The Fairness Analysis Group at iA Capital Markets revealed their prime picks for 2023 in a report launched Monday.
The agency’s 2022 alternatives had an annual return of damaging 1.8 per cent, outperforming the TSX/S&P composite index, which fell 5.4 per cent.
“Though dipping into damaging territory, we nonetheless managed to outperform the TSX Composite Index by 360 foundation factors on this extraordinarily dynamic setting,” it mentioned.” Coming into 2023, we’re offering a refreshed High Picks checklist to begin Q1 whereas our Analysts proceed to ramp up protection on names within the names within the Expertise, Metals & Mining and Actual Property & REITs sectors.”
This 12 months’s checklist comprises 14 shares spanning the corporate’s rising protection universe. They’re:
Diversified Industries
Freehold Royalties Ltd. (FRU-T) with a “purchase” score and $20.50 goal. The common goal on the Road is $20.66, in accordance with Refinitiv knowledge.
“As an Oil & Fuel Royalty firm, FRU exposes traders to the sector by a lower-risk, non-operating enterprise mannequin with very low prices,” mentioned analyst Matthew Weekes. “Royalties present robust money returns and a pure hedge in opposition to inflation.
“FRU trades at a reduced valuation to friends regardless of being basically related, offering constructive anchor factors for valuation. FRU’s publicity to the U.S., which is exclusive amongst its peer group, gives extra diversification, publicity to premium-priced barrels, a hedge on USD/CAD FX charges, and a bigger alternative pipeline for M&A.”
Parkland Corp. (PKI-T) with a “purchase” score and $40 goal. The common is $39.29.
“PKI has recovered off lows reached in November after reporting weak Q3 outcomes however stays an underperformer in 2022 and attractively valued in our view at roughly 7 instances ahead EV/EBITDA, beneath its historic common, and 16-per-cent P/AFFO yield,” mentioned Mr. Weekes. “Not too long ago unveiled 2023 steerage tasks stronger year-over-year development than beforehand anticipated with out incremental M&A.
“PKI’s give attention to debt discount, optimizing property, natural development, and synergies ought to improve shareholder returns after being centered on M&A for a number of years. Past execution of near-term priorities, the potential for medium- to long-term valuation growth is pushed by development of meals and renewables technique, leading to a shift in enterprise combine and better margins.”
Healthcare & Biotechnology
DRI Healthcare Belief (DHT.U-T, DHT.UN-T) with a “purchase” score and $15.50 goal. The common is $14.92.
“A major set of transactions in 2022 will present heft and money flows, fuelling extra royalty curiosity exercise in 2023,” mentioned analyst Chelsea Stellick.”DRI expanded its portfolio into the uncommon illness house, which is a lovely market as a consequence of asset exclusivity and premium pricing for orphan medication.
“A number of drug property have upcoming medical improvement catalysts in extra indications for enhancing efficacy. As well as, DRI has an prolonged portfolio period of drug property and is properly capitalized with $20-million money and $97-million in accessible credit score. Anticipated deployment of the remaining goal of $275-375-million capital for royalty curiosity acquisitions by 2026.”
Quipt House Medical Corp. (QIPT-X) with a “purchase” score and $14 goal. The common is $12.62.
“Sturdy execution of roll-up technique as QIPT persistently acquires targets with greater than 20-per-cent Adj. EBITDA margins in states with a better prevalence of respiratory sickness and achieves synergies by overlaying its on-line resupply program,” mentioned Ms. Stellick. “QIPT’s specialised gross sales group of clinicians and residential medical tools consultants helps a constant stage of single-digit natural development by cross-selling providers, signing nationwide insurance coverage contracts, and opening de novo websites.”
Energy & Infrastructure
TransAlta Corp. (TA-T) with a “robust purchase” score and $16.50 goal. The common is $15.95.
“Sturdy Alberta energy market outlook to drive above-market expectations in working and monetary efficiency in 2023,” mentioned analyst Naji Bayoun. “Extra near-term FCF technology gives capital allocation optionality (e.g., buybacks, self-funded inside and exterior development initiatives). Sustained execution on clear vitality transition plans to underpin vital constructive valuation a number of re-rating, notably as TA diversifies its portfolio and invests in decrease threat, contracted clear energy property.
“Uneven threat/reward profile of the shares with draw back safety and upside optionality from Brookfield’s strategic help.”
Brookfield Infrastructure Companions LP (BIP.UN-T) with a “robust purchase” score and US$47.50 goal. The common is US$44.87.
“Based mostly on its distinctive capital deployment and execution observe file over the previous few years, we count on BIP to exceed its development targets once more in 2023 by benefiting from market dislocations and its entry to funding to capitalize on accretive & strategic M&A,” mentioned Mr. Baydoun. “Anticipating larger-scale asset monetizations to (1) floor/crystalize underappreciated worth from BIP’s present portfolio, and (2) help funding for development initiatives (i.e., inside sourcing of capital for M&A).”
“Finest-in-class diversified infrastructure platform with high-quality money flows; defensive portfolio attributes on show through the COVID-19 pandemic, whereas offensive traits proceed to repay within the present inflationary setting.”
Expertise
Lightspeed Commerce Inc. (LSPD-T) with a “purchase” score and US$27 goal. The common is US$30.76.
“We count on LSPD to supply robust Adj. EBITDA margins whereas delivering sturdy development as the trail in direction of profitability continues to be the foremost focus in F2024,” mentioned analyst Neehal Upadhyaya. “Focusing on excessive GTV/location prospects ought to assist in rising already sturdy ARPU metrics ($345 excluding Ecwid, up 45 per cent over the past six quarters) whereas reducing churn charges. We expect year-over-year income development of 25 per cent in FQ3, and at the same time as macroeconomic stress lowers GTV development, we count on funds income to assist backstop LSPD’s development initiatives as adoption charges improve.
