1. business and industrial

EQUITY RESEARCH
CANADIAN RESEARCH AT A GLANCE
December 17, 2014
Ratings Revisions
! Africa Oil Corp.
! Argent Energy Trust
! BlackPearl Resources Inc.
! Gear Energy Ltd.
! Legacy Oil and Gas Inc.
! Lightstream Resources Ltd.
! Manitok Energy Inc.
! Oryx Petroleum Corporation Limited
! Sierra Wireless
! Talisman Energy Inc.
! Trilogy Energy Corp.
Summary
Should I Stay or Should I Go Now?
Summary
Downgrading to Underperform
Summary
Downgrading to Underperform
Summary
Reducing estimates on bleak commodity outlook
Summary
Downgrading to Sector Perform
Summary
Conservative 2015 budget; Moving to Underperform
Summary
Downgrading to Sector Perform
Summary
Downgrading to Sector Perform
Summary
Downgrading to Sector Perform on less compelling risk-reward
Summary
Downgrading to Underperform
Summary
Moving to Sector Perform in conjunction with lowered commodity price deck
Summary
Pattern Development successful in Quebec wind RFP
Summary
2015 guidance solidly ahead of our forecast
Summary
Diversified business driving growth in challenged oil market
Summary
Implements deep capex cuts to preserve long-term health
! Bulking Up - RBC's Weekly Review
! Canadian Asset Managers
! Global Energy Research Commodity
Summary
Coal and iron ore prices stable as freight rates continue to fall
Summary
Mutual fund industry flows remained strong in November
Summary
Reducing 2015/16 and Long-Term Forecasts
!
! Q4/14 Global Mining Best Ideas
Summary
Containerboard stats: Box shipment growth is strong for the 3rd month in a row
!
! RBC Strategy Focus List
! Timber REITs
! Uranium Weekly
Summary
SIA; ENQ; AOI; OXC; GPX
Summary
New Year 2015
Summary
Active timber markets continue to support current valuations
Summary
Ux spot price down $0.75/lb to $37.00/lb; TradeTech down $0.60/lb to $37.25/lb
First Glance Notes
! Pattern Energy Group Inc.
Company Comments
! Element Financial
! Stantec Inc.
! Whitecap Resources Inc.
Industry Comments
Price Revisions
Paper & Packaging
Portfolio
RBC International E&P Daily
Summary
! - Action-Oriented Research
Priced as of prior day's market close, EST (unless otherwise noted).
For Required Non-U.S. Analyst and Conflicts Disclosures, see Page 16.
EQUITY RESEARCH
U.S. RESEARCH AT A GLANCE
December 17, 2014
Ratings Revisions
! Sierra Wireless
! Talisman Energy Inc.
Summary
Downgrading to Sector Perform on less compelling risk-reward
Summary
Downgrading to Underperform
Summary
Outlook Meeting Takeaways: Upbeat Story Getting Lots of Love
Summary
Adjusting for buyback authorization, raising target
Summary
Remain positive heading into 2015; Raising price target
Summary
Sale Of LNG Assets Transforms Outspend Profile Over The Next Few Years
Summary
Takeaways from meeting with management
Summary
2014 Investor Day Takeaways
Summary
Improving trends; Sector Perform
Summary
Outlook Meeting Positives Include EPS Guidance
Summary
Takeaways from meeting with management
Summary
Reiterating Outperform rating; Raising price target
Summary
Stretching the footprint west of Cleveland
Summary
Past initiatives are paying off; Raising price target
Summary
Highlights From Meeting With Company
Summary
Highlights From Meeting With Management
Summary
Highlights From Meeting With Management
Summary
Pattern Development successful in Quebec wind RFP
Summary
Highlights From Meeting With Management
Summary
Updating Estimates Post-HGTV, Customer Segmentation Is Key
Summary
Diversified business driving growth in challenged oil market
Summary
Takeaways from the Road with the CEO
Summary
Next debate: Can share repurchase hold up? We think so.
! 2015 Outlook: Non-Life Insurance
! Bulking Up - RBC's Weekly Review
! Global Energy Research Commodity
Summary
The party isn't over, but we're looking at our watch
Summary
Coal and iron ore prices stable as freight rates continue to fall
Summary
Reducing 2015/16 and Long-Term Forecasts
!
! Housing Market Monthly
Summary
Strong Acceleration in 2015 Open Enrollment Activity
Summary
Key trends in the housing market
Price Target Revisions
! 3M Company
! ACE Limited
! Aon plc
! Apache Corporation
! ArcBest Corporation
! CVS Health Corporation
! Darden Restaurants, Inc.
! General Electric Company
! J.B. Hunt Transport Services,
! Marsh & McLennan Cos
! Northwest Bancshares, Inc.
! The Allstate Corporation
First Glance Notes
! Apache Corporation
! Newfield Exploration Co.
! Noble Energy, Inc.
! Pattern Energy Group Inc.
! Ultra Petroleum
Company Comments
! Sherwin-Williams Company
! Stantec Inc.
! Stratasys, Ltd.
! Unum Group
Industry Comments
Price Revisions
Health Care Services
2
EQUITY RESEARCH
! Large U.S. Banks' Russian Exposure -
Summary
Stallin' Russian economy not puttin' a damper on large U.S. banks
!
! RBC European Industrials Daily
! RBC International E&P Daily
! Specialty Pharmaceuticals
! Timber REITs
Summary
Containerboard stats: Box shipment growth is strong for the 3rd month in a row
Summary
Philips healthcare acquisition; little oil price impact so far at Weir
Summary
SIA; ENQ; AOI; OXC; GPX
Summary
Why a TEVA for PRGO deal could make sense - set-up for both stocks attractive
Summary
Active timber markets continue to support current valuations
Summary
You’ve grown into your multiples, now it’s time to grow
Manageable
Paper & Packaging
In-Depth Reports
! 2015 Computer Services & IT
Consulting Outlook
3
EQUITY RESEARCH
UK & European Research at a Glance
December 17, 2014
Price Target Revisions
! Aon plc
! Imagination Technologies Group
Summary
Remain positive heading into 2015; Raising price target
Summary
No margin for error
! Bulking Up - RBC's Weekly Review
! European Telecommunications
! Large U.S. Banks' Russian Exposure -
Summary
Coal and iron ore prices stable as freight rates continue to fall
Summary
Whats In The Price
Summary
Stallin' Russian economy not puttin' a damper on large U.S. banks
!
