Inside the Market’s roundup of some of today’s key analyst actions
Nuvei Corp.’s (NVEI-Q, NVEI-T) deal to be taken private appears reasonably valued based on precedent transactions and relative to comparables, according to National Bank Financial analyst Richard Tse.
Accordingly, following Monday’s announcement of a definitive agreement to be acquired by private equity firm Advent International with Nuvei chair and chief executive Phil Fayer, Montreal-based private equity firm Novacap and pension giant Caisse de dépôt et placement du Québec (CDPQ) for US$34 per share, Mr. Tse moved his recommendation to “tender” from “outperform” previously, believing “the potential for a competitive bid is low given a non-solicitation covenant on the part of Nuvei and a meaningful ‘break fee’ of $150-million.
“Investors following our research may recall that Nuvei was one of the names we called out as a potential takeout candidate in our 2022 note entitled ‘Are Value Focussed Buyers Telling Us Something’,” he said.
“Bottom line, we believe the transaction represents fair value as noted above under the assumption that Nuvei was expected to grow in the mid-teens this fiscal year with mid-to-high-30s EBITDA margins. We expect the deal to close on schedule (i.e., late 2024 / Q1 of 2025) given: (1) unanimous approval by the multiple voting shareholders; (2) a premium valuation to its closest peers (12.0 times vs peer average 11.0 times); and (3) sizeable break fee (US$150-million) coupled with a non-solicitation clause.”
Mr. Tse moved his target for Nuvei shares to US$34 from US$30 to reflect the deal. The average target on the Street is US$33.37, according to LSEG data.
Meanwhile, other analysts making rating changes include:
* Scotia’s Kevin Krishnaratne to “sector perform” from “sector outperform” with a us$34 target, down from US$35.
* KBW’s Sanjay Sakhrani to “market perform” from “outperform” with a US$34 target, up from US$31.
Elsewhere, Canaccord Genuity’s Joseph Vafi bumped his target to US$34 from US$40 with a “buy” rating.
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Citing “a slower growth outlook based on competitive pressures in core wireless and wireline operations, particularly in Quebec and challenging comps in media,” BMO Nesbitt Burns analyst Tim Casey downgraded both BCE Inc. (BCE-T) and Quebecor Inc. (QBR.B-T) to “market perform” recommendations from “outperform” on Tuesday.
“We expect it will impact both wireless and wireline revenue and consolidated EBITDA through 2025,” he said in a pair of reports released before the bell. “We expect the impact of competitive pressures will be reflected in both wireless and wireline service revenues and consolidated EBITDA. We expect operating conditions in Quebec to remain very challenging given price competition in legacy wireline from Quebecor. Rogers FWA products and (eventually) MVNO wireless options from Cogeco will impact the market at the margin but will be an incremental negative.
“Our loading assumptions are relatively unchanged as we expect robust conditions to remain in 2024. The government recently outlined plans to slow immigration beginning in 2025. The new rules are targeted to return to 1-per-cent growth of 0.5 million per annum (vs. 3.2 per cent in 2023). This policy should be viewed in the context of a federal election in 2025.”
After reducing his forecasts across the sector, Mr. Casey cut his target for BCE shares to $46 target from $54. The average target on the Street is $54.29.
“While some of this is priced into the stock given a share price down 12 per cent year-to-date, we do not foresee a fundamental catalyst to revise estimates higher in the near term,” he said. “We are lowering target price multiples across the sector.”
His Quebecor target is now $33, falling from $42 and below the average of $39.02.
He also lowered his targets for these companies:
* Rogers Communications Inc. (RCI.B-T, “outperform”) to $65 from $80. Average: $74.83.
“• For Rogers, we expect the pressure will be reflected in lower cable revenue and EBITDA. We think wireless operations will continue to reflect Rogers operating momentum,” he said.
* Telus Corp. (T-T, “outperform”) to $24 from $26. Average: $26.19.
“We are trimming our Q1 estimates based on timing issues related to capex spend and a recovery in margins at TIXT. Our full-year outlook is for modest negative revisions as competitive intensity remains elevated in 1H24. We believe TELUS’s cash flow will be less impacted than peers based on business mix and regional exposure,” said Mr. Casey.
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Investors expect to see slowing growth for Dollarama Inc. (DOL-T) when it reports fourth-quarter 2024 results on Thursday, according to Desjardins Securities analyst Chris Li, who thinks the Street’s attention will centre on its 2025 outlook.
