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

Calling it “the first class name in copper” that is poised for a “substantial” re-rating, Beacon Securities analyst Jacob Willoughby initiated coverage of First Quantum Minerals Ltd. (FM-T) with a “buy” rating.

"First Quantum is an extremely well-managed, top ten global copper producer with output of over 1.25 billion pounds a year at cash costs of roughly $1.50 per pound and a plus-twenty year operating history," said Mr. Willoughby in a research report released Tuesday. "No other public company has grown its copper production as much as First Quantum. The company has accomplished this growth (from zero to over one billion pounds a year) by a balance of exploration success, organic growth and timely strategic acquisitions. Its biggest growth came from acquiring Inmet Mining in early 2013 in a hostile deal valued at $5.1-billion. In so doing, they acquired the majority stake in the massive Cobre Panama Cu-Mo-Au-Ag open pit mine that has a defined life of AT LEAST 40 years.

"Although the company currently has $6.7-billion in long term debt, it could possibly be debt free in five years even if metal prices stay fixed at current levels. The company is in a strong position as it should generate roughly $1.5-billion in EBITDA this year and has $1.67-billion in working capital. In addition to its seven operating mines, it owns a very large nickel mine currently on care and maintenance and a two high quality large scale copper development projects (in Argentina and Peru)."

The analyst set a target price of $21 for First Quantum shares. The average target on the Street is $20.08, according to Thomson Reuters Eikon data.

“We would note that although the company currently derives over 90 per cent of its revenue from copper, it has the ability to add significant nickel production by restarting its large Ravensthorpe nickel mine and by processing nickel ore from its Trident nickel deposit located adjacent to its Enterprise processing plant,” he said. “This would provide the company with some revenue diversification and we fully expect nickel prices to continue to appreciate in the near term. This potential diversification distinguishes First Quantum from any of its publicly traded copper producing piers.”

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Goodfood Market Corp. (FOOD-T) possesses “all the right ingredients,” according to Acumen Capital analyst Jim Byrne, who sees its shares trading at an attractive valuation versus peers despite “explosive” growth rates.

In a research report released Tuesday, Mr. Byrne initiated coverage of Montreal-based Goodfood, which has grown to be the largest company in the expanding home meal solutions industry with an estimated 40-per-cent market share, with a "buy" rating.

"Goodfood has demonstrated tremendous growth since its inception," he said. "With the national launch in May 2018, that growth shows little signs of abating. Subscribers and top line revenue have jumped more than 180 per cent and 163 per cent in Q1/FY19 over Q1/FY18, respectively. Quarter-over-quarter growth in Goodfood’s customer base has averaged 67 per cent since 2016 and jumped 42 per cent in Q1/FY19.

"Using the company’s convention of adjusted gross margins (adjusted by using gross merchandise sales not revenue) we’ve seen solid margin expansion in the past several quarters despite the seasonal impacts in the summer and around winter holidays. Increased market penetration, additional investments in automation, and new product offerings will all drive gross margins higher as logistical costs and value per order increase. Management estimates that gross margin run-rates can reach 45 per cent when they reach their automation targets and increased market penetration."

Mr. Byrne set a target price of $5 per share. The average target on the Street is currently $4.63.

"Goodfood’s subscriber base has grown to more than 126,000 as of Nov. 30, 2018, up from 45,000 the year prior and just 8,000 two years ago," he said. "With more than 15 million households in Canada and with only 4 per cent of those having purchased a meal kit in the past year there is plenty of runway ahead. More established markets in the U.S. have seen as high as 25 per cent of households ordering at least one meal. The Canadian population is more geographically concentrated and could present better margins as economies of scale in logistics, packaging, and food suppliers develop with market penetration. On a price/sales ratio, Goodfood shares trade at 1.2 times 2019 estimated sales, slightly ahead of its peer group while growing at significantly faster rates."

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Monday’s announcement of a positive final investment decision for Pembina Pipeline Corp.'s (PPL-T) joint venture integrated propane dehydrogenation plant and polypropylene upgrading facility with Petrochemical Industries Company K.S.C. was hardly a surprise, said Industrial Alliance Securities analyst Elias Foscolos.

However, he emphasized it "will have a long-term positive impact on the company as it diversifies its asset base while simultaneously leveraging its existing rail infrastructure as a cost-effective way to access the PP market."

The Alberta facility is expected to have a gross capital cost of $4.5-billion with Pembina's net investment of $2.5-billion, representing a 50-per-cent interest in the plant and a 100-per-cent directly owned interest in the supporting facilities.

"The investment is anticipated to generate annual adjusted EBITDA of $275-350-million, net to Pembina, and we are on the upper-end," said Mr. Foscolos. "We expect the royalty credits of $300-million to be realized over the next four to five years at approximately $60-million in annual incremental EBITDA, which is already baked into the company’s guidance. Pembina has secured over 40 per cent of its adjusted EBITDA from this project through take-or-pay, fee-for-service and other commercial arrangements with third parties that have a weighted average length of 14 years."

With a "buy" rating for Pembina Pipeline shares, Mr. Foscolos raised his target by a loonie to $55. The average target is $54.61.

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Blackline Safety Corp.'s (BLN-X) growth has exceeded the expectations of Raymond James analyst Ben Cherniavsky, who now expects the Calgary-based global connected safety technology company to be “in the black” by the end of fiscal 2019, almost a year ahead of his originally projection.

On Monday, Blackline reported revenue for the fourth quarter of 2018 of $5.5-million, slightly ahead of the analyst’s $5.3-million forecast. However, a loss of 6 cents per share also topped his expectation (a 4-cent loss).

