Canadian Research at a Glance
EQUITY RESEARCH CANADIAN RESEARCH AT A GLANCE April 2, 2015 Price Target Revisions ! Argent Energy Trust Summary Q4/14 – Lowering price target on distribution cut Summary Maricunga Mine temporarily suspended due to heavy rain in Northern Chile Summary If Teck's long-term outlook is right, we're underestimating WTE's value Summary Laying out the story south of the border ! International E&P April Prospects ! Q2/15 Global Mining Best Ideas Summary Easter Break For Egg-zausted Investors Summary Upgrading Precious Metals & Uranium, Downgrading Bulks ! ! The Weekly Haul Summary PMO; FOGL; DETNOR; BNK Summary Airfreight & Surface Transportation Summary Global - $US Summary March 2015 Summary Global - $CDN Summary Global - RoR First Glance Notes ! Kinross Gold Corporation ! Westshore Terminals Company Comments ! Fortis Inc. Industry Comments Portfolio RBC International E&P daily Quantitative Research ! Benchmarks ! Benchmarks ! Benchmarks ! Benchmarks Technical Research ! A Non-Random Walk Through Global Summary Equity Markets to Start Q2 Priced as of prior day's market close, EST (unless otherwise noted). For Required Non-U.S. Analyst and Conflicts Disclosures, see Page 9. EQUITY RESEARCH U.S. RESEARCH AT A GLANCE April 2, 2015 Price Target Revisions ! Home Bancshares Inc. ! SAFRAN SA Summary Accretive acquisition: new LPO brings new risks to think about, but a nice addition Summary Aftermarket upside ahead Summary Maricunga Mine temporarily suspended due to heavy rain in Northern Chile Summary Follow-Up Post Our Conversations With Management Summary Hosted management meeting higlights Summary Thoughts following management meetings Summary Lowering near-term estimates on Canadian consolidation, but profit opportunities improve Summary Yeah you right! Analyst day highlights from New Orleans Summary FQ3/15 Preview: Reducing estimates on greater FX pressures Summary Our recommendations for needed change at IHS Summary More Insight into "SPNE" Spin-Off Post Form 10 Filing Summary We applaud MU's decision to build inventory in seasonally weaker quarters First Glance Notes ! Kinross Gold Corporation ! NuVasive Inc. ! Oshkosh Corporation Company Comments ! Autodesk, Inc. ! Best Buy Co., Inc. ! EnLink Midstream, LP ! Global Payments Inc. ! IHS Inc. ! Integra LifeSciences Holdings ! Micron Technology, Inc. Industry Comments ! April Hotel Concierge: Core indicators Summary ! soften but still suggest demand growth Autos: Bounce Back to 17.2mm March 2015 SAAR International E&P April Prospects Summary Summary ! ! IT Hardware: Impact from HTCH Miss Summary Easter Break For Egg-zausted Investors ! ! Q2/15 Global Mining Best Ideas Aftermarket Waxing for STX and WDC. Bad PC Data Points Sustain Mile High Monthly Summary Portfolio RBC European Industrials Daily ! ! RBC International E&P daily ! The Weekly Haul ! U.S. Power & Utilities: Fate of PJM's Summary Upgrading Precious Metals & Uranium, Downgrading Bulks Summary PMIs confirm momentum better in Europe than US Summary PMO; FOGL; DETNOR; BNK Summary Airfreight & Surface Transportation Summary Potential moderate modifications do not change positive outlook CP Construct Left Hanging Technical Research ! A Non-Random Walk Through Global Summary Equity Markets to Start Q2 2 EQUITY RESEARCH UK & European Research at a Glance April 2, 2015 Initiations ! Fusionex International Plc Summary Initiation: Democratizing big data Summary Aftermarket upside ahead Summary Ups and downs Summary Capital Markets Scorecard Q1 15 Summary Easter Break For Egg-zausted Investors Summary Aftermarket Waxing Summary Upgrading Precious Metals & Uranium, Downgrading Bulks Price Target Revisions ! SAFRAN SA Company Comments ! FirstGroup PLC Industry Comments ! Global Investment Banks ! International E&P April Prospects ! Mile High Monthly ! Q2/15 Global Mining Best Ideas Portfolio Find our Research at: RBC Insight (www.rbcinsight.com): RBC's global research destination on the web. Contact your RBC Capital Markets' sales representative to access our global research site, or use our iPad App "RBC Research" Thomson Reuters (www.thomsononeanalytics.com) Bloomberg (RBCR GO) SNL Financial (www.snl.com) FactSet (www.factset.com) 3 Price Target Revisions Argent Energy Trust(TSX: AET.UN; 0.31) Shailender Randhawa, CFA (Analyst) (403) 299-6576; [email protected] Keith Mackey, CFA (Associate) 403 299 6958; [email protected] 52 WEEKS 14MAR14 - 06MAR15 5.00 4.00 3.00 Rating: Underperform Risk Qualifier: Speculative Risk Price Target: 0.30 ▼ 0.50 Q4/14 – Lowering price target on distribution cut Argent Energy Trust delivered in-line Q4/14 financial results on pre-released volumes. We view the suspension of Argent's monthly distribution as necessary and expect the units to trade on pure option value from here as management targets debt reduction via accretive asset sales. 