1. business and industrial

EQUITY RESEARCH
CANADIAN RESEARCH AT A GLANCE
March 12, 2015
Price Target Revisions
! Eldorado Gold Corporation
! IAMGOLD Corporation
! New Gold Inc.
! NorthWest Healthcare Properties
! Quebecor Inc.
Summary
Lowered price target reflects elevated risk
Summary
Price target lowered on back of revised estimates
Summary
In the midst of a key transition phase
Summary
Going global via proposed merger with NWI
Summary
Bolstering an Already Strong Competitive Position in Quebec
Summary
A messy Q4/14 but core telecom results look largely in line with expectations
Summary
2014 Financial results and guidance in line with pre-release of operating results
Summary
First Glance: Strong Q4/14 results
Summary
Notes from road
Summary
Q4/14 in-line. Awaiting initial customers in wood composites
Summary
Well positioned within current price environment
Summary
Opportunity intact, more conservative tone
Summary
Full speed ahead
Summary
Historical Data and Trends
Summary
SOCO; SLG; OXC; AOI
First Glance Notes
! Quebecor Inc.
! Tahoe Resources Inc.
! Tricon Capital Group Inc.
Company Comments
! Cardinal Energy Ltd.
! EcoSynthetix Inc.
! Osisko Gold Royalties Ltd.
! Redknee Solutions Inc.
! Seven Generations Energy Ltd.
Industry Comments
! Canadian Bank Chart Book
! RBC International E&P Daily
Priced as of prior day's market close, EST (unless otherwise noted).
For Required Non-U.S. Analyst and Conflicts Disclosures, see Page 13.
EQUITY RESEARCH
U.S. RESEARCH AT A GLANCE
March 12, 2015
Price Target Revisions
! Bright Horizons Family Solutions
! E.I. du Pont de Nemours & Co.
! Eldorado Gold Corporation
! Genesis Healthcare, Inc.
! IAMGOLD Corporation
! LHC Group Inc.
! Memorial Resource Development
Summary
Tweaking estimates for FX and 10-K; Raise PT to $53; Outperform
Summary
Trimming Estimates on Increased Q1 Headwinds
Summary
Lowered price target reflects elevated risk
Summary
Despite 4Q14 miss, management's action makes FY15 guidance achievable
Summary
Price target lowered on back of revised estimates
Summary
Acquisitions and cost efficiency offset slow organic growth; expect more M&A activity
Summary
Latest LA Cotton Valley Step-Out Well Disappoints; Strong Growth Story Still Intact
!
! Omnicare, Inc.
! Stericycle, Inc.
Summary
In the midst of a key transition phase
Summary
Solid 4Q14 on another quarter of strong Specialty top line and cost containment
Summary
Tweaking estimates for FX and 10-K updates; PT to $131
Summary
2015 Capital Plan Conditionally Approved
Summary
NDR highlights a cautious approach in a fast paced investment environment
Summary
2014 Financial results and guidance in line with pre-release of operating results
Summary
2015 Capital Plan Highlighted by 7% Dividend Increase
Summary
2015 Capital Plan Approved With A Dividend Hike
Summary
Cost reductions in place; now need to figure out growth
Summary
Consistent CCAR results: dividend increase and $393 million buyback.
Summary
CCAR Results – Buyback amount acceptable. Vantiv gains continue to be additive
Summary
4Q14 Results Beat Estimates - Remain Positive on Strong Fundamentals and Value
Summary
Tweaking estimates for FX and 10-K; maintaining Sector Perform and $83 price target
Summary
GE as a Technology Play; Analyst Meeting Takeaways
Summary
Capital plan includes dividend increase and up to $366 million in share repurchases
Summary
Management Meeting Update
Summary
Pure play on commercial recovery
Summary
10-K Disclosures Help Connect Retrans Dots
Summary
CCAR results met our expectation; dividend to $0.255; $3.022 billion repurchase
Summary
No rope-a-dope necessary - Thoughts post management meetings
Summary
At least EYEGUARD-B should read out in 2015 but is it enough for BLA?
Summary
2015 Outlook Refresh
Corp.
New Gold Inc.
First Glance Notes
! Bank of America Corp.
! LTC Properties, Inc.
! Tahoe Resources Inc.
! Wells Fargo & Co.
! Zions Bancorporation
Company Comments
! Amedisys, Inc.
! Comerica Incorporated
! Fifth Third Bancorp
! FLY Leasing Ltd.
! Gartner, Inc.
! General Electric Company
! Huntington Bancshares Inc.
