EQUITY RESEARCH
CANADIAN RESEARCH AT A GLANCE
February 3, 2015
Ratings Revisions
! DH Corporation
Summary
Upgrading to Outperform; likely to benefit from U.S. exposure and defensive attributes
! ATS Automation Tooling Systems
! NA Precious Metal Equities: 2014YE
Summary
FQ3/15 preview: Revenue expected to be solid following strong bookings last quarter
Summary
Weak Q4/14 metals prices expected to impact results and 2015 guidance a focus
!
Summary
4Q Preview: Expecting Sequential Progress with Key Operating Metrics
Summary
Ground-breaking new contract with Air Canada to drive enhanced value
Summary
4Q – Advancing the Game Plan
Summary
RME promotes COO to President and CEO
Summary
Keeping Track of Jublia: Blitzing the Market with SuperBowl Ad
! Canadian Energy Infrastructure
! Global Energy Research Commodity
Summary
Alberta Power: Is this as good as it gets?
Summary
Adjusting Forecasts
!
! Household Products
! Integrated Oil and Senior E&P
! Paper & Forest Products Weekly
! Paper & Packaging
! RBC International E&P Daily
Summary
Earnings Preview
Preview
Yellow Media Ltd.
Company Comments
! Chorus Aviation Inc.
! Imperial Oil Limited
! Rocky Mountain Dealerships Inc
! Valeant Pharmaceuticals
International
Industry Comments
Price Revisions
Global Mining Trends & Values
Summary
Tissue Tracker: Half the capacity adds expected in 2015 pushed out to 2016
Summary
So what WTIE price are the large caps discounting?
Summary
Summary
Containerboard stats: another month of strong growth for box shipments
Summary
GTE; AMER; BP; BG; SEH
Priced as of prior day's market close, EST (unless otherwise noted).
For Required Non-U.S. Analyst and Conflicts Disclosures, see Page 12.
EQUITY RESEARCH
U.S. RESEARCH AT A GLANCE
February 3, 2015
Ratings Revisions
! Concho Resources
Summary
Remains a Top Idea
Summary
Lowering Estimates and Price Target in Challenging Commodity Price Environment
Summary
Increase cash flow estimates and price target following ENLK's acquisition
Summary
Strategic Shopping
Summary
Reduced Budget and Distribution Improves Strategic Positioning
Summary
Raising estimates and target following strong 4Q14; West Coast outlook remains bright
Summary
Raising price target on increased NAV expectation; Fundamental story remains intact
Summary
That's some big drop in margins!
Summary
Results met expectations with in-line FFO and unchanged guidance
Summary
Q4/14 results stronger than expected
Summary
FY15 Guide Below Street; MakerBot Drives the Shortfall
Summary
Results and Guidance Largely In-Line; Dividend Increased; Pipeline Restocked
Summary
WMGI Set to Make It Across the Line With TRNX and Augment. Still a Long-Term Story
! Beacon Roofing Supply, Inc.
! Expedia, Inc.
! NA Precious Metal Equities: 2014YE
Summary
1Q15E Earnings Preview
Summary
Q4 Preview Cheat Sheet
Summary
Weak Q4/14 metals prices expected to impact results and 2015 guidance a focus
!
! Omnicom Group Inc.
! Clorox
! Interpublic Group of Companies
! Twitter, Inc.
! USG Corporation
Summary
Q4 Preview & Cheat Sheet
Summary
Tweaking Estimates Ahead of Earnings
Summary
2Q'15 Preview & Cheat Sheet
Summary
FX A Drag, But Wins Providing Tailwinds
Summary
Q4 Preview & Cheat Sheet
Summary
4Q14E Earnings Preview
Summary
Is VMW Spin Off Viable Given The Recent Correction?
Summary
The Hartford's outstanding progress -- and very full valuation
Summary
4Q – Advancing the Game Plan
Summary
Model Adjustment for Consumer Tax; FY15 Estimates Unchanged
Summary
Expecting growth to continue
Summary
Confidence from containers
Price Target Revisions
! DCP Midstream Partners, LP
! EnLink Midstream, LLC
! EnLink Midstream, LP
! EV Energy Partners, L.P.
