1. business and industrial

EQUITY RESEARCH
CANADIAN RESEARCH AT A GLANCE
February 24, 2015
Ratings Revisions
! Morguard REIT
! Timmins Gold Corp.
Summary
A more challenging year ahead
Summary
Downgrading to Sector Perform as production growth profile brings added risk
Summary
Asset Sales Can Improve the Balance Sheet, with a Mixed Impact on Valuation
Summary
Getting paid to wait out the AB power storm, but it might be a long storm
Summary
Correction: Q4/14 Preview: Expect a slightly weaker quarter
Summary
First glance - Q4/14 marked by one-time gains, maintaining dividend
Summary
Exploration update highlights potential of Black Fox
Summary
Weathering the Storm
Summary
Acquisition of Artek consolidates NE BC holdings
Summary
Reaching stabilization & working towards growth
Price Target Revisions
! Barrick Gold Corp.
! Capital Power Corporation
! Nevsun Resources Ltd.
First Glance Notes
! PrairieSky Royalty Ltd.
! Primero Mining Corp.
Earnings Preview
! Encana Corporation
Company Comments
! Kelt Exploration Ltd.
! Regal Lifestyle Communities Inc.
Industry Comments
! 2015 Healthcare Conference Preview Summary
! Energy Infrastructure Weekly Stats Summary
Summary
! Engineering & Construction
Bringing Key Themes and Topics into Focus
!
! Paper & Forest Products Weekly
! Precious Metals & Minerals Weekly
Summary
So what WTIE price are the large caps discounting?
Summary
Chart of the week: Performance of Gold Equities, A Period of Seasonal Weakness
!
! RBC International E&P Daily
! Semiconductor Capital Equipment
! Steel: January global output at
Summary
Junior/Intermediate E&P: Weekly Review and Valuation Tables
Summary
CIE; AOI; KOS; BNK
Summary
Takeaways from day 1 of Advanced Lithography Conference
Summary
January run-rate down 3% yoy
Dynamics
Integrated Oil and Senior E&P
Valuation Tables
RBC Canadian Energy
E&C industry update; Q4 previews for SNC, STN, WSP, ARE, SOX, CAM
Summary
133.1mt, utilisation falls to 72.5%
! - 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 14.
EQUITY RESEARCH
U.S. RESEARCH AT A GLANCE
February 24, 2015
Initiations
! InfraREIT, Inc.
Summary
Initiating coverage: We are onboard for Oncor
Summary
Downgrading to Sector Perform as production growth profile brings added risk
Summary
Core Performance Hits Our Target in 4Q14 - Shares Remain Poised to Gain Altitude
Summary
Raising our NAV estimate and target; West Coast focused portfolio poised to deliver
Summary
Solid EBITDA Margin Exit Rate
Summary
4Q14A Earnings Review: Amicable Divorce
Summary
Asset Sales Can Improve the Balance Sheet, with a Mixed Impact on Valuation
Summary
2015 guidance in-line; focus on potential for accelerated dropdowns
Summary
2015 guidance in-line; focus on potential for accelerated dropdowns
Summary
4Q14 Solid; Proposed ETP/RGP Merger Highly Accretive for ETE - Reiterate Outperform
Summary
Investment activity appears challenged; lowering target to $21/share
Summary
2014 results - The devil is in the valuation
Summary
Winning New Business
Summary
Second Quarter Earnings Preview and Cheat Sheet
Summary
Raising estimates and price target modestly; CCIT acquisition complete
Summary
4Q14 Earnings Preview; Model Update
Summary
Strong Quarter; Next Dropdown Planned
Summary
Unfurling the asset-lite era
Summary
Drop Knarr and Grow
Summary
Texas-sized sales
Summary
It's not you, it's me (a break-up story)
Summary
Cost savings deliver H115 earnings and cash flow beat
Summary
4Q14 CFPS 3% Miss; Slashes 2015 CapEx Budget By Over 50%
Summary
Ahead by $0.01; External growth accelerates
Summary
Fourth Quarter Earnings Preview and Cheat Sheet
Summary
Weathering the Storm
Summary
P&C insurance delivers good 4Q results
Summary
F4Q15 Preview: Looking for Higher OM Expansion
Ratings Revisions
! Timmins Gold Corp.
Price Target Revisions
! AerCap Holdings N.V.
! American Assets Trust Inc.
! American Axle & Manufacturing
! Armstrong World Industries, Inc.
! Barrick Gold Corp.
! Enbridge Energy Management
! Enbridge Energy Partners
! Energy Transfer Equity, L.P.
! Government Properties IT
! KLX Inc.
! MDC Partners Inc.
! Palo Alto Networks, Inc.
! Select Income REIT
! SM Energy Company
! Sunoco LP
! Teekay Corporation
! Teekay Offshore Partners, LP
! Texas Roadhouse, Inc.
! Triumph Group, Inc.
First Glance Notes
! BHP Billiton plc
! Rosetta Resources Inc
! Strategic Hotels & Resorts Inc.