! Masco Corporation
! NCI Building Systems Inc.
! Sinclair Broadcast Group, Inc.
! U.S. Bancorp
! Visa Inc.
! XOMA Corporation
Industry Comments
! HPC, Beverages and Tobacco
2
EQUITY RESEARCH
! HPC, Beverages and Tobacco
! RBC European Industrials Daily
! RBC International E&P Daily
Summary
Are today's consumer staples valuations sustainable?
Summary
Alstom/Siemens rail comments, Fenner warns
Summary
SOCO; SLG; OXC; AOI
Investment Strategy Research
! Staples to Remain Expensive
Summary
3
EQUITY RESEARCH
UK & European Research at a Glance
March 12, 2015
In-Depth Reports
! 2015 RBC Capital Markets’ Financial
Summary
Updates from Day 2
Institutions Conference
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
Price Target Revisions
Eldorado Gold Corporation(NYSE: EGO; 4.73; TSX: ELD)
Dan Rollins, CFA (Analyst)
(416) 842-9893; [email protected]
Mark Mihaljevic (Associate)
(416) 842-3804; [email protected]
52 WEEKS
Rating:
Price Target:
14MAR14 - 06MAR15
Outperform
6.50 ▼ 7.50
Lowered price target reflects elevated risk
Given Eldorado's underlying fundamentals in the context of its current valuation,
we believe it is well positioned to outperform its peers once uncertainty around
its Greek build-out abates. Although the level of risk associated with Skouries
remains elevated, we expect, in the end, reason will prevail and the project will
move forward.
8.00
7.00
6.00
5.00
60000
40000
20000
M
A
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J
J
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2014
A
S
O
N
D
Rel. S&P 500
J
2015
F
M
MA 40 weeks
EPS, Adj Diluted Prev.
2014A
0.20↓
0.21
2015E
0.04↑
0.02
2016E
0.20↓
0.23
2017E
0.51
P/E
23.2x
23.2x
9.4x
All values in USD unless otherwise noted.
IAMGOLD Corporation(NYSE: IAG; 1.94; TSX: IMG)
Dan Rollins, CFA (Analyst)
(416) 842-9893; [email protected]
Mark Mihaljevic (Associate)
(416) 842-3804; [email protected]
52 WEEKS
• Risk and uncertainty around Skouries remains elevated. Although the recently
elected Syriza Party has been vocal about its opposition towards Skouries, a
decision by the newly formed Government of Greece revoking the approval
required to complete final construction of the processing plant at Skouries has, in
our view, elevated the risk around the project, and potentially Olympias as well.
• Increased taxes/royalties most likely outcome in our view. With Greece's
top court having upheld the validity of Skouries on three occasions, we view
ongoing rhetoric and action as political gamesmanship. Although further political
interference cannot be ruled out, we believe the most likely outcome is for higher
taxes/royalties.
• Skouries/Olympias expected to drive a fundamental re-rating. The
development of Skouries and Olympias II are expected to have a meaningful
impact on Eldorado's free cash flow potential starting in 2016/17. Assuming the
projects move forward as envisioned, attributable gold production is forecast to
increase to 909 Koz in 2018 from 629 Koz in 2015, implying a 3-year CAGR of
13%. Given the benefit of strong by-product credits, sustaining cash flow at spot
metal prices/currencies is expected to climb to $0.57/sh from $0.04/sh over the
same period.
• Outperform rating maintained; Price target lowered to $6.50. Given Eldorado's
underlying fundamentals in the context of the company's valuation, we maintain
our Outperform rating. However, should the political attitude towards Skouries
deteriorate further, we would likely need to re-examine our current investment
thesis.
Rating:
Price Target:
14MAR14 - 06MAR15
4.00
3.50
Sector Perform
2.75 ▼ 3.50
Price target lowered on back of revised estimates
We have lowered our price target on IAMGOLD to $2.75 from $3.50 following
year-end update and recent investor day. With elevated all-in sustaining costs and
challenged production profile, we see little upside within the company's share price
beyond higher gold prices.
3.00
2.50
2.00
1.50
100000
50000
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2014
A
S
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Rel. S&P 500
EPS, Adj Diluted Prev.
