Canaccord Genuity analyst Matthew Lee raised his full-year earnings forecast for Diversified Royalty Corp. (
), seeing it “well positioned for growth as pandemic challenges subside.”
“In our view, DIV has managed well throughout COVID-19 and is now poised to build its royalty portfolio while continuing to return capital to shareholders and repay debt.” he said. “As it stands, DIV’s royalty portfolio is nearing a full recovery, with Mr. Mikes reaching pre-pandemic traffic and Mr. Lube generating double-digit y/y growth, far surpassing F19 same-store sales. Importantly, DIV’s payout ratio has dropped below 100%, which has allowed management to raise its dividend in the quarter, indicating confidence in the firm’s trajectory. While we see several opportunities for DIV to grow its portfolio, we expect the company to remain steadfast in its objective of acquiring high-quality royalty streams associated with growing, proven businesses.”
Mr. Lee is now projecting adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $44.5-million, up from $41.8-million. His fiscal 2023 estimate remains $46.6-million.
Maintaining a “buy” recommendation for its shares, Mr. Lee raised his target to $3.50 from $3. The average on the Street is $3.76.
“Our target of $3.50 represents 14 times F23 EBITDA, which is a slight premium to royalty peers, justified by its revenue diversification and supported by our DCF,” he said. “DIV currently offers investors a 9.4-per-cent FCF yield and an 8.2-per-cent dividend yield.”