! Kilroy Realty Corporation
! Simon Property Group, Inc.
! Torchmark Corp.
First Glance Notes
! Alexandria Real Estate Equities, Inc.
! Cliffs Natural Resources Inc.
! Stratasys, Ltd.
! UDR, Inc.
! Wright Medical Group
Earnings Preview
Preview
GrubHub, Inc.
Company Comments
! EMC Corporation
! The Hartford
! Imperial Oil Limited
! Intuit Inc.
! Nanometrics
! Navios Maritime Partners L.P.
2
EQUITY RESEARCH
! Niska Gas Storage Partners LLC
! Old National Bancorp
! Seattle Genetics, Inc.
! Talmer Bancorp, Inc.
! Tenneco Inc.
! Valeant Pharmaceuticals
Summary
F3Q15 Results Miss Expectations; Suspends Distribution
Summary
4Q core EPS ~$0.27 - Decent quarter. Execution and efficiency become the focus.
Summary
4Q:14 Preview – Progress on commercial, IO, and Roche and pipeline front
Summary
4Q core EPS ~$0.20 - Strong loan growth continues to drive quarterly results.
Summary
Waiting for more
Summary
Keeping Track of Jublia: Blitzing the Market with SuperBowl Ad
!
Summary
Margins and premium growth both impress in 4Q
International
XL Group plc
Industry Comments
! Brazil Mobile Infrastructure and
!
Summary
Tower Review
Global Energy Research Commodity Summary
Price Revisions
Global Mining Trends & Values
Summary
!
! Household Products
! Integrated Oil and Senior E&P
! Oil & Gas Refining & Marketing
! Paper & Packaging
! RBC Capital Markets US Equity Top
Picks List
RBC European Industrials Daily
!
! RBC International E&P Daily
! US Chemicals Weekly Watch
Adjusting Forecasts
Summary
Tissue Tracker: Half the capacity adds expected in 2015 pushed out to 2016
Summary
So what WTIE price are the large caps discounting?
Summary
Moving Beyond Light Crude Saturation
Summary
Containerboard stats: another month of strong growth for box shipments
Summary
February 2015
Summary
Areva woes, weak ISM
Summary
GTE; AMER; BP; BG; SEH
Summary
Spot ethylene approaching trough; Chlor-alkali price increases rolling over
3
EQUITY RESEARCH
UK & European Research at a Glance
February 3, 2015
Initiations
! Salzgitter AG
! SSAB AB
! Voestalpine AG
Summary
Initiation: Headwinds drive low FCF yield
Summary
Initiation: Looking fully valued
Summary
Initiation: Modest organic and acquisition growth
Summary
Resetting for Current Oil Prices
Summary
Identity Crisis
Summary
We expect strong 2014 results but our underlying concerns remain
Summary
Activity Levels Looking Relatively Unaffected, But Details Pending Analyst Day
Summary
Steady progress
Summary
Q4/14 results stronger than expected
Ratings Revisions
! Amerisur Resources plc
Price Target Revisions
! ArcelorMittal
! Bolsas y Mercados Espanoles
! ExxonMobil Corporation
! ThyssenKrupp AG
First Glance Notes
! Cliffs Natural Resources Inc.
Industry Comments
! Brazil Mobile Infrastructure and
Summary
!
! Global Energy Research Commodity
Summary
Two sector switches for 2015
Summary
Adjusting Forecasts
!
! Swiss Banks - CS & UBS
Summary
Tower Review
European Steels
Price Revisions
Global Mining Trends & Values
Summary
Currency concerns overdone
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
DH Corporation(TSX: DH; 35.86)
Geoffrey Kwan, CFA (Analyst)
(604) 257-7195; [email protected]
Charan Sanghera (Associate)
604 257 7657; [email protected]
38.00
52 WEEKS
Rating:
Price Target:
07FEB14 - 30JAN15
36.00
Outperform (prev: Sector Perform)
44.00 ▲ 39.00
Upgrading to Outperform; likely to benefit from U.S. exposure and defensive
attributes
In this uncertain macro environment, we believe DH’s shares are likely to
outperform for the following reasons: (1) U.S. exposure with >50% of EBITDA
coming from the U.S.; (2) many of DH’s businesses are defensive and have
the leading market share; (3) relative valuation discount to U.S. peers widened
significantly, which we believe is unwarranted; and (4) attractive dividend yield.