! Spanish Banks
! UK Banks - Stress test results
Summary
New Year 2015
Summary
Currency impacts and Mexican banking data more negative for BBVA than SAN
Summary
Positive outcome for the sector
Industry Comments
Manageable
RBC Strategy Focus List
Find our Research at:
RBC Insight (www.rbcinsight.com): RBC's global research destination on the web. Contact your RBC Capital Markets' sales representative to
access our global research site, or use our iPad App "RBC Research"
Thomson Reuters (www.thomsononeanalytics.com)
Bloomberg (RBCR GO)
SNL Financial (www.snl.com)
FactSet (www.factset.com)
4
Ratings Revisions
Africa Oil Corp.(TSX: AOI; 2.14)
Al Stanton (Analyst)
+44 131 222 3638; [email protected]
Victoria McCulloch, CA (Analyst)
+44 131 222 4909; [email protected]
Haydn Rodgers, CA (Associate)
+44 131 222 4911; [email protected]
10.00
52 WEEKS
Rating:
Sector Perform (prev: Outperform)
Risk Qualifier: Speculative Risk
Price Target: 4.00 ▼ 7.00
Should I Stay or Should I Go Now?
27DEC13 - 15DEC14
8.00
6.00
Either way…Africa Oil faces a challenging 2015. The wait for management to choose
between staying (and raising money) or going (and paying tax) has not been made
easier by a lack of wildcat drilling success.
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Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
Prod (boe/d)
0
0
0
2013A
2014E
2015E
2016E
All market data in CAD; all financial data in USD.
Argent Energy Trust(TSX: AET.UN; 0.51)
Shailender Randhawa, CFA (Analyst)
(403) 299-6576; [email protected]
Keith Mackey, CFA (Associate)
403 299 6958; [email protected]
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52 WEEKS
27DEC13 - 15DEC14
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2014E
2015E
2016E
Rating:
Underperform (prev: Sector Perform)
Risk Qualifier: Speculative Risk
Price Target: 0.60 ▼ 2.00
Downgrading to Underperform
We lower our rating on Argent Energy Trust units to Underperform, Speculative Risk
with a $0.60 price target ($2.00/unit previously). While we support the steps that
Argent’s management is taking to unlock trapped value from its portfolio, we think
the units will remain under pressure as resolution of the strategic review process
is highly uncertain in light of the commodity price environment.
4.00
D
• Cash position: We forecast that Africa Oil will end 2014 with cash of $185m.
The company’s burn-rate has averaged $30m/month; and although we see the
potential for a material slow down in spending in 2015, the company’s limited
resources are a constraint.
• Stay: In the event that Africa Oil opens up a new basin, management might be
tempted to raise capital.
• Deal: To retain its exposure to the Lokichar Basin’s upside potential, while funding
the ongoing appraisal and early stage development activities, management may
seek to negotiate a farm-out deal.
• Go: Africa Oil holds ~40% stakes in onshore discoveries totalling over 600mmbl
(gross), and as a result its assets should appeal to bigger oil.
• Outlook: The sale of the company is arguably the simplest option for
management, and it should generate gains for anyone buying the stock at the
current level. But, we believe a farm-out is more likely and, assuming a reduced
burn-rate in H1/15, we would expect management to utilise the first half of next
year to de-risk its existing discoveries, while also seeking to deliver with the
drillbit. Only then would it seek open a dataroom. Consequently, we expect little
movement in the share price in the in the near-term.
• Drill-bit: Africa Oil continues to target undrilled basins in Kenya’s Rift Basins; and
the companies are currently participating in the Epir-1 and Engomo-1 wildcat
wells. Our Africa OIl NAV includes upside/risk of +C$0.91/-C$0.19 per share for
these two wells.
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Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
Total (boe/d) Prev.
5,591
6,634
6,507↑
6,500
6,277↑
6,250
All values in CAD unless otherwise noted.
D
• Special situation: strategic review process crucial to unlocking discount to
NAV. From our discussions with management, Argent remains committed to its
strategic review process rather than restructuring as a going-concern. Our $2.27/
unit base NAV assumes no value for the company’s probable and unbooked
development inventory due to limited balance sheet capacity. We project
Argent’s net-debt-to-trailing-cash-flow ratio to remain over 5.0x through 2016
assuming a flat production outlook. In our view, the assets clearly have value
greater than Argent’s unit price, but the commodity environment is likely to
result in wide bid-ask spreads, which could result in a protracted time-line.
5
Argent’s year-end 2013 future development capital of $300 million is roughly
6.5x its planned 2015 capex.
• Discounted P/NAV reflects leverage overhang. At current levels, Argent is
trading at a 2015E debt-adjusted cash flow multiple of 6.2x (vs. yield-paying peers
at 7.7x) and a P/NAV multiple of 0.2x (vs. peers at 0.6x).
• Downgrading to Underperform (from Sector Perform), Speculative Risk rating
with a $0.60 price target (prev. $2.00). Our 12-month price target reflects a 0.3x
multiple (Prev. 0.6x) of our base NAV of $2.27/unit, which assumes a long-term
WTI price of US$ 89/bbl.
BlackPearl Resources Inc.(TSX: PXX; 0.98)
Mark J. Friesen, CFA (Analyst)
(403) 299-2389; [email protected]
Luke Davis (Associate)
(403) 299-5042; [email protected]
52 WEEKS
27DEC13 - 15DEC14
2.80
2.40
Rating:
Underperform (prev: Sector Perform)
Risk Qualifier: Speculative Risk
Price Target: 1.25 ▼ 2.25
Downgrading to Underperform
We expect the company to materially increase leverage ratios in 2015, as
committed spending on Onion Lake thermal draws capital away from the
conventional program, leading to production declines. Given that Onion Lake
thermal will not contribute to production until 2016, we expect the company to
remain under pressure in an uncertain environment.
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Prod (boe/d) Prev.
9,494
8,815↓
8,941
8,065↓
9,382
10,672↓
12,672
2013A
2014E
2015E
2016E
• Downgrading to Underperform as commodity price outlook stresses balance
sheet. We are changing our recommendation to Underperform, Speculative Risk
(previously Sector Perform, Speculative Risk).
• Price target reduced. We have reduced our price target in conjunction with our
updated commodity price deck to $1.25 (previously $2.25). Our price target is
predicated on a 0.55x multiple of Risked NAV.
All values in CAD unless otherwise noted.
Gear Energy Ltd.(TSX: GXE; 2.36)
Mark J. Friesen, CFA (Analyst)
(403) 299-2389; [email protected]
Luke Davis (Associate)
(403) 299-5042; [email protected]
Rating:
Price Target:
52 WEEKS
27DEC13 - 15DEC14
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2014E
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Reducing estimates on bleak commodity outlook
While we continue to have confidence in management and Gear's asset base, the
current pricing environment will force the company to reduce spending in order
to protect the balance sheet, in our opinion. We view this as a prudent move but
highlight that production and cash flow growth will have to take a back seat until
the market stabilizes.