Earnings Preview
! Autodesk, Inc.
! Encana Corporation
! Non-Life Insurance
! salesforce.com
2
EQUITY RESEARCH
! Workday Inc.
Summary
F4Q15 Preview: Expect Strong Results
Summary
Fundamentals Improving against tough FX headwinds: 4Q14 Earnings Preview
Summary
Updating Estimates to Reflect Better Clarity on Expenses
Summary
Benefits of Long-Cycle Development
Summary
Highly profitable wallboard producer with low-cost position
Summary
Achievable product outlook set with focus to pivot back to Nucynta deal close
Summary
Solid 4Q14; Poised for Continued Growth
Summary
MRVL CEO Presentation at the International Solid-State Circuits Conference
Summary
Deal track record is good despite cautious Glumetza guidance for 2015
Summary
Top Ten Questions For Shutterstock’s Analyst Day
Summary
Steady Eddy
Summary
Highlights From The “State Of Programmatic TV” Webinar
Company Comments
! ANSYS, Inc.
! BB&T Corporation
! Cobalt International Energy
! Continental Building Products, Inc.
! Depomed Inc.
! Energy Transfer Partners, L.P.
! Marvell Technology Group Ltd.
! PDL BioPharma Inc.
! Shutterstock, Inc.
! Teekay LNG Partners
! TubeMogul, Inc.
Industry Comments
! AUTOS: Forecast February 2015 SAAR Summary
at 16.7mm + RBC Dealer Survey
Energy Infrastructure Weekly Stats
Expect Healthy Truck Mix
!
! Engineering & Construction
Summary
Summary
E&C industry update; Q4 previews for SNC, STN, WSP, ARE, SOX, CAM
!
! Integrated Oil and Senior E&P
! RBC European Industrials Daily
! RBC International E&P Daily
! Semiconductor Capital Equipment
! US Chemicals Weekly Watch
Summary
News from Nashville
Summary
So what WTIE price are the large caps discounting?
Summary
OERL '14 in-line, '15 guidance light, GKN beat but growth slowing
Summary
CIE; AOI; KOS; BNK
Summary
Takeaways from day 1 of Advanced Lithography Conference
Summary
IHS Lunch Confirms NA Advantage
Dynamics
Health Care Services
3
EQUITY RESEARCH
UK & European Research at a Glance
February 24, 2015
Ratings Revisions
! Iberdrola SA
Summary
Upgrading to Sector Perform
Summary
Cost savings deliver H115 earnings and cash flow beat
Summary
A step in the right direction
First Glance Notes
! BHP Billiton plc
Company Comments
! Electricite de France SA
Industry Comments
! Engineering & Construction
E&C industry update; Q4 previews for SNC, STN, WSP, ARE, SOX, CAM
!
Chart of the week: Performance of Gold Equities, A Period of Seasonal Weakness
Summary
Dynamics
Precious Metals & Minerals Weekly Summary
Valuation Tables
Semiconductor Capital Equipment Summary
!
! Telecom Half Time Analysis
Summary
Takeaways from day 1 of Advanced Lithography Conference
Hey big spenders...
Find our Research at:
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FactSet (www.factset.com)
4
Ratings Revisions
Morguard REIT(TSX: MRT.UN; 18.39)
Michael Smith, CFA (Analyst)
(416) 842-7805; [email protected]
Matt Logan (Associate)
416 842 3770; [email protected]
Ben Halm, CPA, CA (Associate)
416 842 8720; [email protected]
Neil Downey, CFA, CA (Analyst)
(416) 842-7835; [email protected]
52 WEEKS
Rating:
Price Target:
Sector Perform (prev: Outperform)
19.00 ▼ 20.00
A more challenging year ahead
21FEB14 - 09FEB15
19.00
18.50
18.00
Morguard reported largely in-line Q4 results. Looking forward, the REIT's Target
exposure appears challenging, but should be manageable, given low rents and
lease guarantees. On the call, management appeared upbeat suggesting there was
good interest in the space. Still, we see a tougher year ahead given above-average
exposure to Target, Sears and Western Canada. We're moving to SP and trimming
our TP to $19.
17.50
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FFO/Unit Prev.
1.55
1.67↑
1.65
1.72↓
1.73
1.78↓
1.80
2013A
2014A
2015E
2016E
All values in CAD unless otherwise noted.
• Q4/14 results in-line ex-items – FFO per unit of $0.44 increased ~4% in Q4,
coming in ahead of our $0.42 estimate and Street at $0.41. Included in NOI was
lease cancellation income totalling $0.9 million or ~$0.01 per unit. Excluding this
income, FFO per unit was broadly in line with our estimate.