34.00
32.00
30.00
28.00
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EBITDA
247.5
350.8
371.8
394.9
2013A
2014E
2015E
2016E
All values in CAD unless otherwise noted.
• Upgrading to Outperform and increasing 12-month price target to $44/share
(from $39). Our financial forecasts remain unchanged, with our price target
increase reflecting a higher target multiple (16.0x CY16 EPS, was 14.5x), which
remains at a 2.0x discount to how RBC values DH’s key U.S. peers (specifically,
FISV and FIS). We believe the discount is appropriate given lower expected EPS
growth.
• We believe DH appeals to investors looking for a mid-cap ($3B float market
cap) stock, with an attractive 3.6% dividend yield plus three attributes which
we believe are likely to drive share outperformance over the next 12 months:
(1) U.S. exposure; (2) defensive attributes; and (3) valuation discount significantly
widened in the past several months.
Earnings Preview
ATS Automation Tooling Systems(TSX: ATA; 14.50)
Steve Arthur, CFA (Analyst)
(416) 842-7844; [email protected]
Ben Holton, CFA (Analyst)
(416) 842-9949; [email protected]
Rating:
Price Target:
52 WEEKS
07FEB14 - 30JAN15
16.00
Sector Perform
16.00
FQ3/15 preview: Revenue expected to be solid following strong bookings last
quarter
ATS is scheduled to release FQ3/15E results before market open on February 4th.
Revenue growth should be strong, reflecting both recent acquisitions and the
strong bookings last quarter. We see the shares as near fair value at 16x F2016E P/E,
though incorporating further acquisitions (a clear strategic objective) would likely
drive earnings higher. Sector Perform, $16 target.
15.00
14.00
13.00
12.00
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2014A
2015E
2016E
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Revenue
591.1
683.4
927.9
1,082.4
All values in CAD unless otherwise noted.
• FQ3/15E revenue and EPS continue to be driven by acquisitions: We forecast
FQ3 revenue of $262.3MM (+47% Y/Y), which is slightly above consensus of
$251.0MM. Our EBITDA forecast of $35.1MM (13.4% margin) yields EPS of $0.20
(consensus at $0.18).
• At the last update, management commented that they expect 40-45% of the FQ2
backlog to be converted to revenue in the next quarter. Using the guided range
would imply a revenue range of $240-270MM. However, there are several other
factors that also impact revenue, leading to limited accuracy to this conversion
guideline, as we have seen historically.
• Bookings/backlog to be closely watched given recent volatility: Bookings at ATS
are typically volatile, and the amplitude of this has increased over the past several
quarters. Specifically, FQ1 had very weak bookings, a decrease of 3% Y/Y even
after the contributions from the IWK acquisitions, while FQ2 saw very strong
bookings, increasing 96% Y/Y.
• Risk/reward remains balanced: We continue to see the risk/reward picture for
ATA as balanced. We maintain our Sector Perform rating and $16 target price. We
5
have revised our estimates slightly after adjusting our gross margin assumptions
lower in the near-term as we review the mix of organic and recently aquired
businesses.
NA Precious Metal Equities: 2014YE Preview
Stephen D. Walker (Analyst)
(416) 842-4120; [email protected]
Dan Rollins, CFA (Analyst)
(416) 842-9893; [email protected]
Sam Crittenden, P.Eng., CFA (Analyst)
(416) 842-7886; [email protected]
NA Precious Metal Equities: 2014YE Preview
• With precious metal prices and by-product credits lower quarter-over-quarter,
we expect Q4/14 financial results to be weaker than the prior quarter. Given
the relatively weak 2015 production and cost guidance delivered by a number of
companies prior to reporting financial results and a desire to "underpromise and
over deliver", there is a risk that guidance, on average, may disappoint investors.
• We believe conference call questions will likely be directed towards gold
producers' ability to maintain production profiles, reduce AISC costs, replace
reserves and ultimately generate free cash flow to improve balance sheets.
Companies that can demonstrate improving fundamentals, capital discipline, and
consistent strategy should continue to attract favorable interest from investors.
