valuation: ROIC, FCF and EBITDA growth, underpinned by the Company’s unique collection of interrelated assets,” she said.
* BMO’s Peter Sklar to $123 from $118 with a “market perform” rating.
“Focus on grocery SSS miss (0.9 per cent vs. expectation 3.0 per cent) drove the decline, which we view as overdone. Considering two-years ago, Q2/20 was Loblaw’s biggest COVID-quarter and consumers were locked down for much of Q2/21, we would consider 0.9 per cent a good result. In terms of Q3/22 outlook, Loblaw has now lapped prior years’ pantry loading and there is an improvement in year-over-year comp performance. We believe the magnitude of today’s stock decline is unwarranted,” said Mr. Sklar.
* Desjardins’ Chris Li to $124 from $116 with a “hold” rating.
“L’s solid 2Q results and full-year EPS guidance raise reflect continuing strong execution in a highly inflationary environment, and margin benefits from the return of higher-margin cosmetic and OTC sales and Rx volume growth. Focus will gradually shift to 2023. While deflation could be a headwind, we expect L’s retail excellence initiatives to achieve EPS growth of 10 per cent. Our Hold rating mainly reflects limited total return potential to our $124 target (7 per cent). We would look for a more attractive entry point,” said Mr. Hi.
* Scotia’s Patricia Baker to $118 from $116 with a “sector perform” rating.
“At current levels, we believe the valuation as fully reflecting potential operating improvements,” she said.
* CIBC’s Mark Petrie to $136 from $129 with an “outperformer” rating.
Seeing its shares “approaching a compelling valuation,” Canaccord Genuity analyst Dalton Baretto raised his recommendation for Teck Resources Ltd. (TECK.B-T) to “buy” from “hold.”
He made the change despite deeming its second-quarter results as “mixed.”
“The operating and financial results are modestly weaker than our (and consensus) estimates, and cost guidance has been increased for all business units,” he said. “In addition, production guidance for the Coal unit has been decreased given a weak H1. That said, we don’t believe the guidance revisions will surprise anyone. Capex guidance for QB2 has been increased by a further US$500-million (despite the significant decline in the CLP), bringing the total project capex to US$6.7-7.0-billion.”
Mr. Baretto does not expect a change in strategy under the leadership of incoming chief executive officer Jonathan Price and predicts Teck’s 21.3-per-cent holding in the Fort Hills project in northern Alberta’s oil sands wil result in an all-share acquisition with majority owner Suncor Energy Inc. or a public listing of its ownership stake.
“We like TECK for its scale, commodity diversity, asset quality, copper growth pipeline, strong balance sheet and robust capital return program; in addition, we note that the company is nearing a significant cash flow and portfolio inflection point as the large QB2 copper project approaches completion,” he said. “With the FOB met coal price declining significantly to its long-term average, we see limited downside risk (a key reason behind our previous HOLD rating).”
The analyst raised his target for Teck shares to $46 from $42 based on increases to his earnings multiple projections. The average is $53.93.
“The higher EBITDA multiple reflects our view that QB2 will be in commercial production 12 months from now, significantly altering TECK’s commodity mix (and thereby its EBITDA multiple),” he said.
Others making changes include:
* RBC Dominion Securities’ Sam Crittenden to $60 from $67 with an “outperform” rating.
“We don’t expect any major changes in strategy from the CEO transition, but we were okay with the current strategy of focusing on copper growth while harvesting cash from met coal, and divesting oil sands when practicable. The guidance reset clears the decks to allow the team to execute over the next 6-12 months,” said Mr. Crittenden.
* National Bank Financial’s Shane Nagle to $52 from $55 with an “outperform” rating.
“We reiterate our Outperform rating supported by a step-wise improvement in coking coal operations in H2/22 following completion of the Neptune terminal expansion,” said Mr. Nagle. “Strong coal prices and completion of QB2 will drive a significant FCF inflection point in 2023 and the company’s balance sheet remains well-positioned to weather volatile commodity price environment without sacrificing near-term growth objectives and continuing to support shareholder distributions.”