• Target re-tenanting will likely prove challenging, but manageable, given low
rents and lease guarantees from its U.S. parent – Given that Morguard's Target
locations largely consist of enclosed malls in secondary markets, we believe
the re-tenanting process may prove challenging – particularly for multi-level
locations and where Sears is a co-anchor. That said, early indications are
promising as management indicated on the call that it has seen interest in all
seven Target locations on a break-up basis. In total, Target accounts for 2.3% of
the REIT's annualized gross rent or ~$0.10 per unit. All leases but one carry a
rental guarantee from the retailer's U.S. parent, with the exception being Pine
Centre Mall in Prince George, B.C., representing ~0.4% of annualized gross rent
(~$0.02 per unit). For a detailed look at Morguard's Target exposure, please see
page four of our note.
Timmins Gold Corp.(TSX: TMM; 1.04; NYSE: TGD)
Sam Crittenden, P.Eng., CFA (Analyst)
(416) 842-7886; [email protected]
52 WEEKS
21FEB14 - 09FEB15
2.00
Rating:
Price Target:
Sector Perform (prev: Outperform)
1.50 ▼ 2.25
Downgrading to Sector Perform as production growth profile brings added risk
1.80
Timmins has the potential to grow production to over 300koz from 120koz
following recent acquisitions and is trading at a discount to NAV. However, it
could be 2–3 years before this growth can be demonstrated and we expect the
shares to trade inline with peers in the near term.
1.60
1.40
1.20
1.00
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EPS, Adj Diluted Prev.
2013A
0.21
2014E
0.06
2015E
0.03↓
0.07
2016E
0.01↓
0.04
P/E
4.0x
14.4x
26.4x
All market data in CAD; all financial data in USD; dividends paid in
CAD.
• Significant growth profile brings added risks: Timmins has the potential to grow
annual gold production to over 300koz from 120koz over the next 3–4 years
with capex of less than $300MM following the 2 recent acquisitions. However,
this brings execution, financing and permitting risk. Additionally, the recently
acquired Ana Paula project is located in the Guerrero state which has faced recent
issues with violence.
• Production growth 2–3 years out: Timmins is trading at 0.6x NAV compared to
Tier III peers at 0.8x NAV; however, this discount could persist until production
growth can be demonstrated which could be 2–3 years from now.
Price Target Revisions
Stephen D. Walker (Analyst)
(416) 842-4120; [email protected]
Jamie Kasprowicz, P.Eng., CFA (Analyst)
Barrick Gold Corp.(NYSE: ABX; 12.71; TSX: ABX)
Rating:
Sector Perform
5
Price Target:
(416) 842-8934; [email protected]
Mark Mihaljevic (Associate)
(416) 842-3804; [email protected]
Elizabeth Gao (Associate)
(416) 842-8934; [email protected]
15.00 ▲ 14.00
Asset Sales Can Improve the Balance Sheet, with a Mixed Impact on Valuation
52 WEEKS
21FEB14 - 09FEB15
20.00
18.00
Barrick is looking to reduce total debt by $3.0B to $10.1B by the end of 2015. The
sale of two mines producing 790koz of gold could generate $1.4B to pay down
debt, although the loss of the optionality associated with operating leverage would
reduce our price target. However, the sale of the Acacia equity stake or asset swaps
could generate a positive re-rating.
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2013A
2.53
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0.68↑
0.67
2015E
0.72↓
0.74
2016E
1.02↓
1.24
D
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P/E
5.0x
18.7x
17.8x
12.4x
• The strategy to generate $3B to reduce debt could involve a combination of:
(1) divestment of operating mines; (2) 2015 operating improvements that could
generate cash flow of $481MM at $1,200/oz gold; (3) pursuing joint ventures and
strategic partnerships; and (4) issuing new equity, albeit a low possibility at this
point. The stated asset sales and our estimated free cash flow could result in an
estimated $1.9B in debt reduction.
• Selling operating mines with optionality associated with operating leverage/
exploration to pay down debt recorded at face value would have a negative
impact on our price target. We would argue that it would make more sense
to sell the entire Acacia stake (circa $1.1B) which we carry at market value
with no material change in valuation for the company and reduce associated
management time.
All values in USD unless otherwise noted.
Capital Power Corporation(TSX: CPX; 24.06)
Robert Kwan, CFA (Analyst)
(604) 257-7611; [email protected]
Kelsey Roste (Associate)
(604) 257-7383; [email protected]
Rating:
Price Target:
52 WEEKS
21FEB14 - 09FEB15
Sector Perform
26.00 ▼ 28.00
Getting paid to wait out the AB power storm, but it might be a long storm
Investors looking to clip what is likely to be a growing dividend stream while
waiting for an Alberta power recovery should consider CPX's shares, as we
see limited downside risk in the business itself (i.e., decent balance sheet
and dividend coverage). However, we have trouble seeing what factors could
meaningfully increase Alberta power prices on a sustainable basis.
28.00
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2016E
All values in CAD unless otherwise noted.