Potential for weak Q4/14 financial results & 2015 guidance
•
•
•
•
Sharply lower average prices for gold and silver
Lower by-product credits
Favourable impact of weaker currencies
As a result, we expect most of the North American gold producers to deliver
weak Q4/14 financial results and conservative guidance for 2015.
• As most of the universe has provided 2015 guidance, much of the surprise
potential is discounted into the stocks. Exceptions would be positive surprise
potential for Newmont, and B2Gold. We see negative surprise potential for
Barrick and Agnico-Eagle.
Key drivers for precious metal producers in 2015
•
•
•
•
•
Yellow Media Ltd.(TSX: Y; 17.57)
Haran Posner (Analyst)
(416) 842-7832; [email protected]
Drew McReynolds, CFA, CA (Analyst)
(416) 842-3805; [email protected]
52 WEEKS
Negative impact of lower base metal prices
AISC costs stabilizing
Impact of weaker local currencies and lower energy prices
Risk of not replacing mine reserves
Balance sheets
Rating:
Price Target:
07FEB14 - 30JAN15
Sector Perform
22.00
4Q Preview: Expecting Sequential Progress with Key Operating Metrics
YPG is expected to release 4Q14 results on February 12. Consistent with
management's commentary at our recent TMT Deep Dive Conference, we expect
sequential progress with key operating metrics, and continued pressure on financial
results in the near-term.
24.00
22.00
20.00
18.00
16.00
14.00
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2014E
2015E
2016E
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EBITDA
416.1
325.5
276.4
255.1
All values in CAD unless otherwise noted.
• YPG is expected to release 4Q14 results on February 12. Consistent with
management's commentary at our recent TMT Deep Dive Conference, we expect
sequential progress with key operating metrics, and continued pressure on
financial results in the near-term. We forecast revenue and EBITDA of $219MM
(-8.0% YoY) and $74MM (-18.5% YoY), respectively. Our revenue estimates
incorporate (i) -22.8% YoY decline in "normalized" print revenues (similar to
3Q14), and -25.8% YoY decline in total print revenues including ~$4MM of
non-recurring print revenues in 4Q13; and (ii) +9.0% YoY "organic" growth in
digital revenue, or +13.7% YoY including incremental revenue from consolidating
Canada 411. Impacted by the shifting revenue mix and digital investment, our
forecast translates into gross margins and EBITDA margins of 63.2% (-275bps
YoY) and 34.0% (-440bps YoY), respectively (the relatively moderate margin
compression versus -860bps YoY in 3Q14 partly reflects non-recurring G&A costs
6
in 4Q13). We assume the advertiser count decreases -6.7% YoY (from 276k to
258k), with LTM customer acquisitions increasing sequentially from +20.2k to
+23.0k.
Company Comments
Chorus Aviation Inc.(TSX: CHR.B; 5.00)
Walter Spracklin, CFA (Analyst)
(416) 842-7877; [email protected]
Derek Spronck (Analyst)
(416) 842-7833; [email protected]
52 WEEKS
Rating:
Price Target:
07FEB14 - 30JAN15
Outperform
6.00
Ground-breaking new contract with Air Canada to drive enhanced value
CHR outlined the new capacity purchase (CPA) arrangement with Air Canada that
is set to take into retroactive effect from January 2015 to December 2025. The
new arrangement removes inefficiencies inherent under the previous contract
and fundamentally transforms CHR into a sustainable company that is better
structured to pursue new opportunities, greatly enhancing the value proposition
of the CHR shares in our view
4.90
4.55
4.20
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1,672.1
1,674.4
1,676.3
1,681.4
2013A
2014E
2015E
2016E
All values in CAD unless otherwise noted.
• New contract a win-win. CHR outlined terms of the new CPA with Air Canada
following the ratification of a collective agreement with CHR's pilots over the
weekend. The key is that we view the new CPA as a win-win, with the unlocked
economic value shared by both parties.
• New platform for enhanced value achieved. When we look at CHR under the
new CPA arrangement, we see a company that now has long-term sustainability,
together with an enhanced revenue profile. As such, we believe investors will
start to move toward a valuation that better reflects the profitability and new
opportunity set available to CHR on a go-forward basis.