2014A
0.09↑
0.06
2015E
(0.14)↓
(0.11)
2016E
(0.01)↑
(0.05)
2017E
0.09
D
J
2015
F
MA 40 weeks
P/E
21.8x
20.7x
M
• Near-term outlook lowered to better reflect 5-year outlook. We have modestly
reduced our production and cost assumptions to better reflect the operational
outlook provided during the company's recent investor day. Through 2017, we
now forecast average annual attributable production of 818 Koz at an all-in
sustaining cash cost of $1,162/oz versus our previous forecast of 833 Koz at
$1,150/oz. Our updated forecasts assume a longer guided ramp-up at Westwood,
modestly weaker production from Rosebel, and lower production from Sadiola,
partially offset by stronger production from Essakane. The modest change in our
all-in sustaining cash costs reflects forecast production mix.
All values in USD unless otherwise noted.
5
• Lower gold price assumption, depletion and updated parameters drive decline
in reserves. Year-end reserves declined 15% to 8.6 Moz from 10.1 Moz as a
result of a lower reserve gold price of $1,300/oz versus $1,400/oz (decline of 360
Koz), updated parameters at Rosebel (decline of 735 Koz), and mining depletion
(decline of 790 Koz), partially offset by optimization at Sadiola (increase of 269
Koz). We believe there could be further downside risk to reserves should metal
prices remain around current levels.
• Price target lowered to $2.75 from $3.50. As a result of updated operational/
financial assumptions following the recent analyst day as well as the application
of a lower cash flow multiple (12x from 14x), we have reduced our price target
on IAMGOLD to $2.75 from $3.50.
New Gold Inc.(AMEX: NGD; 3.50; TSX: NGD)
Dan Rollins, CFA (Analyst)
(416) 842-9893; [email protected]
Mark Mihaljevic (Associate)
(416) 842-3804; [email protected]
52 WEEKS
Rating:
Price Target:
14MAR14 - 06MAR15
6.50
6.00
Outperform
5.50 ▼ 6.50
In the midst of a key transition phase
New Gold is in the midst of a key transition phase which should position the
company to generate solid free cash flow and leverage district scale exploration
opportunities. With control over capital spending we expect management to guide
the business in a way which maintains balance sheet flexibility while driving longterm value.
5.50
5.00
4.50
4.00
3.50
40000
30000
20000
10000
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A
S
O
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Rel. S&P 500
EPS, Adj Diluted Prev.
2014A
0.09↑
0.06
2015E
0.13↓
0.15
2016E
0.24↓
0.27
2017E
0.27
D
J
2015
F
MA 40 weeks
P/E
39.0x
27.5x
14.7x
12.7x
All values in USD unless otherwise noted.
Neil Downey, CFA, CA (Analyst)
(416) 842-7835; [email protected]
Kevin Cheng, CFA (Associate)
(416) 842-3803; [email protected]
Michael Smith, CFA (Analyst)
(416) 842-7805; [email protected]
Jeremy Osmar, CA (Associate)
(416) 842-7894; [email protected]
M
• Rainy River expected to drive cash flow growth starting in 2017
• Although large-scale Canadian operations are typically more expensive to bring
into production, once operational, the mines tend to benefit from access to low
cost power, greater productivity, well developed mining infrastructure/supplier
base and stable royalty/tax regimes. In our view, Rainy River is no different and,
once in production (late-2017), the asset should be able to deliver solid and
reliable cash flow as well as a high probability of reserve/resource growth given
district scale potential.
• Production expected to temporarily dip in 2016
• Although we believe New Gold offers attractive long-term growth, production
should temporarily decline in 2016 as Cerro San Pedro moves to residual leaching
from active mining, grades at New Afton begin to revert towards reserve levels
and Peak moves into copper-rich zones. Higher production at Mesquite should
partially offset these declines.
• Management well positioned to navigate weak price environment
• As demonstrated during the development of New Afton and, more recently, with
the decision to extend the construction time-line for Rainy River by 6 months,
New Gold is unlikely to put the company's balance sheet at risk.
• Target lowered to $5.50 post year-end updates
• We have reduced our price target to $5.50 from $6.50 as a result of
updated reserves, 3-year operational outlook and tempered cash flow multiple
(13x versus 16x). Given our favourable outlook on New Gold's underlying
fundamentals and long-term value proposition, we believe an Outperform rating
is warranted.
NorthWest Healthcare Properties(TSX: NWH.UN; 9.39)
Rating:
Price Target:
Sector Perform
9.50 ▼ 10.50
Going global via proposed merger with NWI
NorthWest Healthcare Properties ("NWH") has agreed to merge with Northwest
International Healthcare Properties ("NWI") to create a global and diversified
healthcare REIT with ~$2B of assets in Canada, Brazil, Germany, Australia and New
Zealand. In our minds, the deal changes NWH's opportunity set, but also its risk
6
52 WEEKS
14MAR14 - 06MAR15
10.00
profile. We've reduced our price target by $1 to $9.50 and maintained our Sector
Perform rating.
