1. finance
2. investing
3. stocks

The Week at a Glance
October 24th, 2014
THE WEEK IN NUMBERS
(October 20th – October 24th)
Last price
Change Week
% Change
Week
% Change
YTD
Dow Jones Industrial
16,749.35
368.94
2.25%
1.04%
8.67%
15.1
S&P 500
1,959.47
72.71
3.85%
6.01%
12.20%
17.5
Nasdaq Composite
4,463.36
204.92
4.81%
6.87%
14.24%
69.0
14,549.12
321.44
2.26%
6.81%
9.86%
18.5
3,030.37
68.13
2.30%
-2.53%
0.44%
21.5
FTSE 100 (UK)
6,388.73
78.44
1.24%
-5.34%
-4.28%
16.2
DAX (Germany)
8,987.80
137.53
1.55%
-5.91%
0.76%
16.4
Nikkei 225 (Japan)
15,291.64
759.13
5.22%
-6.14%
6.00%
19.8
Hang Seng
23,302.20
278.99
1.21%
-0.02%
1.31%
10.1
MSCI World
1,659.97
46.41
2.88%
-0.07%
3.64%
17.2
MSCI EAFE
1,776.57
39.06
2.25%
-7.26%
-5.88%
16.4
Last price
Change Week
% Change
Week
% Change
YTD
S&P TSX Consumer Discretionary
1,693
64.93
3.99%
13.71%
17.43%
19.8
S&P TSX Consumer Staples
3,215
116.91
3.77%
25.42%
23.53%
24.5
S&P TSX Energy
2,964
34.32
1.17%
1.61%
5.21%
22.3
S&P TSX Financials
2,251
43.85
1.99%
7.69%
12.73%
13.3
S&P TSX Health Care
1,742
110.32
6.76%
11.98%
15.77%
41.3
S&P TSX Industrials
2,382
87.21
3.80%
18.45%
26.07%
23.0
S&P TSX Info Tech.
167
3.89
2.38%
16.06%
22.88%
52.9
S&P TSX Materials
2,052
28.97
1.43%
-0.94%
-4.50%
28.4
S&P TSX Telecom Services
1,188
32.08
2.77%
2.94%
3.95%
16.1
S&P TSX Utilities
1,900
47.63
2.57%
7.76%
4.29%
24.0
COMMODITIES
Last price
Change Week
% Change
Week
% Change
YTD
Oil-WTI futures (US$/Barrels)
Natural gas futures (US$/mcf)
Gold Spot (US$/OZ)
CRB Index
$81.32
$3.62
$1,231.94
270.77
-1.43
-0.14
-6.38
-1.87
-1.73%
-3.82%
-0.52%
-0.69%
-17.37%
-14.37%
2.18%
-3.36%
-15.61%
0.08%
-7.61%
-3.89%
$96.50
$4.30
$1,220.00
NA
Curr. Net
Change
0.0040
-0.0095
-0.0006
-0.0001
% Change
Week
0.45%
-0.74%
-0.04%
-1.07%
% Change
YTD
-5.41%
-7.84%
-2.84%
-2.55%
%Change 1
Year
-7.55%
-8.06%
-0.48%
-9.87%
NBF 4Q
2014E
0.90
1.25
1.60
0.00909
INDEX
Private Wealth Management
Research Services
Contact
your
Investment S&P/TSX Composite
Advisor for more information
Dow Jones Euro Stoxx 50
regarding this document.
S&P TSX SECTORS
CURRENCIES in US$
Cdn$
Euro
Pound
Yen
Source: Bloomberg, NBF Research
Last price
0.8905
1.2666
1.6087
0.0093
%Change 1
Trailing P/E
Year
%Change 1
Trailing P/E
Year
%Change 1
NBF 2014E
Year
Approximate time: 11:30am
For NBF Disclosures, please visit URL: http://www.nbcn.ca/contactus/disclosures.html
The Week at a Glance
THE WEEK IN NUMBERS
FIXED INCOME
(October 20th – October 24th)
NUMBERS
CANADIAN YIELD CURVE
CDA Overnight
3 Month T-Bill
2 Yr Canada Government
5 Yr Canada Government
10 Yr Canada Government
30 Yr Canada Government
CANADIAN BOND - TOTAL
RETURN
DEX Universe Bond Index
DEX Short Term Bond Index
DEX Mid Term Bond Index
DEX Long Term Bond Index
US YIELD CURVE
Last yield
1.00%
0.88%
1.00%
1.47%
1.99%
2.54%
Change Week
Last yield
U.S. FED Funds
3 Month T-Bill
2 Yr US Bonds
5 Yr US Bonds
10 Yr US Bonds
30 Yr US Bonds
Change Week Change YTD
in bps
in bps
0.0
0
0.5
-3
2.4
-14
5.1
-47
3.8
-77
2.3
-69
0.25%
0.01%
0.39%
1.49%
2.26%
3.03%
-0.30%
-0.16%
-0.27%
-0.53%
Change Week Change YTD
in bps
in bps
0.0
0
-1.5
-6
1.5
1
7.1
-26
6.3
-77
6.5
-94
Change One
Year in bps
0
-2
-11
-26
-44
-49
Change
Y-T-D
6.80%
2.51%
7.27%
13.18%
Change One
Year in bps
0
-3
8
20
-24
-56
CURRENT YIELD CURVE
4.50%
4.00%
3.50%
yield
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
0
5
10
15
20
25
30
Term
CANADIAN 5YR SPREADS
CAD Housing Trust AAA
Province Quebec
Province Ontario
Canada Corp BBB
Canada Corp Bank AA
CDN & US 10 YR SPREADS
Province Quebec
Province Ontario
Canada Corp BBB
US Finance AA
US Corp BBB
Sources: Bloomberg & PC Bonds
Last spread in
basis points (bp)
26
55
48
139
88
Last spread in
basis points (bp)
95
86
176
80
151
Change Week Change YTD
in bps
in bps
-0.5
-0.5
-0.6
-0.6
0.2
-1
8
8
3
-6
Change Week Change YTD
in bps
in bps
0.3
-0.7
0.4
1.8
-2.5
6
7
93
6
-8
Change One
Year in bps
4
-2
4
0
-14
Change One
Year in bps
-4
-2
-32
-19
-21
The Week at a Glance
NBF Economic
«
& Strategy
Group
WEEKLY ECONOMIC WATCH - WEEK IN REVIEW
CANADA – Retail sales fell 0.3% in August, worse than consensus which was expecting no
change. Sales were down in 7 of the 11 subsectors, including a 0.4% drop for autos/parts. Excluding
autos, sales were also down 0.3%, restrained by declines for sellers of furniture, building materials,
health/personal care, food/beverage, sporting goods and gasoline. Sales were down or failed to
grow in seven of the 10 provinces. Alberta continues to lead the nation with sales up 8% on a year
on year basis. In real terms, retail sales fell 0.1%. Overall, the retail results were softer than
expected. But the decline in sales was largely due to slumping pump prices, which hurt gasoline
station receipts. Excluding gasoline, retail spending was actually flat in both July and August. While
not spectacular, note that this comes after a massive jump in June. Regardless, the quarterly picture
is showing a moderation in growth after a scorching hot Q2. Assuming no change in September, real
retail sales are tracking growth of 2.3% annualized in Q3, after the prior quarter’s +7% print. That’s
much in line with our view that, Canada’s GDP growth softened in Q3 to around 2-2.5% annualized
after an above 3% print in Q2.
As expected, the Bank of Canada left the overnight rate unchanged at 1.00%. While the BoC
removed the paragraph stating that it remains neutral with respect to the next change to the policy
rate, it effectively still remains neutral given that it says the risks to its inflation projections are
“roughly balanced”. Still, the overall tone of the MPR remained dovish with the central bank
highlighting the downside risks to growth. The BoC thought that the global economy was in a worse
shape than it was back in July, and that growth remains dependant on “exceptional policy stimulus”.
That’s reflected in the downgrade of next year’s growth forecast, notably for Europe and Japan. The
BoC’s global growth forecast for 2015 is now just 3.4% (down from 3.7%). The central bank remains
positive about U.S. prospects saying the latter is “gaining traction”. Still, U.S. growth next year was
cut two ticks to 2.9% (from 3.1%).
With regards to Canada, the central bank says that exports have “begun to respond” (to the U.S.
rebound and the cheaper C$) but business investment remains weak. The BoC is concerned about
the lower terms of trade (in light of slumping commodity prices) and expects that to affect income.
That’s reflected in its forecast for real gross domestic income growth which was chopped to just
1.8% this year (from 2.5%), and to 1.7% next year (from 2.8%). However, the real GDP growth
forecasts were left relatively unchanged, i.e. just a one-tick upward revision for this year to 2.3%
thanks to upgrades to exports and consumption, and no change to next year’s 2.4% forecast. The
projections for potential GDP were unchanged at 1.9% for 2014, but lowered one tick to 1.9% for
2015. The central bank still remains vague about the output gap saying that “there is considerable
uncertainty around estimates of economic slack” as evidenced by the wide estimated range of 0.51.5%. But given the hotter than expected inflation, the BoC yet again revised up its core inflation
projections, although they remain close to 2% through the forecast horizon. The headline inflation
2015 forecasts however, were revised down in light of lower oil prices.
The Week at a Glance
NBF Economic
«
& Strategy
Group
Wholesale sales rose 0.2% in August, surprising consensus which was looking for a decline.
Adding to the good news was the upward revision to the prior month from -0.3% to -0.2%. In August,
three of the 7 subsectors saw gains, including machinery/equipment (+3.6%), and food/beverage
which offset declines in other categories including autos/parts (-3.7%). Inventories grew 0.2%. In
real terms, wholesale sales rose 0.1%. Assuming no change in September, real wholesale sales
grew at an annualized pace of 3.9% in Q3, a decent pace considering this comes after an
unsustainably hot 14% jump in the prior quarter.
UNITED STATES – The manufacturing purchasing managers index fell to 56.2
according to Markit’s flash/preliminary estimate for October (from 57.5 in the prior month). A reading
above 50 implies expansion in manufacturing activity. Markit says that softer new business growth
was the driver of the decline. The survey’s respondents were more cautious about export sales.
Output growth also slowed although employment remained resilient.
Jobless claims data for the week of October 18th showed initial claims rising to 283K (from an
upwardly revised 266K in the prior week). That was in line with consensus. The more reliable 4week moving average fell to 281K, the lowest in over 8 years. Continuing claims for the prior week
fell 38K to 2.35 million, the lowest since 2006.
Existing home sales rose 2.4% to a 12-month high of 5.17 million units in September. Consensus
was looking for a smaller increase to just 5.10 million units. September sales were boosted by both
single family units (+2%) and multis (5.2%). The months supply of homes at current sales rate fell to
5.3. The median resale price fell to $209,700 but is still 5.6% higher than year-ago levels. About
24% of September sales were made to cash buyers, while the share of distressed sales in total
sales rose slightly to 10%.
New home sales rose 0.2% to 467K in September, from a downwardly revised 466K in the prior
month. The months supply of homes at current sales rate was unchanged at 5.3. The median sale
price fell to $259,000, and is now 4% below year-ago levels.
WORLD – In China, GDP growth came in slightly better than expected in the third quarter, with
an annualized print of 7.8% (or 7.3% year-on-year). The handoff to Q4 was also good with industrial
production and retail sales registering year-on-year growth rates of 8% and 11.6% respectively in
September. In the U.K, GDP grew 2.8% annualized in the third quarter (or 0.7% unannualized).
Flash manufacturing purchasing managers indices for the month of October were released by
Markit for a range of countries. In China, the PMI climbed to a 3-month high of 50.4 (from 50.2 in the
prior month), buoyed by output and new orders. Japan’s PMI rose to 52.8 (from 51.7 in the prior
month) with all of the major sub-indices remaining above 50, including employment which returned
to expansion mode. The eurozone’s PMI rose to 50.7 (from 50.3 in the prior month) as the output
sub-index rose further into expansion territory to a 3- month high. The increase was driven by
Germany whose PMI returned to expansion mode. That helped offset the decline of the PMI in
France to 47.2, i.e. further into contraction territory.