• $0.45 annualized dividend sustainable. The new CPA arrangement essentially
provides for the same economics as the current CPA out to 2021 (although in
a much more transparent and consistent basis). In the end, we believe that the
cost reductions and new leasing revenue will offset the step-down in the fixed
fee post 2021, resulting in a revenue stream that is more diverse, sustainable and
sufficient to cover the dividend long-term.
• Maintaining Outperform. Given the cash flow impact of the new CPA does not
differ significantly with the existing CPA, our estimates are unchanged. We will
look to further refine our model once additional disclosures are provided. We
maintain our $6.00 price target and Outperform rating and point to the attractive
all-in implied return of 37% with an 8.8% dividend.
Imperial Oil Limited(TSX: IMO; 49.35; AMEX: IMO)
Greg Pardy, CFA (Analyst)
(416) 842-7848; [email protected]
Franz Hargo Muljo, CA (Associate)
416 842 8588; [email protected]
Rating:
Price Target:
52 WEEKS
07FEB14 - 30JAN15
Sector Perform
47.00
4Q – Advancing the Game Plan
Imperial Oil’s estimated fourth-quarter operating EPS of $0.76 fell below our
$0.89 outlook but came in ahead of IBES consensus of $0.70. Imperial will report
its actual fourth-quarter results on February 26, at which time we will update our
estimates.
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2013A
3.48
2014E
3.97
2015E
1.83
2016E
4.00
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P/E
14.2x
12.4x
27.0x
12.3x
• 4Q Results. Imperial’s fourth-quarter upstream production of 315,000 boe/d
was modestly ahead of our outlook of 313,900 boe/d. Oil realizations were 2%
better than expected, while royalties of 14% were below our estimate of 15.5%.
Imperial’s downstream (after-tax) earnings of $397 million were 18% below our
$485 million estimate.
• 2015 Capital Expenditures. Imperial's 2015 capital spending program of $4
billion (including $500 million of capitalized leases) was generally in line with
our outlook of $4 billion. Imperial announced last week that it is evaluating
the potential sale of its remaining 500 company-owned Esso sites to a branded
wholesaler.
7
All values in CAD unless otherwise noted.
• Kearl – Expansion Remains Ahead of Schedule. Imperial’s Kearl (71% wi) oil
sands mining project supported 47,000 b/d of net (66,000 b/d gross) bitumen
production in the fourth quarter, in line with our outlook of 46,800 b/d. This
performance reflected a precautionary shutdown in November due to excessive
vibration in the plant’s ore crusher unit. Construction of the 110,000 b/d Kearl
expansion was completed at the end of 4Q, while start-up in 3Q-2015 remains
a quarter ahead of schedule.
Sara O'Brien, CFA, CA (Analyst)
(514) 878-7256; [email protected]
Juliane Szeto (Associate)
(416) 842-3806; [email protected]
Rocky Mountain Dealerships Inc(TSX: RME; 8.64)
13.00
Rating:
Price Target:
52 WEEKS
07FEB14 - 30JAN15
RME promotes COO to President and CEO
We believe RME will focus on driving improvements to balance sheet and FCF
in current tougher macro environment. Longer term we expect RME will focus
on consolidation opportunities in Canada and US markets. We expect new CEO
will stay the course re RME strategy of growing product support and controlling
expenses. We maintain our Sector Perform recommendation on RME.
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EPS, Ops Diluted
2013A
0.79
2014E
0.88
2015E
1.00
2016E
1.10
P/E Ops Diluted
11.0x
9.9x
8.6x
7.9x
All values in CAD unless otherwise noted.
52 WEEKS
• We view the internal appointment CEO news as neutral to RME stock, given a
likely continuity of strategy.
• RME promotes COO to CEO effective immediately. RME today announced the
appointment of Mr. Garrett Ganden as President and CEO. Mr. Ganden has served
as RME's COO since 2011, prior to that he was the CFO since 2007.
• Current CEO and president to retain Board roles. Matt Campbell and Derek
Stimson, previous CEO and President respectively, will retire from their
management roles effective today but will retain leadership roles on the Board.
We note, combined, these two directors control ~22% of RME shares, thus
aligning interests with shareholders.
