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Inside the Market’s roundup of some of today’s key analyst actions

The performance of Rogers Communications Inc. (RCI-B-T) stock will rely heavily upon a recovery in its wireless segment, according to Canaccord Genuity analyst Aravinda Galappatthige.

On Wednesday before the bell, Rogers reported fourth-quarter earnings that fell just short of the analyst’s expectations, while its 2020 guidance largely met with his projections.

“A good segment of the conference call focused on H1 vs H2 dynamics,” he said in a research note released Thursday. "Management indicated similar (to Q4/19) results through H1 including flat to declining service revenues and wireless EBITDA but built on the expectations initiated on the Q3/19 call of a recovery (return to growth) in H2. We believe that investors are now very much focused on the likelihood and magnitude of this potential H2 recovery.

“It was noteworthy that in setting 2020 guidance, management opted for a wide range for service revenue growth of 400 basis points (translating to over $500-million) and a much tighter EBITDA range of 0-2 per cent ($125-million). While, on one hand, it reflects the company’s desire and ability to adjust to market-related variances, it is also somewhat revealing of the uncertainty that exists in the wireless market at this point. We believe that top-line under-performance in H2 (vs recovery expectations) could put further pressure on the stock even if Rogers is able to pull cost levers to achieve their 2020 EBITDA guidance.”

Based on the results and guidance, Mr. Galappatthige lowered his 2020 earnings per share expectation to $4.10 from $4.22, warning that second-half growth is “still expected to be modested.”

“When we consider full-year guidance alongside indications around H1 and look at growth trends excluding overages, we are still seeing service revenue growth of only 1-1.5 per cent with ARPU [average revenue per user] declines of around 1 per cent in H2," he said. "Hence, it is important to place some context around the nature of the H2 rebound. While a reacceleration of ARPU is important, RCI’s H2 service revenue growth expectations translates into only 2.5-3-per-cent wireless EBITDA growth and is far from a return to mid-single-digit growth rates.”

Maintaining a “hold” rating for Rogers shares, he raised his target to $66 from $64. The average target on the Street is $70.94, according to Bloomberg data.

“With regulatory uncertainty likely to remain in place through most of 2020, the prospect of soft wireless results in H1 and a heavily competitive environment, we are opting to maintain our HOLD rating on the stock,” he said.

Elsewhere, RBC Dominion Securities analyst Drew McReynolds increased his target to $72 from $69 with an “outperform” rating.

Mr. McReynolds said: “Despite the recovery in the shares from post-Q3/19 lows, we believe current levels still provide an attractive entry point that adequately reflects the transitional impact to unlimited plans. With Rogers having navigated a promotionally intense Q4/19, we see the potential for further multiple expansion as improved H2/20 performance post-transition comes into view (H1/20) and the CRTC wireless review is completed (H2/20). Although Rogers’ accelerated transition to unlimited plans dampens 2020 NAV growth, this deceleration should prove relatively short-lived with our forecast 2019-2023 NAV CAGR [net asset value compound annual growth rate] of more than 7 per cent putting Rogers at the upper-end of the range for the group.”

Desjardins Securities’ Maher Yaghi, who expects “steady” improvement toward the second half of the year, lowered his 2020 and 2021 EPS estimates to $4.30 and $4.60, respectively, from $4.38 and $4.62. He maintained a “buy” rating and $73 target for Rogers shares.

Our call on RCI at this point leans toward the stock’s valuation and our medium- to long-term view on the company’s financials versus peers rather than its short-term operational outperformance,” said Mr. Yaghi. “In fact, the company is likely to report weaker 1H20 growth metrics than its peers. However, the lifetime value of its subscribers should benefit from the rapid transition to unlimited plans, which should strengthen its fundamentals in the longer term.”

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The impact of global trade wars on economic growth remains an overhang for base metals equities, said CIBC World Markets analyst Oscar Cabrera in a research report released Thursday.

Accordingly, he said continues to prefer supply-constrained bulk commodity stocks, like iron ore and metallurgical coal, in the near term.