Fraser Phillips, P.Eng. (Analyst)
(416) 842-7859; [email protected]
Thomas Klein (Associate)
F
• Q4/14 results weaker than expected. Capital Power’s Q4/14 normalized EPS
(diluted) was $0.18 as compared to our estimate of $0.36. On a basic basis,
normalized EPS was $0.20 in Q4/14. Normalized EBITDA for the quarter was $104
million compared to our estimate of $109 million with the variance also driven
by modestly higher-than-expected interest, depreciation and tax expense.
• Guidance for 2015 directionally reduced; revising estimates to reflect lower
power price environment. Capital Power maintained its 2015 FFO guidance
range of $365–415 million, but due to low power prices it directionally guided to
the "lower end" of that range. We have reduced our 2015 and 2016 EPS estimates
to $1.13 and $0.92 (from $1.25 and $1.35), respectively.
• We have trouble seeing what factors could meaningfully increase Alberta
power prices on a sustainable basis in the next two years. With year-to-date
power prices averaging $33/MWh and forward prices on the NGX site averaging
$36/MWh (2015 balance of year) and $39/MWh (2016), the Alberta power
outlook seems awfully challenging. In 2015, the 800 MW Shepard gas plant has
not meaningfully dispatched any power yet, although it appears set to do so in
the next two weeks.
• Reducing price target to $26.00 (from $28.00). Our lower price target is driven by
our reduced 2016 EBITDA forecast, partially offset by a slightly higher valuation
multiple at 10x EBITDA, reflecting our view that the share price is likely to be
propped up by the above-average dividend yield and expected dividend growth.
Nevsun Resources Ltd.(TSX: NSU; 4.54)
Rating:
Sector Perform
6
Risk Qualifier: Speculative Risk
Price Target: 5.00 ▼ 5.30
(416) 842-5339; [email protected]
Wen Tian, CFA (Associate)
(416) 842-4126; [email protected]
Steve Bristo, CFA (Associate)
(416) 842-7826; [email protected]
Correction: Q4/14 Preview: Expect a slightly weaker quarter
52 WEEKS
21FEB14 - 09FEB15
5.10
We forecast Q4/14 EPS of $0.11, slightly below consensus of $0.14. The QoQ
decline in earnings is mostly driven by lower commodity prices and lower copper
production. Nevsun intends to disclose updated reserves in its year end release.
4.80
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EPS, Adj Diluted Prev.
2013A
0.06
2014E
0.46↓
0.49
2015E
0.32↓
0.52
2016E
0.20
All market data in CAD; all financial data in USD.
• Q4 earnings expect to decline slightly: We forecast Q4/14 EPS of $0.11, down
from $0.13 in Q3/14, and slightly below consensus of $0.14. We also forecast
Q4/14 CFPS of $0.22, down from $0.29 in Q3/14 and below consensus of $0.26.
The sequential decline in earnings is mostly driven by lower commodity prices
and lower quarterly production.
• Production guidance in 2015: Nevsun previously released its Q4/14 production
results and 2015 guidance. Bisha produced 196Mlbs of copper in concentrate in
2014, at the high end of the company's 180-200Mlbs guidance. The company
has guided 160-175Mlbs copper production in 2015, in-line with the 170Mlbs
presented in the most recent technical report. Throughput is expected to
improve in 2015 as copper grades continue to decline.
• Operational updates expected in the near term: Nevsun intends to release
updated mineral reserves with its year end financial results, following the
resource update released in February 2015, where inferred resources increased
by 341%. The company plans to spend $10M in 2015 to drill 25,000 meters
in three main areas - Harena, targets at depth and on strike from Bisha
Main, and greenfield targets on the Mogoraib River license. Scoping studies on
underground mining at Bisha and Harena are planned in 2015, and a revised
mine plan including underground scenarios is expected for Q3/15. Nevsun has
also stated that the zinc plant is on track for commissioning in mid-2016 and has
maintained the $90M budget.
First Glance Notes
PrairieSky Royalty Ltd.(TSX: PSK; 29.07)
Shailender Randhawa, CFA (Analyst)
(403) 299-6576; [email protected]
Keith Mackey, CFA (Associate)
403 299 6958; [email protected]
38 WEEKS
Rating:
Sector Perform
First glance - Q4/14 marked by one-time gains, maintaining dividend
30MAY14 - 09FEB15
Q4/14 results marked by one-time gains
40.00
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• PrairieSky Royalty reported headline CFPS (f.d.) of $0.44 (-17% QoQ). Adjusted
for prior period compliance of $0.03/share, CFPS of $0.41 compared to our
$0.32 estimate vs Street consensus of $0.36 (range $0.32-$0.40) mostly on lower
transaction costs and taxes.
• Thoughts on the stock. We continue to see PrairieSky primarily as a defensive
option vs dividend-paying E&P's due its perpetual resource exposure over 5.2
million acres of fee simple lands, clean balance sheet, and unique commodity
price leverage unburdened by future costs (opex, capex, abandonment). We look
for more color on tomorrow's 8:00 am ET conference call, dial-in 877-291-4570
or 647-788-4919.
All values in CAD unless otherwise noted.