• See strategy as focus on balance sheet and FCF. Per new CEO, RME near term
focus is on improving the balance sheet and generating FCF for future expansion
opportunities. We maintain our Sector Perform view on RME given these macro
challenges may limit EBITDA and earnings expansion over the next year.
Valeant Pharmaceuticals International(NYSE: VRX; 161.98; TSX: VRX)
Douglas Miehm (Analyst)
(416) 842-7823; [email protected]
Fred Garcia (Associate)
(416) 842-7876; [email protected]
160.00
152.00
Sector Perform
9.00
Rating:
Price Target:
07FEB14 - 30JAN15
Outperform
188.00
Keeping Track of Jublia: Blitzing the Market with SuperBowl Ad
We are introducing a weekly publication that tracks the performance of Jublia.
The onychomycosis (toe nail fungus) treatment was launched last summer and
Valeant believes it could be its largest product. 2015 sales are anticipated to
reach $300-400MM with Q4/14 sales eclipsing >$50MM (equating to >$200MM
annual run rate).
144.00
136.00
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EPS, cash Diluted
2013A
6.21
2014E
8.34
2015E
10.37
2016E
12.54
All values in USD unless otherwise noted.
O
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• Jublia scripts up 5% week over week. For the week ending January 23, 2015, total
Jublia scripts were 9,512, up 5% vs. 9,053 for the week ending January 16, 2015.
Assuming that IMS only represents 60-65% of total Jublia scripts because direct
to physician channels are not captured, total weekly scripts are ~14,600. While
Valeant may charge between $400-500 per script on average, it is still relatively
early in the launch to correlate the early script numbers to sales as discounting
and inventory builds tend to distort the net proceeds. Similarly, the volatility in
the proportion of direct to physician Jublia scripts is another variable to consider.
As more primary care physicians write scripts, the robustness of the data should
improve.
• SuperBowl ad vaults Jublia into national spotlight. Valeant is staying on the
offensive with a Jublia advertisement that aired during the Superbowl. The 30
second ad reportedly cost $4.5M to air. Considering that onychomycosis market
is consumer driven and the Superbowl reaches >100M viewers, we believe
8
this Jublia gameplan is sound and this DTC play should significantly improve
awareness of the therapy as well as potentially separate themselves further from
the competition. The add can be seen here. It will be interesting to see how the
scripts react over the next few months.
Industry Comments
Robert Kwan, CFA (Analyst)
(604) 257-7611; [email protected]
Canadian Energy Infrastructure
Michelle Zuliani (Associate)
604 257 7064; [email protected]
• February 2 seemed like the perfect setup for high power prices. From 8:00 AM
(MT) until 5:00 PM (MT), power demand in Alberta was roughly 10,500 MW (i.e.,
within roughly 7% of the peak hourly demand observed in 2015). This elevated
level of demand with five coal units offline (9% of total Alberta capacity) and
virtually no wind production (most hours between 50-150 MW out of 1,434 MW
of capacity) produced an average power price of only $55/MWh. Historically, this
is the type of supply-demand situation that could have easily produced power
prices into the hundreds of dollars per megawatt hour.
• The year-to-date average is $34/MWh. Year-to-date, the average Alberta power
price has been an abysmal $34/MWh despite normally high seasonal demand
associated with winter peak conditions (i.e., lighting, heating). As an indicative
measure of power price volatility, only 5% of the hours have had a power price
in excess of $50/MWh (versus 15% in 2014).
• The forward curve for 2015 is getting pretty ugly. According to the NGX website,
the average forward power price for the remainder of 2015 is roughly $38/MWh.
For 2016, there is only a slight improvement in the forward curve to $43/MWh.
Kelsey Roste (Associate)
(604) 257-7383; [email protected]
All values in CAD unless otherwise noted.
Alberta Power: Is this as good as it gets?
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 $57/b (vs. $71/b) in 2015E, $82/b (vs. $83/b) in
2016E, and $90/b (vs. $95/b) long-term.
• WTI forecasts are changed to $53/b (vs. $65/b) in 2015E, $77/b (vs. $74/b) in
2016E, and $84/b (vs. $89/b) long-term.