“We and consensus expect FY25 EPS growth to slow to 12 per cent from more than 25 per cent in the past two years as market conditions normalize and DOL laps outsized double-digit SSSG [same-store sales growth,” he said. “While DOL’s premium valuation in a slowing growth environment poses some near-term risk, our positive long-term view is based on structural industry tailwinds and the strength/resilience of DOL’s business model across all economic cycles.”
For the quarter, Mr. Li is projecting adjusted earnings per share of $1.05, falling in line with the consensus expectation. That comes off sales growth of 5 per cent, which is narrowly lower than the Street’s 5.5-per-cent estimate and down from 15.9 per cent in the fourth quarter of 2023.
“The focus will be on its FY25 outlook,” he said. “Key expectations include: (1) SSSG of 4.0 per cent vs 12 per cent in FY24 and consensus of 3.7 per cent. Our 4-per-cent SSSG is based on 1.5-per-cent unit price inflation (down vs 5–7 per cent in the past couple of years based on our estimates) and 2.5 per cent from ongoing trade-down and mix (ie increasing penetration of $4.25–5.00 price points launched in summer 2022). (2) Gross margin of 44.8 per cent (30 basis points year-over-year) vs consensus of 45.0 per cent, with the modest increase largely driven by lower freight/logistics costs in 1H. (3) SG&A expense rate of 14.8 per cent (20bps year-over-year), driven mainly by an increase in store labour costs. (4) 65 net new store openings (70 in FY24). (5) Capex of $210-million vs $190–200-million in FY24 (ex $88-million of property purchase). Ex the impact of an extra week, our FY25 EPS of $3.88 implies 12-per-cent year-over-year growth, down from more than 25 per cent in the past couple of years as market conditions normalize.”
While slowing growth is a concern, Mr. Li said his most recent in-store survey, which includes an analysis 350 items across 10 categories in Toronto and comparison to Walmart and Amazon, reiterated Dollarama’s strong position.
“Competition remains rational, with DOL maintaining its compelling value proposition (40–50 per cent lower vs WMT and AMZN on price per unit) and $4.25+ products enhancing the treasure hunt experience with new products in core destination categories (toys, kitchen, HABA, etc),” he said. “This is critical to DOL sustaining solid SSSG in FY25 and beyond.”
While he raised his 2024 and 2025 earnings and revenue projections, Mr. Li reaffirmed a “buy” recommendation and $107 target for Dollarama shares. The average is $105.09.
“Our positive view is based on DOL’s mix of defensive and growth attributes in an uncertain economic environment,” he concluded.
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“Another solid quarter [is] on deck” for Agnico Eagle Mines Ltd. (AEM-N, AEM-T), according to Citi analyst Alexander Hacking, who raised his estimates ahead of the release of its first-quarter results to account for a higher gold price forecast from the firm’s global commodities team.
“Citi expects average prices may trend higher over the next 3-6 months to $2,300 per ounce,” he said. “We see the market as supported well above $1,925/oz and in a bullish wildcard scenario, would call for $3,000/oz gold in a 12-month context. Positive factors include: Fed pivot, official sector demand, and alternate fiat demand.”
Mr. Hacking expects Agnico’s operating results to be “strong” but falling line with its guidance for production and costs. He’s currently projecting earnings per share of 58 US cents, which is 2 US cents higher than the consensus on the Street.
“We do not expect any significant corporate update,” he added.
Based on a “significant” increase to Citi’s gold price assumption, the analyst raised his 2024 EBITDA estimate by 3 per cent to US$4.1-billion and his 2025 projection by 32 per cent to US$3.7-billion.
He reaffirmed a “buy” recommendation and US$65 target for Agnico shares. The current average is US$66.95.
“AEM remains our top pick in Americas gold given its superior operating track record vs NEM and GOLD in recent quarters,” he said.
“Agnico is an excellent company in our view, with high quality assets and a strong operational track record. The company has demonstrated superior execution over the past decade. The acquisition of Kirkland Lake added low cost ounces in good jurisdictions. We currently see more upside than downside in the stock.”
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Eight Capital analyst Puneet Singh thinks lithium prices finally appear to be “bouncing off a bottom after a lengthy slide.”
In a research report released Tuesday titled Lithium: It’s Always Darkest Before the Dawn…, he acknowledged investor sentiment and headlines “seem to only be negative,” however he emphasized electric vehicle sales remain robust “regardless of the narrative.”
“Speaking with clients, as lithium prices fell sharply through the end of 2023 and equities sputtered along with it, we believe investor sentiment towards the sector reached the level of being ‘overhated,’” he said. “With the recent bounce off the trough in carbonate/hydroxide prices, partial short covering took place across the sector. Currently, battery grade lithium carbonate is trading at US$15,175/t (up 12.4 per cent year-to-date), battery grade lithium hydroxide is trading at US$13,950/t (up 19.2 per cent YTD), and spodumene (SC6) is trading at US$940/t (down 1.6 per cent YTD).