The eurozone’s services PMI was unchanged at 52.4 despite declines in both Germany (from 55.7
to 54.8, i.e. still in expansion mode) and France (from 48.4 to an 8-month low of 48.1, i.e. still in
contraction). More concerning for the eurozone is the threat of deflation, as evidenced by output
prices declining for the 35th consecutive month in the services sector.
The Week at a Glance
NBF Economic
«
& Strategy
Group
U.S. WATCH
U.S.: Big drop in gasoline prices will boost consumption
Economic reports continue to come in on the strong side, setting the stage for real GDP growth in
excess of 3% in Q3 2014. But what about the current quarter (Q4)? So far so good, particularly for
consumers. The price of retail gasoline fell its lowest level since 2010 last week. If prices were to
remain unchanged between now and the yearend, the decline would be an annualized 24% in Q4,
bringing the cumulative drop in H2 2014 to a massive 28%. As the Hot Charts show, the last time
U.S. households experienced a relief of this magnitude at the pump during the expansion phase of
an economic cycle was 2006. This is a big deal because gasoline normally accounts for 10% of
total retail sales. Discretionary spending stands to benefit substantially from the sharp drop in
gasoline prices and the good performance of labour markets (UI claims dropped to a 14-year low
last week).
U.S.: LEI suggests strong growth ahead
The released leading economic indicator (LEI) from the U.S. Conference Board suggests a good
economic performance in the months ahead. The LEI surged 0.8% in September, with nine of its
ten components up on the months. That was the best diffusion in four years for the LEI, indicating
broad-based improvement. For Q3 as a whole, the LEI rose a very robust 8.2% (annualized). As
the Hot Charts shows, that was the best showing since 2004 at this point in the economic cycle
(the expansion phase that is measure off the coincident indicator). Interestingly, we note that the
Federal Reserve began its interest rate normalization campaign in the following six months. While
we are well aware that the LEI will soften in October due to the stock market correction, the quick
rebound in equity indices should mute the negative impact on the economy. Bottom-Line: With
the U.S. economy still on track to grow above potential in the quarters ahead, we continue to
expect a fed rate hikes in 2015.
The Week at a Glance
NBF Economic
«
& Strategy
Group
The Week at a Glance
NBF Economic
& Strategy
Group
MONTHLY ECONOMIC MONITOR – NOVEMBER 2014
Highlights
•
The global economy is doing better than what’s depicted by the recent stock market collapse and
sinking oil prices. But if left unchecked the current fears or concerns have potential to become selffulfilling and spill over to the real economy via lower investment and consumption spending.
Governments have an important role to play in restoring calm by pledging to support growth by all
means necessary and by showing competence in dealing with renewed threats of a pandemic.
•
In light of renewed fears about the global economy, the U.S. is once again regarded by many as a
beacon of hope. The world’s largest economy is indeed on an uptrend buoyed by an invigorated
private sector. Investment spending is soaring and consumers look poised to join the party, more
so considering the deleveraging cycle is over. While exports could soften a bit due to the stronger
dollar, that shouldn’t prevent the U.S. economy from posting growth of around 2.9% next year. In
light of the decline in commodity prices, we have lowered our inflation forecasts for the U.S.
•
While slumping oil prices are not good news for Canada, the overall economic outlook remains
positive considering the U.S. resurgence and the stabilizing impacts of the weakening Canadian
dollar. Exports should remain the driver of growth for Canada next year, and added support from
investment spending can be expected, with both more than offsetting the anticipated moderation of
housing and consumption. We remain comfortable with our call for growth to accelerate to 2.5% in
2015. But given its concerns about the global economy, the Bank of Canada will continue to err on
the side of caution and delay rate hikes to the last quarter of 2015. Our Canadian inflation
forecasts have been revised down to take into account lower commodity prices.
Source: ECONOMIC AND STRATEGY GROUP , Stéfane Marion, Chief Economist and Strategist
The Week at a Glance
NBF Economic
«
& Strategy
Group
EARNINGS WATCH
Stock market & Portfolio strategy
S&P/TSX Composite index: Earnings Season Report
The Canadian S&P/TSX Composite index is entering another reporting season. 65 companies
have yet to report in October representing 30% of total market capitalization. This will be followed
by another 163 index constituents in November and 18 in December representing respectively
46% and 24% of S&P/TSX Composite market capitalization.
Earnings expectations
The S&P/TSX Composite index estimate of net income for the Q3 2014 calendar quarter is
$28,911M which represents an increase of 9.3% (Qt/Qt-4) 1. From a sector perspective,
Information Technology (+148.6%) and Health Care (+43.8%) are expected to record the largest
growth in net income for this quarter. The Utilities (-38.5%) and Materials (-19.0%) sectors are
expected to experience the biggest drop over the respective period. Seven of 10 sectors are
expected to record an increase in net income when compared to net income reported for a
comparable period one-year earlier.
Sales/Revenue expectations
The S&P/TSX Composite index estimate of sales/revenue for the Q3 2014 calendar quarter is
$282,768M which represents a growth rate of +9.6% (Qt/Qt-4) 2. From a sector perspective,
Health Care (+40.3%) and Consumer staples (+21.4%) are expected to record the largest growth
in sales/revenue for this quarter. The IT (-3.5%) and Utilities (+0.5%) sectors are expected to show
the weakest growth over the respective period. Nine of 10 sectors are expected to record an
increase in sales/revenue when compared to sales/revenue reported for a comparable period oneyear earlier.
Profit Margin expectations
The S&P/TSX Composite index estimate of profit margin for the Q3 2014 calendar quarter is
10.2%, which is essentially the same level registered last year. From a sector perspective, IT
(+157.5%) and Industrials (+14.4%) are expected to record the largest profit margin expansion for
the Q3 2014 calendar quarter. The Utilities (-38.8%) and Materials (-24.4%) sectors are expected
to show the deepest profit margin contraction over the respective period. Six of 10 sectors are
expected to record an increase in profit margins when compared to margins reported for a
comparable period one-year earlier.
The Week at a Glance
NBF ECONOMIC
INTEREST RATE FORECAST – UPDATE
& STRATEGY
TEAM
Since our last monthly interest rate forecast, reports on U.S. job creation as well as the Job Opening
and Labor Turnover Survey still show the labor market improving at a decent pace. This is supportive
of our base case scenario which calls for a first rate hike by the Fed in mid-2015. Obviously, with
monetary policy being data dependent the timing and pace of the normalization of monetary policy is
subject to several risks. Central banks have concerns about the global economic outlook and
investors have been reminded by the IMF that the economic outlook in the euro zone remains fragile;
putting the odds of the zone falling into a third recession at 38%.
On the inflation front, falling oil prices and a stronger USD will limit increases to the CPI south of the
border. We now project US headline inflation to average 1.5% in 2015, instead of 2.1% previously.
We also see slower inflation in Canada. Our projection is for Canadian headline inflation to average
1.7%. This will provide the BoC with more latitude to delay the projected gradual withdrawal of
monetary stimulus. Moreover, with the Bank wanting to nurture investments in order to improve
productive capacity, monetary policy will remain very accommodative longer than we had previously
assumed .We now see the Bank starting its normalization process in October of 2015, instead of
May. In light of the lower inflation outlook and dovish tone of the BoC’s October MPR, we also have
revised down our interest rate forecast.
Forecast dated October 23, 2014
The Week at a Glance
IN THE NEWS
rd
Thursday October 23 , 2014
U.S. and Canadian News
-
th
Monday October 20 , 2014
-
-
-
-
American Consumers See Windfall From Lower
Gasoline Costs
Plunging fuel prices will free up as much as $60 billion
over the next year that the consumer can spend on a fall
jacket, a movie ticket or just more groceries.
Plaform to Buy Agrochemicals Maker for $3.51
Billion
Platform Specialty Products Corp., the chemicals
company backed by hedge fund manager Bill Ackman,
agreed to acquire agricultural-chemicals maker Arysta
LifeScience Ltd. for $3.51 billion in its largest purchase.
Canada Wholesale Sales Post Surprise Rise on
Machinery
Sales rose 0.2 percent to C$53.1 billion, compared with
the median estimate for a 0.3 percent decline. The
volume of wholesale sales, which removes the impact of
price changes, rose 0.1 percent.
Canada’s Confidence in Economic Outlook Hits 18Month Low
The share of Canadians who think the economy will
improve over the next six months dropped to 16.3
percent in the week ended Oct. 17, the lowest since
April 2013.
st
Tuesday October 21 , 2014
-
-
Sales of U.S. Existing Homes Rise to One-Year High
Purchases advanced 2.4 percent to a 5.17 million
annual rate. Demand was up 1.9 percent compared with
the same month last year before adjusting for seasonal
patterns.
Canada threatens tariffs on American wine, orange
juice and ketchup in meat labelling dispute
The United States faces potential trade sanctions from
Canada and Mexico after the World Trade Organization
ruled on Monday it had failed to bring its meat labelling
regulations fully in line with international fair trading
rules.
-
-
-
-
th
Friday October 24 , 2014
-
-
-
nd
Wednesday October 22 , 2014
-
-
-
Inflation Short of Goal Means Fed Can Keep Rates
Low
The consumer-price index climbed 0.1 percent after
decreasing 0.2 percent in August. Over the past year,
costs increased 1.7 percent, the same as in the 12
months through August.
Bank of Canada Keeps Policy Interest Rate at 1%
The economy won’t reach full output until the second
half of 2016, the bank said. Inflation will slow to an
average of 1.4 percent in the second quarter of 2015,
compared with its July forecast for inflation to slow to 1.7
percent in the second quarter of 2015.
Canada August Retail Sales Fall Most This Year on
Gasoline Price
Sales decreased 0.3 percent to C$42.4 billion, the
largest drop this year. Economists had forecast no
change.
Click on title to view the full story.
U.S. Home Prices Beat Estimates With 0.5% Gain in
August
Prices climbed 0.5 percent on a seasonally adjusted basis
from July. The average economist estimate was for a 0.3
percent increase.
Jobless Claims in U.S. Unexpectedly Decrease to 14Year Low
Jobless claims decreased by 23,000 to 264,000 in the week
ended Oct. 11, the fewest since April 2000 and lower than
any projection of economists.
Fed to Stress-Test Banks for Dire Stock, Housing
Scenarios
The Federal Reserve said it will scrutinize how 31 large U.S.
banks, including JPMorgan Chase & Co. and Citigroup Inc.,
would respond to a plunge in equity and housing prices and
a sharp downturn in the global economy.
Leading Indicators Index Shows U.S. Economy to Keep
Growing
The Conference Board’s gauge of the outlook for the next
three to six months climbed 0.8 percent after no change in
August. The median forecast of economists called for a rise
of 0.7 percent.
Brookfield Asset Bids for Rest of Brookfield Residential
Brookfield Asset Management Inc. (BAM) plans to buy the
30 percent of Brookfield Residential (BRP) Properties Inc.
that it doesn’t own for $846 million.
-
Sales of New U.S. Homes Little Changed After August
Revision
Sales rose 0.2 percent to a 467,000 annualized pace from a
466,000 rate in August that was 7.5 percent weaker than
previously estimated. The median forecast of economists
called for the pace to decelerate to 470,000.
Google Said to Buy Redwood City Offices for $585
Million
Google Inc. bought six office buildings northwest of its
Silicon Valley headquarters from Starwood Capital Group
LLC and Blackstone Group LP in a $585 million deal.
P&G Plans to Exit Duracell as CEO Slims Down
Company
Procter & Gamble Co. said it would exit its Duracell battery
business and posted first-quarter profit that met analysts’
estimates as Chief Executive Officer A.G. Lafley works to
slim down the company.
Agrium Rises After ValueAct Capital Amasses 5.7%
Stake
Agrium Inc., the farm retailer that last year fended off an
activist shareholder, rose the most in more than five years
after it said hedge fund ValueAct Capital Management LLC
amassed a 5.7 percent stake in the company.