Dan Rollins, CFA (Analyst)
(416) 842-9893; [email protected]
Mark Mihaljevic (Associate)
(416) 842-3804; [email protected]
Primero Mining Corp.(NYSE: PPP; 3.18; TSX: P)
Rating:
Outperform
Exploration update highlights potential of Black Fox
We expect Primero's shares to outperform peers when markets open this morning
given the positive exploration update at Black Fox including the expansion of nearinfrastructure mineralization, discovery of new near-surface targets, and further
indications of longer-term upside at depth.
7
52 WEEKS
21FEB14 - 09FEB15
High-grade corridor yields solid results
8.00
7.00
• Following up on prior exploration success at depth, Primero continued to test the
depth extensions at Black Fox, expanding known mineralization down to 800 m
(relative to the current reserves which extend down to ~500 m). With the newly
completed exploration drift at the 520 m level, we expect Primero to continue to
deliver positive exploration results at depth.
Improving near-term flexibility in the underground
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• With a significant delineation drilling program near existing infrastructure and
focus on underground development to add additional stopes to its mining
inventory, we expect Primero's flexibility in the underground to improve over the
coming quarters as the company targets underground throughput of 1,000 tpd
by mid-2015.
Looking to fill excess mill capacity
• Primero also announced the discovery of two new near-surface targets at Black
Fox (Tamarack and Froome) and continued exploration success from the nearby
Grey Fox property (Exhibit 2) which could eventually be developed to help fill
excess capacity in the Black Fox mill once the current open-pit is depleted later
this year.
Earnings Preview
Encana Corporation(NYSE: ECA; 13.18; TSX: ECA)
Greg Pardy, CFA (Analyst)
(416) 842-7848; [email protected]
Franz Hargo Muljo, CA (Associate)
416 842 8588; [email protected]
Rating:
Price Target:
52 WEEKS
21FEB14 - 09FEB15
24.00
22.00
Outperform
17.00
Weathering the Storm
In our minds, Encana Corporation’s repositioning efforts over the course of 2014
have transformed its portfolio around four leading plays – the Montney, Permian,
Eagle Ford and Duvernay, which support a fairway of higher margin oil and natural
gas growth over the foreseeable future.
20.00
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EPS, Ops Diluted
2013A
1.09
2014E
1.38
2015E
(1.03)
2016E
0.73
All values in USD unless otherwise noted.
D
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J
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P/E
12.1x
9.6x
NM
18.1x
F
• Encana’s portfolio is much better equipped today to support lower cost growth
than it was a year ago. That said, in response to the sharp retreat in WTI prices,
Encana is likely to undertake measured steps to protect its balance sheet.
• Potential Capital Spending Cut. In connection with the release of its fourthquarter results, Encana is likely to announce a reduced 2015 capital program. As
it stands, Encana’s 2015 mid-point investment program sits at $2.8 billion, prior
to estimated disposition proceeds of $800 million, or $2.0 billion on a net basis.
The Montney, Permian, Eagle Ford and Duvernay occupy about 80% of Encana’s
investment this year. Encana’s signal in December that it planned to add no
incremental debt during 2015 would point towards a circa $725 million (26%) cut
by our analysis, assuming no further asset dispositions. This move could reshape
Encana’s oil & liquids production growth outlook pending improved commodity
price conditions.
• Ample Liquidity. Encana’s average net debt-to-trailing cash flow ratio sits at
4.9x (vs. 3.6x average for our North American peer group excluding Talisman
Energy) in 2015, and should fall to 2.8x in 2016 under our $77/b WTI outlook
and 4% production growth picture. Encana possesses ample liquidity, with a
debt-to-adjusted capitalization covenant on its credit facility agreements of 60%
(Encana’s debt-to-adjusted capitalization ratio was 26% as of September 30,
2014). Encana’s common share dividend of $0.28 per share would equate to a
modest annual outlay of $208 million (before DRIP proceeds).
Company Comments
Michael Harvey, P.Eng. (Analyst)
8
Kelt Exploration Ltd.(TSX: KEL; 7.74)
403 299 6998; [email protected]
Luke Davis (Associate)
403 299 5042; [email protected]
52 WEEKS
21FEB14 - 09FEB15
14.00
Rating:
Price Target:
Outperform
11.00
Acquisition of Artek consolidates NE BC holdings
Kelt announced plans to acquire Artek Exploration (TSX: RTK - Not covered), a
producer that has been Kelt's partner in the Inga/Fireweed area of North East
BC since inception. The deal makes sense in our opinion, as it is accretive on
key metrics and further consolidates Montney/Doig potential at Inga/Fireweed.
Reiterating Outperform.
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Oil (bbl/d) Prev.
963
4,379
8,238↑
6,414
10,268↑
7,821
2013A
2014E
2015E
2016E
All values in CAD unless otherwise noted.