5.00
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Sector Perform (prev: Outperform)
3.50 ▼ 6.00
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Prod (boe/d) Prev.
4,079
6,088
7,017↓
7,723
7,897↓
8,835
D
• Downgrading to Sector Perform on commodity price outlook. We are changing
our recommendation to Sector Perform (previously Outperform) due to a
slowdown in production growth driven by a weak commodity price outlook.
• Price target reduced. We have reduced our price target in conjunction with our
updated commodity price deck to $3.50 (previously $6.00). Our price target is
predicated on a 1.0x multiple of Risked NAV and maps to a 1.5x multiple of Base
NAV.
All values in CAD unless otherwise noted.
Shailender Randhawa, CFA (Analyst)
(403) 299-6576; [email protected]
Keith Mackey, CFA (Associate)
403 299 6958; [email protected]
Legacy Oil and Gas Inc.(TSX: LEG; 1.92)
Rating:
Sector Perform (prev: Outperform)
Risk Qualifier: Speculative Risk (prev: Not Assigned)
Price Target: 4.00 ▼ 9.00
6
10.00
52 WEEKS
27DEC13 - 15DEC14
Downgrading to Sector Perform
We lower our rating on Legacy Oil and Gas to Sector Perform (and assign a
Speculative risk qualifier) with a $4.00 price target ($9.00 previously). Although we
continue to like Legacy’s free resource value and leverage to higher oil prices, we
believe increased near-term financial and execution risk may require accelerated
portfolio changes when commodity prices recover.
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Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
Total (boe/d)
19,013
23,050
27,000
29,000
2013A
2014E
2015E
2016E
All values in CAD unless otherwise noted.
• Deleveraging goals slowed by oil price weakness. Legacy enters 2015 with a
2.4x trailing net-debt-to-cash flow ratio ahead of its formal guidance, which we
anticipate in January. Our current estimates assume $50 million in disposition
proceeds from the sale of its Dunvegan assets (1,000 boe/d, 47% gas) prior to
year-end 2014, which seems optimistic in light of current oil prices and access
to capital. Excluding the asset sale, trailing D/CF rises to 2.6x and further limits
financial flexibility. We expect the company to move to an austerity budget below
our current $350 million capital outlook, which results in 4.0x D/CF at our $68.19/
bbl Edmonton Par price outlook.
• Discounted valuation reflects leverage overhang. At current levels, Legacy is
trading at a 2015E EV/DACF multiple of 4.7x (vs. oil-weighted peers at 6.9x) and
a P/NAV of 0.3x (vs. peers at 0.6x). At current levels, the stock provide free
exposure to 125+ million boe of unbooked resource, but 2015 net debt to trailing
cash flow of 4.0x compares to 2.7x for oil-weighted peers, which creates funding
uncertainty.
• Downgrading to Sector Perform (from Outperform) with a $4.00 price target
(previously $9.00). Our 12-month price target reflects a 0.4x multiple (prior 0.9x)
of our adjusted base NAV plus unbooked upside of $8.99/share which assumes
a long-term WTI price of US$ 89/bbl.
Lightstream Resources Ltd.(TSX: LTS; 1.40)
Michael Harvey, P.Eng. (Analyst)
403 299 6998; [email protected]
Eric Gallie (Associate)
(403) 299-7434; [email protected]
52 WEEKS
27DEC13 - 15DEC14
Rating:
Underperform (prev: Sector Perform)
Risk Qualifier: Speculative Risk (prev: Not Assigned)
Price Target: 1.75 ▼ 4.00
8.00
Conservative 2015 budget; Moving to Underperform
6.00
Lightstream announced a conservative budget outlook for 2015, reduced
its dividend by 63%, and detailed the company's intention to market its SE
Saskatchewan Bakken portfolio. While these moves are prudent in our view,
we've reduced our rating to Underperform (prev Sector Perform) as financial
flexibility remains limited, and we see few near-term positive catalysts.
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2016E
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Prod (boe/d) Prev.
46,438
40,323
30,838↓
37,073
26,101↓
38,262
All values in CAD unless otherwise noted.
Shailender Randhawa, CFA (Analyst)
(403) 299-6576; [email protected]
Keith Mackey, CFA (Associate)
403 299 6958; [email protected]
D
Conservative budget outlined for 2015. Lightstream detailed a conservative
2015 budget, which includes capital investment of $200 million (mid-point) with
associated production of 31,000 boe/d (-24% YoY). The company's guidance
appears achievable with embedded capital efficiencies pointing to roughly
$60,000/boe/d, and incorporates a base decline rate of about 31%.
Dividend cut by 63% - balance sheet remains in focus. As expected LTS reduced
its dividend payment by 63% and now forecasts an annual payment of $0.18 (13%
yield) per share (vs $0.48 previously). At current levels and based on a $65/bbl WTI
oil price outlined by the company, Lightstream would trip its 4:1 net debt / EBITDA
facility covenant in 2H/15. We forecast LTS to be ~55% drawn on their $1.15 billion
line of credit (which could be reduced) at year end 2015, equating to 6.4x trailing
total debt to cash flow.
Manitok Energy Inc.(TSXV: MEI; 0.99)
Rating:
Sector Perform (prev: Outperform)
Risk Qualifier: Speculative Risk
Price Target: 1.50 ▼ 2.75
7
52 WEEKS
27DEC13 - 15DEC14
Downgrading to Sector Perform
We lower our rating on Manitok Energy to Sector Perform, Speculative Risk with
a $1.50 price target ($2.75 previously). We think the lower oil price environment
will slow down the company’s Entice de-risking and inventory expansion efforts in
2015, which in our view are key for relative multiple expansion.
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4,113
4,750
5,750↓
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7,000
2013A
2014E
2015E
2016E
All values in CAD unless otherwise noted.
• Entice commitments limit operational flexibility. On its 97,000 net acre farmin with PrairieSky Royalty, the company is about one-third through its 30 gross
well, $106 million drilling commitment with roughly two years remaining in the
initial earning phase. From an operational perspective, we believe Manitok will
likely need to slow down its exploration drilling program and shorten spud-tosales cycle times to drive near-term cash generation. In our view, this shift to
lower risk drilling will likely limit potential upside from the farm-in lands until oil
prices begin to improve in the second half of 2015.
• Discounted P/NAV reflects limited running room. At current levels, Manitok is
trading at a 2015E debt-adjusted cash flow multiple of 4.3x (vs. < 10,000 boe/d
peers at 8.4x) and a P/NAV of 0.3x (vs. peers at 0.8x).