2.00 1.00 7500 6000 4500 3000 1500 M A M J Close J 2014 A S O N D J 2015 F M Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks Total (boe/d) Prev. 5,591 6,641 5,000↓ 6,000 3,800↓ 5,500 2013A 2014A 2015E 2016E All values in CAD unless otherwise noted. • In-line Q4/14 financials. Argent's Q4/14 production of 6,528 boe/d (65% liquids) was pre-released. CFPU of $0.17 matched our estimate with the following variances: $6.13/boe higher realized pricing and hedging gains offset by 21% higher unit opex and overhead (G&A and Interest) expense. Argent's revised 5,000 boe/d (68–70% liquids) 2015 volume target appears reasonable and should generate circa $19.7 million of cash flow from operations prior to hedges and approximately $14.2 million in interest commitments for the bank line and outstanding convertible debentures. We peg the in-the-money value of Argent's 2015 hedges at $36.7 million at RBC's price deck. Accordingly, we calculate a simple cash interest coverage ratio of 4.0x based on our projections prior to Argent's US$12 million capital budget. • Valuation reflects pure option on accretive exit. At current levels, Argent is trading at a 2015E debt-adjusted cash flow multiple of 9.8x (vs. oil-weighted peers at 9.2x) and a P/NAV multiple of 0.1x (vs. peers at 0.6x). • Maintaining Underperform, Speculative Risk rating and lowering price target to $0.30 from $0.50. Our 12-month price target reflects a 0.1x multiple (previously 0.2x) of our base NAV of $3.25/unit, which assumes a US$ 89/bbl long-term WTI price. First Glance Notes Kinross Gold Corporation(NYSE: KGC; 2.36; TSX: K) Stephen D. Walker (Analyst) (416) 842-4120; [email protected] Mark Mihaljevic (Associate) (416) 842-3804; [email protected] 52 WEEKS Rating: Maricunga Mine temporarily suspended due to heavy rain in Northern Chile 14MAR14 - 06MAR15 5.00 4.50 4.00 3.50 3.00 2.50 100000 80000 60000 40000 20000 M A M Close J J 2014 A S O N Rel. S&P 500 Sector Perform D J 2015 F MA 40 weeks M • We view the temporary suspension of KGC’s Maricunga mine in Chile as a slight negative for the shares. • Due to abnormally heavy rains and flooding in the region, mining and crushing operations and the SART plant are temporarily closed, while the ADR plant continues to produce gold from the heap leach using an on-site power generator. The company noted that facilities at site have not sustained any damage. • We expect the suspension to be temporary and maintain our 2015 production estimate of 239Koz at total cash costs of $960/oz, or 9% of KGC’s total production. • The suspension of Maricunga adds to the list of mines affected by the recent heavy rains in the region, including Barrick (Zaldivar), Codelco (five copper mines), Angofagasta (two copper mines), Lundin (Candelaria – restarted after a one-day suspension) and Anglo American (Mantoverde). All values in USD unless otherwise noted. Walter Spracklin, CFA (Analyst) (416) 842-7877; [email protected] Derek Spronck (Analyst) (416) 842-7833; [email protected] Westshore Terminals(TSX: WTE; 31.23) Rating: Outperform If Teck's long-term outlook is right, we're underestimating WTE's value Teck provides positive investor day outlook 4 52 WEEKS 14MAR14 - 06MAR15 36.00 34.00 32.00 • Teck held its investor day on March 31, with RBC's Base Metals team outlining the key highlights in a research report published this morning (Link). We found one component of their outlook very interesting from a Westshore perspective, specifically: Teck sees potential to grow coal production from its current capacity of 28Mt to 40Mt longer-term. $3 to $4 potential valuation upside 30.00 900 600 300 M A M J Close J 2014 A S O N D J 2015 F M Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks All values in CAD unless otherwise noted. • While we do not anticipate Westshore increasing future terminal throughput beyond our current 36Mt annually out in 2019, we do see Westshore benefiting from a mix perspective. Met coal commands ~40% higher terminal loading rates (by our estimate) compared to that for thermal coal; and as such, any switch to Teck coal from lower yielding thermal coal would provide for higher average rates. Given Teck's guidance for 8Mt in potential production increases out of nonQuintette mines could be shipped through Westshore, If we add an additional 8Mt from Teck (displacing 8Mt in thermal coal) in our long-run estimates, we see the potential for another $3 to $4 per share (or 10-15% upside) in valuation in the WTE shares. Teck operations remain cash positive • RBC's Base Metals team notes that all of Teck’s coal operations are cash flow positive at current coal prices after accounting for spending on sustaining capex and deferred stripping. Accordingly, we continue to see the demand from Teck and take-or-pay contract for WTE's terminal capacity as remaining robust despite current depressed coal prices. Company Comments Fortis Inc.