Regal Lifestyle Communities Inc.(TSX: RLC; 8.93)
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
• Artek acquisition consolidates Inga/Fireweed footprint. Kelt plans to acquire
Artek Exploration (its partner in the Inga/Fireweed region) for a total
consideration of $307mm with a targeted closing date of April 16. Kelt will issue
26.9mm shares and will assume $89.5mm in debt to complete the deal, which
will bring Kelt's ownership of regional producing assets and related infrastructure
to nearly 100%.
• Accretive on all key metrics. The transaction rounds out Kelt's footprint in the
area, adding 5,400 boe/d of production (60% gas), 202,967 net undeveloped
acres of land and 46.4 mmboe of 2P reserves. Pro forma corporate production
will increase 35% to roughly 21,000 boe/d. Transaction metrics of roughly
$56,850/boe/d and $12.89/boe (including FDC) are attractive in our view when
compared to recent (albeit few) transactions. Furthermore, the deal is accretive
to our estimates of cash flow per share (+13%) and production per share (+5%).
• Montney and Doig inventory expanded. Kelt will add 85 net Montney sections
and 91 net Doig sections to its portfolio, bringing the total Montney land in the
area to 151 net sections and Doig land to 132 net sections. At four wells per
section, this maps to >700 additional locations.
Rating:
Price Target:
Sector Perform
9.00
Reaching stabilization & working towards growth
21FEB14 - 09FEB15
9.00
8.70
Regal reported Q4/14 results modestly below our expectations. Overall, the
business is beginning to normalize, with stable occupancy and projected rental
growth of 2%-3% according to management. Going forward, Regal has identified
preliminary intensification opportunities with upwards of 500 suites. In the interim,
management is reinvesting in its portfolio with increased capex spending.
8.40
8.10
7.80
7.50
800
600
400
200
F
M
A
Close
M
J
J
2014
A
S
O
N
D
2015
J
Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
FFO/Sh, Rpt Diluted Prev.
P/Rpt FFO
2013A
0.56
15.9x
2014A
0.75↓
0.77
11.9x
2015E
0.81↓
0.84
11.0x
2016E
0.85↓
0.89
10.5x
All values in CAD unless otherwise noted.
F
• AFFO/share comes in $0.02 short in Q4/14; Targeting margin improvement in
2015 – AFFO per share of $0.17 increased 1.8% YoY in Q4, coming in modestly
short of our estimate largely due to an unfavourable variance in NOI which was
partially offset by a favourable variance in interest expense.
• SP-NOI growth of 3.1% is beginning to normalize – In our view, the portfolio
is reaching stabilization, following lease-up over the course of 2014. We note
that total portfolio occupancy of 95.5% now stands largely in-line with sameproperty occupancy of 95.6%. In general, we are pleased to see SP-NOI growth
of 3.1% and note that same-property revenue growth of 3.7% is approaching
guidance of 2%-3% annually. In addition, the lease up of Birkdale Place in Milton,
ON continues to progress well, with a 2.1% sequential increase in occupancy to
84.6%.
• Capex spending running above normalized guidance – Maintenance capex
spending increased in Q4 and totalled $2.3 million or $632 per suite, largely due
to life safety programs and related spending. Management notes that spending
on items such as roofing were previously identified but accelerated due to timing
and that additional items were identified during the course of planned repairs.
9
This brings the 2014 total to $2.9 million or 2.8% of revenue (~$888/suite),
coming in above guidance of 1.5%-2.0%.
Industry Comments
RBCCM Global Research
(416) 842-7800; [email protected]
2015 Healthcare Conference Preview
Adnan Butt (Analyst)
(415) 633-8588; [email protected]
• The RBC Capital Markets’ Healthcare Conference will be held February 24–25
in New York City. This year, we will host senior management from more than
100 companies, over 1,500 management one-on-one discussions, and 10 expert
panels. This year’s panels will cover a range of timely and critical issues presently
impacting the Healthcare sector, from the Emerging Consumer Dynamic in
Healthcare to Hospital Purchasing Trends to Generic Drug Pricing to the Future
of Robotic Surgery and Emerging Treatments in the Oncology space.
• In this report, the RBC Capital Markets’ Research Healthcare Team has identified
key themes we expect investors to be focused on at the conference this week
across the Biotech, Medical Devices, Specialty Pharmaceuticals, Healthcare
Services, Healthcare IT, and Pharmaceutical Distributor sectors. Furthermore,
the Team has provided central investor questions for each of their presenting
management teams. Finally, our Chief US Market Strategist, Jonathan Golub,
has provided a macro overview of the Healthcare space which supports his
overweight position on the sector.
• For your convenience, we have also included the full two-day Conference agenda.
We hope you find the report helpful and, as always, encourage you to reach out
to the Healthcare Team for further discussion regarding their investment ideas.