9.60
9.20
8.80
8.40
900
600
300
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F
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Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
FFO/Unit Prev.
1.00
0.98↓
0.99
0.96↓
0.97
1.01↓
1.02
2013A
2014A
2015E
2016E
All values in CAD unless otherwise noted.
Quebecor Inc.(TSX: QBR.B; 33.29)
Drew McReynolds, CFA, CA (Analyst)
(416) 842-3805; [email protected]
Jie He (Associate)
416 842 4123; [email protected]
Haran Posner (Analyst)
(416) 842-7832; [email protected]
52 WEEKS
Rating:
Price Target:
14MAR14 - 06MAR15
30.00
28.00
26.00
4500
3000
1500
A
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2013A
2014A
2015E
2016E
J
J
2014
A
S
O
N
D
J
2015
F
Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
Revenue Prev.
3,648.0↓
4,339.0
3,716.0↓
4,151.0
3,978.0↑
3,975.0
4,099.0
All values in CAD unless otherwise noted.
Sector Perform
34.00 ▲ 32.00
Bolstering an Already Strong Competitive Position in Quebec
32.00
M
• Going global via $2B business; nil merger premium – NWH and NWI propose to
merge via exchange ratio of 0.208 NWH units per NWI unit. The combination will
be by way of Plan of Arrangement and is subject to unitholder votes expected
for early May. Pre-announcement unit prices for NWH and NWI were essentially
trading on-par with the exchange ratio, thus equating to a $nil merger premium.
• Profiling NWI; the global opportunity – Collectively, Brazil, Germany and
Australasia have a population base of 308MM people (Canada is 36MM). Based
upon the collective markets’ size, aging demographics in Germany and overall
population growth potential in Brazil, the opportunity set for long-term growth
would seem to be much greater with the international strategy than Canada
alone. The combined entity will have ~$2B in assets, operate under the NWH
name, and it will offer a unique investment proposition as the only TSX-listed
REIT focused on global healthcare real estate.
• Risk profile shifts – The shift in strategy, in our minds, also comes with a higher
risk profile. The change in strategy and risk profile for NWH may, over time, cause
some turnover in the unitholder base.
• Tweaking FFO/unit 2015-2016E – Updating our estimates for the domestic
(existing NWH) business only, we’ve trimmed our 2015E-16E FFO/unit by $0.01
each, to $0.96/$1.01, respectively.
• Price target reduced $1 to $9.50; Sector Perform rating reiterated
M
Q4/14 core telecom results were in line with our expectations. We believe
accelerating wireless momentum, entry into data hosting and a re-focus within
the media and sports and entertainment segments are bolstering an already
strong competitive position in Quebec.
• Looking for a more timely and/or attractive entry point. Given slowing wireline
subscriber growth and the uncertainty around potential national wireless
expansion, we would continue to remain patient for a more timely and/or
attractive entry point. Should the company move forward with national wireless
expansion, we would expect the financial impact to be minimized by the vendingin of existing spectrum assets into a partnership whereby up-front cash costs are
reduced and risk can be shared. However, we fail to see how national wireless
expansion would be materially NAV accretive in the short or medium term.
Longer-term, we see investors benefiting from the acquisition of the remaining
25% interest in Quebecor Media (eliminating any justification for a holding
company discount), multi-year growth in FCF and Videotron’s still very strong
competitive position in Quebec.
• Increasing target to $34. We have made major changes to our forecast mainly
to reflect: (i) the new reporting segments; (ii) higher wireless ARPU growth;
and (iii) lower wireline subscriber growth assumptions. Our 2015E and 2016E
EBITDA estimates change from $1,483 and $1,562, respectively, to $1,554 and
$1,631. Following our estimate revisions and the rolling forward the basis of our
valuation, our price target increases from $32 to $34.
First Glance Notes
Drew McReynolds, CFA, CA (Analyst)
(416) 842-3805; [email protected]
Jie He (Associate)
416 842 4123; [email protected]
Quebecor Inc.(TSX: QBR.B; 33.73)
Rating:
Sector Perform
7
A messy Q4/14 but core telecom results look largely in line with expectations
Haran Posner (Analyst)
(416) 842-7832; [email protected]
52 WEEKS
14MAR14 - 06MAR15
32.00
30.00
28.00
26.00
4500
3000
1500
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F
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Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
All values in CAD unless otherwise noted.