* Raymond James’ Brian MacArthur to $56 from $60 with an “outperform” rating.
“We believe Teck offers good exposure to coal, copper, and zinc. We also expect significant growth in copper with the start up of QB2,” he said.
* Barclays’ Matthew Murphy to $40 from $42 with an “equal-weight” rating.
“This was a busy quarter with TECK announcing Don Lindsay’s retirement, a FCF beat, a reload on the buyback, and another QB2 capex bump. Operationally the quarter was slightly weak, and the outlook features higher cost guidance and modestly lower coal production guidance,” he said.
* Scotia’s Orest Wowkodaw to $54 from $57 with a “sector outperform” rating.
Touting the potential for “superior risk-adjusted returns” and seeing a “compelling valuation,” Echelon Partners analyst David Chrystal initiated coverage of Dream Impact Trust (MPCT.UN-T) with a “speculative buy” recommendation.
“Dream Impact Trust is the first publicly listed impact vehicle in Canada, offering investors unique exposure to impact investing, a small but rapidly growing niche investment vertical focused on creating positive social outcomes while achieving market-rate financial returns,” he said. “The Trust owns an irreplaceable portfolio of high-quality major urban development projects and a growing portfolio of income-generating assets in the GTA and Ottawa/Gatineau. Leveraging programs supported by various levels of government and non-governmental organizations, the Trust can access unique impact investment opportunities and achieve superior attractive risk-adjusted returns. The current valuation at a 49-per-cent discount to NAV [net asset value] is attractive, in our view. We believe that as impact investment continues to gain broader uptake and the Trust executes on its development pipeline and asset dispositions, the discount to NAV should narrow.”
Mr. Chrystal thinks Dream’s investment framework, focusing on “affordable, inclusive and sustainable” communities, mirrors “policy visions articulated by various levels of government and non-governmental organizations.”
“This alignment not only provides the Trust with investment opportunities that would otherwise be unavailable, but also gives access to programs that enhance financial returns, thus offsetting the increased costs associated with certain impact initiatives,” he said. “We believe the advantages of these programs (reduced development charges/taxes, decreased borrowing costs, extended amortizations), coupled with the significant demand for affordable, inclusive, and sustainable accommodation should allow the Trust to deliver superior risk-adjusted project-level returns.”
While acknowledging execution risk in development, he set a target of $8.10 per Dream unit. The average on the Street is $7.16.
“The Trust’s current trading price implies a 43-per-cent discount to IFRS book value and a 49-per-cent discount to our adjusted NAV estimate,” he said. “We highlight that the current unit price, assuming income properties are carried at book value, implies a 77-per-cent discount to book (81 per cent to adjusted NAV) for the development assets. We note that the Trust carries most of its development assets at historical cost (purchase price + costs incurred to date), which does not reflect the increase in land values since acquisition. Further, book value does not reflect the potential upside from expected development deliveries in the near term.”
“Impact investing is a narrow subset of the socially responsible investment segment that is enjoying significant growth as an increasing number of institutions are allocating a growing share of assets under management to the vertical. We believe that as funds flow into impact projects and vehicles, the Trust and its underlying assets should benefit from increased awareness and demand. Further, as the Trust advances its current development pipeline, and either sells completed projects or stabilizes properties as income-producing assets, we believe that significant valuation discount should narrow.”
In other analyst actions:
* Ahead of the Aug. 11 release of its quarterly results, Credit Suisse’s Andrew Kuske lowered his Brookfield Asset Management Inc. (BAM-N, BAM.A-T) target to US$62.50, below the US$67.40 average, from US$71.50 with an “outperform” rating.
“BAM’s core franchise and overall platform continues to be positively positioned on a longer-term basis and is benefitting from accelerated fund raising, deal deployment and monetizations. Continued progress with these efforts, growth from the insurance business along with accelerated real estate re-packaging could result in upside to our existing forecasts and valuation,” he said.