David Francis (Analyst)
615 372 1337; [email protected]
Douglas Miehm (Analyst)
(416) 842-7823; [email protected]
Frank G. Morgan, CFA (Analyst)
(615) 372-1331; [email protected]
Glenn Novarro (Analyst)
(212) 428-6411; [email protected]
Simos Simeonidis, Ph.D. (Analyst)
212 437 9293; [email protected]
Randall Stanicky, CFA (Analyst)
212 618 3266; [email protected]
Michael J. Yee (Analyst)
(415) 633-8522; [email protected]
Robert Kwan, CFA (Analyst)
(604) 257-7611; [email protected]
Nelson Ng, CFA (Analyst)
(604) 257-7617; [email protected]
Bringing Key Themes and Topics into Focus
Energy Infrastructure Weekly Stats
Valuation tables, power price and frac spread data, relative price performance, and
ex-dividend dates.
Kelsey Roste (Associate)
(604) 257-7383; [email protected]
Michelle Zuliani (Associate)
604 257 7064; [email protected]
Melissa Oliphant (Associate)
604 665 5534; [email protected]
Sara O'Brien, CFA, CA (Analyst)
(514) 878-7256; [email protected]
Engineering & Construction Dynamics
Juliane Szeto (Associate)
(416) 842-3806; [email protected]
• Large projects drive Canadian public infrastructure growth balancing
challenges on private side. We note there are several large upcoming awards
in Canada for 2015/2016. (Champlain Bridge, Eglinton LRT in Q2 2015). We
note these larger, more complex Canadian infrastructure projects represent an
increasing dollar opportunity.
• See US non-residential construction up with continued growth ahead. We
believe STN, WSP and CAM will benefit from continued moderate strengthening
of US non-residential investment in 2015.
• Focus for Q4: Outlooks for 2015 with weaker commodities, weak CAD FX impact
to acquisition pace. For SNC, we expect investors will look to core E&C guidance
for F15 as well as for clarity on impact of criminal charges laid on corporation last
week. With larger exposure to oil & gas we expect focus re SNC, ARE, STN and
SOX will be on impact of lower crude pricing on organic growth and margin in
2015 as well as potential backlog hit re F16. We expect an updated outlook and
target guidance for WSP post its PB acquisition. For CAM, we look for evidence
of operating leverage into F15 from recovering US market volumes and ability to
leverage lower cost CAD base for US orders.
All values in CAD unless otherwise noted.
E&C industry update; Q4 previews for SNC, STN, WSP, ARE, SOX, CAM
10
• Our take in Q4: In line quarters for STN, CAM, above for WSP and below for
SNC, ARE, and SOX relative to Street.
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, excluding Cenovus Energy, our large cap
independent and integrated coverage universe is currently discounting a longterm escalated WTI equivalent (WTIE) price of US$76/boe (vs. US$77/boe), down
1% from last week, and a long-term WTI price of US$91/b (vs. US$92/b), also
down 1% 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$45/boe) were down 9% from last week.
Long-dated (2015–2018) WTIE prices of US$54/boe (vs. US$55/boe) were down
2% 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]
Stephen D. Walker (Analyst)
(416) 842-4120; [email protected]
Dan Rollins, CFA (Analyst)
(416) 842-9893; [email protected]
Jamie Kasprowicz, P.Eng., CFA (Analyst)
(416) 842-8934; [email protected]
Sam Crittenden, P.Eng., CFA (Analyst)
(416) 842-7886; [email protected]
Paul Hissey (Analyst)
+61 3 8688 6512; [email protected]
Mark Mihaljevic (Associate)
(416) 842-3804; [email protected]
Jonathan Guy (Analyst)
+44 20 7653 4603; [email protected]
Cameron Klutke (Associate)
+61 3 8688 6551; [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.
Precious Metals & Minerals Weekly Valuation Tables
Chart of the week: Performance of Gold Equities, A Period of Seasonal
Weakness
• This week we highlight the first quarter relative performance of gold and gold
equities over the past 3 years and average since the conception of GDX in 2006.
• In 2015 and 2014 the equities outpaced gold to start the year and in 2014 the gold
equities sold off in the second week of March and subsequently gave up much
of the 30-40% performance achieved in the first 10 weeks of the year (Exhibit 1,
Top). We remain cautious on gold equities as we enter a seasonally weak period.
• Weaker seasonality trends following the Lunar New Year (Exhibit 1, bottom)
coupled with likely US interest rate hikes in mid-year are expected to put
downward pressure on gold prices. Assuming US rate rises happen at the end of
Q2, we believe that this could be the low watermark for the year in a $1,150 to
$1,175/oz range. We then expect firmer prices in H2/15 underpinned by rising
inflation expectations as global growth picks up and Indian wedding and yearend holiday buying.
Timothy Huff (Analyst)
+44 20 7653 4866; [email protected]
Ioannis Masvoulas, CFA (Analyst)
+44 20 7653 4647; [email protected]
Richard Hatch, ACA (Analyst)
+44 20 7002 2111; [email protected]
All values in USD unless otherwise noted.