The Week at a Glance
IN THE NEWS
-
International News
th
Monday October 20 , 2014
-
-
-
-
Russia Rating Cut by Moody’s on Sluggish
Economic Growth
Moody’s downgraded the sovereign one level to Baa2
from Baa1 and kept a negative outlook on the rating. It is
in line with Fitch Ratings Ltd.’s credit grade and one step
above Standard & Poor’s, which lowered Russia to BBBin April.
European Banks See ECB Exams as Step to
Unlocking Lending
The European Central Bank’s unprecedented inspection
of lenders’ books will help end a slump in lending that’s
dogged southern Europe for years, said executives at
some of the region’s largest banks.
Modi State Election Wins Pave Way for India
Overhaul
Modi now has a stronger hand to push ahead with
tougher steps to overhaul Asia’s third-biggest economy.
Those include passing a goods-and-services tax, further
opening up to foreign investment and making subsidies
for fertilizer, cooking gas and food more targeted toward
the poor.
China Growth May Slow Sharply From 2020
China’s economic growth will slow to about 4 percent
annually after 2020 following decades of rapid
expansion, according to the Conference Board.
rd
Thursday October 23 , 2014
-
-
-
th
-
th
-
-
China’s GDP Growth Bolsters Case for Stimulus
Restraint
Gross domestic product rose 7.3 percent in the JulySeptember period from a year earlier. While that
exceeded the 7.2 percent median estimate of analysts, it
was also the slowest expansion since the first quarter of
2009.
RBA’s Lowe Frets Over Low Rates Risks, Urges
Government Action
Australian central bank Deputy Governor Philip Lowe
urged vigilance on asset prices inflated by record-low
interest rates and said government action is needed to
encourage companies to invest.
Osborne on Course to Miss Borrowing Target as
U.K. Deficit Climbs
Britain’s budget deficit widened in the first six months of
the fiscal year, leaving Chancellor of the Exchequer
George Osborne on course to overshoot his borrowing
target.
nd
Wednesday October 22 , 2014
-
ECB Said to Expand Covered Bond Purchases From
Spain to Germany
The ECB is adding to French and Portuguese securities
it bought this week. The central bank, which will reveal
the amount of debt purchased on Oct. 27, has been
buying bonds in parcels from 5 million euros to 20 million
euros, according to Societe Generale SA.
Click on title to view the full story.
U.K. Retail Sales Fall More Than Forecast as Clothing
Drops
The volume of sales including auto fuel fell 0.3 percent from
August, with clothing and footwear sales dropping 7.8
percent, the most since April 2012. Economists forecast a
0.1 percent decline. Sales excluding fuel also declined 0.3
percent.
China Factory Gauge Rises as Workers Weather
Slowdown
The preliminary Purchasing Managers’ Index from HSBC
Holdings Plc and Markit Economics was at 50.4, exceeding
the median estimate of 50.2, which was also the level of
September’s final reading.
Euro-Area Manufacturing Grows as Risk of Recession
Eases
A Purchasing Managers’ Index showed manufacturing in the
region unexpectedly grew this month, while Spain’s
economy showed signs of a further recovery, with thirdquarter unemployment dropping to the lowest level since
2011. In Germany, factories rebounded from a slump in
September.
Friday October 24 , 2014
Tuesday October 21 , 2014
-
Russian Central Bank to Weigh Higher Rates on
Inflation
Russia’s central bank, grappling with the fastest price
growth in three years, may “seriously” weigh raising
borrowing costs if inflation expectations remain high.
-
-
-
-
U.K. Growth Slows as Obstacles to Recovery Increase
Gross domestic product rose 0.7 percent in the three
months through September, compared with 0.9 percent in
the second quarter. That matched the median forecast of
economists. On an annualized basis, the economy grew 2.8
percent.
ECB Set to Fail 25 Banks in Review
Twenty-five lenders in the European Central Bank’s euroarea bank health check are set to fail the regulator’s
Comprehensive Assessment, according to a draft
communique of the final results.
Cyprus GDP Upgrade Boosts Bailout Exit Plans
A European Union accounting change has improved
Cyprus’s public-finance outlook more than any other eurozone nation, raising the prospects it will exit a bailout
program ahead of schedule and sell bonds this year.
China Pushes Regional Bank Without South Korea,
Australia
China pushed ahead with the creation of its proposed $50
billion Asia regional bank by signing a memorandum today
with 21 countries, which didn’t include South Korea,
Australia and Indonesia.
S. Korea Economic Growth Picks Up on Consumption
Rebound
Gross domestic product rose 0.9 percent from the previous
quarter, matching the median estimate. From a year earlier,
the economy expanded 3.2 percent.
The Week at a Glance
S&P/TSX WEEKLY PERFORMERS
S&P/TSX weekly best performers
17.33%
Amaya Gaming Group Inc. (AYA) 0
Air Canada (AC.b) 0
16.39%
Pacific Rubiales Energy Corp (PRE) 0
14.38%
Agrium Inc (AGU) 0
11.48%
Constellation Software Inc/Canada (CSU) 0
8.91%
AutoCanada Inc (ACQ) 0
8.50%
Westjet Airlines Ltd (WJA) 0
7.83%
Alaris Royalty Corp (AD) 0
7.82%
Celestica Inc (CLS) 0
7.41%
Blackberry Ltd (BB) 0
7.38%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
S&P/TSX weekly worst performers
0
-6.19%
First Majestic Silver Corp (FR)
0
-6.38%
Ensign Energy Services Inc (ESI)
Pretium Resources Inc (PVG)
-6.94%
0
Kinross Gold Corp (K)
-7.01%
0
0
-7.18%
Canaccord Genuity Group Inc (CF)
0
-7.36%
Advantage Oil & Gas Ltd (AAV)
Turquoise Hill Resources Ltd (TRQ)
-7.77%
0
Argonaut Gold Inc (AR)
-7.82%
0
0
-11.46%
Corus Entertainment Inc (CJR.b)
-12%
0
-9.61%
Tourmaline Oil Corp (TOU)
-10%
-8%
-6%
-4%
-2%
0%
The performance is calculated from the close of Friday’s previous week until Friday 11:30 a.m. of this week.
Source: Bloomberg, NBF Research
The Week at a Glance
NBF RATINGS & TARGET PRICE CHANGES
Symbol
Current Rating
Previous Rating
Current
Target
Previous
Target
Closing
Price
Agnico-Eagle Mines Ltd
AEM
Outperform
Outperform
C$37.00
C$40.00
C$32.84
Alacer Gold Corp.
ASR
Outperform
Outperform
C$3.15
C$3.50
C$2.03
AuRico Gold Inc.
AUQ
Outperform
Outperform
C$5.20
C$6.00
C$4.13
B2Gold Corp.
BTO
Outperform
Outperform
C$3.20
C$3.75
C$2.32
Belo Sun Mining Corp.
BSX
Outperform
Outperform
C$0.35
C$0.70
C$0.17
Canadian National Railway
CNR
Sector Perform
Sector Perform
C$83.00
C$85.00
C$76.71
CP
Outperform
Outperform
C$260.00
C$264.00
C$229.00
Canexus Corporation
CUS
Underperform
Sector Perform
C$3.25
C$4.75
C$3.84
Cathedral Energy Services Ltd.
CET
Outperform
Outperform
C$4.75
C$5.60
C$3.71
Corus Entertainment Inc.
CJR.B
Underperform
Sector Perform
C$20.50
C$25.50
C$23.27
Detour Gold Corporation
DGC
Outperform
Outperform
C$12.00
C$15.00
C$8.77
Domtar Corporation
UFS
Outperform
Outperform
US$50.00
US$55.00
US$40.19
Donnycreek Energy Inc.
DCK
Outperform
Outperform
C$2.96
C$3.00
C$2.57
Enbridge Income Fund Holdings
ENF
Sector Perform
Restricted
C$32.00
Restricted
C$29.45
EnerCare Inc.
ECI
Outperform
Restricted
C$17.00
Restricted
C$14.50
Franco-Nevada Corporation
FNV
Sector Perform
Sector Perform
C$62.00
C$63.00
C$59.45
Golden Star Resources
GSC
Sector Perform
Sector Perform
C$0.60
C$0.70
C$0.37
IAMGOLD Corporation
IMG
Outperform
Outperform
C$4.30
C$5.85
C$2.64
Sector Perform
C$12.50
C$11.25
C$10.27
Company
Canadian Pacific Railway
Innergex Renewable Energy Inc.
INE
Outperform
INO.UN
Restricted
IT
Outperform
KXS
K
Kirkland Lake Gold Inc.
Inovalis REIT
Restricted
C$9.26
Initiated
C$15.00
C$13.25
Outperform
Initiated
C$20.00
Outperform
Outperform
C$5.00
C$7.00
C$3.07
KGI
Outperform
Outperform
C$6.00
C$6.30
C$4.95
Lake Shore Gold Corp.
LSG
Outperform
Outperform
C$1.30
C$1.40
C$1.08
Luna Gold Corp.
LGC
Underperform
Underperform
C$0.40
C$0.75
C$0.40
Lydian International Limited
LYD
Outperform
Outperform
C$1.30
C$1.60
C$0.68
MAG Silver Corp.
MAG
Outperform
Outperform
C$11.00
C$11.25
C$8.31
MTY Food Group Inc.
MTY
Sector Perform
Sector Perform
C$35.00
C$34.00
C$30.09
Mullen Group Ltd.
MTL
Sector Perform
Sector Perform
C$25.50
C$30.00
C$22.15
New Gold Inc.
NGD
Outperform
Outperform
C$7.00
C$8.75
C$4.87
OceanaGold Corporation
OGC
Outperform
Outperform
US$3.65
US$3.90
C$2.38
Orezone Gold Corporation
ORE
Outperform
Outperform
C$1.05
C$1.30
C$0.67
Osisko Gold Royalties Ltd.
OR
Sector Perform
Sector Perform
C$16.00
C$16.25
C$14.89
Intertain Group Limited, The
Kinaxis Inc.
Kinross Gold Corp
C$16.00
Park Lawn Corporation
PLC
Outperform
Penn West Exploration
PWT
Sector Perform
Sector Perform
C$7.00
C$8.00
C$5.50
PHX Energy Services Corp.
PHX
Outperform
Outperform
C$15.00
C$18.25
C$12.30
C$1.90
C$2.25
C$0.87
C$1.75
C$1.00
Pilot Gold Corp.
C$15.00
C$12.10
PLG
Outperform
Outperform
PNC.A
Discontinued
Sector Perform
PRI
Tender
Outperform
C$6.07
C$7.00
C$5.83
Rogers Communications Inc.
RCI.B
Outperform
Outperform
C$47.00
C$46.00
C$42.80
Royal Gold Inc.
RGLD
Outperform
Outperform
US$80.00
US$86.00
US$66.60
Rubicon Minerals Corp.
RMX
Outperform
Outperform
C$1.80
C$1.85
C$1.23
Sandstorm Gold Ltd.
SSL
Sector Perform
Sector Perform
C$5.50
C$7.25
C$4.49
Seabridge Gold Inc.
SEA
Outperform
Outperform
$14.50
C$15.00
C$8.79
Postmedia Network Canada Corp.
Primary Energy Recycling Corp.
The Week at a Glance
NBF RATINGS & TARGET PRICE CHANGES
Company
Symbol
Current Rating
Previous Rating
Current
Target
Previous
Target
Closing
Price
Semafo Inc.
SMF
Outperform
Sector Perform
C$5.00
C$5.15
C$3.88
Silver Wheaton
SLW
Outperform
Outperform
C$26.00
C$33.00
C$22.16
SilverCrest Mines Inc.
SVL
Outperform
Outperform
C$2.30
C$2.65
C$1.58
Timmins Gold Corp.
TMM
Outperform
Outperform
C$1.80
C$2.30
C$1.42
Tourmaline Oil Corp.
TOU
Outperform
Outperform
C$62.50
C$65.00
C$42.83
True Gold Mining Inc.