“Present valuation presents a profitable alternative for traders to get again into the story as LSPD is buying and selling at simply 1.7 instances C2023 income, a far cry from its peer group common of 5.3 instances; as a consequence of this, we imagine the story is considerably de-risked.”
Wishpond Applied sciences Ltd. (WISH-X) with a “purchase” score and $1.50 goal. The common is $1.77.
“WISH stays undervalued regardless of 30-per-cent-plus year-over-year natural development, constructive Adj. EBITDA (11-per-cent margins final quarter), and sturdy FCF,” mentioned Mr. Upadhyaya. “Firm continues to carry out amidst difficult market circumstances for SMBs as its one-stop-shop advertising platform helps prospects efficiently execute their advertising methods whereas concurrently decreasing S&M spend.”
“WISH is buying and selling at simply 1.3 instances our C2023 income estimates, properly beneath its peer group common of 5.8 instances, presenting traders a powerful entry level into the story; particularly on condition that the Firm, not like most different high-growth SaaS corporations, is worthwhile, has a strong stability sheet, and an unused credit score facility of $6-million that may permit it to be opportunistic within the M&A market.”
Actual Property & REITs
Nexus Industrial REIT (NXR.UN-T) with a “robust purchase” score and $14 goal. The common is $12.44.
“Put up the SMU.UN/DIR.UN/GIC acquisition, NXR.UN is well-positioned to be the subsequent pure-play Canadian industrial REIT,” mentioned analyst Gaurav Mathur. “The REIT has an extended development runway with rental price will increase of 50-100 per cent throughout the portfolio, a lot greater than its publicly listed peer set within the Canadian industrial REIT sector. Administration continues to take care of capital allocation self-discipline by specializing in redevelopment tasks, recycling capital, and being opportunistic on the acquisitions entrance.”
“The REIT presently trades at 12.6 instances 23E P/AFFO, properly beneath the peer common of 14.8 instances. We count on NXR.UN to shut the hole by a mix of NOI development, disciplined capital allocation, its give attention to natural development alternatives, and steady excessive grading of its portfolio. Given the a number of development drivers within the enterprise and powerful sector tailwinds, we reiterate our Sturdy Purchase score on the inventory.”
Primaris REIT (PMZ.UN-T) with a “purchase” score and $16 goal. The common is $17.
“PMZ.UN is the one REIT to have raised NOI steerage thrice and reported stronger-than-expected outcomes by 2022,” mentioned Mr. Mathur. “Administration has reiterated its dedication to drive FFO/unit development by capital recycling initiatives and NCIB exercise. We count on leasing power and occupancy positive factors to persist in 2023 because the REIT advantages from pent-up tenant demand for its portfolio. Moreover, administration stays strongly shareholder centered and has said that the perfect use of its capital, amid macroeconomic volatility, is to repurchase its shares given the sizeable low cost to NAV.”
Metals & Mining
Reunion Gold Corp. (RGD-X) with a “speculative purchase” score and 70-cent goal. The common is 78 cents.
“Reunion Gold is advancing its flagship Oko West gold mission in Guyana, which is a model new gold discovery inside the potential Guiana Defend,” mentioned analyst Sehaj Anand. ”Reunion just lately acquired an Exploration Discovery of The 12 months Award at Mines & Cash, London for Oko West. Oko West is a possible high-grade open-pit mission with multi-million-ounce potential situated in a mining-friendly jurisdiction. With the continued expanded exploration drill program, Reunion plans to finish 85,000 metres of core drilling at Oko West, adopted by a maiden useful resource estimate in H1/23. We count on the maiden useful resource to fall between 3.5-5.0M oz.
“The Firm is run by a powerful administration group with functionality and expertise in creating gold tasks in Guyana and is absolutely funded with over $50-million within the financial institution on the finish of Q3/22.”
Osisko Mining Inc. (OSK-T) with a “purchase” score and $5.50 goal. The common is $5.21.
“Osisko is advancing its flagship Windfall Venture within the James Bay area in Quebec,” mentioned Mr. Anand. “Windfall is among the highest-grade underground deposits on the earth, situated in a tier 1 jurisdiction and run by a powerful administration group with a strong observe file.
“Osisko just lately printed the much-awaited feasibility research (FS) for Windfall, which featured 306Koz annual manufacturing at a strong US$758/ouncesAISC for a 9.6-year mine life. The FS got here barely behind our estimates owing to the Firm’s conservative mineable useful resource numbers (3.16Moz Au in FS vs. 4.82M ouncesAu in iA mannequin).”
Arizona Sonoran Copper Firm Inc. (ASCU-T) with a “speculative purchase” score and $3.50 goal. The common is $3.27.
“Secure Jurisdiction with Established Infrastructure – Situated 3 miles from Casa Grande, Arizona, electrical substation in place, water use allow obtained, personal land possession, and mining county with accessible labour,” mentioned analyst Ronald Stewart.
“ASCU trades at a big low cost to different SX/EW developer friends. ASCU trades at an EV$/lb of roughly $0.025/lb versus its neighbour Ivanhoe Electrical (IE-T, Not Rated), which trades at $0.18/lb.”
Osino Assets Corp. (OSI-X) with a “speculative purchase” score and $2.75 goal. The common is $2.39.
“PFS Stage Twin Hills Gold Venture – Exceptional three-year interval from discovery to PFS,” mentioned Mr. Stewart.
“Engaging Manufacturing Profile – 170K ouncesa over a 10-year mine life @ lower than $1,000 per ounce AISC.”
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