Michael Harvey, P.Eng. (Analyst)
RBC Canadian Energy
11
403 299 6998; [email protected]
Junior/Intermediate E&P: Weekly Review and Valuation Tables
Mark J. Friesen, CFA (Analyst)
(403) 299-2389; [email protected]
News Items Last Week
Luke Davis (Associate)
403 299 5042; [email protected]
Shailender Randhawa, CFA (Analyst)
(403) 299-6576; [email protected]
Keith Mackey, CFA (Associate)
403 299 6958; [email protected]
• Regional Developments – Is the Trend Your Friend? We have examined yearover-year well results for key plays within our Canadian Junior/Intermediate
producer group to gauge performance trends. While a directional indicator only
(timing/disclosure can affect well counts & data) this analysis can help identify
underlying improvements/degradation, with changes in well performance
eventually expected to be reflected in producer specific capital efficiency metrics.
See our note here.
Al Stanton (Analyst)
+44 131 222 3638; [email protected]
RBC International E&P Daily
Nathan Piper (Analyst)
+44 131 222 3649; [email protected]
CIE: Benefits of Long-Cycle Development; AOI.TO: Closes $125m private placement;
KOS: Reserves upgrade and earnings beat, CB-1 still to conclude; BNK.TO: $16.5m
settlement with BP; Interesting wells - Onshore Mozambique; What The Bigger
Guys Are saying - BHP (H1/15 results to end Dec 14); EC: Announces 146%
reserve replacement, mainly from revisions; VRY.V: Appoints Dr. Richard Hubbard
as President
Victoria McCulloch, CA (Analyst)
+44 131 222 4909; [email protected]
Haydn Rodgers, CA (Associate)
+44 131 222 4911; [email protected]
CIE; AOI; KOS; BNK
Adam Naughton (Associate)
+441312223695; [email protected]
All values in USD unless otherwise noted.
Mahesh Sanganeria, CFA (Analyst)
(415) 633-8550; [email protected]
Semiconductor Capital Equipment
Shawn Yuan (Associate)
415 633 8565; [email protected]
• TSMC reported impressive daily operation data on 40W source power and one
week worth of data on 80W upgraded source power.
• While the source power and ecosystem are far away from HVM readiness, we
note that this is the most significant progress reported on EUV source in over a
decade.
• While EUV, when available for HVM, might provide much needed relief for the
industry, we note that scaling performance beyond 10nm will require a lot more
than dimensional scaling.
All values in USD unless otherwise noted.
Takeaways from day 1 of Advanced Lithography Conference
Timothy Huff (Analyst)
+44 20 7653 4866; [email protected]
Steel: January global output at 133.1mt, utilisation falls to 72.5%
Ioannis Masvoulas, CFA (Analyst)
+44 20 7653 4647; [email protected]
• The World Steel Association (WSA) has announced January 2015 global steel
output at 133.1mt, slightly down from 133.7mt in December.
• On a daily production rate basis, January steel output was down ~3% yoy to
4.29mt/day, mainly due to weaker output in China.
• Global capacity utilisation stood at 72.5% in January 2015, down significantly
from 76.9% in January 2014.
• Chinese production down: China's steel production came in at 65.5mt in January
2015, or 2.11mt/day on a daily rate basis. The daily production rate was down
3.8% mom and down 4.7% yoy. The step back in China's January production rate
accounts for 80-85% of the decline in monthly global output on a year-on-year
basis.
• European production recovers from December low: Europe's steel production
came in at 17.2mt or 0.56mt/day in January 2015. The daily production rate was
up 12.2% mom (seasonally weaker output in December) and down 2.5% yoy. The
key countries of Germany (0.12mt/d), Italy (0.06mt/d), France (0.04mt/d) and
Spain (0.04mt/d) accounted for 47% of total European output.
• South American production up on Brazil's output: South America's steel
production came in at 3.9mt or 0.13mt/day in January 2015. The daily rate was
up 8.1% sequentially, and up 6.8% yoy on stronger output in Brazil.
All values in USD unless otherwise noted.
January run-rate down 3% yoy
12
13
Required disclosures
Non-U.S. analyst disclosure
Greg Pardy;Franz Hargo Muljo;Michael Harvey;Luke Davis;Robert Kwan;Kelsey Roste;Stephen D. Walker;Jamie Kasprowicz;Mark
Mihaljevic;Elizabeth Gao;Fraser Phillips;Thomas Klein;Wen Tian;Steve Bristo;Michael Smith;Matt Logan;Neil Downey;Ben
Halm;Shailender Randhawa;Keith Mackey;Dan Rollins;Al Stanton;Nathan Piper;Victoria McCulloch;Haydn Rodgers;Adam
Naughton;Sara O'Brien;Juliane Szeto;Sam Crittenden;Paul Hissey;Jonathan Guy;Cameron Klutke;Timothy Huff;Ioannis
Masvoulas;Richard Hatch;Nelson Ng;Michelle Zuliani;Melissa Oliphant;Paul C. Quinn;Hamir Patel;Mark J. Friesen;Douglas Miehm
(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
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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
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16