Informed Investing: Leaders Performance and Prognosis

Informed Investing: Leaders Performance and Prognosis

VAT (TVA.B, $8.06): What means the acquisition of Global Vision

CIBC World Markets reiterates a recommendation of “underperforming sector.”

The company announced that it has signed an agreement to acquire Global Vision, a company that provides services to the film industry (studios, cameras, lighting, visual effects, post-production, etc.).

Robert Bek says that the company is deemed to generate earnings before interest, taxes, depreciation and amortization (EBITDA) of $15 million, which means that the transaction occurs at a multiple (of around 7.9 times) EBITDA, while the shares of VAT are trading at 5.5 times. The analyst points out that the acquisition is significant for VAT, the value of Global Vision representing more than 50% of its capitalization, and occurring at a higher multiple than its own multiple.

He believes that the company is looking to diversify and to rely less on its broadcasting assets. Global Vision is expected to provide higher growth, as well as modest synergies. At the same time, Mr. Bek points out that the activities Vision are also highly volatile, which must be considered. In this context, he gives the “hold” recommendation.

The target of 12-18 months is $8.50.

BlackBerry (BBRY, $12.06): A premiere in three years

Raymond James reiterates a recommendation of “market performance”.

Steven Li said that, for the first time in three years, the company held an investor day. He noted that the sentiment has clearly improved over the past year, as the financial viability of BlackBerry is no longer in doubt, at least in the short term.

The analyst says that the discussion has focused on the implementation of the new game plan which aims to provide more services for mobility management on all platforms (Apple, Android, Windows, etc.). He felt that the shares already reflect the best premonitions that has established.

Anticipation of loss for 2015 (February) is maintained at $0.32 per share. The expected loss in 2016 is also maintained at $0.24.

The target is $10.50.

Aimia (AIM, $15.29): Turbulence ahead

Scotiabank renews a recommendation of “performing area”.

In the third quarter, the company loyalty card reports earnings before interest, taxes, depreciation and amortization (EBITDA) of $63.9 million, compared to internal expectations for $59 million and $54.9 million consensus. Anthony Zicha indicates that the difference is due to higher income from Canada Gross Billings.

The analyst says that the preview is unchanged in 2014, but 2015 promises to be more difficult with headwinds in all regions. He expects particular pressure because of a larger exercise of points of accumulated number and a change to the Air Canada program. Anticipation EBITDA in 2015 was reduced from 362 to $312 million. The target was lowered from $18 to $17.

Twitter (TWTR, $42.54): The share seems expensive, but…

Deutsche Bank Securities reiterates a “buy” recommendation. The company has just held its first investor day. Ross Sandler believes that the presentation of management helped evacuate much of the confusion surrounding the activities of the company and its potential. He added that despite all the negative headlines and the volatility of the product of Twitter, the company has improved in recent months in terms of monetization and content.

The analyst says that even if everybody would like to see the curve of users grow in a “hockey stick” style, he sees an obvious growth emerge in the mobile platform and said that reaching the notch of 1 billion subscribers is more a question of “when” rather than “if.”

Mr. Sandler acknowledges that with 12.8 times its anticipation revenue in 2015, the share may seem expensive in comparison even with peers. But he says the company currently has the fifth volume of advertising of its nearest competitor, which suggests a strong potential.

The target is $60.

CGI (GIB, $39.46): Low

Desjardins Capital Markets reiterated a recommendation to “hold”.

In the fourth quarter, the company reported a profit of $0.73 per share, compared to the internal anticipation for $0.70 and consensus of $0.73.

Maher Yaghi believes that the development is slightly negative. He noted that revenues are below expectations, but management has been able to reach consensus through better cost control.

The analyst, however, indicate that orders received during the quarter were well below expectations. He personally anticipated orders for $2.36 billion and the consensus was at $2.5 billion. The result is only $2 billion.

Mr. Yaghi said that the weakness in North America is an element of concern and could raise questions about the recurring revenue or organic growth.

The target is $46.

Canam (CAM, $10.16): Stadium for Falcons

GMP Securities reiterates a “buy” recommendation.

The company has been granted a $200 million contract for the construction of multi-purpose stadium for the Atlanta Falcons. Justin Wu believes that the backlog of the company is now valued at $1.1 billion, compared with $909 million at the end of the third quarter. He noted that this is a record for Canam, and the situation looks good for the future growth of revenues and profits. The analyst points out that there are other important contracts currently bidding stages. The more contracts are allocated more capacity decrease and prices it could rise.

Mr. Wu believes that the contract with Falcons could add between $16 and $24 million in profits.

The target is maintained at $15.

Valeant (VRX, $130.03): A plan B?

BMO Capital Markets reiterates a recommendation of “outperforming.”

The Wall Street Journal reports that Pershing Square Capital and Sachem Head took a position about 10% stake in the group Animal Health Zoetis. Based on anonymous sources, the newspaper also indicates that activists could force the group to sell itself to a drug manufacturer like Valeant.

