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EQUITY RESEARCH
CANADIAN RESEARCH AT A GLANCE
December 23, 2014
Company Comments
! Leisureworld Senior Care Corp.
! Sierra Wireless
Summary
Updating estimates
Summary
Acquires Wireless Maingate, completes M2M device-to-cloud vision
Industry Comments
! Global Mining Trends & Values
! Precious Metals & Minerals Weekly
Summary
Summary
Chart of the week: Reaping the benefits of weaker oil prices and currencies
Valuation Tables
Priced as of prior day's market close, EST (unless otherwise noted).
For Required Non-U.S. Analyst and Conflicts Disclosures, see Page 7.
EQUITY RESEARCH
U.S. RESEARCH AT A GLANCE
December 23, 2014
Price Target Revisions
! Reckitt Benckiser Group PLC
! Rex Energy Corporation
Summary
Updated forecasts ex Indivior
Summary
Further Cuts 2015 CapEx To Preserve Liquidity In Challenging Commodity Market
Summary
Reduces 2015 CapEx Budget By 41% But Maintains Strong Liquidity
Summary
Acquires Wireless Maingate, completes M2M device-to-cloud vision
Summary
Production Offshore Gabon Comes Back Online; Angola Drilling Commences In January
Summary
Partial SBLF Redemption Announced
Summary
Industry trends steady
Company Comments
! Continental Resources, Inc.
! Sierra Wireless
! Vaalco Energy, Inc.
! Western Alliance Bancorp
Industry Comments
! 4Q14 East Coast Banks Preview
! AUTOS: Forecast December 2014
Summary
SAAR at 16.9mm + RBC Dealer Survey
Global Mining Trends & Values
Summary
Expect Strong Finish to 2014
!
! Health Care Services
! Oil Still Leaking 2015 Estimates
Summary
News from Nashville
Summary
Lower guidance prevailed in blitz of 2015 Outlook meetings and calls
!
Summary
Ethylene Prices Approaching Int'l Floor Levels
Lower
US Chemicals Weekly Watch
Investment Strategy Research
! Russian Energy Sanctions - Congress
Summary
Crashes the Party
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EQUITY RESEARCH
UK & European Research at a Glance
December 23, 2014
Price Target Revisions
! Reckitt Benckiser Group PLC
Summary
Updated forecasts ex Indivior
Industry Comments
! Global Mining Trends & Values
Summary
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)
3
Company Comments
Leisureworld Senior Care Corp.(TSX: LW; 13.71)
Michael Smith, CFA (Analyst)
(416) 842-7805; [email protected]
Matt Logan (Associate)
416 842 3770; [email protected]
Neil Downey, CFA, CA (Analyst)
(416) 842-7835; [email protected]
Ben Halm, CPA, CA (Associate)
416 842 8720; [email protected]
52 WEEKS
Rating:
Price Target:
Updating estimates
03JAN14 - 22DEC14
14.00
13.50
13.00
12.50
12.00
11.50
600
400
200
J
F
M
A
Close
M
2014
J
J
A
S
O
N
D
Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
FFO/Sh, Ops Diluted Prev.
2013A
0.91↑
0.90
2014E
1.11↓
1.12
2015E
1.17↓
1.21
2016E
1.23↓
1.28
P/FFO
15.1x
12.4x
11.7x
11.1x
All values in CAD unless otherwise noted.
As 2014 comes to a close, we have reviewed our model and believe that our
forecast for 2015 is too high. As such, we are lowering our 2015-2016 FFO/
share estimates by $0.04 and $0.05 to $1.17 and $1.23, respectively. Overall, we
remain positive on LW's underlying operational trends and the company's general
direction. We reiterate our Sector Perform rating.
• We are lowering our 2015 and 2016 FFO per share estimates by $0.04 and
$0.05 to $1.17 and $1.23, respectively – We are lowering our estimates due
to the difference between the headline resident co-pay increase of 1.4% and
the amount that flows through to operators at ~0.7%. For context, we note
that the Ontario Ministry of Health and Long-term Care ("MOHLTC") increased
basic resident co-pay rates by 1.4% to $56.93 per day, from $56.14 in September
2014. However, the underlying increase that flows through to operators is
much less at $53.12 for an increase of ~0.7%. The difference is largely due to
government administration fees, bad debt allowances and allowances to support
rate reductions for those who cannot afford the full resident co-pay amount.