• Downgrading to Sector Perform (from Outperform), Speculative Risk with a
$1.50 price target (prev. $2.75). Our 12-month price target reflects a 0.5x
multiple (prev. 0.8x) of our adjusted base NAV plus unbooked upside of $3.27/
share, which assumes slower de-risking at Entice due to lower commodity prices
with a tighter financial outlook.
Oryx Petroleum Corporation Limited(TSX: OXC; 5.66)
Greg Pardy, CFA (Analyst)
(416) 842-7848; [email protected]
Al Stanton (Analyst)
+44 131 222 3638; [email protected]
Dillon Culhane, CFA, CA (Analyst)
(416) 842-7915; [email protected]
Franz Hargo Muljo, CA (Associate)
416 842 8588; [email protected]
Rating:
Price Target:
Sector Perform (prev: Outperform)
10.00 ▼ 18.00
Downgrading to Sector Perform
52 WEEKS
27DEC13 - 15DEC14
14.00
12.00
We have downgraded Oryx Petroleum to Sector Perform, adopting a neutral
stance for the time being pending improved operating and market conditions. Oryx
continues to do everything in its power to execute its growth plans in Kurdistan,
but it has been temporarily impacted by domestic oil market dynamics and security
conditions.
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Production, net (kboe/d) Prev.
2013A
0.00
2014E
0.73↓
1.81
2015E
13.54↓
14.74
2016E
37.70
All market data in CAD; all financial data in USD.
Paul Treiber, CFA (Analyst)
(416) 842-7811; [email protected]
D
• We continue to like Oryx’s management team and fully expect that its
major shareholder (The Addax & Oryx Group Limited) will bridge its funding
requirements as necessary.
• Production Ramp-Up. Oryx successfully transitioned from a pure explorer to a
producer in 2014, but domestic market conditions have slowed its production
ramp-up. Oryx originally expected Demir Dagh (65% wi) volumes to reach 15,000
b/d gross (9,750 b/d net) by year-end 2014, but sales have been suspended since
late October due to local crude oil market dynamics.
• Funding Status. Oryx plans to live within its means during 2015 with a flexible
$350 million budget. The company is considering external debt financing and is
averse toward raising common equity at this juncture. Pending further clarity on
its financing and capital spending plans, our estimates reflect a C$250 million
common share offering in 2015.
• Recommendation. We have downgraded Oryx Petroleum to Sector Perform
(from Outperform) and lowered our one-year price target to C$10 per share
(from C$18) in connection with our lower crude oil price outlook. We have
adopted a neutral stance on Oryx for the time being, pending improved operating
and market conditions. Our price target is based on a 0.6x (vs. 0.9x previously)
multiple of our revised Base NAV of $14.91 per share (vs. $18.65 previously)
(12.5% A-tax), converted into Canadian dollars.
Sierra Wireless(NASDAQ: SWIR; 41.36; TSX: SW)
8
Rating:
Price Target:
Sean Ray, P.Eng. (Associate)
416 842 6133; [email protected]
52 WEEKS
27DEC13 - 15DEC14
40.00
Sector Perform (prev: Outperform)
40.00 ▲ 35.00
Downgrading to Sector Perform on less compelling risk-reward
We are downgrading Sierra from Outperform to Sector Perform. We believe the
stock is trading near fair value; Sierra’s target model for organic growth and
profitability appears priced into the shares. There’s no change in fundamentals;
however, organic growth comps are getting tougher, Street estimates have
increased, and a dynamic market entails risk. Adjusting price target from $35 to $40.
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MA 40 weeks
Revenue
441.9
546.1
619.1
686.4
2013A
2014E
2015E
2016E
All values in USD unless otherwise noted.
• Target model now appears priced into shares. Sierra is currently trading at 22x
FTM EV/EBITDA, well above M2M peers at 11x and at the high end of the stock's
historical 3-year range (2–22x). Sensitivity analysis shows that Sierra’s target
model for 10% adj. EBIT margins and 10–15% organic growth are priced into the
shares. Upside for the shares requires adj. EBIT margins at least 300bps above
Sierra’s target model and 5-year organic growth at least 100bps above Sierra’s
near-term outlook.
• CY15 organic growth comps are tougher. Organic growth has accelerated from
3% CY13 to est. 18% CY14. While the long-term drivers of Sierra’s revenue growth
remain intact, we believe CY15 organic growth faces a more challenging hurdle.
CY15 organic growth comps are tough, growth in Sierra’s mobile computing
business (est. 15–20% of revenue) may decelerate, and automotive (est. 15–20%
of revenue) is back-end loaded, with design wins more likely to drive material
acceleration in growth CY16/CY17 than CY15.
• Expectations call for margins nearly in line with Sierra’s target model. Street
estimates call for Sierra’s adj. EBIT margins to rise from 3.8% FY14 to 8.4% FY16.
With margins approaching Sierra’s 10% target model, we believe the likelihood
of upside surprises to Street margin estimates is reduced.
• Dynamic market entails some risk. We believe Sierra has a strong competitive
position, with a broad product line and complementary software and cloud
services. However, long-term visibility is limited, considering minimal recurring
revenue and nominal barriers to entry.
Talisman Energy Inc.(NYSE: TLM; 7.58; TSX: TLM)
Greg Pardy, CFA (Analyst)
(416) 842-7848; [email protected]
Dillon Culhane, CFA, CA (Analyst)
(416) 842-7915; [email protected]
Franz Hargo Muljo, CA (Associate)
416 842 8588; [email protected]
Rating:
Price Target:
Underperform (prev: Sector Perform)
8.00 ▼ 10.00
Downgrading to Underperform
52 WEEKS
27DEC13 - 15DEC14
10.00
We have downgraded Talisman Energy from Sector Perform to Underperform in
connection with its agreement to be acquired by Repsol S.A for cash consideration
of $8 per share.
8.00
6.00
4.00
120000
100000
80000
60000
40000
20000
D
J
F
M
Close
A
M
2014
J
J
A
S
Rel. S&P 500
EPS, Ops Diluted Prev.
2013A
(0.25)
2014E
0.03↓
0.11
2015E
(1.60)↓
(0.70)
2016E
(1.34)↓
(0.54)
All values in USD unless otherwise noted.
O
N
MA 40 weeks
P/E
NM
NM
NM
NM
D
• A Fair Bid. In our view, Repsol’s $8 per share cash bid for Talisman constitutes
fair value in the context of our revised Base NAV of $7.44 per share (at a longterm Brent price of $95/b) and its challenging outlook. Put another way, Repsol's
$8 per share tender for Talisman would map to a $91/b long-term Brent price
based upon our NAV analysis. Both Talisman’s and Repsol’s boards of directors
have unanimously approved this transaction, which is subject to customary
closing conditions and targeted to close in mid-2015. Should the agreement
be terminated, Repsol is entitled to a break fee of $270 million under certain
circumstances.