Tahoe Resources Inc.(TSX: THO; 15.06)
Stephen D. Walker (Analyst)
(416) 842-4120; [email protected]
Mark Mihaljevic (Associate)
(416) 842-3804; [email protected]
Elizabeth Gao (Associate)
416 842 8934; [email protected]
30.00
28.00
26.00
24.00
22.00
20.00
52 WEEKS
Rating:
14MAR14 - 06MAR15
16.00
14.00
6000
4500
3000
1500
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Outperform
2014 Financial results and guidance in line with pre-release of operating results
18.00
M
• Core telecom financial results largely in line with expectations. The
telecommunications segment (excluding a newly added retail portion) accounts
for 94% of our Quebecor Media asset value and is apples-to-apples with our
forecast. On a comparable basis, telecommunications revenues and EBITDA
were $730MM and $337MM (excluding a one-time retroactive adjustment),
respectively, versus our estimates of $720MM and $334MM (consensus is
$331MM). Better than expected ARPU growth from wireless (+12.4% YoY versus
our estimate of +6.0%) was offset by lower than expected cable revenue growth
(-2.9% versus our -0.8% estimate). Total telecommunications ARPU increased
+6.7% YoY versus our +6.2% estimate.
• What to look for on the 11:00am ET conference call (#1-877-293-8052, code:
62079#). (i) Videotron capex guidance for 2015 (versus our estimate of $623MM
and $701MM in 2014, excluding spectrum); (ii) an update on how wireless and
wireline subscriber growth is tracking in Q1/15; and (iii) any update on potential
national wireless expansion.
N
D
J
2015
F
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Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
• We view Tahoe's financial release as neutral, as the results are in line with
the previously released operating results and 2015 guidance. 2014 annual allin sustaining costs have increased from $8.96/sh in the February 17th release
to $9.15/sh, which is in line with our estimates. Both adjusted EPS and CFPS
are below our estimates and consensus. The previously issued 2015 guidance is
in line with our estimates: production guidance of 18–21Moz at AISC of $9.75–
11.50/oz vs. our estimates of 20.5Moz at $9.94/oz.
• As expected, the company plans to pay down the remaining $50MM of shortterm debt this June and continue paying a $0.02/share monthly dividend. We
forecast 2015 year-end cash balance to be $228MM.
• On February 25, Tahoe received shareholders' approval of the Rio Alto merger,
which we expect to close in early April as previously announced. The transaction
will diversify Tahoe into the gold space. Our estimated gold production is 210Koz
at AISC of $761/oz and 251Koz at AISC of $700/oz for 2015 and 2016, respectively.
All market data in CAD; all financial data in USD.
Tricon Capital Group Inc.(TSX: TCN; 9.68)
Geoffrey Kwan, CFA (Analyst)
(604) 257-7195; [email protected]
Charan Sanghera (Associate)
604 257 7657; [email protected]
52 WEEKS
Rating:
14MAR14 - 06MAR15
10.00
9.50
9.00
8.50
8.00
7.50
4500
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1500
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A
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Top Pick
First Glance: Strong Q4/14 results
D
J
2015
F
Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
All values in CAD unless otherwise noted.
M
• Our take: Q4/14 results were positive. There were several positives (significant
fair value positive adjustments to TCN’s single-family rental [SFR] and
homebuilding/land development investments; continued strong operating
metrics for the homebuilding/land development and SFR businesses; and a
surprisingly strong quarter from TCN’s Johnson Companies investment), although
SFR net operating income was below our forecasts, in part due to Q4 seasonally
higher expenses being greater than expected (SFR results can be lumpy Q/Q).
• We think Tricon is an NAV story, so we focus more on certain financial metrics
(e.g., SFR net operating income) and operational ones (e.g., IRRs, occupancy
rates) than on EPS. That said, Q4/14 adjusted EPS of $0.30 was well ahead of our
$0.08 forecast, due mainly to higher-than-forecast fair value gains on the singlefamily rental (SFR) and homebuilding/land development portfolio and to a lesser
extent, higher-than-forecast management fee revenues.
Company Comments
Shailender Randhawa, CFA (Analyst)
(403) 299-6576; [email protected]
Cardinal Energy Ltd.(TSX: CJ; 14.29)
8
Rating:
Price Target:
Keith Mackey, CFA (Associate)
403 299 6958; [email protected]
52 WEEKS
14MAR14 - 06MAR15
20.00
Outperform
18.00
Notes from road
We hosted an institutional road trip with Scott Ratushny, Cardinal Energy’s
President & CEO, and Laurence Broos, VP Finance. With a secure 2015 financial
outlook, the discussion largely focused on Cardinal's operational priorities and
acquisition strategy to emerge stronger from current trough oil prices.