“We are starting to receive more inbound inquiries about lithium, which leads us to believe that sentiment is starting to shift. However, we believe the old commodity adage ‘the best cure for low prices is low prices’ needs to play out further. The sector needs prices to trade sideways for the time being for supply to be pressured into being shuttered. We believe companies will come to a decision on supply cuts post Q2/24 earnings if prices sustain their low levels, and this would spur lithium sentiment to return in earnest in H2/24. We see supply cuts as the most likely scenario but our demand projections are conservative. Better-than-expected Chinese passenger EV sales could also push for a tighter supply/demand balance. In 2024, we forecast battery grade lithium carbonate prices averaging US$16,000/t, battery grade lithium hydroxide prices averaging US$15,530/t, and spodumene (SC6) prices averaging US$1,125/t.”
With his expectation of supply cuts shifting the market back into a deficit as early as the second quarter of this year, Mr. Singh recalibrated his valuation multiples for stocks across his coverage universe. That led to several target price reductions:
American Lithium Corp. (LI-X, “buy”) to $4 from $5. The average on the Street is $6.39.
Critical Elements Lithium Corp. (CRE-X, “buy”) to $2 from $4. Average: $3.58.
E3 Lithium Ltd. (ETL-X, “buy”) to $7 from $8.50. Average: $7.15.
Lithium Americas Corp. (LAC-N/LAC-T, “buy”) to US$13.50 from US$16.50. Average: US$10.94.
Lithium Americas (Argentina) Corp. (LAAC-N/LAAC-T, “buy”) to US$14 from US$14.50. Average: US$13.44.
Standard Lithium Ltd. (SLI-X, “buy”) to $6 from $12. Average: $6.60.
He maintained a $20 target and “buy” recommendation for Patriot Battery Metals Inc. (PMET-T). The average is $16.60.
“We expect PMET (top lithium pick) to be a relative outperformer as it continues to add value through exploration,” said Mr. Singh. “We expect LAC to be preferred over LAAC until it proves to the market it’s past its ramp-up issues at Cauchari. Prior to the pullback in lithium prices, ETL was an outperformer in 2023 as it started up its field pilot plant. ETL’s PFS results are coming soon and a return to news flow could potentially spark a recovery. We see deep value in CRE (in the penalty box until partnership announcement), LI (Nasdaq minimum bid requirement overhang) and SLI (the use of its ATM is an overhang until a partnership is announced) as all trade at 0.11-0.15 times P/NAV but all three likely need a recovery in sentiment and the removal of overhangs before investors return.”
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In other analyst actions:
* Canaccord Genuity’s Aravinda Galappatthige cut his Boat Rocker Media Inc. (BRMI-T) target to $3 from $3.50 with a “buy” rating. Other analysts making changes include: TD Cowen’s Vince Valentini to $2 from $2.75 with a “buy” rating and RBC’s Drew McReynolds to $4 from $5 with an “outperform” rating. The average is $3.13.
“Q4/23 results were slightly better than expected while a still strike-impacted 2024 adjusted EBITDA outlook was ahead of our forecast. Factoring in more conservative growth assumptions for 2025, our price target decreases from $5 to $4. We continue to see value in the stock alongside what we believe is upside potential to our 2025 forecast,” said Mr. McReynolds.
* Following Monday’s announcement that its refinery in Burnaby, B.C., returned to normal operations on March 29, BMO’s John Gibson reduced his Parkland Corp. (PKI-T) target to $55 from $57 with an “outperform” rating. The average is $54.45.
“We are updating estimates to reflect higher-than-expected downtime in Q1/24. Post update, we are decreasing our target price to $55 ($57 prior), which reflects a modestly lower target multiple for the company’s refining operations (4.0 times now vs. 4.5 times prior),” said Mr. Gibson. “We continue to believe strong upside lies in the shares pending PKI can execute on its short- and longer-term targets, particularly given incremental cost savings this year, although risk lies in its 2024 guide. We reiterate our Outperform rating.”
* JP Morgan’s Sebastiano Petti lowered his Rogers Communications Inc. (RCI.B-T) target to $81 from $90 with an “overweight” rating. The average is $74.32.
* CIBC’s Kevin Chiang raised his TFI International Inc. (TFII-N, TFII-T) target to US$175 from US$167 with an “outperformer” rating. The average is US$164.