• Challenged Going-Concern Outlook. Talisman retains balance sheet liquidity, but
its average net debt-to-cash flow ratio rises to 6.8x in 2015 under our revised
Brent outlook—a situation exacerbated by limited capital flexibility, especially in
areas such as the UK North Sea. In the absence of non-core asset dispositions,
we would not have been surprised to see Talisman’s debt rating fall below
investment grade and its common share dividend suspended to preserve cash
outflows. These potential events have been averted by the Repsol bid.
9
Trilogy Energy Corp.(TSX: TET; 8.21)
Michael Harvey, P.Eng. (Analyst)
403 299 6998; [email protected]
Eric Gallie (Associate)
(403) 299-7434; [email protected]
Rating:
Price Target:
52 WEEKS
27DEC13 - 15DEC14
30.00
Sector Perform (prev: Outperform)
12.00 ▼ 24.00
Moving to Sector Perform in conjunction with lowered commodity price deck
In conjunction with this morning's price deck update, we have downgraded
Trilogy to Sector Perform, primarily as a result of what we expect will be
continued oil price headwinds. We are shifting to a neutral stance largely on
macro considerations in conjunction with no catalysts on the horizon.
25.00
20.00
15.00
10.00
4500
3000
1500
D
J
F
M
A
Close
M
2014
J
J
CFPS Diluted Prev.
2.32
2.74↓
2.80
1.50↓
2.53
1.92↓
2.79
2013A
2014E
2015E
2016E
A
S
O
N
D
Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
P/CFPS
3.5x
3.0x
5.5x
4.3x
All values in CAD unless otherwise noted.
• Reducing oil price assumptions downward. We have adjusted our price deck
to take into account updated commodity price assumptions, which have been
reduced to $65/bbl in 2015 and $74/bbl in 2016. TET is roughly 40% oil weighted
and essentially un-hedged in 2015 - we calculate a variance of 30% to 2015 cash
flows for each $10/bbl change in oil prices.
• Production estimates maintained, cash flow estimates fall. As a result of our
updated price deck (production unchanged) our CFPS estimates fall in 2015
and 2016 by 41% and 31% respectively. As previously released the company's
production guidance points to production of approximately 35,000 boe/d in
2015, which is roughly flat YoY relative to 2014 levels and implies a capital
efficiency of about $20,000/boe/d (2014 efficiency expected to be about
$27,000/boe/d).
First Glance Notes
Pattern Energy Group Inc.(NASDAQ: PEGI; 23.96; TSX: PEG)
Shelby Tucker, CFA (Analyst)
(212) 428-6462; [email protected]
Nelson Ng, CFA (Analyst)
(604) 257-7617; [email protected]
Kelsey Roste (Associate)
(604) 257-7383; [email protected]
34.00
Rating:
Pattern Development successful in Quebec wind RFP
52 WEEKS
27DEC13 - 15DEC14
32.00
30.00
28.00
26.00
24.00
10000
8000
6000
4000
2000
D
J
F
M
Close
A
M
2014
J
J
A
Rel. S&P 500
All values in USD unless otherwise noted.
Outperform
S
O
N
MA 40 weeks
D
• Successful bid for 147 MW wind project in Quebec. Pattern Development, the
development company for Pattern Energy, was one of three successful bidders
in Hydro-Québec's 450 MW wind request for proposal (RFP). The wind RFP was
very competitive, with 54 bids being submitted on November 5, 2014. Pattern
Development and its partners were awarded 147 MW of the 450 MW RFP, with
energy delivery required by December 1, 2017.
• PPAs expected to be finalized over the next couple of weeks. Hydro-Québec
Distribution will work with the successful bidders to finalize the power purchase
agreements (PPA) over the next couple weeks. The contracts will then be
submitted to the Régie de l'énergie for approval. We expect the contract to be a
20-year PPA, consistent with other Hydro-Québec PPAs, and to be priced similar
to the average successful bid price of $76/MWh.
• Likely addition to the ROFO list in 2015. We believe this project will be eligible
to be added to Pattern Energy's ROFO list once the contract terms have been
finalized, which would bring the ROFO list to 1,021 MW (up from 874 MW). It is
important to note that the project will still require all the approvals and permits
needed to build a wind farm prior to the start of construction.
Company Comments
Geoffrey Kwan, CFA (Analyst)
(604) 257-7195; [email protected]
Charan Sanghera (Associate)
604 257 7657; [email protected]
Element Financial(TSX: EFN; 13.49)
Rating:
Price Target:
Outperform
20.00
2015 guidance solidly ahead of our forecast
EFN 2015 EPS guidance is 7% higher than our forecast. EFN’s shares offer significant
valuation upside (in part as one of only a handful of stocks in our coverage with high
exposure to the U.S.), but executing on strong EPS growth and greater visibility on
10
52 WEEKS
27DEC13 - 15DEC14
15.00
ROE improvement (via strong organic originations, synergy realization, lower OpEx
ratio) is required for this to happen.
14.00
13.00
12.00
16000
12000
8000
4000
D
J
F
M
A
Close
M
2014
J
J
A
S
O
N
D
Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
2013A
2014E
2015E
2016E
• 2015 guidance is largely better-than-our forecast (see Exhibit 2 for details): (1)
2015 operating EPS guidance of $0.99 is 7% higher than our $0.93 forecast; (2)
2015 origination guidance of $6.5B is 5% higher than our $6.2B forecast; and (3)
Q4/15 total assets guidance of $14.0B is a bit below our $14.9B forecast, which
also makes sense that 4.4x tangible leverage guidance for Q4/15 is a bit lower
than our 4.5x forecast.
• Maintaining Outperform rating, 12-month target of $20/share. Financial
forecasts slightly increased (2015 EPS now $0.93, was $0.91; 2016 EPS now
$1.37, was $1.36). The higher EPS forecasts reflect slightly higher fee income
from the structured finance division, but our structured finance fee income
forecast is still below EFN’s guidance by $0.015/share for 2015.
All values in CAD unless otherwise noted.
Stantec Inc.(TSX: STN; 29.80; NYSE: STN)
Sara O'Brien, CFA, CA (Analyst)
(514) 878-7256; [email protected]
Juliane Szeto (Associate)
(416) 842-3806; [email protected]
38.00
Rating:
Price Target:
52 WEEKS
27DEC13 - 15DEC14
Outperform
38.00
Diversified business driving growth in challenged oil market
We believe STN is a "best in class" engineering firm with strong EBITDA margin,
solid balance sheet, CF and continued strong acquisition growth ahead. We
believe STN will look to return its balance sheet to its targeted 1.2-2.2x EBITDA
leverage from a low 0.7x currently, adding to our double digit EPS growth outlook
for 2015. We maintain our Outperform rating on STN shares.