"With F18 now in the books, we believe it is appropriate for us to 'take stock' of the situation andevaluate how Blackline has developed since we initiated coverage nearly two years ago," said Mr. Cherniavsky. "Recall that, back then, this was — and in many ways still is — an early-stage growth story. After several years of product development, Blackline's revenue had been gaining traction, increasing from $2-million in F10 to $8-million in F16. This growth, however, did not include any contribution from the company's most promising product — namely, the G7 — which had just received market certification around the time of our IOC report. Based on the research we conducted at that time and our knowledge of management and the gas detection marketplace from our days covering BW Technologies, we sensed (pardon the pun!) that the commercial introduction of the G7 would prove to be a material catalyst for the company's future growth, and in turn its stock price. Looking back with two years of hindsight we have not been disappointed. Specifically, from F16 to F18 Blackline's revenue has nearly doubled to $17.8-million, slightly exceeding the initial F18 sales forecast of $17.0-million that we issued in the IOC. Adjusted formix issues (leasing contracts have been higher than we expected), Blackline's growth has beaten our expectations by an even wider margin."

Mr. Cherniavsky said he views revenue growth as the most appropriate measurement of the company's success, adding he's "pleased with how this story has unfolded and continue to recommend its stock to investors.

"That said, profitability is obviously of paramount importance,and is the ultimate (and imminent) goal for the company," he added. "On this front, Blackline's progress has been tracking slightly behind schedule with net losses totaling $9.0-million in F18 versus our initial forecast of a $5.2-million loss for the year. Some of this reflects a few inevitable road bumps along theway, but it is mostly a function of the accelerated investments that management has been makingin product development and sales force/distribution. We are therefore, willing to be a little more patient with Blackline's bottom line."

Maintaining an "outperform" rating for the stock, Mr. Cherniavsky raised his target to $7.50 from $6. The average on the Street is $7.83.

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In the wake of a second consecutive profit beat and earnings guidance raise, Canaccord Genuity Doug Taylor increased his target price for shares of Absolute Software Corp. (ABT-T).

On Monday after market close, the Vancouver-based endpoint security and data risk management solutions company reported second-quarter EBITDA of $4.5-million, exceeding the projections of both Mr. Taylor ($3.9-million) and the Street ($3.6-million).

With the results, Absolute raised its EBITDA margin guidance to 16-19 per cent from 14-17 per cent and above the Street's expectation of 15 per cent.

“The results also represented the first quarter reported under new CEO Christy Wyatt who signaled no significant changes at this point to the overall strategy, which remains focused on balancing both reaccelerating growth and efficiency,” said Mr. Taylor. “While our rating on Absolute Software remains at a HOLD as we look for better organic growth to justify a higher valuation, we believe the company’s financial position, including a more stable profit base, continues to improve.”

The analyst's target rose to $9 from $8.25, which falls below the average of $9.40.

Elsewhere, Paradigm Capital’s Kevin Krishnaratne said “trends [are] moving in the right direction.” He raised his target to $8.50 from $8 with a “hold” rating.

Mr. Krishnaratne said: "Absolute Software is a uniquely positioned global provider of information security services for endpoint devices. Management has executed several initiatives over the past year aimed at leveraging Absolute’s leadership position in hardware and device tracking to enable a richer set of value-added software services focused on the large and growing information security market. The opportunity for Absolute is large, as 500+ million devices have been embedded with its technology but only 1 per cent are enabled with its services."

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Though he thinks oriented strand board markets are likely to remain oversupplied through 2020, CIBC World Markets analyst Hamir Patel raised his financial expectations for Norbord Inc. (OSB-T, OSB-N) to “reflect a slightly better year-end 2018 balance sheet than previously forecast.”

“For many years, some of our OSB trade contacts have expressed skepticism about the accuracy of nameplate mill capacity figures reported by the industry, pointing to how little they seemed to change over the last decade despite the typical ‘creep’ experienced across most forest products businesses (0.5-1.0 per cent per year),” he said. "With Norbord suddenly revising its NA capacity higher by 7 per cent (+560 mmsf/yr) last week (due to investments made over the past six years), it appears this skepticism was justified. We suspect other producers have also been slow to revise their capacity figures, suggesting industry capacity may be at least 5 per cent higher than generally assumed.

"This only further adds to the pressure on industry op. rates as new residential growth stalls while recent capacity additions (five mills since Q4/17) are still ramping up. Our latest channel checks also suggest Forex’s Amos, QC mill (450 mmsf/yr) has yet to make its presence felt, running at less than 10-per-cent op. rates today as it produces starter board pending the approval of its APA stamp (expected by mid-year). "

Despite its lower-than-anticipated fourth-quarter results, Mr. Patel raised his 2019 and 2020 earnings per share projections to $1.61 and $1.57, respectively, from $1.59 and $1.54.

He maintained an “underperformer” rating for Norbord shares with a $30 target, rising by a loonie. The average target is $41.65.

Elsewhere, RBC Dominion Securities cut Norbord to “outperform” from “top pick.”

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In other analyst actions:

B. Riley FBR analyst Eric Wold raised DHX Media Ltd. (DHX-T) to “buy” from “neutral” with a target of $4, up from $3.50. The average on the Street is $2.52.

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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 2:59pm EDT.

SymbolName% changeLast
FOOD-T
Goodfood Market Corp
+2%0.255
PPL-T
Pembina Pipeline Corp
+0.53%47.86
FM-T
First Quantum Minerals Ltd
+3.23%14.69

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