(TSX: FTS; 38.37) Robert Kwan, CFA (Analyst) (604) 257-7611; [email protected] Kelsey Roste (Associate) (604) 257-7383; [email protected] 42.00 Rating: Price Target: 52 WEEKS 14MAR14 - 06MAR15 Outperform 44.00 Laying out the story south of the border While the basic premise of the Investor Day in New York was to convey the story to U.S. investors, we still came away from the event with a number of interesting slides and updates. We believe that Fortis has a good story to tell involving below average risk utility growth and an ability to manage regulatory processes better than many utilities in North America. 40.00 38.00 36.00 34.00 32.00 12000 10000 8000 6000 4000 2000 M A M J Close J 2014 A S O N D J 2015 F Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks EPS, Adj Diluted 2013A 1.64 2014A 1.80 2015E 2.06 2016E 2.22 P/AEPS 23.4x 21.3x 18.6x 17.3x All values in CAD unless otherwise noted. M • Reiterating the core utility growth story. Fortis continues to expect the roughly $9 billion capital plan from 2015-2019 to deliver average rate base growth (including Waneta) of 6.5% on a compound annual basis with the potential for the growth rate to rise to 7.5% CAGR if the two LNG-related projects in B.C. move forward. • Solid history of earning its allowed ROEs (and then some). Fortis provided a history for each of its utilities comparing the allowed ROE to the achieved ROE. As shown in the exhibit, Fortis has consistently earned its allowed ROE while delivering upside in a number of years. The charts for each of Fortis' utilities is shown in Exhibit 3 beginning on page 4 of this note. • No update on the Properties strategic alternatives process. While the company specifically addressed the review, it continues to target completing the review process in Q2/15. Proceeds, if any, will be used to repay debt and bring the capital structure back in line with the long-term target of 55% debt (currently 57%). • Alberta GCOC impact in line with our initial thoughts. Although the Alberta Utilities Commission reduced the allowed ROE to 8.3% (down from 8.75%) while also reducing the equity component to 40% (down from 41%), Fortis does not see a material impact on the business under the current PBR structure. Industry Comments Al Stanton (Analyst) International E&P April Prospects 5 +44 131 222 3638; [email protected] Easter Break For Egg-zausted Investors Nathan Piper (Analyst) +44 131 222 3649; [email protected] • April’s Prospects bears the brunt of the companies' March FY14 results presentations which, as a rule, included a more cautious outlook for activity levels in 2015-H1/16. As a result we have trimmed our valuations of future developments (deferred start-up dates, reduced probability of a development commitment, etc.) and drilling targets (if a prospect did not warrant a name check investors are unlikely to allocate the opportunity any value). Consequently a number of Total NAVs have fallen, while Tangible NAVs have remained largely unchanged. • However, our updates also bear the impact of recent disappointing newsflow, including year-end reserves downgrades, unrest in Yemen, a lack of progress on oil sales from Kurdistan, etc. In this report, we have lowered our Target Prices for DNO and Sterling Resources, to NOK17 (from NOK20) and C$0.25 (C$0.35), respectively. • We have also made revisions for recent re-financings – Genel’s $230m bond issue and Tullow and Pacific Rubiales’ debt re-determinations, plus ongoing share buyback campaigns. • We have this month also included an initial assessment of Ophir’s enlarged portfolio, following its all-share acquisition of Salamander; our revised Tangible and Total NAV are 208p/share and 246p/share, respectively. Haydn Rodgers, CA (Associate) +44 131 222 4911; [email protected] Victoria McCulloch, CA (Analyst) +44 131 222 4909; [email protected] Adam Naughton (Associate) +441312223695; [email protected] All values in USD unless otherwise noted. Stephen D. Walker (Analyst) (416) 842-4120; [email protected] Q2/15 Global Mining Best Ideas Portfolio Fraser Phillips, P.Eng. (Analyst) (416) 