36.00
34.00
32.00
30.00
2000
1500
1000
500
D
J
F
M
A
Close
M
2014
J
J
A
S
O
N
Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
EPS, Ops Diluted
2013A
1.57
2014E
1.79
2015E
1.97
2016E
2.15
P/E
19.0x
16.6x
15.1x
13.9x
All values in CAD unless otherwise noted.
Shailender Randhawa, CFA (Analyst)
(403) 299-6576; [email protected]
Keith Mackey, CFA (Associate)
403 299 6958; [email protected]
D
• Benefits of diversified model: challenge in oil related work offset by growth,
acquisitions in other segments. Despite its Energy & Resource challenge, STN
sees growth in Buildings and Infrastructure groups. We see these combined with
recent acquisitions driving solid EPS growth of some 10% in F15 and ROE in the
16% range. STN sees ~20% of its business related to CAD oil & gas, and assuming
20-30% decline, impact to revenue is 4-5%.
• No margin pressure expected. STN has a track record and target of consistent
14-14.5% EBITDA margin from maintaining high staff utilization rates and a focus
on project execution. Although there is risk of oil & gas revenue softening, STN
does not expect to see margin pressure in 2015 (other than from integrating
Dessau deal in Q1). STN targets 15% top line growth over time, about 1/3 organic
and 2/3 via acquisition.
• M&A- Focus on U.S. before Int'l. STN's acquisition strategy is focused in U.S.,
and active, including filling in Buildings expertise and oil & gas with opportunity
in current weaker environment. Once mature in U.S. market (2-3 yrs time), STN
will likely look to larger European, Australian or Middle Eastern firms with similar
models for deal growth.
• Dessau deal on track for January close. Dessau due diligence is complete, STN
has AMF license for Quebec, and deal is on track for January close.
Whitecap Resources Inc.(TSX: WCP; 10.99)
Rating:
Price Target:
Outperform
17.00
Implements deep capex cuts to preserve long-term health
Whitecap Resources announced deep cuts to its 2015 capital and operational plans
in response to the low oil price environment. Whitecap's emphasis on capital
discipline, portfolio returns over growth and proactive balance sheet management
resonates with us given the backdrop.
11
52 WEEKS
27DEC13 - 15DEC14
18.00
16.00
14.00
12.00
10.00
25000
20000
15000
10000
5000
D
J
F
M
Close
2013A
2014E
2015E
2016E
A
M
2014
J
J
A
S
O
N
Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
Total (boe/d) Prev.
19,769
32,367
37,500↓
40,000
39,000↓
44,450
All values in CAD unless otherwise noted.
D
• Proactive response with a 32% capex cut. The revised business plan calls for a
reduction in capital investment from $360 million (set at US$80/bbl WTI) to $245
million with a modest 6% drop in targeted production volumes to 37,500 boe/
d (76% liquids) through a high-graded drilling program. Whitecap's 2015 capital
efficiency benefits from a mid-year boost from the start-up of its Elnora Nisku
waterflood project. The revised operating plan features 81.5 net wells compared
to 145.2 net wells previously along with the removal of $12 million in facilities
capital. Targeted average production of 37,500 boe/d maps to 16% YoY increase
to our 2014 estimate (10% on a debt-adjusted per share basis). The company
expects its 2016 corporate decline rate to drop from 23% to 20%, which should
lower future maintenance capital.
• Premium valuation warranted. At current levels, Whitecap is trading at a 2015E
EV/DACF multiple of 8.6x (vs. oil-weighted peers at 6.9x) and a P/NAV of 1.1x (vs.
0.6x for peers) at RBC's price deck which reflects strong financial flexibility and
above-average per share growth metrics.
• Reiterating $17.00 price target and Outperform rating. Our one-year price target
reflects a premium 1.2x multiple of the $14.42/share sum of our adjusted base
NAV of $10.01 plus $4.40 from risked resource development. Our premium 1.2x
target multiple reflects Whitecap’s above-average per share growth prospects,
2015E FCF generation, and strong relative balance sheet position.
Industry Comments
Fraser Phillips, P.Eng. (Analyst)
(416) 842-7859; [email protected]
Bulking Up - RBC's Weekly Review
Melissa Oliphant (Associate)
416 842 4126; [email protected]
• What's Hot: The spot iron ore lump premium hit a record high of $0.305/dmtu.
• What's Not: Iron ore freight rates to China from South Africa, W. Australia and
Brazil have fallen by 49%, 41%, and 37% MoM, with rates from Australia and
Brazil at their lowest levels since December 2008.
• Our View: Metallurgical coal prices continue to struggle to gain traction in the
face of ongoing supply strength from Australia, with exports up 12% this year.
Meanwhile, Chinese demand remains weak, with seaborne imports down 23%
this year. We look for a modest improvement in met coal prices through 2015 as
announced supply cuts continue to take effect.
• Benchmark Q1/15 metallurgical coal prices have been settled at $117/t FOB. The
price reflects a $2/t decline from the Q4/14 settlement.
• HSBC's preliminary China PMI hit a seven-month low of 49.5 in December. The
reading and the underlying slowdown will likely weigh on iron ore prices.
• Metallurgical coal: Price direction was mixed in Asia-Pacific although prices were
largely stable, including premium LV HCC FOB Australia (+0.3%). LV HCC was down
1.3%.
• Thermal coal: FOB Newcastle prices rose by 2.5%, while FOB Richards Bay and
CIF ARA were down 0.2% and 0.4%, respectively.
• Iron ore: IODEX is down 1.1% this week to $68.25/t. Despite lower inventories at
Chinese mills and ports, credit tightness and a weak steel and iron ore outlook
continue to deter the seasonal restocking typically seen at year-end.
• Steel HRC and rebar prices were mixed this week.
Chris Drew, CFA (Analyst)
+61 2 9033 3060; [email protected]
Ken Tham, CFA (Analyst)
+61 2 9033 3064; [email protected]
All values in USD unless otherwise noted.
Coal and iron ore prices stable as freight rates continue to fall
Geoffrey Kwan, CFA (Analyst)
(604) 257-7195; [email protected]
Canadian Asset Managers
Charan Sanghera (Associate)
604 257 7657; [email protected]
• November mutual fund flows were +$4.0B, continuing to sustain the trend of
the best net sales activity so far this cycle. However, with the equity market
downturn in recent weeks, it would not surprise us if December net flows take
a bit of a breather before a likely pick-up in the seasonally strong “RRSP season”
months of January and February. Balanced funds remain the best sellers and
given the pullback in equity markets during mid-September to mid-November,
bond funds, unsurprisingly, were the 2nd best sellers but equity funds still had
a relatively good sales month. Despite the downturn in equity markets, monthly
equity fund flows have been positive from September through to November.