18.00
16.00
14.00
12.00
3000
2000
1000
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F
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Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
Prod (boe/d)
1,374
7,793
11,200
11,850
2013A
2014E
2015E
2016E
All values in CAD unless otherwise noted.
EcoSynthetix Inc.(TSX: ECO; 1.23)
Steve Arthur, CFA (Analyst)
(416) 842-7844; [email protected]
Ben Holton, CFA (Analyst)
(416) 842-9949; [email protected]
52 WEEKS
14MAR14 - 06MAR15
2.70
2.40
Rating:
Sector Perform
Risk Qualifier: Speculative Risk
Price Target: 2.50
Q4/14 in-line. Awaiting initial customers in wood composites
ECO reported another lackluster quarter, with revenues down Y/Y and Q/Q.
The next (and critical) catalyst will be commercialization of the wood composite
product. Management is still pointing to a 2015E launch, though timing remains
uncertain. We maintain our neutral stance on the shares until we see traction in
order flow and customer conversion. Maintain Sector Perform, Speculative risk
rating, $2.50 target.
2.10
1.80
1.50
1.20
4000
3000
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1000
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2013A
2014A
2015E
2016E
• Clear operational priorities. Cardinal’s 2015 game plan targets debt repayment
in the first half of the year followed by focused Bantry Glauc development
in H2/15 and no change to its emphasis on decline rate management and
sustainable volume growth. To that end, Cardinal believes that the current price
environment is an opportune time to revisit “nut and bolts” engineering to
reduce operating costs and increase recovery factors in its main waterflood
assets. The company’s $30 million 2015 capital budget leaves roughly $17 million
for facility optimization initiatives and Crown land sales in SE AB, which the
company expects to be less competitive given the environment.
• We reiterate our Outperform rating and 12-month price target of $18.00 per
share. Our $18.00 one-year price target and Outperform rating are based on
a rounded 1.0x multiple of the $18.76/share sum of our adjusted base NAV
of $17.80 plus $0.96 from risked development. Our rating and 12-month price
target reflects our expectations of solid execution, Cardinal's best-in-class sub
15% decline rate and payout ratios, with a strong financial outlook.
J
J
2014
A
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D
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2015
F
M
Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
Revenue Prev.
22.2
18.8↓
18.9
21.7↓
22.7
45.0↓
47.2
All market data in CAD; all financial data in USD; dividends paid in
CAD.
• Q4/14 revenue in-line with expectations, earnings slightly below: Revenue
of $4.5MM (-13.5% Y/Y, -7.8% Q/Q) was in-line with our forecast. On this,
ECO delivered EBITDA of ($2.9MM) and EPS of ($0.06), both slightly below our
forecasts of ($2.7MM) and ($0.05), respectively.
• Opportunities in building products progressing; still looking at
commercialization in 2015E: The commercialization efforts of the wood
composite product are progressing, with a pipeline of customers at various stages
of trials. Multiple potential customers are said to be in advanced stage mill trials.
ECO believes some of these customers are approaching final decision points, and
expect the product to be commercialized in 2015.
• Balance sheet remains strong, though still burning cash: The company finished
Q4/14 with a strong net cash position of USD$67.2MM (CAD $1.52 per basic
share). The cash burn ex-share repurchases was $2.9MM, though this should
improve in coming quarters on headcount reductions.
• Maintain Sector Perform, Speculative risk rating: We continue to see several
potential drivers of adoption, revenue and earnings growth over the longer-term.
ECO’s products continue to perform, offering a starch-based product that is lower
cost than the oil-based product they are substituting, while being functionally
equivalent and ‘green’. Before taking a more positive stance on the shares,
however, we need to see evidence of the long-awaited revenue ramp.
9
Osisko Gold Royalties Ltd.(TSX: OR; 15.57)
Dan Rollins, CFA (Analyst)
(416) 842-9893; [email protected]
Mark Mihaljevic (Associate)
(416) 842-3804; [email protected]
Rating:
Price Target:
40 WEEKS
06JUN14 - 06MAR15
Outperform
19.00
Well positioned within current price environment
Osisko remains well positioned to weather the current metal price environment
given solid cash flow from royalties on Canadian Malartic and Eleonore, its strong
balance sheet, and potential to drive additional value through accretive royalty
acquisitions. Given the company's favourable positioning relative to its producing
peers, we reiterate our Outperform recommendation.