TGM
Outperform
Outperform
C$0.70
C$0.60
C$0.30
Virginia Mines Inc.
VGQ
Sector Perform
UnderReview
C$13.00
C$0.00
C$11.73
Yamana Gold Inc.
YRI
Outperform
Outperform
C$9.00
C$11.00
C$6.28
VERITAS RATINGS & TARGET PRICE CHANGES
Company
Symbol
Current Rating
Previous Rating
Current
Intrinsic
Value
Previous
Intrinsic
Value
Closing
Price
Exchange Income Corp.
EIF
Sell
Sell
C$11.50
C$8.50
C$18.90
Cenovus Energy
CVE
Buy
Buy
C$32.50
C$34.50
C$24.86
Husky Energy
HSE
Buy
Buy
C$40.00
C$33.50
C$27.79
Shaw Communications
SJR'b
Buy
Buy
C$28.50
C$27.00
C$27.75
The Week at a Glance
NBF ACTION IDEAS
CANADIAN INDEPENDENT POWER PRODUCERS
NBF believes that the Canadian IPPs in our coverage universe have good visibility on growth for the next four
years, and should have ample opportunity to source additional meaningful growth opportunities in Canada.
Recent developments in the Canadian renewable power sector suggest that more growth should come to
uniquely positioned IPPs. 1) Hydro Quebec confirmed that it is going ahead with a 450 MW wind power call with
submission deadlines by Nov. 5th. With their local presences in Quebec, NBF believes Innergex (INE, SP),
Boralex (BLX, OP) and Algonquin (AQN, SP) have the best odds of winning such a bid within our coverage
universe. 2) BC pulled back its tax framework to lure LNG development, but put forward stringent emissions
targets that could support renewable power. NBF notes that Alterra (AXY, SP) and Innergex (INE, SP) have been
particularly active in run of river hydro in the B.C. market in partnership with First Nation groups and are well
positioned to develop future hydro projects in B.C. In wind power, NBF believes that INE, BLX, AQN, AXY and
TransAlta Renewables (RNW, SP) are well positioned for success in B.C.
BORALEX INC. (BLX)
CLOSING PRICE: $12.87 RATING: OUTPERFORM
TARGET PRICE: $16.50
COMPANY PROFILE
Boralex Inc. is a renewable energy producer with assets in the USA, France, and Canada. Recent acquisitions
and projects under development should bring total capacity to more than 750 MW (net) in three years.
INVESTMENT HIGHLIGHTS
NBF’s top pick is Boralex (BLX) which is rated Outperform with a $16.50 target price. BLX has a stable
business model of developing and operating power assets (nearly all wind and hydro) with long-term off-take
contracts; its weighted average contract duration is close to 14 years. BLX has visibility on strong growth, with
six wind projects coming online in the next two years that take NBF’s estimated AFFO yield from 6.7% in
2015E to 9.3% in 2017E. Its maintenance capital requirements are small, as it has turbine supply and
maintenance agreements for its wind farm operations. BLX continues to target acquisitions for growth, suggesting
it could acquire in the range of 80-100 MW of wind assets; an expanded credit facility to $130 mln (was $60 mln)
could help if it finds the right targets. BLX is also targeting organic growth in France and preparing for RFPs in
both Quebec and Ontario (this likely won’t have an impact until 2017+).
BLX plans to accelerate its debt repayments, expecting to repay $62 mln in project debt in the next 12 months.
While this reduces AFFO in the near term, it should benefit BLX in the long run with lower debt service costs and
a stronger balance sheet in the medium term. To reflect this NBF is forecasting AFFO/share to decline to $0.44 in
f2014e (from $0.72 in f2013a) before rebounding to $0.88 in f2015e. BLX initiated a dividend in March, paying
$0.52/annum on a quarterly basis, and currently yields 4.0% (vs. peer average of 5.5%). The dividend is
sustainable with a payout ratio of 59% for f2015e and 45% for f2016e on NBF estimates. Management is
targeting a payout ratio of 40-60% in the medium term, to fund its growth with internal equity.
VALUATION
NBF’s $16.50 target is based on 10.6x 2016E EV/EBITDA and a DCF with a 9% discount rate (conservative
relative to IPP peers). The target implies a potential 12 month total return of 32%, and NBF thinks there is
potential upside to its target price as BLX deploys its excess cash.
The Week at a Glance
PIPELINES UTILITIES & ENERGY INFRASTRUCTURE SECTOR
NBF published its 3Q14 earnings preview for the Pipelines, Energy and Infrastructure space. In Q3 frac spreads
averaged US$35/bbl (LT avg.: US$34/bbl), pointing towards another healthy quarter for NGL extraction,
fractionation and marketing companies. NBF recommends investors buy Inter Pipeline Corp. (IPL) ahead of
the quarter for a potential dividend increase, as well as AltaGas (ALA) with the Forrest Kerr COD and B.C.
LNG tax announcement in the rear-view mirror.
NBF also identified Enbridge (ENB) and Superior Plus Corp. (SPB) as notable stocks for “bargain
hunters”. ENB is down ~10% since late September despite an attractive five-year average total return of 12%
from October to January straddling ENB’s annual 10-12% dividend increase in early December. Meanwhile, with
SPB down -11% since its decision not to sell its CPD business, NBF reiterated that it is an attractive entry point
<$13.00 ahead of a potential dividend increase over the coming months.
ALTAGAS LTD. (ALA-TSX) LAST PRICE: $46.86
RATING: OUTPERFORM
TARGET PRICE: $58.00
COMPANY PROFILE
AltaGas Ltd.’s business consists of NGL extraction and terminalling (E&T); natural gas field gathering and
processing (FG&P); power generation, utility distribution assets and energy management services. The
company’s assets are located predominantly throughout Alberta and NE British Columbia.
INVESTMENT HIGHLIGHTS
AltaGas is rated Outperform with a $58.00 target price, which implies a potential 12 month total return of
28%. NBF continues to recommend that investors looking for mid-stream exposure to be accumulating
ALA as a core holding based on: 1) a declining cash flow risk profile; 2) a relatively low 2015e AFFO payout
ratio of 49% (group: 70%); 3) a sector-leading mid-teens dividend growth rate through 2018; and 4) >20% upside
to target valuation (~$11.75/share) related to ~3.5 billion in unrisked growth opportunities associated with its LPG
and LNG export opportunities. ALA has one of the strongest secured EBITDA growth profiles (+15%) of the
group, which underpins steady dividend growth and also mitigates headwinds stemming from long- term
rising interest rates.
Q314 Outlook: ALA’s 195 MW Forrest Kerr hydro facility experienced a delay in reaching its commercial
operations date (COD) owing to challenges with the Northwest Transmission Line (NTL) and a flooding event on
the Iskut River. The facility achieved its COD on Oct. 21st (was mid-2014), firming up the project’s long-term
annual EBITDA expectations of ~$100 million. Furthermore, with B.C. reducing its LNG tax to 1.5%/3.5% pre/post
capital recovery (was 1.5%/7.0%); NBF expects constructive comments surrounding ~$3.5 billion of uncommitted
LNG-related growth opportunities – Douglas Channel LNG, Triton LNG, PNG pipeline expansion. Overall, NBF
forecasts Q3 EBITDA of $108 million (consensus: $121.4 million), representing ~5% year-over-year growth
despite zero contributions from Forrest Kerr. Coupled with the stock down ~10% since the end of August,
NBF recommends buying ALA ahead of the company’s Q3 release on Oct. 30th.
VALUATION
NBF expects ALA's sector-leading mid-teens dividend growth rate and ~20% upside related to unrisked
opportunities to continue to drive multiple expansion. Its $58.00 target is based on a risk-adjusted dividend yield
of 3.25% applied to its 2015e dividend of $1.90/share, a 16.25x multiple of its 2015e Free-EBITDA of $670
million, and its discounted cash flow valuation of $58.00.
INTER PIPELINE CORP. (IPL) CLOSING PRICE: $34.85 RATING: OUTPERFORM TARGET PRICE: $39.00
COMPANY PROFILE
Inter Pipeline Limited has four lines of business: pipelines - both conventional and oil sands assets-, NGL
extraction, and a petroleum and petrochemical storage business.
The Week at a Glance
INVESTMENT HIGHLIGHTS
Inter Pipeline (IPL) is rated Outperform with a $39.00 target price; which implies a potential 12 month total
return of 16%. NBF likes IPL for its accretive growth profile and views it as a core holding in the space. In
July, IPL completed the $1.1-bln first phase expansion of its Polaris pipeline on schedule, kicking off $90 mln of
long-term contracted take-or-pay annual EBITDA. The remaining $0.3-bln segment of the Polaris expansion
continues on track to be commissioned in phases between late 2014 and mid-2017, increasing total annual
EBITDA from the Polaris expansion to $130 mln with ultimate capacity of 1.2 mmbpd, of which currently just 45%
is contracted, leaving 660 mbpd open for business. IPL also has significant spare capacity potential on its diluted
bitumen pipelines – Cold Lake (first phase of expansion expected to be completed in Q1 2015) and Corridor –
representing a further 1.6 mmbpd of contracting potential. Combined with recently commissioned projects,
IPL’s ~$3.3 bln portfolio of secured oil sands infrastructure projects is expected to generate ~$450 mln of
incremental annual EBITDA, once fully commissioned – representing an attractive capital deployment multiple
of 7.2x, vs. IPL’s 2015e EV/EBITDA multiple of ~16x.
IPL - OIL SANDS SECURED PROJECTS
Q314 Outlook: NBF forecasts Q3 EBITDA of $191 mln, representing ~20% year-over-year growth reflecting
organic oil sands growth related to its Cold Lake and Polaris pipeline systems. Furthermore, IPL identified
up to ~$3.0 billion of additional oil sands investment opportunities through 2016+ – representing ~$4.00/sh
(~12%) of unrisked upside to its current valuation. Elsewhere, NBF continues to forecast a 15% dividend increase
to $1.48/sh annually (from $1.29/sh) effective January 2015 – potentially announced in conjunction with either the
company’s Q3 release on Nov. 6th or Investor Day on Nov. 17th. NBF forecasts a 2015e AFFO payout ratio of
68%, vs. the group at 71%. NBF continues to recommend investors accumulate IPL as ahead of its Q3.
VALUATION
NBF’s $36.00 target price is based on a risk-adj. dividend yield of 4.00% applied to its 2015e dividend of
$1.54/share, a 17.0x multiple of 2015e free-EBITDA of $993 mln and its discounted cash flow valuation of $35.50.
ENBRIDGE INC. (ENB) CLOSING PRICE: $52.37 RATING: OUTPERFORM TARGET PRICE: $61.00
COMPANY PROFILE
Enbridge Inc. holds energy infrastructure assets within the following business segments: Liquids (55%), Gas
Distribution (25%), Sponsored Investments (15%), and Gas Pipelines (5%). The Enbridge System, the
Company's Mainline System which represents 60% of the Liquids segment, has a capacity of ~2.5 mmbpd,
transporting various grades of crude oil and diluted bitumen from Western Canada to the Chicago area and
Eastern Canada. ENB also owns a 50% interest in the Alliance Pipeline, transporting ~1.6 bcf/d of natural gas
from Western Canada to the Chicago area.
INVESTMENT HIGHLIGHTS
NBF rates Enbridge (ENB) Outperform with a $61.00 target price, which implies a potential 12 month total
return of 19%. Since closing at an all-time high of $56.87 in late September, ENB retreated ~10% amid a falling
commodity price environment – namely WTI crude free falling >20% – overdone, in NBF’s view, given: 1) ENB’s
below-average commodity price exposure from a cash flow risk perspective; 2) 10-12% EPS and dividend per
share growth through 2018 underpinned by a $44 billion organic growth program. There is potential for
dividend growth to accelerate beyond 2018 based on rising surplus free cash flow, and as more than half of its
secured projects generating tilted return profiles (higher ROE in later years); and 3) 25% free cash flow per
share (AFFO/sh) CAGR guidance through 2018. Overall, based on ENB’s AFFO/sh CAGR guidance and
assuming a conservative FY1 P/AFFO multiple of 12x (current group avg.: ~13x), NBF highlights an implied stock
price in three years of ~$75 – representing at least a mid-teens annualized total return profile through 2017
(assuming 11% annual dividend growth).