* CIBC’s Mark Petrie lowered his Canadian Tire Corp. Ltd. (CTC.A-T) target to $216 from $222, keeping an “outperformer” rating. The average on the Street is $222.10.
* CIBC’s Kevin Chiang raised his Cargojet Inc. (CJT-T) target to $210 from $207, reiterating an “outperformer” recommendation. Others making changes include: Scotia’s Konark Gupta to $200 from $190 with a “sector outperform” rating, Canaccord Genuity’s Matthew Lee to $210 from $200 with a “buy” rating and Acumen Capital’s Nick Corcoran to $240 from $295 with a “buy” rating. The average is $221.83.
“CJT reported all-time record revenue that exceeded expectations while EBITDA was roughly in-line,” said Mr. Gupta. “Management remains upbeat on 2H outlook and long-term growth prospects, driven by the growing e-commerce market in Canada and new long-term DHL contract. While e-commerce growth is not accelerating, it is holding up relatively well despite the weaker consumer sentiment on the back of inflation and rising interest rates. The higher-margin ACMI business continues to grow significantly and has a lot of upside from future aircraft deliveries. Margins are normalizing from pandemic highs but could see a tailwind from falling jet fuel prices.”
* After its third-quarter results topped expectations, RBC’s Paul Treiber raised his CGI Inc. (GIB.A-T) target to $130 from $120, above the $125 average, with an “outperform” rating. Others making changes include: Canaccord Genuity’s Robert Young to $125 from $120 with a “buy” rating and BMO’s Thanos Moschopoulos to $125 from $120 with an “outperform” rating.
“CGI’s shares are nearly flat year-to-date, outperforming the S&P/TSX Composite (down 9 per cent) and S&P 500 tech (down 20 per cent),” Mr. Treiber said. “Q3 showed the resiliency of CGI’s business, with revenue above expectations as organic growth reached new highs. Management sees a strong pipeline for large managed services deals and believes SI&C would be less cyclical than the past.”
* National Bank Financial’s cut his Crescent Point Energy Corp. (CPG-T) Street-high target by $1 to $20 with an “outperform” rating. The average is $14.64.
“Crescent Point remains one of our top value picks in the sector, owing to a valuation of 1.8 times 2023 estimated EV/DACF, roughly a full turn discount relative to its peers at 2.6 times (three-year historical average 3.3 times), coupled with a sizable FCF profile (supported by our confidence in continued successful Kaybob development) and a clearly defined return of capital framework,” said Mr. Shine. “We reiterate our Outperform rating but are decreasing our target price ... due to changes to our capex, production, and opex assumptions, largely related to inflationary headwinds.”
* Scotia’s Phil Hardie cut his First National Financial Corp. (FN-T) target to $37, matching the average, from $38 with a “sector perform” rating, while BMO’s Étienne Ricard reduced his target to $36 from $38 with a “market perform” rating.
“Core earnings were well below expectations, but a closer look at numbers likely suggests that the underlying operating results were actually significantly better than the headline suggests, with mortgage origination volumes coming in ahead of expectations,” said Mr. Hardie. “There were a number of moving parts driving the variance to our forecast for the quarter, but a key component included higher expenses driven by the ‘cost of carry’ of the company’s economic hedging program. Excluding these costs, core earnings were much closer to our expectations.
“Management noted that the housing market is clearly entering a new cycle, with recent quantitative tightening making borrowing more expensive and slowing the housing market. The outlook is for the moderation of single-family residential originations. That said, the team noted that a strong job market is a source of comfort – assuming a recession is avoided – and increased immigration activity should also be supportive. Rising mortgage rates are also expected to slow further pre-payments and refinancing activity, which management believes should be positive for its net interest margin growth in MUA, despite lower volumes.”