• Henry Hub natural gas forecasts are trimmed to $3.25/MMBtu (vs. $3.75/
MMBtu) in 2015E, and remain at $4/MMBtu in 2016E and $4.50/MMBtu longterm.
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]
Adjusting 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]
9
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]
Shelby Tucker, CFA (Analyst)
(212) 428-6462; [email protected]
Andrew Williams (Analyst)
+61 3 8688 6578; [email protected]
All values in USD unless otherwise noted.
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]
Paul Hissey (Analyst)
+61 3 8688 6512; [email protected]
Global Mining Trends & Values
• Commodity Price Performance: Metal prices were down on average 1.4% last
week. Nickel was the best performer up 2.6%, followed by uranium up 0.7%, lead
up 0.7%, aluminium up 0.4%, zinc up 0.2%, and coking coal up 0.1%. Iron Ore
was the worst performer down 6.8%, followed by silver down 5.7%, thermal coal
down 4.6%, moly down 2.5%, copper down 1.4%, and gold down 0.8%.
• Mining Share Price Performance: Mining shares were down on average 3.4%
last week. The best performing group was uranium up 2.9%, followed by mineral
sands up 0.1%, aluminium down 0.7%, coal down 1.5%, the diversified group
down 2.0%, iron ore down 3.2%, miscellaneous down 3.5%, nickel down 5.4%,
and copper down 7.6%.
• Valuation: Mining shares are now trading at a 6.8% discount to NAV at forward
curve prices, versus an 8.0% 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 decreased
last week.
• Exchange Inventories: Total exchange inventories of aluminium and zinc
decreased last week, while total inventories of copper and nickel increased last
week.
Paul C. Quinn (Analyst)
(604) 257-7048; [email protected]
Household Products
Hamir Patel (Analyst)
(604) 257-7145; [email protected]
• Converted product shipments 2.5% higher y/y (+1.9% in 2014) – Total AtHome (consumer) shipments of converted tissue products increased 2.0% y/y in
December (+1.7% in 2014), with toilet paper volumes up 1.4%, towels up 2.4%
and facial 3.0% higher than a year ago. Total Away-from-Home (AfH) shipments of
converted tissue products increased 3.8% y/y (+2.2% in 2014), with toilet paper
volumes up 3.0%, towels up 4.1% and napkin volumes 2.6% higher than a year
ago.
• Parent roll production up 2.4% y/y (+1.1% in 2014) – Parent roll production
was 687K tons, 2.4% higher than a year ago (-0.6% m/m). Domestic parent roll
consumption was 705K tons, up 2.8% y/y (+1.1% in 2014) and down 0.3% m/m.
• Lower operating rates m/m – Operating rates moved from 93.8% in November to
90.3% in December (-100bps y/y), with monthly capacity 3.5% higher y/y (+1.4%
in 2014). The full-year operating rate in 2014 of 94.2% was only slightly below
the 94.4% rate in the prior year.
• Less capacity expected to come online in 2015 – RISI has pushed out 230K tpy of
new capacity it originally expected would come online in 2015 (P&G's potential
second TAD at Box Elder, UT and the two "confidential" machines that Valmet
was originally set to deliver in 2014). Although RISI is still showing all three in its
supply outlook (for 2016 start-up now), it notes that at "least one or two are not
moving forward at the moment."
All values in USD unless otherwise noted.
Tissue Tracker: Half the capacity adds expected in 2015 pushed out to 2016
10
Greg Pardy, CFA (Analyst)
(416) 842-7848; [email protected]
Integrated Oil and Senior E&P
Franz Hargo Muljo, CA (Associate)
416 842 8588; [email protected]
• Based on our net asset value analysis, our large cap independent and integrated
coverage universe is currently discounting a long-term escalated WTI equivalent
(WTIE) price of US$73/boe (vs. US$72/boe), up 1% from last week, and a longterm WTI price of US$88/b (vs. US$86/b), up 2% from last week.
• Current WTIE implied prices would compare with prior 2009–2014 YTD peak
and trough levels of US$84/boe and US$61/boe, respectively, while current WTI
implied prices would compare with peak and trough levels of US$102/b and US
$62/b, respectively.