• Operationally the business continues to perform well and is trending in the
right direction – In our view, the underlying business continues to perform well
as the company continues to make steady occupancy gains in its retirement
segment, while also retaining more cash for the upcoming redevelopment of
its Class "C" beds. We note that over the past year its AFFO payout ratio has
declined from 83% in 2013 to 69% in 2014E. Looking forward, the company is
smartly focusing on strategic initiatives including: 1) the lease-up of its retirement
communities; 2) planning for the redevelopment of "C" beds; 3) launching a
new branding initiative; 4) growing its retirement, home care and management
service businesses; and, 5) optimizing back office functions to support future
growth.
Sierra Wireless(NASDAQ: SWIR; 42.18; TSX: SW)
Paul Treiber, CFA (Analyst)
(416) 842-7811; [email protected]
Sean Ray, P.Eng. (Associate)
416 842 6133; [email protected]
45.00
40.00
Sector Perform
14.50
Rating:
Price Target:
52 WEEKS
03JAN14 - 22DEC14
Sector Perform
40.00
Acquires Wireless Maingate, completes M2M device-to-cloud vision
Sierra’s $90MM acquisition of Wireless Maingate adds M2M connectivity and
other managed M2M services, which helps complete the company’s M2M deviceto-cloud vision. We believe the deal is EPS accretive, increases Sierra’s recurring
revenue, and revenue synergies appear likely. We are maintaining our Sector
Perform recommendation, as we believe the stock is trading near fair value.
35.00
30.00
25.00
20.00
7500
6000
4500
3000
1500
J
F
M
A
Close
2013A
2014E
2015E
2016E
M
2014
J
J
A
Rel. S&P 500
Revenue
441.9
546.1
619.1
686.4
All values in USD unless otherwise noted.
S
O
N
MA 40 weeks
D
• Sierra to acquire Wireless Maingate. Sierra announced this morning the
acquisition of privately held Wireless Maingate, one of the leading providers of
M2M connectivity services in Europe, for $90MM. Wireless Maingate is based in
Sweden; management expects it to generate $19MM revenue and $6MM EBITDA
in CY14, and it has 30 employees. The deal is expected to close in February 2015.
• Premium takeout valuation reflects strategic value of M2M services. The
Maingate takeout multiple is 4.7x CY14 revenue or 15x CY14 EBITDA. The
premium takeout valuation reflects the strategic value of M2M services,
Maingate’s high recurring revenue (85% of total) and profitability (32% EBITDA
margins).
• Completes Sierra’s M2M device-to-cloud vision. Maingate complements Sierra’s
existing business, adding M2M connectivity and other managed services to
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complete Sierra’s M2M device-to-cloud vision. Maingate has over 500 customers
and manages more than 500,000 devices. Maingate resells mobile network
connectivity for partners and is a full mobile network operator itself.
• Revenue synergies appear likely. Sierra expects to expand Maingate outside the
Nordics (bulk of current revenue) to the remainder of Europe and introduce
Maingate to additional verticals beyond its key markets. Sierra does not
anticipate any meaningful cost synergies.
• Estimate $0.19 to $0.22 accretive to FY16E EPS. Management expects Maingate
to be immediately accretive to EPS. We estimate that Maingate adds $0.14$0.16 EPS to FY15E and $0.19-$0.22 to FY16E, assuming 12-16% annual revenue
growth; every 200bps faster growth adds another ~$0.01 EPS. We are leaving our
financial estimates unchanged pending deal completion.
Industry Comments
Fraser Phillips, P.Eng. (Analyst)
(416) 842-7859; [email protected]
Chris Drew, CFA (Analyst)
+61 2 9033 3060; [email protected]
Timothy Huff (Analyst)
+44 20 7653 4866; [email protected]
Des Kilalea (Analyst)
+44 20 7653 4538; [email protected]
Ken Tham, CFA (Analyst)
+61 2 9033 3064; [email protected]
Global Mining Trends & Values
Commodity Price Performance:
• Metal prices were down on average 1.9% last week. Thermal Coal was the best
performer up 2.6%, followed by moly up 1.1%, and iron ore flat 0.0%. Nickel was
the worst performer down 6.0%, followed by silver down 5.6%, lead down 5.2%,
gold down 2.1%, uranium down 2.0%, coking coal down 1.7%, aluminium down
1.6%, copper down 1.2%, and zinc down 0.7%.