Alex Arfaei said he spoke with Pershing Square, who indicates that the equity is not part of its partnership with Valeant and does not want to comment on a proposed sale. However, Pershing states that Valeant could be a potential buyer given its business model, which looks for companies with strong cash flows and low investment in R&D.

The analyst sees a positive development in that it would ensure that the market continues to assess Valeant simply from the point of view of the success probability of its bid to Allergan. The share of Valeant accounts for 60% of supply and has been under pressure recently with the heightened probability of a merger with Allergan-Actavis.

Mr. Arfaei believes that this news shows that the company has other options before it. He also assumes that Valeant would prefer a transaction with Allergan. According to his calculations, it would provide a 19% increase in earnings in 2016 while acquiring Zoetis will  bring an increase of 12% in 2017.

The target is $176.

Rona (RON, $13.85): Increase of recommendation

Desjardins Capital Markets upgraded its recommendation to “buy”.

In the third quarter, the company reported a profit of $0.33 per share, compared to $0.25 last year and $0.34 consensus. Keith Howlett says there is a breakthrough, while comparable store sales rose 2% in corporate stores and 8.3% at affiliated stores. The analyst says the company carefully shows the opening of new facilities. Five (four new) corporate stores and an affiliate are expected to open in spring 2015. He believes that management has done well to stabilize the business and bring it to a growth mode. Mr. Howlett noted, however, that much work remains to be done on the side of store formats, merchandise assortments, improved supply chain and adaptation to digital.

The anticipation is raised 2015 earnings of $0.82 to $0.86 per share.

The target rises from $13.50 to $15.

Global WSP (WSP, $36): Better than expected

Dundee Capital Markets reiterated a “buy” recommendation.

In the third quarter, the engineering company reported a profit of $0.55 per share, compared with a house and a consensus expectation of $0.53.

Maxim Sychev says that with so many companies in the industry that miss quarterly expectations, the results provide a clear positive contrast. He noted that with the acquisition of Parsons Brinckerhoff, which was completed on October 31, the company gains an extra exposure to the cyclical recovery that engages the United States. The analyst also expects that the projected $25 million synergies identified during the acquisition, are greater in reality.

The anticipation of earnings in 2015 climbed from $2 to $2.07 per share.

The target is maintained at $43.

Canadian Tire (CTC.A, $124.75): Better than expected

Desjardins Capital Markets reiterates a “buy” recommendation.

In the third quarter, the retailer reported a profit of $2.17 per share, compared with a consensus at $2.

Keith Howlett said that the company continues to do better than most other retailers in terms of consumer engagement, as evidenced by the growth in comparable stores sales from Canadian Tire (3.2%), Marks (6, 8%) and Forzani (8.5%). The analyst says that the strong results allow the company to absorb significant costs to improve its online and social networks capabilities. It states that the company continues to increase its market share, increased its dividend and is open to return more cash to shareholders.

The dividend is $2.10 per share (1.7%).

The target is between $129 and $135.

Saputo (SAP, $32.36): The shares seem properly assessed

CIBC World Markets reiterated a recommendation of “performance area”.

In the second quarter, the company reported a profit of $0.39 per share, according to the internal expectations, and $0.34 higher than last year.

Mark Petrie indicates that the results for the quarter reflect different dynamics in its segment. He noted that Canada cost inflation is greater than the ability of the company to raise prices due to a highly competitive market. In the US, earnings growth is strong with market factors that continue to defy gravity and price increases that do not harm the volumes. On international markets, prices in Argentina and the addition of WCB in Australia continue to drive earnings growth.

The analyst believes that the market for dairy products in the United States allowed the results to be quite appreciated in recent quarters, but cheese prices appear to be approaching the ceiling and there are clouds on the horizon. Mr. Petrie believes that the company is well run, but its shares are now well assessed.

The anticipation for 2015 is $1.56 per share, the 2016 $1.68.

The target is $34.

Espial Group (ESP, $1.44): Monitoring initiated

Mackie Research initiates follow up with a recommendation to “speculative buy.”

The company is a manufacturer of TV distribution software whose main customers are cable and phone companies that offer TV services.

Nikhil Thadani believes the company should benefit from a refresh cycle of digital boxes (set-top box), whereas the distribution companies should focus on the future generation of these boxes due to an increase in competition with Internet TV. The analyst says the company is currently conducting three pilot projects with the new RDK software and sees an interesting window of opportunity open in the next 12 to 18 months.

He believes that the company’s revenues, which include no entry software RDK, justify a share for $1.10, making the risk of decline to 20%. In contrast, Mr. Thadani sees a potential upside of about 180%.

The anticipation of 2014 earnings is $0.08 per share, 2015 and 2016 $0.13 to $0.26.

The target is $4.

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