Q3 2014 Outlook: NBF is forecasting Q3 adjusted EBITDA of $1230.5 mln (consensus: $1194.1mln),
representing 8.1% growth over Q3 2013. NBF’s 2015e adjusted EPS (FD) is $2.22 – representing an EPS payout
The Week at a Glance
of 70% largely in line with the low-payout group average of 74%. Its 2015e AFFO/sh of $4.28 represents an AFFO
payout ratio of 36%, below the low payout group average of 43%. NBF is calling for an 11% dividend increase
to $1.55/share annually beginning Q1 2015e (expected to be announced early December).
NBF also highlights ENB’s attractive seasonal total return track record over the past five-years (from Enbridge
Day in early October to the following Jan. 31st), averaging a 12% total return over the next four months, roughly
double the S&P TSX Index performance. As such, NBF recommends investors accumulate a position in
Enbridge at current levels ahead of a healthy Q3 release on Nov. 5th and its annual 10-12% dividend
increase announced in early December. T
VALUATION
NBF’s $61.00 target price is based on a risk-adjusted dividend yield of 2.75% (unchanged) applied to its 2015e
dividend of $1.55/share, a 17.5x multiple of its 2015e free-EBITDA of $5,259 mln, and its discounted cash flow
valuation of $64.00.
SUPERIOR PLUS CORP. (SPB) CLOSING PRICE: $12.67
$16.00
RATING: OUTPERFORM
TARGET PRICE:
COMPANY PROFILE
Superior Plus Corporation has three distinct business segments: Energy Services (propane retailing and
distribution; fixed-price natural gas contracts to commercial and light industrial customers); Specialty Chemicals
(produces specialty chemicals primarily for the pulp and paper industry); and Construction Products (distributes
wall and ceiling construction products).
INVESTMENT HIGHLIGHTS
NBF rates Superior Plus (SPB) Outperform with a $16.00 target price, which implies a potential 12 month
total return of 31%
Q3 2014 Outlook: NBF forecasts Q3 2014 EBITDA of $43 mln, ~10% above last year’s $39 mln, reflecting
ongoing operational improvements from the company’s “Destination 2015” initiatives combined with growing
Construction Products Distributions (CPD) contributions. Recall, on Oct. 6th, SPB announced it completed its
strategic review process for CPD, deciding not to sell the business at this time. Overall, the company sees both
short-term and long-term growth opportunities within CPD and is confident in its ability to effectively
grow the business. In 2013, CPD generated EBITDA of $33 mln, representing a 29% CAGR from trough levels
of $12 mln in 2009. For 2014 and 2015, NBF estimates EBITDA of $38 mln and $45 mln, representing annual
growth of ~17% – well above the company’s consolidated EBITDA growth target of ~10% per year.
SPB continues to trade at a group high 2015e free cash flow yield (AFFO yield) of 12.3%, representing a spread
of 460 basis points above the high-payout group average AFFO yield of 7.7% – an overly wide valuation
discount, in NBF’s view, given its group low AFFO payout ratio of 40% (high-payout group avg.: 70%), a track
record of operational execution under new management and a visibly improving cash flow profile and balance
sheet. Meanwhile, despite an unsuccessful sales process for CPD, NBF notes the potential for an earlier than
expected dividend increase versus its current estimate for a 15% increase by Q3 2015 – given the nominal
impact that three additional quarters of higher dividends would have on the company’s 2015e D/EBITDA of 3.1x
(i.e., remaining inside the “Destination 2015” target range of 3.0-3.5x). As such, NBF continues to recommend
an attractive entry point of <$13.00 prior to the company’s Q3 release on Oct. 30th.
VALUATION
NBF’s target is based on a risk-adjusted dividend yield of 4.25% (unchanged) applied to its 2015e dividend of
$0.65/sh, an 11.0x (unchanged) multiple of its 2015e Free-EBITDA of $263 mln, and its
discounted cash flow valuation of $16.00.
The Week at a Glance
ROGERS COMMUNICATIONS INC. CLOSING PRICE: $42.80
$46.00
RATING: OUTPERFORM
TARGET PRICE:
COMPANY PROFILE
Rogers is a diversified Canadian communications and media company providing a wide range of services
including wireless, cable TV, Internet, and telephony for residential and business customers, while owning
conventional & specialty TV, radio, publishing, online, and sports assets including the Toronto Blue Jays and
Rogers Centre. It is the largest national wireless carrier and second largest cable operator in Canada with 90% of
its cable subscribers in Ontario and the rest in the Maritimes (it ranks first in number of basic TV subscribers
among domestic cable companies).
INVESTMENT HIGHLIGHTS
On Oct. 20th NBF upgraded Rogers Communications (RCI.b) to Outperform (from Sector Perform) and
increased its target price to $46.00 (from $44.50). While management still has much work to do to get Rogers
clicking again on all cylinders, NBF thinks that 3Q14 may at least mark an initial turning point for Wireless, with
the stock having likely found a bottom. The stock has appreciated since the upgrade, but still offers a potential
total return of ~12%, including its attractive 4.3% dividend yield.
RCI is scheduled to release its 3Q14 results on Oct. 23 before market open. NBF is looking for revenues of
$3.233 billion (consensus $3.238 billion), EBITDA of $1.339 billion (consensus $1.341 billion), and EPS of $0.86
with consensus at $0.85.
Wireless: NBF expects higher ARPU y/y, better margins and lighter subs. Following four consecutive
quarters of Blended ARPU declines, NBF now forecasts ARPU and Network Revenues to grow in 2H as roaming
related pressures subside. For Q3 NBF forecasts blended ARPU to grow +0.6% y/y with Postpaid net adds of
+37k and Prepaid losses of -6k; reflecting expected gains in Network Revenues of 0.5%. RCI’s EBITDA growth
and margins continue to be industry leading. EBITDA is forecast to grow +1.9%, margins 51.4% (70bp
improvement y/y).
Cable: NBF is forecasting another quarter of PSU losses. It expects Basic TV losses of -29K, Internet adds of
+14K and Telephony gains of +1K for a total of -14K PSU losses versus -18K in 3Q13. NBF expects Revenues to
be relatively flat y/y with EBITDA down -1.5%.
Media: NBF expects results to be impacted by start-up costs related to the launch of Next Issue in addition to the
NHL. Revenues are also expected to reflect continued ad pressure; NBF forecasts revenue growth of +1.7% and
an EBITDA decline of -24.8% y/y.
Furthermore, NBF thinks that the recent Wind recapitalization offers a relatively benign solution to the
government’s fourth-player efforts in Ontario, Alberta and B.C., with the view that Quebecor will ultimately not
pursue or be involved with a national wireless strategy. As such, NBF believes some of the recent regulatory
overhang will steadily dissipate over coming months, with Rogers poised to be a beneficiary of this
dynamic which should further help its stock percolate higher from currently depressed levels.
VALUATION
Reflecting the slight revisions to its forecasts and moving the basis of its valuation to the average of the adjusted
2014E/2015E metric in its DCF and the 2015E/2016E value in its NAV, NBF’s target moves up to $46.00 from
$44.50, with implied EV/EBITDA of 7.5x 2014E, 7.2x 2015E and 7.0x 2016E.
The Week at a Glance
TRANSFORCE INC. CLOSING PRICE: $27.35 RATING: OUTPERFORM TARGET PRICE: $31.00
COMPANY PROFILE
TransForce is Canada’s largest trucking company and the 8th largest for-hire trucking company in North America.
In total, TransForce operates a fleet of 11,740 power units (including 7,500 owner-operators) and 12,460 trailers.
Headquartered in Montreal, TransForce has 311 terminals across Canada and 98 in the United States.
INVESTMENT HIGHLIGHTS
NBF reiterated its Outperform rating and $31.00 target price on Transforce; implying a 15% estimated
total return. NBF’s positive view is based on (1) the potential for value unlocking spinouts or sales; (2) improving
margin trends; (3) pricing improvements; and (4) relative valuation. TransForce will report its Q3 results after
market close on Oct. 30th. NBF is forecasting Q3 EPS of $0.54 (consensus is $0.55).
Potential for value-creating spinouts: Assuming that TransForce’s acquisition of Contrans is concluded, NBF
believes that there is logic to a spinout/sale of the newly enlarged Truckload operations into a separately traded
company. Notably, TransForce trades at 11.5x 2015 earnings versus the U.S. TL peers at 16.8x. TFI’s Waste
Management business could be another sale candidate. Using an industry average 2015 EV/EBITDA multiple of
8.6x, NBF estimates that TFI’s Waste business could be worth $649 million. At 10x current year, which is not a
stretch, the business could be worth ~$750 million. If TFI were to divest TL and Waste operations, the remaining
company would be a Package and Courier and LTL company. Using NBF’s estimates for the spinout value of TL
and Waste implies that the remainder of TransForce is trading at 6.1x EV/EBITDA. The average current year
EV/EBITDA multiple for the pure-play parcel companies is 8.0x while the average current year P/E multiple is
16.9x. Thus, NBF believes its sum of parts analysis is supportive of a higher than current share price.
Margins starting to show more meaningful improvements: NBF sees a continuation of the Q2 trend of margin
improvements in Package & Courier and the LTL segments. As the recent Vitran and Clarke acquisitions are
integrated (no integration reflected in results so far), NBF expects additional margin improvement through 2015.
Starting to see some upward pricing: There is growing evidence that more balanced industry supply is leading
to improved pricing. TFI is already seeing this trend materialize in the TL segment and to a lesser degree in LTL.
Earlier this month, Purolator announced that it will institute a rate increase of 4.9% for courier and freight services
for 2015. Purolator is the largest B2B package and courier (P&C) company in Canada and is the largest
competitor to TransForce’s Canadian P&C operations (Canpar and Loomis Express).
Relative valuation compelling: TransForce is trading at a 2015 P/E of 11.5x. This is a significant discount to the
weighted average comparable multiple of 16.0x.
VALUATION
NBF values the stock by applying a 7.5x EV/EBITDA multiple to its 2015 forecast, which results in a target price of
$31.00. Its target price implies a 2015 P/E of 13.6x.
The Week at a Glance
WESTJET AIRLINES (WJA) CLOSING PRICE: $31.27 RATING: OUTPERFORM TARGET PRICE: $35.00
COMPANY PROFILE
WestJet is Canada’s second largest scheduled airline and the low cost leader in the country. Through its WestJet
Vacations subsidiary, it is also a major tour operator to sun destinations.
INVESTMENT HIGHLIGHTS
NBF rates WestJet Airlines (WJA) Outperform rating with a $35.00 target price, and the stock is on the
NBF Action List. NBF’s positive view is based on ongoing strength in domestic airfares and its expectation for a
strong Q3. NBF also continues to expect long-term earnings growth from WestJet as its Encore regional
subsidiary expands market share, as the airline’s fare bundling/premium economy product gains further traction,
and as new first bag fees boost high-margin ancillary revenue. NBF believes investors should use the recent
sell-off as a buying opportunity. Reasons to buy include:
 Traffic demand remains strong. In Q3, WJA grew traffic 6.8% on 6.4% more capacity and reported a
quarterly load factor of 83.1%, up from 82.8% last year and the third highest Q3 load factor in WJA’s
history. NBF expects that demand for air travel in Canada will remain robust.
 Pricing still looks solid. NBF’s weekly tracking of domestic fares on key routes continues to point to
solid pricing in most markets and it still expects positive y/y RASM comparisons for WJA in the coming
quarters. For Q3 NBF is forecasting a 4.4% improvement in RASM
 Expecting a strong Q3. NBF is forecasting Q3 EPS of $0.63 up 26% from $0.50 reported in Q3 last year
(current consensus is $0.67). WestJet is scheduled to report on November 4th.