• Spot WTIE prices of US$41/boe (vs. US$39/boe) were up 5% from last week.
Long-dated (2015–2018) WTIE prices of US$54/boe (vs. US$51/boe) were up 6%
from last week.
• Our implied WTIE price (defined as an equivalent barrel economically weighted
approximately 75% to WTI crude oil and 25% to Henry Hub natural gas) is the
long-term price incorporated into our collective net asset value analysis, which
equates current share prices for our group to a P/NAV ratio of 100%. This analysis
incorporates an 8.5% after-tax discount rate. Please refer to Exhibit 1 for our WTI
equivalent price analysis.
All values in USD unless otherwise noted.
Paul C. Quinn (Analyst)
(604) 257-7048; [email protected]
Hamir Patel (Analyst)
(604) 257-7145; [email protected]
So what WTIE price are the large caps discounting?
Paper & Forest Products Weekly
• Comparable valuation tables, commodity prices, and total return performance
for our North American Paper & Forest Products coverage universe.
Paul C. Quinn (Analyst)
(604) 257-7048; [email protected]
Paper & Packaging
Hamir Patel (Analyst)
(604) 257-7145; [email protected]
• US corrugated box shipments increased by 3.2% y/y (+0.8% in 2014 on an
average week basis) – Average weekly shipments rose by 3.2% y/y (-2.3% m/
m) in December. Total monthly shipments increased 8.7% y/y (+1.2% for 2014)
to 30.3 billion sq. ft. as there were 20 shipping days in December compared
to 19 the prior year. The blended average was 6.0% higher y/y (a focus for the
trade given some plants send a fixed number of boxes to customers each month).
Containerboard consumption at box plants was up 8.1% y/y at 2,441K tons,
representing 93.5% of the containerboard produced in the US for the domestic
market.
• Inventories rose in December – US producer (combined mill and box plant)
inventories increased 4.1% m/m (+92K tons) to 2,341K tons (or 3.8 weeks of
supply vs. 3.6 in November), compared to the average inventory build over the
last 10 years in December of 24K tons. Box plant inventories of 1,956K tons
(+5.3% m/m) represented 3.2 weeks of supply (up from 3.0 in November).
All values in USD unless otherwise noted.
Containerboard stats: another month of strong growth for box shipments
Al Stanton (Analyst)
+44 131 222 3638; [email protected]
RBC International E&P Daily
Nathan Piper (Analyst)
+44 131 222 3649; [email protected]
GTE.TO: CEO stepping down; GTE.TO: Low key reserves update; AMER.L: Resetting
for Current Oil Prices; Global Energy Research Commodity Price Revisions; BP.L/
BG.L: What the Big Guys are saying SHE.AU Initiation: A China gas story with upside;
Victoria McCulloch, CA (Analyst)
+44 131 222 4909; [email protected]
GTE; AMER; BP; BG; SEH
Haydn Rodgers, CA (Associate)
+44 131 222 4911; [email protected]
All values in USD unless otherwise noted.
11
Required disclosures
Non-U.S. analyst disclosure
Stephen D. Walker;Dan Rollins;Sam Crittenden;Al Stanton;Nathan Piper;Victoria McCulloch;Haydn Rodgers;Greg Pardy;Franz
Hargo Muljo;Geoffrey Kwan;Charan Sanghera;Walter Spracklin;Derek Spronck;Mark J. Friesen;Michael Harvey;Dan
MacDonald;Shailender Randhawa;Robert Kwan;Nelson Ng;Biraj Borkhataria;Andrew Williams;Paul C. Quinn;Hamir Patel;Sara
O'Brien;Juliane Szeto;Douglas Miehm;Fred Garcia;Michelle Zuliani;Kelsey Roste;Fraser Phillips;Chris Drew;Timothy Huff;Des
Kilalea;Ken Tham;Paul Hissey;Haran Posner;Drew McReynolds;Steve Arthur;Ben Holton (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 31-Dec-2014
Rating
BUY [Top Pick & Outperform]
HOLD [Sector Perform]
SELL [Underperform]
Count
897
686
112
Percent
52.92
40.47
6.61
Investment Banking
Serv./Past 12 Mos.
Count
Percent
290
32.33
137
19.97
6
5.36
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.
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