“We tweaked most of our bulk commodities (i.e., iron ore, metallurgical coal) and base metal forecasts over the next three years (2020-2022), with limited impact to companies under coverage,” he said. “The most notable updates included an average 10 per cent and 14-per-cent downgrade to our 2020-22 nickel price and blast furnace pellet premium forecasts, respectively, during the period. We also reduced our iron ore long-term price forecast to $70 per tonne (marginal cost) from $80 per tonne (incentive price).”

Concurrent with the changes, Mr. Cabrera raised his ratings for a pair of stocks:

* Hudbay Minerals Inc. (HBM-T) to “outperformer” from “neutral” with a $8 target, rising from $5 and above the average of $7.18.

Analyst: “We expect HBM’s copper-equivalent production to increase 8 per cent year-over-year in 2021, with improved copper and gold production from Constancia (Pampacancha) and gold production from Manitoba (gold zones). In our view, a resolution for the Pampacancha land rights negotiation (first production for H2/20) and further exploration success in Manitoba remain the main short-term positive catalysts for the stock, while an earlier resolution on Rosemont’s appeal process (current estimate of two years) could lead to a re-rate in stock price in the mid-to-long term. We utilize a 0.7 times P/NAV multiple (below peer average of 0.9 times) to arrive at HBM’s price target. Thus, we believe risks associated with these catalysts are captured.”

* Turquoise Hills Resources Ltd. (TRQ-T) to “outperformer” from “neutral” with a $1.60 target, up from $1. The average is $1.68.

Analyst: “We upgrade Turquoise Hill Resources ... after an increase to our NAV estimate from rolling over our model to 2021 (vs. 2020), improved 2021 copper and gold production (following guidance released on January 16, 2020), lower-than-expected 2020 capex and improved sovereign risk with recent positive developments on OT’s investment agreement after a Mongolian Parliamentary Working Group presented its findings. We expect market focus to remain on the revised mine plan for the OT underground development project to be announced in H2/20 (i.e., production profile, capex) and funding for OT’s power plant. However, we believe our OT discount rate (14 per cent), target P/NAV multiple (0.7 times, lower than copper peers), OT underground start-up date (2023) and top of the range assumption for a capex overrun ($1.9-billion) adequately value existing risks. TRQ’s 66-per-cent-owned OT project is expected to be one of the largest copper-producing mines next decade, offering great leverage to copper, our preferred based metal. Exhibit 6 provides an overview of TRQ’s forecasted copper-equivalent production profile and FCF generation over the next decade."

Mr. Cabrera also named Teck Resources Ltd. (TECK.B-T) and Labrador Iron Ore Royalty Corp. (LIF-T) as his top picks for 2020.

“Both companies have a strong balance sheet and the opportunity to increase cash return to shareholders in 2020,” he said. “LIF with supplemental dividends from IOC, and TECK before higher net outflows for its Quebrada Blanca 2 (QB2) project start in 2021.”

He has an “outperformer” rating and $39 target (up from $37) for Teck. The average on the Street is $30.87.

The analyst also has an “outperformer” rating for Labrador Iron with a $32 target (down from $34). The average is $29.25.

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Desjardins Securities analyst Doug Young lowered his earnings expectations for Bank of Nova Scotia (BNS-T, BNS-N) in response to the first half of its investor day in Santiago, Chile on Wednesday.

“The bank covered its Canadian banking business and provided an all-bank financial update,” he said.

“A key theme was how BNS has simplified the bank. It has exited over 20 non-core countries since 2013 and is now focused on its six core markets (Canada, U.S., Mexico, Peru, Chile and Colombia).”

Mr. Young said the bank reaffirmed its medium-term objectives of 7-per-cent-plus earnings per share growth, 14-per-cent-plus return on equity (ROE), positive operating leverage and strong capital levels.