Telus Corp. says it is avoiding offering “unprofitable” discounts as fierce competition in the Canadian telecommunications sector shows no sign of slowing down.
The company said Friday it had fewer net new customers during its third quarter compared with the same time last year, as it copes with increasingly “aggressive marketing and promotional pricing” that is prompting more customers to switch providers.
Telus said it added 347,000 net new customers, down around 14.5 per cent compared with last year. The figure includes 130,000 mobile phone subscribers and 34,000 internet customers, down 30,000 and 3,000, respectively, year-over-year.
The company reported its mobile phone churn rate — a metric measuring subscribers who cancelled their services — was 1.09 per cent in the third quarter, up from 1.03 per cent in the third quarter of 2023. That included a postpaid mobile phone churn rate of 0.90 per cent in its latest quarter.
Telus said its focus is on customer retention through its “industry-leading service and network quality, along with successful promotions and bundled offerings.”
“The customers we have are the most important customers we can get,” said chief financial officer Doug French in an interview.
“We’ve, again, just continued to focus on what matters most to our customers, from a product and customer service perspective, while not loading unprofitable customers.”
Meanwhile, Telus reported its net income attributable to common shares more than doubled during its third quarter.
The telecommunications company said it earned $280 million, up 105.9 per cent from the same three-month period in 2023. Earnings per diluted share for the quarter ended Sept. 30 was 19 cents compared with nine cents a year earlier.
It reported adjusted net income was $413 million, up 10.7 per cent year-over-year from $373 million in the same quarter last year. Operating revenue and other income for the quarter was $5.1 billion, up 1.8 per cent from the previous year.
Mobile phone average revenue per user was $58.85 in the third quarter, a decrease of $2.09 or 3.4 per cent from a year ago. Telus said the drop was attributable to customers signing up for base rate plans with lower prices, along with a decline in overage and roaming revenues.
It said customers are increasingly adopting unlimited data and Canada-U.S. plans which provide higher and more stable ARPU on a monthly basis.
“In a tough operating environment and relative to peers, we view Q3 results that were in line to slightly better than forecast as the best of the bunch,” said RBC analyst Drew McReynolds in a note.
Scotiabank analyst Maher Yaghi added that “the telecom industry in Canada remains very challenging for all players, however, Telus has been able to face these pressures” and still deliver growth.
The Big 3 telecom providers — which also include Rogers Communications Inc. and BCE Inc. — have frequently stressed that the market has grown more competitive in recent years, especially after the closing of Quebecor Inc.’s purchase of Freedom Mobile in April 2023.
Hailed as a fourth national carrier, Quebecor has invested in enhancements to Freedom’s network while offering more affordable plans as part of a set of commitments it was mandated by Ottawa to agree to.
The cost of telephone services in September was down eight per cent compared with a year earlier, according to Statistics Canada’s most recent inflation report last month.
“I think competition has been and continues to be, I’d say, quite intense in Canada, and we’ve obviously had to just manage our business the way we see fit,” said French.
Asked how long that environment could last, he said that’s out of Telus’ hands.
“What I can control, though, is how we go to market and how we lead with our products,” he said.
“I think the conditions within the market will have to adjust accordingly over time. We’ve continued to focus on digitization, continued to bring our cost structure down to compete, irrespective of the price and the current market conditions.”
Still, Canada’s telecom regulator continues to warn providers about customers facing more charges on their cellphone and internet bills.
On Tuesday, CRTC vice-president of consumer, analytics and strategy Scott Hutton called on providers to ensure they clearly inform their customers of charges such as early cancellation fees.
That followed statements from the regulator in recent weeks cautioning against rising international roaming fees and “surprise” price increases being found on their bills.
Hutton said the CRTC plans to launch public consultations in the coming weeks that will focus “on ensuring that information is clear and consistent, making it easier to compare offers and switch services or providers.”
“The CRTC is concerned with recent trends, which suggest that Canadians may not be benefiting from the full protections of our codes,” he said.
“We will continue to monitor developments and will take further action if our codes are not being followed.”
French said any initiative to boost transparency is a step in the right direction.
“I can’t say we are perfect across the board, but what I can say is we are absolutely taking it under consideration and trying to be the best at communicating with our customers,” he said.
“I think everyone looking in the mirror would say there’s room for improvement.”
This report by The Canadian Press was first published Nov. 8, 2024.
CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.
It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.
The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.
Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.
TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.
The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.
This report by The Canadian Press was first published Nov. 7, 2024.
BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.
The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.
On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.
“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.
“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”
Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.
BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.
The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.
BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.
It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.
The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”
Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.
This report by The Canadian Press was first published Nov. 7, 2024.