Mining Share Price Performance:
• Mining shares were up on average 7.8% last week. The best performing group
was nickel up 17.0%, followed by coal up 12.0%, iron ore up 11.0%, miscellaneous
up 10.3%, copper up 7.4%, aluminium up 7.2%, the diversified group up 7.1%,
mineral sands up 3.8%, and uranium up 1.3%.
Valuation:
• Mining shares are now trading at an 8.5% premium to NAV at forward curve
prices, versus a 23.5% discount one week ago.
Long/Short Metal Positions:
• RBC CM's proprietary data for the LME shows that the net short positions in
copper, aluminium, zinc, nickel, and lead all increased last week.
Exchange Inventories:
• Total exchange inventories of aluminium and zinc decreased last week, while
total inventories of copper and nickel increased last week.
Stephen D. Walker (Analyst)
(416) 842-4120; [email protected]
Precious Metals & Minerals Weekly Valuation Tables
Dan Rollins, CFA (Analyst)
(416) 842-9893; [email protected]
• This week, we highlight key takeaways from our "Weaker oil prices and currencies
provide average benefit of $50/oz" note released earlier in the week. Beadell,
Northern Star, Newcrest, Regis, Centerra, Evolution, Independence, and Detour
appear well positioned to benefit from weaker local currencies and oil. Perseus,
Teranga, Centamin, B2Gold, Allied Nevada, Randgold, and Semafo should
benefit from lower fuel prices. Polymetal is set to benefit significantly from a
weaker RUB while Silver Lake, New Gold, Timmins, and Alamos should benefit
from weaker currencies.
Weaker oil prices benefit open-pit miners and those without access to reliable
grid power
Sam Crittenden, P.Eng., CFA (Analyst)
(416) 842-7886; [email protected]
Jamie Kasprowicz, P.Eng., CFA (Analyst)
(416) 842-8934; [email protected]
Akbar Badri (Associate)
416 842 7840; [email protected]
Mark Mihaljevic (Associate)
(416) 842-3804; [email protected]
Paul Hissey (Analyst)
+61 3 8688 6512; [email protected]
Cameron Klutke (Associate)
+61 3 8688 6551; [email protected]
Chart of the week: Reaping the benefits of weaker oil prices and currencies
• With an estimated range of 5–20% of mine-site costs directly linked to fuel, we
estimate an average $27/oz (4%) favourable impact in 2015 from lower oil prices.
However, there is significant variability ($10 to $85/oz) depending on mine type,
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Jonathan Guy (Analyst)
+44 20 7653 4603; [email protected]
Timothy Huff (Analyst)
+44 20 7653 4866; [email protected]
Richard Hatch, ACA (Analyst)
+44 20 7002 2111; [email protected]
Ioannis Masvoulas, CFA (Associate)
+44 20 7653 4647; [email protected]
All values in USD unless otherwise noted.
•
•
•
•
•
geographic location, and access to infrastructure (Exhibit 1). Factors influencing
the benefits of lower oil prices are:
Mine type: Open-pit mines tend to be more exposed to fuel prices than
underground mines
Power supply: Access to local power grids reduces reliance on self-generated
power
Fuel subsidies: Operations located in countries with subsidized fuel are unlikely
to benefit
Fuel taxes: Impact may be somewhat negated by taxes, which tend to be applied
on a per-unit basis
Oil hedges: Some companies have hedged future oil requirements above current
prices
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Required disclosures
Non-U.S. analyst disclosure
Michael Smith;Matt Logan;Neil Downey;Ben Halm;Fraser Phillips;Chris Drew;Timothy Huff;Des Kilalea;Ken Tham;Paul Treiber;Sean
Ray;Stephen D. Walker;Dan Rollins;Sam Crittenden;Jamie Kasprowicz;Akbar Badri;Mark Mihaljevic;Paul Hissey;Cameron
Klutke;Jonathan Guy;Richard Hatch;Ioannis Masvoulas (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
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