“That said, net of all the acquisitions and divestitures, BNS expects EPS growth of 2 per cent in FY20,” he said. “First, recent acquisitions added $255-million in FY19 and are expected to add $380-million in FY20 (up $125-million relative to FY19), both ahead of plan. Second, BNS expects divestitures to impact earnings by $500-million in FY20 (larger than we expected, driven by strong earnings from Thanachart in FY19). Relative to FY19, the bank expects M&A to weigh on earnings by $375-million, or 20 cents per share (3-per-cent drag on EPS growth), after factoring in FY19 buybacks. The global wealth management acquisitions (Jarislowsky and MD Financial) added $115-million in FY19 and are expected to contribute $160-million in FY20. We expect more colour on this [Thursday].”

Citing its international bank performance and pre-announced additional provisions for credit losses (PCL) in the first quarter, Mr. Young lowered his 2020 cash EPS estimate to $7.16 from $7.33. His 2021 projection slipped to $7.60 from $7.75.

He maintained a “buy” rating and $80 target for Scotiabank shares. The average on the Street is $77.60.

“While the repositioning makes sense to us, the moving parts have created lots of noise in quarterly results,” said Mr. Young. “That said, BNS’s valuation remains compelling and we expect its results to clear up through FY20.”

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K92 Mining Inc. (KNT-X) is a “compelling” investment, according to Canaccord Genuity analyst Tom Gallo, pointing to the scalability of the main Kora operation at its Kainantu Gold project in Papua New Guinea highlands and its “breadth of mineral potential.”

“Certainly, geopolitical risk exists and should be front of mind for those considering an investment in the company," he said. "It is not lost on us by any means that this stock will likely trade at a discount to Canadian peers. Despite this risk, we view the current P/NAV [price-to-net asset value] discount of 36 per cent as too great. We believe the project’s upside, through production growth and discovery potential, outweighs and justifies any country risk.”

Based on that view, he initiated coverage of the Vancouver-based company with a “buy” rating.

“Following a thorough site visit, we were impressed with the geologic continuity of both the K1 and K2 veins and believe the company can efficiently mine at current rates, as well as scale production as the plant requires,” said Mr. Gallo. “Despite the lack of mineral reserve, the mine plan is continually updated with live drilling data, and from our observations the model appears to be reconciling positively. As we understand the deposit, grade is relatively homogeneously distributed. In addition, the team has considerable operational, exploration and country experience, and we believe is primed to lead K92 to further discovery, optimization and growth.”

The analyst set a target price of $5 per share, which exceeds the consensus of $4.50.

“Despite geopolitical risk exposure, K92 is well located in country, with sufficient mineral endowment, high grades and discovery potential – all of which we believe will drive share price appreciation," he said.

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Though he thinks Birchcliff Energy Ltd.'s (BIR-T) five-year plan for production and free cash flow growth is “intriguing,” AltaCorp Capital analyst Patrick O’Rourke expects near-term equity headwinds stemming from its increased capital expenditure budget.

After the bell on Wednesday, Birchcliff released its 2020 budget of $340-$360-million, which fell narrowly above the high end of its preliminary guidance ($250-$350-million) and exceeded the projections of Mr. O’Rourke ($290.6-million) and the consensus on the Street ($307.8-million).

“BIR’s five-year plans sees free cash flow growing from $10-30-million in 2020 to $270-million in 2024, with capex declining from $340-360-million to $240-million over the same period,” he said. BIR’s FCF profile increases throughout the five-year plan, as capex declines over 2020 to 2024 and the Company maintains it production profile as it begins to fully utilize its existing infrastructure."

With the announcement, Mr. Rourke maintained an “outperform” rating and $4 target for Birchcliff shares. The average is $4.26.

“Overall, we believe that the market may view the event negatively in the near-term, with higher than anticipated near-term capex (and an associated decline in near term FCF) to fund required liquids infrastructure and pre-drilling to fill latent gas processing capacity to likely weigh on the stock today (Jan. 23),” he said. “However, investors with a more patient time horizon may come to realize the operational/capital leverage in filling latent low cost gas supply in the medium and longer term.”

Elsewhere, Tudor Pickering & Co analyst Jordan McNiven cut Birchcliff to “sell” from “hold” with a $1.50 target.

Laurentian Bank Securities’ Todd Kepler increased his target by 25 cents to $5 with a “buy” rating (unchanged).

