Inside the market overview of some of today’s key analyst actions
Rogers Communications Inc. (RCI.BT) agreement for the sale of wireless operator Freedom Mobile Quebecor Inc. (QBR-BT) for $ 2.85 billion is likely to be seen as “positive” for investors, according to Canaccord Genuity stock analyst Aravinda Galapatige, who believes it is likely to bring them to the bottom line in terms of providing Shaw Cable ”. worried. “
In a research report released Monday, he improved his recommendations for both Rodgers and Shaw Communications Inc. (SJR-BT) to “buy” from “detention”, expecting the tripartite agreement to satisfy the Commissioner of the Federal Competition Bureau and the Ministry of Innovation, Science and Economic Development on issues related to their merger.
Rodgers will win nearly half a million customers as part of a deal to sell Freedom Mobile
Mr Galapatige believes the freedom deal raises the prospect of the Rodgers-Show deal closing to over 95 per cent.
For Rodgers, he believes the deal with Quebecor came at a higher price than originally expected “given the lower-than-expected estimate for Freedom (compared to the $ 3.75 billion bids published in the media)” and the asset ” eventually went to the least desired buyer in terms of Rodgers (and the incumbent).
“Given this news, which we see as net positive and the sharp decline in shares by 21% after their report for the first quarter two months ago, we chose to improve shares from” Hold “to” BUY “. said the analyst.
However, to reflect “tighter macros and lower market ratings”, he lowered his target price for Rodgers shares to $ 69 from $ 71. The average value of the street is $ 78.07, according to Refinitiv.
“Ultimately, this is a positive thing for Rodgers, given that it probably clears the way for closing the Shaw deal and reaping both short-term synergies and long-term benefits (eg better 5G positioning) from the deal.” said Mr Galapatige. “Having said that, it seems to have been a little more expensive than originally planned, given the slightly lower valuation of wireless assets and roaming / roaming concessions in Quebec. According to our calculations, with this transaction the acquisition of Shaw’s cable assets turns into 10.9x EV / EBITDA based on preliminary synergy. This, of course, falls below 8 times when full synergies are taken into account. On the other hand, we believe that Rodgers’ shareholders (and even BCE’s investors, TELUS) can be relieved by the lack of a network share agreement as part of the agreement.
“We note that with this design, Rodgers’ balance sheet leverage will increase up to 5.15 times net debt / pro forma LTM [last 12-month] EBITDA (preliminary synergies) at closing. “
For Shaw, he raised his target back to the $ 40.50 bid from $ 35. The average is $ 39.80.
It maintains a buy rating and a $ 30 target, below the average of $ 34.33, for Quebecor shares.
“For QBR, it’s a mixed bag,” he said. “On the one hand, the opportunity to develop Canada’s fourth national wireless operation comes with significant growth potential. If implemented successfully, this represents a significant improvement in QBR NAV. On the other hand, this raises vulnerabilities and questions about the prospect of long-term success as a national wireless player (eg exposure to promotional activities in Quebec, balance with leverage, inexperience outside Quebec). We estimate that the initial leverage will be 3.9 times (net debt / LTM EBITDA). We chose to keep our current target of $ 30 per share and our BUY rating.
“Although it is too early to determine the long-term impact of this transaction, which will depend heavily on Quebecor’s strategies and implementation, we believe this result is moderately negative for incumbents. Rodgers, BCE and TELUS would prefer one of the other proposed buyers to take Freedom, given that QBR is perhaps the strongest competitor the starters can face. That said, it’s still a long journey to Quebec.
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National Bank financial analyst Adam Shine believes Quebecor Inc.‘s (QBR-BT) $ 2.85 billion deal to acquire wireless carrier Freedom Rogers Communications Inc. (RCI-BT) is a “reasonable” price that does not require equity or partners.
Estimating that the purchase price was approximately $ 2.75 per share less than expected from Street, Mr. Shine upgraded Quebecor to a “surplus” from “performance in the sector” before.
“Proforma leverage will be 3.8 times with a strong FCF ready to withdraw before the next spectrum auctions,” he said. “We estimate that Quebecor adds $ 1.1 billion to $ 1.2 billion in revenue and $ 400 million in EBITDA for related multiples 2.5 times and 7.1 times. The assumption remains that Freedom will be rebranded as Fizz and Quebecor enter Ontario, Alberta and British Columbia with a mobile offer plus a package through a TPIA agreement with Rodgers.