 Fuel prices have dropped 12% from H1 average. Fuel accounts for over 30% of WJA’s operating
costs. The current spot price of jet fuel is Cdn$0.81/litre, down 12% from the average WestJet paid in the
1H14 and 15% below the Cdn$0.95/litre NBF models for 2015. The earnings tailwind relative to NBF’s
2015 forecast is about $0.90 in EPS (vs. NBF’s current 2015 forecast for EPS of $2.72). WJA will face
foreign exchange headwinds from a weak Cdn$, but about 80% of its f/x exposure is fuel-related and the
drop in fuel should more than cover the f/x headwind.
 Bag fees to boost earnings. Last month, WJA announced a $25 first bag fee for its lowest Econo fares
for domestic and U.S. transborder flights. WJA indicates that about 20% of its passengers will be
impacted. NBF estimates that the incremental revenue for WJA could be $75 mln (EPS upwards of
$0.40), but this will probably be partially offset by fewer checked bags and lower Econo fares. For Q4/14
and 2015 NBF assumes a full-year top-line impact of ~$50 million and a corresponding EPS impact
of $0.20, which it argues is a conservative estimate. NBF also notes that WestJet’s fare bundling and
premium economy offering has not yet fully matured so we expect to see continued positive earnings
growth from these initiatives.
 Expect further market share gains. WestJet continues to grow its regional airline, Encore and we
expect to see ongoing market share gains as the operation expands across the country.
 Balance sheet supports share buy-back. WJA ended Q2 with $1.1 bln in cash and NBF forecasts growing
cash flow from operations will support the ongoing buy back of stock as well as dividend increases.
WestJet’s investment grade rating (a rarity among airlines) provides lower cost access to capital to
support planned aircraft acquisitions.
 Attractive valuation. The stock looks relatively inexpensive after falling 18% from its recent peak,
underperforming the airline index which has fallen about 16%. Based on current year EV/EBITDAR,
WestJet is trading at 5.6x versus an average of 6.7x for the peers. On a P/E basis, WestJet is trading at
11.7x current year versus the peer group average of 16.5x. In both cases, WestJet is by far the least
expensive stock in the peer group.
VALUATION
NBF’s $35.00 target is based on a 6.0x multiple applied to its updated forecast for next four quarter EBITDAR and
implies a 14% 12-month total return.
The Week at a Glance
STRATEGIC LIST - WEEKLY UPDATE
(October 20, 2014 - October 24, 2014)
Changes this Week:
Removing: Progressive Waste Solutions (BIN)
Adding: WestJet Airlines (WJA)
Removing: Progressive Waste Solutions Ltd. (BIN)
We removed Progressive Waste Solutions Ltd. from the NBF Strategic List based on its lower quantitative score
in our screening model. We believe there are more attractive opportunities in the Industrials sector on a riskreward basis.
Adding: WestJet Airlines Ltd. (WJA)
We added WestJet Airlines Ltd. (WJA) to the NBF Strategic List.
Thesis: WestJet is Canada’s second largest scheduled airline and the low cost leader in the country. Through
its WestJet Vacations subsidiary, it is also a major tour operator to sun destinations. NBF’s positive view is
based on ongoing strength in domestic airfares with strong demand and solid pricing, and its expectation for a
strong Q3. NBF also continues to expect long-term earnings growth from WestJet as its Encore regional
subsidiary expands market share, as the airline’s fare bundling/premium economy product gains further traction,
and as new first bag fees boost high-margin ancillary revenue.
WJA has a strong balance sheet, ending Q2 with $1.1 bln in cash. NBF forecasts that the balance sheet along
with growing cash flow from operations will support the ongoing buy back of stock as well as dividend increases.
WestJet’s investment grade rating also provides lower cost access to capital to support planned aircraft
acquisitions.
Notably, WestJet is scheduled to report on November 4th. NBF is forecasting Q3 EPS of $0.63 up 26% from
$0.50 reported in Q3 last year (current consensus is $0.67).
Comments
Energy (Market Weight)
Canadian E&P 3Q14 Preview (NBF)
Overall NBF expects a relatively strong third quarter results from most Canadian E&P companies given robust
oil prices and favourable operating conditions during the quarter due to a shorter than normal spring breakup
which gave companies a head start on their Q3 drilling programs. Despite benchmark pricing falling throughout
the summer (and fall), Q3/14 was another quarter with relatively strong oil prices with WTI, Edmonton Par and
WCS averaging US$97/bbl (-5.6% q/q), Cdn$98/bbl (-6.5% q/q) and Cdn$85/bbl (-6.0% q/q), respectively.
However, natural gas did not fare quite as well (AECO down ~17% Q/Q to Cdn$3.83/mcf) as cooler weather
over most of the summer reduced consumption while supply from the U.S. shale gas plays continued to grow
and shrink the storage deficit.
Several companies typically release next year’s capital budget with 3Q results; however, this year could be
different given recent turmoil in the commodity markets. Just as management teams are sitting around the board
room planning for next year, commodity prices have retreated. This could cause delays in getting 2015 capital
budgets out and could prompt a hawkish approach to 2015 by cutting programs when compared with 2014. The
budgets released over the coming weeks should provide some clarity on the degree of capital flexibility and the
ability to manage production during a period of weaker commodity prices.
Canadian E&P Sector Review (CS)
Credit Suisse (CS) published a sector review for Canadian Oil & Gas companies, incorporating recently revised
commodity forecasts as well as other operational updates into its models. Overall its f2014/ f2015/ f2016 CFPS
estimates decrease by 2.2%/ 6.5%/ 6.3% respectively. Given lower estimates and increased funding and
balance sheet risks, CS revised its targets down by ~10% on average. In its view the companies which have the
The Week at a Glance
strongest balance sheets and most manageable funding gaps (as a % of total operating cash flow) are likely to
weather downdrafts far more successfully than those with oversized balance sheets and Suncor and Canadian
Natural Resources were among the stocks highlighted as those that provide a good defense in times of
commodity volatility.
Canadian Natural Resources (CNQ)
CNQ is scheduled to report Q3 results and its 2015 budget on November 6th. NBF is forecasting Q3 CFPS of
$2.10 (-12.2% q/q), below the consensus estimate of $2.14. NBF is looking for Q3 production of 797,938 boe/d
(-2.4% q/q), vs. consensus estimate of 801,895 boe/d. NBF rates CNQ Outperform with a $54.00 target price.
CS rates CNQ Outperform and lowered its target price by 8% to $49.00 (from $53.00). Its 2014e/ 2015e/ 2016e
CFPS estimates were lowered to $8.73/ $8.59/ $8.87 from $8.88/ $9.06/ $9.29 previously. This reflects a
decrease of 1.7%/ 5.2%/ 4.5% respectively.
Crescent Point Energy (CPG)
CPG is scheduled to report Q3 results on November 6th and will release its 2015 budget in December (TBA).
NBF is forecasting Q3 CFPS of $1.56 (+0.5% q/q), ahead of consensus estimate of $1.50. NBF is looking for Q3
production of 143,908 boe/d (+4.8% q/q); vs. consensus estimate of 137,368 boe/d. NBF rates CPG Outperform
with a $52.00 target price.
CS rates CPG Neutral and lowered its target price by 7% to $42.00 (from $45.00). Its 2014e/ 2015e/ 2016e
CFPS estimates were lowered to $6.05/ $5.66/ $5.57 from $6.07/ $5.89/ $5.81 previously. This reflects a
decrease of 0.4%/ 3.9%/ 4.1% respectively
EnCana Corp. (ECA)
ECA is scheduled to report Q3 results on November 12th and will release its 2015 budget in December (TBA).
NBF is forecasting Q3 CFPS of $1.04 (+17.1% q/q), a penny below consensus estimate of $1.05. NBF is looking
for Q3 production of 493,914 boe/d (+0.5% q/q), vs. consensus estimate of 491,700 boe/d. NBF expects 3Q to
be a fairly noisy quarter for ECA given the multiple transactions that were announced and/or closed during the
quarter; however, NBF is hoping to get more detailed guidance from the company incorporating the recent A&D
transactions. NBF rates ECA Outperform with a US$28.00 target price. CS forecasts 2014e/ 2015e/ 2016e
CFPS of $4.37/ $4.64/ $5.87.
CS reinstated research coverage on EnCana following an extended period of restriction with a Neutral rating
and a $24.00 target price. Since its last update earlier this year, ECA has meaningfully evolved its portfolio
through a series of significant transactions. CS’ revised estimates reflect all completed and announced
transactions to date as well as updated commodity prices.
CS remains constructive on ECA's new strategy that emphasizes development of higher margin liquids plays.
With the acceleration of the strategy via transactions this year, CS is gaining more confidence in ECA's
transition and competitive position but still look for evidence of solid execution on the development front. While
the bigger repositioning may have now occurred with the Athlon/Permian transaction, CS still expects
management will look for opportunities to rebalance the portfolio. While it sees more flexibility now around
capital allocation, CS could also see a lower level of capital spending than it currently forecast given its revised
commodity price expectations and management's objective to remain broadly balanced, including dividends.
ECA's balance sheet remains strong, with projected net debt to cash flow of 2.1x at year end 2015, falling to
1.7x at year 2016. The risk of weaker gas prices is mitigated by the company's hedge position in 2015 (825
mmcf/d @ US$4.37 NYMEX in 2015e) as well as its increasing liquids weight (~35% in 2015e).
Suncor Energy (SU)
SU is scheduled to report Q3 results on October 29th and will release its 2015 budget on November 20/21. NBF
is forecasting Q3 CFPS of $1.48 (-9.3% q/q), below of consensus estimate of $1.55. NBF is looking for Q3
production of 515,849 boe/d (-0.5% q/q), vs. consensus estimate of 542,070 boe/d. NBF rates Suncor
Outperform with a $50.00 target price.
CS rates SU Outperform and lowered its target price by 10% to $45.00 (from $50.00). Its 2014e/ 2015e/ 2016e
CFPS estimates were lowered to $6.69/ $6.64/ $7.26 from $7.06/ $7.26/ $7.41 previously. This reflects a
decrease of 5.2%/ 8.4%/ 9.7% respectively.
The Week at a Glance
AltaGas Ltd. (ALA)
Q314 Outlook: In Q3 frac spreads averaged US$35/bbl (LT avg.: US$34/bbl), pointing towards another healthy
quarter for NGL extraction, fractionation and marketing companies like AltaGas. In Q3 ALA’s 195 MW Forrest
Kerr hydro facility experienced a delay in reaching its commercial operations date (COD) owing to challenges
with the Northwest Transmission Line (NTL) and a flooding event on the Iskut River. The facility achieved its
COD on Oct. 21st (was mid-2014), firming up the project’s long-term annual EBITDA expectations of ~$100
million. Furthermore, with B.C. reducing its LNG tax to 1.5%/3.5% pre/post capital recovery (was 1.5%/7.0%);
NBF expects constructive comments surrounding ~$3.5 billion of uncommitted LNG-related growth opportunities
– Douglas Channel LNG, Triton LNG, PNG pipeline expansion.
Overall, NBF forecasts Q3 EBITDA of $108 million (consensus: $121.4 million), representing ~5% year-overyear growth despite zero contributions from Forrest Kerr. With the Forrest Kerr COD and B.C. LNG tax
announcement in the rear-view mirror, combined with the stock down ~10% since the end of August, NBF
recommends buying ALA ahead of the company’s Q3 release on Oct. 30th. NBF rates ALA Outperform with a
$58.00 target price.
Materials (Market Weight)
Credit Suisse published its Q3 2014 preview for Canadian Metals and Mining companies under research
coverage. There was a major correction in diversified and gold miners in Q3 with the TSX Mining and TSX Gold
Equities Indices ranked among the worst performing asset classes down 16% and 17%, respectively, since
June 30th on the back of weaker metal prices, weak seasonality for base metals and likely a risk off trade for
gold. Credit Suisse (CS) revised its EPS estimates for many producers under coverage to reflect recently
released production reports, operating guidance and general fine-tuning.