Raymond James’ Jeremy McCrea kept a “strong buy” rating and $4.50 target.

Mr. McCrea said: “Ultimately, as BIR completes previously announced infrastructure spending to reduce costs for 2021+, the free cash flow of the company begins to show. Unfortunately, investor patience is not high in this market and the company may not fully see the impressive benefit of its 5-year plan right away.”

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Possessing a geological model that is “coming together” in a top investment jurisdiction, Aurion Resources Ltd. (AU-X) is likely to draw “significant” interest from larger producers, according to Haywood Securities analyst Mick Carew.

He initiated coverage of the St. John’s-based company with a “buy” rating.

“We like Aurion as it is one of only a small group of Companies with a significant land position in the under-explored Central Lapland Greenstone Belt in Finland, which in our view remains one of the most attractive exploration and mining investment destinations in the world,” said Mr. Carew. “Key to our positive view on Aurion is its sizeable, largely unexplored land package (100,000 Ha). Aurion has made great advances at Aamurusko, defining a geological model that has aided drill targeting, while preliminary work at Launi suggests it could be a future flagship project. We view Aurion as an ideal segue for a gold producer to gain a foothold in northern Finland.”

Mr. Carew feels Aurion’s land package is likely to draw interest from both other producers already in the country, including Agnico Eagle Mines Ltd. (AEM-T), and “those looking for a segue into what remains an under-explored region for orogenic gold deposits supported by excellent infrastructure and road access throughout the country.”

He noted both Kinross Gold Corp. (K-T) and Newmont Goldcorp Corp. (NGT-T) hold an equity interest in the company

“Our three site visits to Finland in consecutive years (2017 to 2019) gave us the opportunity to see the significant progress Aurion has made since its boulder discovery in 2016," said Mr. Carew. “With a portfolio of promising projects and a large under-explored land package, we see plenty of upside to come in 2020 and beyond.”

He set a target of $3.50 per share. The average on the Street is $3.25.

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In other analyst actions:

  • Seeing its current valuation as attractive and noting the stock is inexpensive by historic standards due to “overdone compression in the valuation of the core meat protein segment," RBC Dominion Securities analyst Irene Nattel raised Maple Leaf Foods Inc. (MFI-T) to “outperform” from “sector perform” with a $33 target, down from $35. The average on the Street is $32.
  • Credit Suisse analyst Fahad Tariq upgraded Kinross Gold Corp. (KGC-N, K-T) to “neutral” from “not rated” with a US$5.25 target. The average on the Street is US$5.79.
  • B Riley FBR initiated coverage of Enthusiast Gaming Holdings Inc. (EGLX-X) with a “buy” rating and $3 target, which sits 45 cents below the consensus.
  • Stephens analyst Mark Connelly cut Nutrien Ltd. (NTR-N, NTR-T) to “equal-weight” from “overweight” and lowered his target to US$55 from US$68. The current average is US$59.19.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 3:59pm EDT.

SymbolName% changeLast
RCI-B-T
Rogers Communications Inc Cl B NV
-0.72%55.5
BNS-T
Bank of Nova Scotia
+0.94%70.07
BNS-N
Bank of Nova Scotia
+1.21%51.78
AU-X
Aurion Resources Ltd
-1.59%0.62
BIR-T
Birchcliff Energy Ltd
+0.56%5.34
AEM-T
Agnico Eagle Mines Ltd
+2.9%80.77
K-T
Kinross Gold Corp
+3.88%8.31
NGT-T
Newmont Corp
+1.46%48.56
KGC-N
Kinross Gold Corp
+4.25%6.13
MFI-T
Maple Leaf Foods
-2.8%22.21
HBM-T
Hudbay Minerals Inc
+1.07%9.48
LIF-T
Labrador Iron Ore Royalty Corp
-0.52%28.88
TECK-B-T
Teck Resources Ltd Cl B
+4.01%62
NTR-T
Nutrien Ltd
+1.11%73.59
NTR-N
Nutrien Ltd
+1.27%54.31

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