All values in CAD unless otherwise noted.
Mutual fund industry flows remained strong in November
12
• Equity markets remain volatile, particularly in Canada, where the S&P/TSX
Composite Index has been dragged down by the energy sector. We believe
asset managers in our coverage universe likely have lower AUM (and therefore
earnings) exposure to energy stocks relative to the S&P/TSX Composite Index.
• It is unclear when equity markets will improve, but for investors looking
for quality and dividends (both yield and growth) within asset managers, CI
Financial is our best idea followed by Gluskin Sheff and then IGM Financial.
Kurt Hallead (Analyst)
(512) 708-6356; [email protected]
Global Energy Research Commodity Price Revisions
Scott Hanold (Analyst)
(512) 708-6354; [email protected]
• Brent forecasts are lowered to $71/b (vs. $94/b) in 2015E, $83/b (vs. $97/b) in
2016E, and $95/b (vs. $102/b) long-term.
• WTI forecasts are reduced to $65/b (vs. $86.50/b) in 2015E, $74/b (vs. $85/b) in
2016E, and $89/b (vs. $95/b) long-term.
• Henry Hub natural gas forecasts are trimmed to $3.75/MMBtu (vs. $4/MMBtu)
in 2015E, $4/MMBtu (vs. $4.50/MMBtu) in 2016E, and $4.50/MMBtu (vs. $5/
MMBtu) long-term.
Leo P. Mariani, CFA (Analyst)
(512) 708-6381; [email protected]
Greg Pardy, CFA (Analyst)
(416) 842-7848; [email protected]
Mark J. Friesen, CFA (Analyst)
(403) 299-2389; [email protected]
Reducing 2015/16 and Long-Term Forecasts
Michael Harvey, P.Eng. (Analyst)
403 299 6998; [email protected]
Dan MacDonald, CFA (Analyst)
(403) 299-2394; [email protected]
Shailender Randhawa, CFA (Analyst)
(403) 299-6576; [email protected]
Victoria McCulloch, CA (Analyst)
+44 131 222 4909; [email protected]
Nathan Piper (Analyst)
+44 131 222 3649; [email protected]
Al Stanton (Analyst)
+44 131 222 3638; [email protected]
Robert Kwan, CFA (Analyst)
(604) 257-7611; [email protected]
Nelson Ng, CFA (Analyst)
(604) 257-7617; [email protected]
Elvira Scotto, CFA (Analyst)
(212) 905-5957; [email protected]
TJ Schultz, CFA (Analyst)
(512) 708-6385; [email protected]
Biraj Borkhataria, CFA (Analyst)
+44 20 7029 7556; [email protected]
Brad Heffern, CFA (Analyst)
(512) 708-6311; [email protected]
John Ragozzino, CFA (Analyst)
(303) 595-1115; [email protected]
Kyle Rhodes (Analyst)
(512) 708-6342; [email protected]
All values in USD unless otherwise noted.
Paul C. Quinn (Analyst)
(604) 257-7048; [email protected]
Paper & Packaging
Hamir Patel (Analyst)
(604) 257-7145; [email protected]
• US corrugated box shipments rose by 3.6% y/y – Average weekly shipments
increased by 3.6% y/y (+6.9% m/m), but are nearly flat 11-Mo YTD (+0.4%).
Total monthly shipments declined 1.8% y/y to 27.9 billion sq. ft. as there were
Containerboard stats: Box shipment growth is strong for the 3rd month in a row
13
All values in USD unless otherwise noted.
18 shipping days in November compared to 19 the prior year. Containerboard
exports of 385K tons were 9.9% higher y/y (-1.7% m/m).
• Production increased 5.9% y/y – US containerboard production was 2,881K
tons, up 5.9% y/y and 4.8% lower m/m. Linerboard production increased 6.5%
y/y to 2,078K tons and medium production was 4.5% higher at 804K tons.
Containerboard consumption at box plants declined 1.2% y/y at 2,231K tons,
representing 89.4% of containerboard produced in the US for the domestic
market.
• Inventories down in November – US producer (combined mill and box plant)
inventories fell 3.5% m/m (-82K tons) to 2,249K tons (or 3.6 weeks of supply
vs. 4.0 in October), compared to the average inventory build over the last 10
years in November of 21K tons. Box plant inventories of 1,858K tons (-8.7% m/
m) represent 3.0 weeks of supply (down from 3.5 in October).
Stephen D. Walker (Analyst)
(416) 842-4120; [email protected]
Q4/14 Global Mining Best Ideas Portfolio
Fraser Phillips, P.Eng. (Analyst)
(416) 842-7859; [email protected]
• We are publishing our weekly update to our Global Mining Best Ideas portfolio.
• For the quarter-to-date, the Q4/14 Global Mining Best Ideas List is down 15%
compared to the MSCI World Metals & Mining Index, which is down 19%.
Sam Crittenden, P.Eng., CFA (Analyst)
(416) 842-7886; [email protected]
Dan Rollins, CFA (Analyst)
(416) 842-9893; [email protected]
Des Kilalea (Analyst)
+44 20 7653 4538; [email protected]
Timothy Huff (Analyst)
+44 20 7653 4866; [email protected]
Jonathan Guy (Analyst)
+44 20 7653 4603; [email protected]
Chris Drew, CFA (Analyst)
+61 2 9033 3060; [email protected]
Andrew D. Wong (Analyst)
(416) 842-7830; [email protected]
Paul Hissey (Analyst)
+61 3 8688 6512; [email protected]
All values in USD unless otherwise noted.
Victoria McCulloch, CA (Analyst)
+44 131 222 4909; [email protected]
RBC International E&P Daily
Nathan Piper (Analyst)
+44 131 222 3649; [email protected]
Crude Oil – The empire strikes back; International E&P - The Curtain Calls; SIA.L:
Calmer Waters (Upgrade to Outperform; ENQ.L: Margin Focus (Downgrade to
Underperform); AOI.TO: Should I Stay or Should I Go Now? (Donwgrade to Sector
Perform); OXC.TO: Downgrading to Sector Perform; GPX.TO: Announces Timing of
General Meeting
Al Stanton (Analyst)
+44 131 222 3638; [email protected]
Haydn Rodgers, CA (Associate)
+44 131 222 4911; [email protected]
SIA; ENQ; AOI; OXC; GPX
All values in USD unless otherwise noted.