First Quantum Minerals (FM)
First Quantum is scheduled to release its Q3 results on October 30th after market close. CS forecasts EPS of
$0.21 vs. consensus at US$0.26. CS forecasts 3Q14 copper production/sales of 97.1/93.5 Kt at an average
cash cost of US$1.37/lb of copper, and gold production/sales of 49.4/43.9 Koz. CS expects management to
update f2014 copper and gold production guidance to account for 2.8 Kt and 3.5 Koz of production loss at Guelb
Moghrein as a result of the strike action. Nickel/zinc production guidance of 45-48/55-60 Kt are expected to
remain unchanged. CS also expects management to reiterate f2014 capex of US$2.2-2.4 bln, with
approximately US$600 mln at each of Cobre Panama and Sentinel. CS expects a progress update at the
Zambia smelter which began commissioning activities in July, and expects dry commissioning of the in-pit
crusher at Sentinel. CS forecasts FM will exit 2014 with a cash balance of US$509 mln and a net debt/equity
ratio of 60%.
CS rates FM Outperform with a C$30.00 target price and likes the company as a play on the long term upside
potential in copper prices on the back of its ambitious growth plan of expansion and new project developments
plus further optionality on longer dated projects. Into 3Q14 results, CS sees commissioning of the in-pit crusher
at Sentinel and commissioning of the copper smelter as near-term positive catalysts.
Barrick Gold (ABX)
Barrick is scheduled to release its Q3 results on October 29th after the market close. CS forecasts 3Q14 gold
production of 1.56 Moz at a cash cost of US$592/oz and copper production of 110 Mlbs at US$2.01/lb C1 cash
costs. CS is slightly below consensus for ABX's Q3 EPS, forecasting US$0.17/share vs. consensus at
US$0.26.share. CS expects a q/q increase in EPS driven by higher production from Cortez (grades), Lagunas
Norte (grades and recoveries) and copper with Lumwana plant operations resuming in July after a conveyor
collapse in April. One area of focus in the quarter will be Lumwana's viability in light of the potential increase to
Zambian royalties to 20% from the current 6%. Positively, Goldstrike's thiosulfate project is expected to start up
in Q4/14 and bring forward 0.35- 0.40 Moz per year in the mine plan. Total capex is estimated at US$585 mln
with US$450 mln spent to Q2/14.
CS rates ABX Neutral as it continues to work through debt, divestitures and M&A (NEM/DGC) overhang issues.
Positively, mine optimization efforts appear to be bearing fruit with improvement seen at ABX's higher cost
mines in H1/14. On its estimates ABX is positioned to provide a peer leading FCF yield in 2015, which makes us
relatively constructive on the shares. Strategic changes remain possible, with the CEO change and CoPresident structure expected to accelerate portfolio optimization and cost reduction initiatives. CS has a
US$20.00 target price on ABX.
The Week at a Glance
Information Technology (Overweight)
Open Text Corporation (OTC)
Open text reported license revenue of $59 mln growing 6% (negligible GXS contribution), missing consensus of
~$65 mln. This is the second September quarter with a license miss after a huge June quarter. Management
said that customer caution increased in September. Recall a large proportion of licence deals are normally
closed in the last weeks of any quarter (usual customer buying pattern). The deal size was down on fewer >$1
mln deals. Nine deals >$500k closed and only three >$1 mln (fewest in 10 quarters). Management reiterated
that the pipeline is strong and is encouraged that new product launches over the next 90 days targeted at the
install base will generate new license orders. The year-end budget flush should also help next quarter. NBF is
modeling 4-5% y/y license growth over the next two quarters until it has evidence of momentum. The Install
base is still driving >75% of license revenue for a third consecutive quarter. This coincides with the new product
launches and is an indication that R&D efforts are paying off. OTC’s adjusted EPS of 97¢ beats consensus of
86¢ (NBF 89¢). Opex control remains remarkable. EBITDA margin of 37% was another record. The cash flow of
$1.13/share exceeded EPS for a third quarter in a row. Operating cash flow of $128 mln supports NBF thesis
that dividend growth of at least 15% per year should be expected. NBF is maintaining its $60.00/sh target price
and Outperform rating. Its F2015 EPS is unchanged (F2016 lowered 3% to be cautious).
Credit Suisse upgraded its rating of Open Text to Outperform from Neutral as it expects more consistent yr/yr
license revenue growth from the company's new EIM suite of bundled products throughout F2015, which it
estimates will generate an operating margin at the high end of the company's 28-32% target model, leading to
f2015 EPS growth of +15%, at a minimum, and before any additional accretive acquisitions. Credit Suisse raised
f2015 rev/EPS ests to $1.971 bln/$3.92 from $1.914 bln/$3.71, respectively, due to GXS synergies / more
license revenue. Credit Suisse increased it target price to $65.00 (prev. $51.00) and implies a C2015 P/E
multiple of 16.0x.
Utilities (Underweight)
Northland Power (NPI)
NPI is scheduled to report Q3 2014 results on November 13th. NBF forecasts adj. EBITDA of $87.8 mln (+11%
y/y) vs. consensus estimate for $85.7 mln. NBF rates NPI Outperform with a $19.00 target price.
Source: NBF Research, Veritas Research, Credit Suisse Research, Bloomberg, Thomson One
The Week at a Glance
NBF STRATEGIC LIST
NBF Strategic List (October 24, 2014)
WEIGHT* (%)
Consumer Discretionary
Gildan Activewear
Thomson Reuters Corp.
Consumer Staples
George Weston Ltd.
Metro Inc.
Energy
AltaGas Ltd.
Can. Natural Resources Ltd.
Crescent Point Energy Corp.
EnCana Corp.
Inter Pipeline Ltd.
Suncor Energy Inc.
Financials
Bank of Nova Scotia
CI Financial Corp.
Element Financial Corp.
Genworth MI Canada Inc.
H&R REIT
Manulife Financial Corp.
Royal Bank of Canada
Toronto Dominion Bank
Health Care
Industrials
CAE Inc.
WestJet Airlines Ltd.
Information Technology
CGI Group Inc.
Open Text Corp.
Materials
Barrick Gold Corp.
First Quantum Minerals
Telecom Services
BCE Inc.
TELUS Corp
Utilities
Canadian Utilities Ltd.
Northland Power Inc.
Ticker
ADDITION ADDITION
DATE
PRICE
GIL
TRI
21-May-14 $
27-Feb-14 $
58.18
38.31
WN
MRU
31-Jul-12
4-Dec-13
$
$
59.25
63.62
ALA
CNQ
CPG
ECA
IPL
SU
30-Oct-13
31-Jul-12
3-Oct-12
9-Jul-14
5-Jun-13
31-Jul-12
$
$
$
$
$
$
38.19
27.35
43.00
24.05
23.71
30.66
BNS
CIX
EFN
MIC
HR.un
MFC
RY
TD
1-Oct-14
6-Mar-13
3-Sep-14
8-Oct-14
20-Aug-14
26-Mar-14
19-Jun-13
31-Jul-12
$
$
$
$
$
$
$
$
69.65
26.97
14.10
36.82
23.36
21.42
60.69
39.46
CAE
WJA
5-Mar-14
22-Oct-14
$
$
15.31
30.65
GIB.A
OTC
22-Aug-12 $
13-Aug-14 $
25.83
61.16
ABX
FM
31-Jul-12
3-Apr-13
$
$
33.01
17.96
BCE
T
23-Jan-13
31-Jul-12
$
$
43.92
31.31
CU
NPI
31-Jul-12
8-May-13
$
$
35.00
19.43
LAST
YIELD
Strategic
PRICE
(%)
BETA
List
EQY_DVD_YLD
EQY_BETA 5.0
$ 64.94
0.7
1.0
2.5
$ 41.17
3.6
0.8
2.5
2.5
$ 90.49
1.9
0.7
1.3
$ 77.80
1.5
0.6
1.3
26.5
$ 46.98
3.8
0.7
4.4
$ 38.94
2.3
1.5
4.4
$ 38.03
7.3
1.0
4.4
$ 20.68
1.5
1.2
4.4
$ 35.14
3.7
0.7
4.4
$ 38.75
2.9
1.5
4.4
37.9
$ 68.10
3.9
0.9
4.7
$ 32.25
3.7
0.7
4.7
$ 13.11
0.0
0.7
4.7
$ 38.32
3.7
0.7
4.7
$ 22.17
6.1
0.7
4.7
$ 20.46
3.0
1.4
4.7
$ 79.45
3.8
0.9
4.7
$ 54.59
3.4
0.9
4.7
0.0
8.2
$ 14.76
1.9
0.8
4.1
$ 31.30
1.5
0.8
4.1
2.2
$ 37.64
0.0
0.8
1.1
$ 58.64
1.3
0.8
1.1
12.0
$ 15.03
1.5
1.2
6.0
$ 18.77
0.8
2.0
6.0
4.0
$ 48.45
5.1
0.6
2.0
$ 39.43
3.9
0.6
2.0
1.7
$ 40.10
2.7
0.7
0.9
$ 17.20
6.3
0.7
0.9
SPTSX NOTES**
5.6
2.8
26.5
34.2
2.6
8.2
1.8
12.0
4.4
1.9
Source: Bloomberg, Thomson One (Priced October 24, 2014 at 11:30am EDT)
* Individual position weights reflect an adjustment for Health Care. The Health Care weighting has been reallocated to sectors rated "overweight"
with any remaining weight reallocated proportionally to the remaining sectors. As such, the individual position weights will exceed the total sector
weights and may not sum to 1
**R = Restricted Stocks - Stocks placed under restriction while on The NBF Strategic List will remain on the list, but noted as Restricted in
accordance with compliance requirements
The Week at a Glance
WEEK AHEAD
THE ECONOMIC CALENDAR
(October 27th – October 31st)
U.S. Indicators
Date
Time
Release
Period
Previous
Consensus
27-Oct
27-Oct
27-Oct
27-Oct
27-Oct
09:45
09:45
10:00
10:00
10:30
Markit US Services PMI
Markit US Composite PMI
Pending Home Sales MoM
Pending Home Sales YoY
Dallas Fed Manf. Activity
Oct P
Oct P
Sep
Sep
Oct
58.9
59
-1.00%
-4.10%
10.8
--1.00%
-11
28-Oct
28-Oct
28-Oct
28-Oct
28-Oct
28-Oct
28-Oct
28-Oct
28-Oct
28-Oct
28-Oct
08:30
08:30
08:30
08:30
09:00