“Before the news of freedom, the Competition Bureau (CB) responded to Rogers & Shaw and reiterated its opposition to their deal. CB continues to argue that the sale of Freedom is “not an effective remedy” and will weaken Freedom as a competitor and will not replace Shaw Mobile’s competition. We do not agree. The parties must notify the Competition Tribunal on 23 June if they intend to seek mediation, the first round of which will take place on 4-5 July. We will now see if the parties can reach an agreement through negotiations this summer, which could allow the deals to be concluded in July or August. It would be useful for Quebecor to get approvals and close Freedom before September to better position it for back to school and holiday sales in 2H22. ”
Seeing that Quebecor “is positioned to become the fourth wireless operator in Canada”, he maintained a target of $ 32 per share. The average street target is $ 34.33.
“QBR shares appear to have been resold due to concerns about the wireless raid outside Quebec, and the recent management of low cable performance is expected to be resolved by the end of 2H22,” he said.
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Having recently hosted institutional meetings with Suncor Energy Inc. (SU-T) in London, RBC Dominion Securities analyst Greg Pardi said he was “encouraged that the company has a tighter group on the steps needed to regain the status of best-in-class oil sands operator “.
This prompted him to upgrade the Calgary-based company to outperform the sector on Monday.
“We believe Suncor has reached a favorable tipping point, as it is about improving its reliability and safety,” Mr Pardi said. “It will take time and there will certainly be bumps in the road, but the direction of traffic is already clearer. Suncor’s market valuation has the potential to rise on a relative basis. To illustrate, turning half a few points in Suncor’s debt-adjusted cash flow for 2022, applied to our baseline outlook, would amount to a stock price rise of about $ 7.
He raised his target for Suncor shares to $ 53 from $ 47. The average target on the street is $ 55.68.
At current levels, Suncor is trading at a debt-adjusted multiple of cash flow 3.3 times in 2022 (against the average of our global core group of partners 3.9 times) and at a free cash flow return of 24 % (compared to our partner group on average 19 percent) “, said the analyst. “We believe that the company should trade on average many times over our partner group, given its physical integration, free cash flow generation and shareholder returns, partially offset by the disappointing performance in recent years.
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Believing that her assessment “has never been so attractive”, Scotia Capital analyst Konark Gupta raised his recommendation for Cargojet Inc. (CJT-T) on “Sector Presentation” from “Sector Presentation” on Monday.
“CJT is trading at just under 7 times EV / NTM EBITDA [enterprise value to next 12-month earnings before interest, taxes, depreciation and amortization] as the market grows, it is worried about a potential downturn due to high inflation, while the company will spend $ 1 billion on capital expenditures for growth over the next four years (70% backed by announced contracts), ”he said. “Since winning the Canadian Post Transformation Agreement in early 2014, the CJT has traded an average of 10.5 times (7.5 to 16.5 times). Prior to the effects of COVID-19, it was traded more than 14 times in February 2020.
“While we assess macro-uncertainty and its impact on equity assessments, we believe that a 7-fold increase in a highly secure business in a structurally stronger industry is an attractive entry point for even risky investors and a deep-seated deal for long-term investors.”
Mr Gupta said he was “confident” that the Mississauga-based company has the inherent ability to greatly mitigate the effects of the recession or stagflation through long-term contracts (including DHL’s latest contract), while the air cargo market continues to it is still quite under pressure – delivered. “
In this regard, he highlighted his “unique” business model, which “provides immunity”, noting: “Most CJT businesses are under long-term contracts with minimum guarantees (such as receivables or payments), fixed prices with CPI- connected escalators and additional charges for uncontrollable costs (including fuel). Of the three segments, 25% of domestic and almost 100% of All-in Charter revenues are not agreed, although spot demand exceeds supply in these segments, so CJT refuses volumes. ACMI [Aircraft, Crew, Maintenance and Insurance] Revenues have been agreed and are ready to witness solid growth from the new seven-year deal with DHL, in force Q2 / 22, which is the first of its kind in the industry. The CJT expects the contract to generate $ 2.3 billion in cumulative revenue over seven years (an average of $ 330 million a year), extending DHL’s current revenue rate to probably $ 120-160 million. We note that DHL is committed to using nine of the upcoming ~ 20 CJT aircraft, as seven aircraft will …
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