18.00
17.00
16.00
15.00
14.00
4500
3000
1500
J
J
2014
S
A
O
N
Close
D
J
2015
F
M
Rel. S&P/TSX COMPOSITE INDEX
EPS, Adj Diluted Prev.
2014A
0.02↓
0.13
2015E
0.20↓
0.23
2016E
0.26↓
0.30
2017E
0.28
P/E
77.0x
59.7x
56.0x
All values in CAD unless otherwise noted.
• Canadian Malartic and Eleonore royalties to drive solid cash flow. Osisko is
expected to generate solid cash flow within the current metal price environment
given underlying royalties on Canadian Malartic and Eleonore, benefit of existing
tax pools, and no debt. At spot gold (US$1,150/oz) and Canadian dollar ($1.275),
we forecast average free cash flow of C$0.40/sh through 2017E, implying a free
cash yield of 2.6%.
• Well capitalized to pursue accretive opportunities. With ~C$450M (~US$355M)
in cash on hand and undrawn revolving credit facility of C$150M (US$118M),
Osisko is well capitalized to pursue accretive opportunities. Although we view
the acquisition of Virginia Mines as a transformative acquisition which bolstered
the underlying quality and optionality of Osisko's portfolio, we expect future
transactions to be more asset-specific, with the company likely to target both
producing and non-producing opportunities. Assuming a 10-year mine life and
historical transaction metrics, we estimate that at spot prices, a US$100M
royalty/streaming acquisition could bolster the company's average annual
cash flow by C$20M (US$16M) or C$0.22/sh. Based on 75 royalty/streaming
transactions since 2006, the implied after-tax IRR at spot prices has averaged
8.5% with an all-in cost of 63%.
• Estimates revised following year-end updates. Following year-end updates for
Canadian Malartic (Agnico-Eagle/Yamana) and Eleonore (Goldcorp), we have
revised our operational and financial assumptions accordingly. We expect nearterm revenue growth to be driven by the ongoing ramp-up of underground
operations at Eleonore as well as improved throughput and slightly higher grades
(impact of Barnat zone) at Canadian Malartic.
Redknee Solutions Inc.(TSX: RKN; 3.84)
Paul Treiber, CFA (Analyst)
(416) 842-7811; [email protected]
Sean Ray, P.Eng. (Associate)
416 842 6133; [email protected]
Rating:
Price Target:
52 WEEKS
14MAR14 - 06MAR15
Outperform
5.50
Opportunity intact, more conservative tone
We reiterate our Outperform recommendation and C$5.50 price target following
Redknee’s investor day. While management is providing more conservative
messaging to investors, we believe the post-NSN BSS opportunity remains intact.
Specifically, customer retention appears high and the company is now focusing on
upselling existing customers and capitalizing on new opportunities. Additionally,
management is looking to achieve more consistent quarterly profitability and
cashflow.
5.50
5.00
4.50
4.00
3.50
3.00
4500
3000
1500
M
A
M
J
Close
2013A
2014A
2015E
2016E
J
2014
A
S
O
N
D
J
2015
F
Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
Revenue
142.0
257.7
234.2
237.9
All market data in CAD; all financial data in USD.
M
• More conservative messaging to investors. CEO Skoczkowski was apologetic
about the volatility of the stock over the last year, but he believes decisions
have been made in the best long-term interests of shareholders. Management
appears to be shifting to more conservative messaging to investors, such as
refraining from setting expectations for specific deal wins. We believe this tactic
will help reduce the volatility.
• It’s hard to lose customers if they like what you’re doing. We believe high
customer satisfaction and upgrades affirm the stability of Redknee’s post-NSN
BSS customer base (no customers lost since the close of the acquisition).
10
Customer satisfaction KPIs have materially improved, and the majority of
acquired customers have upgraded to the latest version of Redknee’s core
software (only two customers haven’t upgraded).
• Upselling and new opportunities. Redknee sees a $250MM license revenue
opportunity for upselling adjacent software to existing customers over the next
three years. Improved customer satisfaction and Redknee's higher relevancy
following the NSN BSS acquisition have reduced the barriers to Redknee's selling
additional software into new and existing customers. Customers see Redknee
as an innovator, particularly with regard to virtualization, scalability, and nextgen monetization features. Redknee has secured $20MM orders in new vertical
markets.
• More consistent profitability and cashflow. Management recognizes that
financial results have been disappointing and appears focused on achieving more
consistent quarterly profitability and cashflow. Now that the majority of NSN BSS
contracts have been transferred to Redknee, the company is looking to optimize
pricing and payment terms.