09:00
09:00
09:00
09:00
10:00
10:00
Durable Goods Orders
Durables Ex Transportation
Cap Goods Ship Nondef Ex Air
Cap Goods Orders Nondef Ex Air
S&P/CS 20 City MoM SA
S&P/CS Composite-20 YoY
S&P/CaseShiller 20-City Index NSA
S&P/Case-Shiller US HPI YoY
S&P/Case-Shiller US HPI NSA
Consumer Confidence Index
Richmond Fed Manufact. Index
Sep
Sep
Sep
Sep
Aug
Aug
Aug
Aug
Aug
Oct
Oct
-18.20%
0.70%
0.10%
0.60%
-0.50%
6.75%
173.34
5.61%
167.32
86
14
0.30%
0.50%
-0.60%
0.15%
5.70%
---87.2
10
29-Oct
29-Oct
29-Oct
29-Oct
29-Oct
07:00
14:00
14:00
14:00
14:00
MBA Mortgage Applications
Fed QE3 Pace
Fed Pace of Treasury Pur
Fed Pace of MBS Purchases
FOMC Rate Decision
24-Oct
Oct
Oct
Oct
29-Oct
11.60%
$15B
$10B
$5B
0.25%
-$0B
--0.25%
30-Oct
30-Oct
30-Oct
30-Oct
30-Oct
30-Oct
30-Oct
08:30
08:30
08:30
08:30
08:30
08:30
09:45
Initial Jobless Claims
GDP Annualized QoQ
Continuing Claims
Personal Consumption
GDP Price Index
Core PCE QoQ
Bloomberg Consumer Comfort
25-Oct
3Q A
18-Oct
3Q A
3Q A
3Q A
26-Oct
283K
4.60%
2351K
2.50%
2.10%
2.00%
37.7
-3.00%
-1.90%
1.50%
---
31-Oct
31-Oct
31-Oct
31-Oct
31-Oct
31-Oct
31-Oct
31-Oct
31-Oct
31-Oct
08:30
08:30
08:30
08:30
08:30
08:30
08:30
09:00
09:45
09:55
Employment Cost Index
Personal Income
Personal Spending
PCE Deflator MoM
PCE Deflator YoY
PCE Core MoM
PCE Core YoY
ISM Milwaukee
Chicago Purchasing Manager
Univ. of Michigan Confidence
3Q
Sep
Sep
Sep
Sep
Sep
Sep
Oct
Oct
Oct F
0.70%
0.30%
0.50%
0.00%
1.50%
0.10%
1.50%
63.18
60.5
86.4
0.50%
0.30%
0.10%
0.00%
-0.10%
--60.5
86.4
Period
Previous
Consensus
24-Oct
58.4
--
Canadian Indicators
Date
Time
27-Oct
10:00
Bloomberg Nanos Confidence
29-Oct
29-Oct
08:30
08:30
Industrial Product Price MoM
Raw Materials Price Index MoM
Sep
Sep
0.20%
-2.20%
---
31-Oct
31-Oct
08:30
08:30
GDP MoM
GDP YoY
Aug
Aug
0.00%
2.50%
---
Source : Bloomberg
Release
The Week at a Glance
S&P/TSX QUARTERLY EARNINGS CALENDAR
th
Monday October 27 , 2014
COMPANY*
DH Corp
Precision Drilling Corp
Toromont Industries Ltd
SYMBOL
DH CN
PD CN
TIH CN
EPS ESTIMATE
0.57
0.172
0.49
SYMBOL
FSV
HNL
NBD
EPS ESTIMATE
0.796
0.102
0.019
SYMBOL
AEM
ASR
ABX
CCO
CS
CG
BCB
LUN
MEG
MX
S
SU
TCK.b
YRI
EPS ESTIMATE
0.155
0.046
0.164
0.222
0.059
-0.084
0.12
0.068
0.524
0.639
-0.069
0.777
0.251
0.057
th
Tuesday October 28 , 2014
COMPANY*
FirstService Corp/Canada
Horizon North Logistics Inc
Norbord Inc
th
Wednesday October 29 , 2014
COMPANY*
Agnico Eagle Mines Ltd
Alacer Gold Corp
Barrick Gold Corp
Cameco Corp
Capstone Mining Corp
Centerra Gold Inc
Cott Corp
Lundin Mining Corp
MEG Energy Corp
Methanex Corp
Sherritt International Corp
Suncor Energy Inc
Teck Resources Ltd
Yamana Gold Inc
The Week at a Glance
th
Thursday October 30 , 2014
COMPANY*
AltaGas Ltd
Bombardier Inc
Canadian Oil Sands Ltd
Canfor Corp
Catamaran Corp
Constellation Software Inc/Canada
Eldorado Gold Corp
Fairfax Financial Holdings Ltd
First Quantum Minerals Ltd
Goldcorp Inc
MacDonald Dettwiler & Associates Ltd
Maple Leaf Foods Inc
Nevsun Resources Ltd
New Gold Inc
OceanaGold Corp
Pengrowth Energy Corp
Progressive Waste Solutions Ltd
Superior Plus Corp
Thomson Reuters Corp
TransAlta Corp
TransForce Inc
SYMBOL
ALA
BBD.b
COS
CFP
CCT
CSU
ELD
FFH
FM
G
MDA
MFI
NSU
NGD
OGC
PGF
BIN
SPB
TRI
TA
TFI
EPS ESTIMATE
0.203
0.095
0.425
0.495
0.564
3.161
0.059
5.05
0.259
0.184
1.408
-0.037
0.14
0.024
0.03
0.006
0.288
0.05
0.435
0.073
0.548
SYMBOL
CCA
TET
EPS ESTIMATE
1.334
0.18
st
Friday October 31 , 2014
COMPANY*
Cogeco Cable Inc
Trilogy Energy Corp
Source: Bloomberg, NBF Research
*Companies of the S&P/TSX index expected to report. Stocks from the Strategic List are in Bold.
The Week at a Glance
S&P500 INDEX QUARTERLY EARNINGS CALENDAR
th
Monday October 27 , 2014
COMPANY*
Amgen Inc
AvalonBay Communities Inc
Franklin Resources Inc
General Growth Properties Inc
Hartford Financial Services Group Inc/The
Masco Corp
Merck & Co Inc
Plum Creek Timber Co Inc
Roper Industries Inc
Seagate Technology PLC
Universal Health Services Inc
XL Group PLC
SYMBOL
AMGN
AVB
BEN
GGP
HIG
MAS
MRK
PCL
ROP
STX
UHS
XL
EPS ESTIMATE
2.112
1.732
0.928
0.313
0.825
0.317
0.878
0.297
1.534
1.246
1.351
0.62
SYMBOL
AET
AFL
GAS
AMP
AME
APC
AN
BXP
CHRW
CINF
COH
CNX
GLW
CMI
DNB
ECL
EIX
DD
EA
EQR
ESRX
FB
FISV
FCX
GILD
HRS
KIM
LH
MAC
MAR
MMC
MLM
MCK
MWV
NFX
EPS ESTIMATE
1.576
1.428
0.303
1.967
0.609
1.262
0.858
1.371
0.805
0.718
0.45
0.189
0.373
2.284
1.721
1.204
1.351
0.53
0.529
0.801
1.29
0.403
0.841
0.607
1.905
1.096
0.353
1.724
0.889
0.616
0.525
1.705
2.726
0.536
0.494
th
Tuesday October 28 , 2014
COMPANY*
Aetna Inc
Aflac Inc
AGL Resources Inc
Ameriprise Financial Inc
AMETEK Inc
Anadarko Petroleum Corp
AutoNation Inc
Boston Properties Inc
CH Robinson Worldwide Inc
Cincinnati Financial Corp
Coach Inc
CONSOL Energy Inc
Corning Inc
Cummins Inc
Dun & Bradstreet Corp/The
Ecolab Inc
Edison International
EI du Pont de Nemours & Co
Electronic Arts Inc
Equity Residential
Express Scripts Holding Co
Facebook Inc
Fiserv Inc
Freeport-McMoRan Inc
Gilead Sciences Inc
Harris Corp
Kimco Realty Corp
Laboratory Corp of America Holdings
Macerich Co/The
Marriott International Inc/DE
Marsh & McLennan Cos Inc
Martin Marietta Materials Inc
McKesson Corp
MeadWestvaco Corp
Newfield Exploration Co
The Week at a Glance
Noble Energy Inc
Owens-Illinois Inc
PACCAR Inc
Parker-Hannifin Corp
Pfizer Inc
PG&E Corp
Sherwin-Williams Co/The
Starwood Hotels & Resorts Worldwide Inc
Total System Services Inc
Vertex Pharmaceuticals Inc
Western Digital Corp
Whirlpool Corp
Xylem Inc/NY
NBL
OI
PCAR
PH
PFE
PCG
SHW
HOT
TSS
VRTX
WDC
WHR
XYL
0.406
0.734
0.955
1.666
0.552
1.118
3.204
0.65
0.523
-0.627
2.036
3.129
0.521
SYMBOL
AKAM
AGN
ALL
AIZ
ADP
CBG
XRAY
ETN
EXC
FFIV
FMC
GRMN
GT
HSY
HES
KRFT
LNC
MHFI
MET
MUR
NE
PSX
PX
RL
RRC
SEE
SO
TEL
UNM
V
WM
WLP
WMB
WEC
EPS ESTIMATE
0.566
1.765
1.33
1.577
0.632
0.34
0.595
1.234
0.712
1.482
0.96
0.711
0.704
1.085
1.091
0.742
1.425
0.936
1.38
1.004
0.545
1.744
1.626
2.057
0.333
0.455
1.074
1.003
0.898
2.101
0.682
2.26
0.187
0.51
th
Wednesday October 29 , 2014
COMPANY*
Akamai Technologies Inc
Allergan Inc/United States
Allstate Corp/The
Assurant Inc
Automatic Data Processing Inc
CBRE Group Inc
DENTSPLY International Inc
Eaton Corp PLC
Exelon Corp
F5 Networks Inc
FMC Corp
Garmin Ltd
Goodyear Tire & Rubber Co/The
Hershey Co/The
Hess Corp
Kraft Foods Group Inc
Lincoln National Corp
McGraw Hill Financial Inc
MetLife Inc
Murphy Oil Corp
Noble Corp plc
Phillips 66
Praxair Inc
Ralph Lauren Corp
Range Resources Corp
Sealed Air Corp
Southern Co/The
TE Connectivity Ltd
Unum Group
Visa Inc
Waste Management Inc
WellPoint Inc
Williams Cos Inc/The
Wisconsin Energy Corp
The Week at a Glance
th
Thursday October 30 , 2014
COMPANY*
Air Products & Chemicals Inc
Allegion PLC
Altria Group Inc
American Tower Corp
AmerisourceBergen Corp
Apartment Investment & Management Co
Avon Products Inc
Ball Corp
BorgWarner Inc
Cardinal Health Inc
Cigna Corp
CME Group Inc/IL
Computer Sciences Corp
ConocoPhillips
Crown Castle International Corp
Eastman Chemical Co
Ensco PLC
Essex Property Trust Inc
Expedia Inc
Fidelity National Information Services Inc
Fluor Corp
Harman International Industries Inc
Host Hotels & Resorts Inc
Invesco Ltd
Iron Mountain Inc
Johnson Controls Inc
Kellogg Co
L-3 Communications Holdings Inc
Marathon Petroleum Corp
MasterCard Inc
Microchip Technology Inc
Mohawk Industries Inc
Mosaic Co/The
Mylan Inc/PA
National Oilwell Varco Inc
Newmont Mining Corp
NiSource Inc
PerkinElmer Inc
Pitney Bowes Inc
Public Service Enterprise Group Inc
Public Storage
Republic Services Inc
SCANA Corp
Starbucks Corp
Tesoro Corp
Time Warner Cable Inc
Western Union Co/The
Xcel Energy Inc
SYMBOL
APD
ALLE
MO
AMT
ABC
AIV
AVP
BLL
BWA
CAH
CI
CME
CSC
COP
CCI
EMN
ESV
ESS
EXPE
FIS
FLR
HAR
HST
IVZ
IRM
JCI
K
LLL
MPC
MA
MCHP
MHK
MOS
MYL
NOV
NEM
NI
PKI
PBI
PEG
PSA
RSG
SCG
SBUX
TSO
TWC
WU
XEL
EPS ESTIMATE
1.614
0.641
0.679
1.09
1.052
0.513
0.164
1.055
0.787
0.96
1.825
0.823
1.015
1.215
1.023
1.803
1.614
2.008
1.745
0.793
1.098
1.115
0.315
0.624
0.633
1.008
0.921
1.853
2.229
0.782
0.665
2.416
0.58
1.135
1.541
0.161
0.159
0.567
0.46
0.753
2.052
0.527
0.983
0.743
2.157
1.898
0.383
0.771
The Week at a Glance
th
Friday October 31 , 2014
COMPANY*
AbbVie Inc
Aon PLC
Chevron Corp
Clorox Co/The
Dominion Resources Inc/VA
Exxon Mobil Corp
Legg Mason Inc
Newell Rubbermaid Inc
NextEra Energy Inc
Pinnacle West Capital Corp
Rockwell Collins Inc
TECO Energy Inc
Weyerhaeuser Co
SYMBOL
ABBV
AON
CVX
CLX
D
XOM
LM
NWL
NEE
PNW
COL
TE
WY
EPS ESTIMATE
0.773
1.123
2.551
1.028
0.958
1.725
0.009
0.551
1.549
2.147
1.268
0.326
0.299
Source: Bloomberg, NBF Research
* Companies of the S&P500 index expected to report. Stocks from the Credit Suisse U.S. Focus List are in Bold.