* Seeing an “attractive” valuation RBC’s Sam Crittenden cut his First Quantum Minerals Ltd. (FM-T) target to $33 from $42 with an “outperform” rating, while Scotia’s Orest Wowkodaw lowered his target to $33 from $35 with a “sector outperform” rating. The average is $33.39.
“Looking through the near-term copper price volatility we see upside in FM shares as the fundamentals for both the company and copper look strong on a 1-2 year basis and the shares are now trading at a 40-per-cent discount to our NAV estimate,” said Mr. Crittenden.
* RBC’s Irene Nattel raised his target for George Weston Ltd. (WN-T) to $198 from $179, exceeding the $178.43 average, with an “outperform” rating.
“Updating our model and valuation to reflect actual Q2 share buyback at WN along with Q2 results and related updates from L and CHP,” she said.
“Our constructive outlook on WN is predicated on our favourable outlook for more than 50-per-cent-owned Loblaw (TSX: L) augmented by the application of a portion of proceeds from the sale of WN Foods via the NCIB, over time.”
* Ahead of the Aug. 3 release of its second-quarter results, National Bank Financial’s Rupert Merer raised his target for shares of Innergex Renewable Energy Inc. (INE-T) by $1 to $24, believing rising power prices and organic growth could act as tailwinds. The average is $21.54.
“INE has lagged its peers, but could Outperform with a falling payout, well performing acquisitions and improving organic growth potential,” he said.
* CIBC’s Sumayya Syed cut her Melcor Real Estate Investment Trust (MR.UN-T) target to $6.75 from $7.25 with a “neutral” rating. The average is $6.58.
“With a challenging Edmonton market, Q2 brought healthy leasing activity across retail, offset by a weaker office market hampered by supply. Management expects improving trends in the second half of the year and an occupancy improvement materialising by 2023. Our FFO estimates are lowered to reflect slightly lower occupancy expectations, and higher interest costs. Adjusting our stabilized NOI assumption, we lower our NAV to $7.50/unit, maintaining our 7-per-cent cap. rate,” she said.
* RBC’s Nelson Ng bumped his Northland Power Inc. (NPI-T) target to $46 from $43, keeping a “sector perform” rating. The average is $46.52.
“Power prices in Europe remain elevated and are set to move higher this winter, which will benefit Northland Power’s European offshore wind facilities. We are increasing our price target ... to reflect the incremental cash flows the company can potentially generate over the 2022-23 period,” he said.
* TD Securities’ Aaron MacNeil raised his Secure Energy Services Inc. (SES-T) target to $8.50 from $8 with a “buy” rating. The average is $8.85.
* Calling its second-quarter results “solid,” Desjardins Securities’ Chris MacCulloch bumped up his Topaz Energy Corp. (TPZ-T) target to $29.50, above the $29.05 average, from $29 with a “buy” rating.
“Since its IPO in late 2020, TPZ has now delivered eight consecutive quarters of cash flow growth, all while establishing a unique natural gas–weighted portfolio within the North American royalty space,” he said. “And the company appears poised to maintain its momentum in 2H22 given the favourable commodity price outlook, particularly for natural gas, notwithstanding the current volatility in AECO basis differentials—which is transitory, in our view. This point was evidenced by today’s transaction; the newly acquired royalty assets from Tourmaline Oil are expected to add 323 boe/d of production in exchange for $52-million of cash. Consequently, the company raised its 2022 production guidance to 16,650–16,850 boe/d (from 16,500–16,700 boe/d).”
* RBC Dominion Securities’ Sabahat Khan reduced his Toromont Industries Ltd. (TIH-T) target to $122 from $129 with an “outperform” rating, while BMO’s Devin Dodge cut his target to $120 from $130 also with an “outperform” rating. The average is $118.38.
“We maintain our positive view on Toromont Industries Ltd. following Q2/22 results given the strong demand environment (near-record backlog) and another good quarter of execution amidst the challenging supply backdrop,” he said.