While he predicts the likelihood of near-term pressure” for shares of Converge Technology Solutions Corp. ahead of its removal from the S&P/TSX 300 Composite on June 19, Echelon Capital analyst Rob Goff continues to see “underlying fundamental value in the shares where forecasts balance improved supply-chain conditions with economic caution.”
“We look for pressure around the TSX Index removal and where the NCIB buying completes the program,” he said. “We would view pressure on the shares as a positive window given our fundamental view. We could see continued demand strength with Q223 results and the announcement of an SIB potentially together with the sale or sell-down of its stake in Portage as positive catalysts.”
“While imprecise, we estimate this move would impact roughly 9 million shares of CTS. The net impact must further factor short positions in the market ahead of its removal. While much anticipated, we could see pressure on the shares over the much-speculated removal. We look for CTS to remain active with its NCIB where purchasing 115K daily would be expected to complete its NCIB share program by the middle of June. We believe the Company has been actively repurchasing shares through its NCIB program after the termination of its Strategic Review (May 9/23) allowed it to reactivate its NCIB where it had previously repurchased 6.5 million of the 10.7 million permitted. We believe a substantial issuer bid (SIB) remains a consideration by the Company. We could see proceeds from either the sale of its stake in Portage or a reduction in its stake as a move to raise proceeds to cover an SIB.”
Seeing Converge as “undervalued,” Mr. Goff trimmed his target by $1 to $6, keeping a “speculative buy” recommendation. The average is $5.71.