RBCCM Global Research
(416) 842-7800; [email protected]
RBC Strategy Focus List
New Year 2015
• Note: this change to the RBC Capital Markets Canadian Focus List, follows a
change made yesterday to the RBC Wealth Management Canadian Focus List.
• We are adding a 2.5% position in Restaurant Brands International to the
Canadian Focus List
• We are reducing the position in ARX to 2.5% from 5% on the Canadian Focus
List.
14
Paul C. Quinn (Analyst)
(604) 257-7048; [email protected]
Timber REITs
Hamir Patel (Analyst)
(604) 257-7145; [email protected]
• A robust second half of the year (with 10 major sales from Hancock and Resource
Management Service (RMS)) made for a 'great run' for timber markets in 2014.
The full year is on track to complete 40 US transactions totaling ~2.77MM US
acres (~$2.73B), compared to 1.9MM acres last year. Many market participants
expect the increased deal flow over 2014 (and high valuations) will compel TIMOs
to finally liquidate over-mature funds. Most funds have lifespans of 10 years, and
given that RISI estimates the TIMOs deployed $7B in the US over 2005/2006,
there is likely more to come. Additionally, several of our trade sources expect
Weyerhaeuser to divest non-core timber (potentially up to 100K acres) from its
acquisition of Longview Timber in 2013 (645K acres). Others suspect the recent
overstatement by RYN (causing its share price to fall 15% in one day, and -24%
since the announcement) is likely to attract REIT/TIMO interest.
• There are several offerings (proposed or in their final stages) worth
highlighting. The largest US deal this year (December 8) is RMS' 201K acre sale
to Potlatch, split evenly between Alabama and Mississippi (expanding PCH's
Southern ownership by ~50%). The sale equates to ~$1,910/acre (at the midpoint of RISI's $1,800-2,000/acre forecast) in a $384MM transaction for land
which is 50% sawlog as well as 70% pine (28% hardwood).
All values in USD unless otherwise noted.
Fraser Phillips, P.Eng. (Analyst)
(416) 842-7859; [email protected]
Steve Bristo, CFA (Associate)
(416) 842-7826; [email protected]
Thomas Klein (Associate)
(416) 842-5339; [email protected]
All values in USD unless otherwise noted.
Active timber markets continue to support current valuations
Uranium Weekly
Ux spot price down $0.75/lb to $37.00/lb; TradeTech down $0.60/lb to $37.25/
lb
• Ux spot price indicator was down $0.75/lb to $37.00/lb and TradeTech was down
$0.60/lb to $37.25/lb.
• Ux term price indicator was unchanged at $49.00/lb, and TradeTech was
unchanged at $50.00/lb (quoted monthly at month-end).
• Uranium Participation Corp. (UPC) traded down 0.8% over the past week to close
at C$5.11 per share (vs. S&P/TSX -3.1%).
• We estimate UPC is discounting a uranium price of $32.89/lb, an 11.1% discount
to spot. Last week we estimated that UPC discounted a uranium price of $33.77/
lb, a 10.5% discount to the then-prevailing spot price.
• We rate Uranium Participation Corp. Outperform with a target price of C$6.00
per share.
15
Required disclosures
Non-U.S. analyst disclosure
Victoria McCulloch;Nathan Piper;Al Stanton;Haydn Rodgers;Shailender Randhawa;Keith Mackey;Greg Pardy;Dillon Culhane;Franz
Hargo Muljo;Mark J. Friesen;Luke Davis;Michael Harvey;Eric Gallie;Dan MacDonald;Robert Kwan;Nelson Ng;Biraj Borkhataria;Paul
C. Quinn;Hamir Patel;Sara O'Brien;Juliane Szeto;Paul Treiber;Sean Ray;Kelsey Roste;Fraser Phillips;Melissa Oliphant;Chris
Drew;Ken Tham;Geoffrey Kwan;Charan Sanghera;Stephen D. Walker;Sam Crittenden;Dan Rollins;Des Kilalea;Timothy
Huff;Jonathan Guy;Andrew D. Wong;Paul Hissey;Steve Bristo;Thomas Klein (i) are not registered/qualified as research analysts
with the NYSE and/or FINRA and (ii) may not be associated persons of the RBC Capital Markets, LLC and therefore may not be
subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and
trading securities held by a research analyst account.
Conflicts disclosures
This product constitutes a compendium report (covers six or more subject companies). As such, RBC Capital Markets chooses
to provide specific disclosures for the subject companies by reference. To access current disclosures for the subject companies,
clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.aspx?entityId=1 or send a request to
RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.
Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in, this report.
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including
total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated
by investment banking activities of the member companies of RBC Capital Markets and its affiliates.
Distribution of ratings
For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories
- Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick(TP)/
Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively,
the meanings are not the same because our ratings are determined on a relative basis (as described below).
Distribution of ratings
RBC Capital Markets, Equity Research
As of 30-Sep-2014
Rating
BUY [Top Pick & Outperform]
HOLD [Sector Perform]
SELL [Underperform]
Count
858
683
98
Percent
52.35
41.67
5.98
Investment Banking
Serv./Past 12 Mos.
Count
Percent
308
35.90
151
22.11
8
8.16
Conflicts policy
RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request.
To access our current policy, clients should refer to
https://www.rbccm.com/global/file-414164.pdf
or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South
Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time.
Dissemination of research and short-term trade ideas
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regard to local time zones in overseas jurisdictions. Subject to any applicable regulatory considerations, "eligible clients" may
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receive coverage initiations and changes in rating, targets and opinions in a timely manner. Additional distribution may be done
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by the sales personnel via email, fax or regular mail. Clients may also receive our research via third party vendors. Please contact
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commentary, and may also contain Short-Term Trade Ideas regarding the securities of subject companies discussed in this or
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based on market and trading events. A Short-Term Trade Idea may differ from the price targets and/or recommendations in our
published research reports reflecting the research analyst's views of the longer-term (one year) prospects of the subject company,
as a result of the differing time horizons, methodologies and/or other factors. Thus, it is possible that the security of a subject
company that is considered a long-term 'Sector Perform' or even an 'Underperform' might be a short-term buying opportunity
as a result of temporary selling pressure in the market; conversely, the security of a subject company that is rated a long-term
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Analyst certification
All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of
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indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report.
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To Persons Receiving This Advice in Australia:
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This material has been distributed in Australia by Royal Bank of Canada - Sydney Branch (ABN 86 076 940 880, AFSL No. 246521). This material has been prepared
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.® Registered trademark of Royal Bank of Canada. RBC Capital Markets is a trademark of Royal Bank of Canada. Used under license.
Copyright © RBC Capital Markets, LLC 2014 - Member SIPC
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Copyright © RBC Europe Limited 2014
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All rights reserved
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