Seven Generations Energy Ltd.(TSX: VII; 15.81)
Michael Harvey, P.Eng. (Analyst)
403 299 6998; [email protected]
Luke Davis (Associate)
403 299 5042; [email protected]
88 DAYS
Rating:
Price Target:
30OCT14 - 06MAR15
24.00
20.00
18.00
16.00
10000
8000
6000
4000
2000
12
N14
26
Close
2013A
2014A
2015E
2016E
Full speed ahead
In conjunction with a slight Q4 miss, 7G provided reserve disclosure details which
featured 8.3 mmboe of positive reserve revisions as well as a material increase
(+~60%) in booked future drilling inventory. We continue to like the story given its
exposure to the Kakwa Montney, with capital cost optimization expected to be a
key focal point for investors through 2015.
22.00
O14
Outperform
23.00
10
D14
24
12
J15
26
09
F15
24
Rel. S&P/TSX COMPOSITE INDEXMA 40 days
Gas (mmcf/d) Prev.
21.9
78.5↑
77.8
163.2
272.7↓
273.7
All values in CAD unless otherwise noted.
M15
• Slight miss in Q4/14 – unchanged guide. Q4/14 volumes of 44,178 boe/d (58%
liquids) drove CFPS of $0.41 (RBC $0.44, street $0.43). 7G's un-changed 2015
guidance ($1.3B, 57,500 boe/d) implies a capital efficiency of $29,000/boe/d,
which we view as achievable.
• Reserve details show positive revisions and increased future bookings. Recall,
reserves increased by 21% with PDP +99% and 1P +28%. The company also
posted 8.3 mmboe in positive reserve revisions – supporting engineers' increased
confidence in per-well productivity.
• FDC increases 62%; bookings per well appear to fall slightly. Booked future
development capital increased materially (+62%) to $8.9B, suggesting roughly
700 - 750 wells are now booked (RBC estimate, not disclosed).
• Well costs have room to improve – standardization the key. 7G highlighted 2
'problem' wells during Q4 which inflated average per-well costs, as did continued
experimentation with completion design. Going forward roughly 85% of wells
will be completed cookie-cutter style which should result in costs trending
downward.
• Balance sheet and liquidity remain in good shape. The company has significant
hedges in place for 2015. Based on our current RBC price deck, we forecast VII to
be 43% (inc. working capital) drawn on their $480 million line of credit (though
likely to be increased); inclusive of senior notes equates to 2.0x trailing cash flow
vs peers 4.0x.
Industry Comments
Darko Mihelic, CFA (Analyst)
416 842 4128; [email protected]
Canadian Bank Chart Book
Brendon Sattich (Associate)
416 842 7804; [email protected]
• This is the Q1/15 update to the RBC Capital Markets' Canadian Chart Book, which
is an extensive collection of data analyzing Canadian banks.
Historical Data and Trends
Vanessa Wan (Associate)
416 842 5638; [email protected]
11
All values in CAD unless otherwise noted.
Victoria McCulloch, CA (Analyst)
+44 131 222 4909; [email protected]
RBC International E&P Daily
Nathan Piper (Analyst)
+44 131 222 3649; [email protected]
SIA.L: Reserves downgrades eclipse 10p dividend; SLG.V: Significant reserves
downgrade at Cladhan; OXC.TO: Reduced 2015 Capital budget, and Loan; AOI.TO:
Making Petropyhsics Interesting
Al Stanton (Analyst)
+44 131 222 3638; [email protected]
SOCO; SLG; OXC; AOI
Haydn Rodgers, CA (Associate)
+44 131 222 4911; [email protected]
Adam Naughton (Associate)
+441312223695; [email protected]
All values in USD unless otherwise noted.
12
Required disclosures
Non-U.S. analyst disclosure
Paul Treiber;Sean Ray;Michael Harvey;Luke Davis;Dan Rollins;Mark Mihaljevic;Drew McReynolds;Jie He;Haran Posner;Neil
Downey;Kevin Cheng;Michael Smith;Jeremy Osmar;Shailender Randhawa;Keith Mackey;Steve Arthur;Ben Holton;Geoffrey
Kwan;Charan Sanghera;Stephen D. Walker;Elizabeth Gao;Victoria McCulloch;Nathan Piper;Al Stanton;Haydn Rodgers;Adam
Naughton;Darko Mihelic;Brendon Sattich;Vanessa Wan (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.
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Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in, this report.
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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
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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
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13
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15