842-7859; [email protected] • For Q2/15, we recommend the following sector weightings: Fertilizers at Overweight, Base Metals, Precious Metals, and Uranium at Market Weight, and Bulk Commodities at Underweight. • We are also updating our Global Mining Best Ideas portfolio with three additions and three deletions. We have added Arcelor Mittal, Nyrstar, and Sandfire Resources and have removed Labrador Iron Ore Royalty, PanAust and Rio Tinto. • We expect Q2/15 to be mixed for mining equities. We expect Fertilizer equities to continue to offer resource investors a relative safe haven and believe fertilizer markets should remain relatively steady with balanced S&D for all three nutrients. With improving leading economic indicators and favorable seasonality, we believe the current rally in Base Metals could be extended, although we expect the group as a whole to trade sideways in a volatile range. We are more constructive on Precious Metals given expectations a Fed rate hike could occur later in 2015 and Uranium as we see improving price support. We have grown more cautious on Bulk Commodities amid ongoing growth in supply and slow Chinese demand. • Our Best Ideas portfolio finished up 3% in Q1/2015, outperforming our benchmark, the MSCI World Metals and Mining Index, which was down 6% over the period. In Q4/2014, the portfolio was down 7%, ahead of the benchmark which was down 14%. Since inception on September 30, 2008, the RBC CM Global Mining portfolio is up 12% (~2% CAGR), well ahead of our MSCI benchmark at -34% (~-6% CAGR). Dan Rollins, CFA (Analyst) (416) 842-9893; [email protected] Des Kilalea (Analyst) +44 20 7653 4538; [email protected] Chris Drew, CFA (Analyst) +61 2 9033 3060; [email protected] Timothy Huff (Analyst) +44 20 7653 4866; [email protected] Andrew D. Wong (Analyst) (416) 842-7830; [email protected] Sam Crittenden, P.Eng., CFA (Analyst) (416) 842-7886; [email protected] Paul Hissey (Analyst) +61 3 8688 6512; [email protected] All values in USD unless otherwise noted. Upgrading Precious Metals & Uranium, Downgrading Bulks Nathan Piper (Analyst) +44 131 222 3649; [email protected] RBC International E&P daily Al Stanton (Analyst) +44 131 222 3638; [email protected] PMO.L/FOGL.L: Oil Discovery at Zebedee; International E&P April Prospects: Easter Break For Egg-zausted Investors; DETNOR.OL: Secures bondholder approval for amendments; BNK.TO: Well Control Operation Haydn Rodgers, CA (Associate) +44 131 222 4911; [email protected] PMO; FOGL; DETNOR; BNK Victoria McCulloch, CA (Analyst) +44 131 222 4909; [email protected] Adam Naughton (Associate) +441312223695; [email protected] All values in USD unless otherwise noted. 6 John Barnes (Analyst) (804) 782-4020; [email protected] The Weekly Haul Mike Fountaine (Associate) (804) 782-4013; [email protected] • In this week's Feature Commentary, we discuss why we believe the truckload carrier will begin to outperform relative to other names in our coverage universe. • Takeaways from the news include only 20% of U.S. logistics space is institutional grade; driver wage hikes could raise truckload pricing 12-18%; FMCSA rejects petition to exempt $75,000 broker bond; recruiting drivers for Restart Study proving difficult, DOT official says; Bill to expand STB authority approved; measure backed by railroads, shippers; LA, Long Beach ports could be back to normal sooner than mid-May; and box line reliability up in February. • Key macro data points for the week ahead include MDI & OHD on Monday, FOMC Minutes on Wednesday, Wholesale Inventories on Thursday, and Budget Statement on Friday. Todd Maiden (Associate) (804) 782-4014; [email protected] All values in USD unless otherwise noted. Airfreight & Surface Transportation Quantitative Research Chad McAlpine, CFA (Analyst) (416) 842-7869; [email protected] Benchmarks Bish Koziol (Associate) (416) 842-7866; [email protected] • At the end of each month, this report summarizes the mid to long-term performance of the most commonly tracked Global benchmark indices. Chad McAlpine, CFA (Analyst) (416) 842-7869; [email protected] Benchmarks Bish Koziol (Associate) (416) 842-7866; [email protected] • At the end of each month, this report summarizes the mid to long-term performance of the most commonly tracked North American benchmark indices. • Also shown are periodic returns of the sectors and major industry groups of the S&P/TSX Composite. • RBC has created and maintains style-specific composite indices to help better understand the relative performance of different investment strategies over time. Chad McAlpine, CFA (Analyst) (416) 842-7869; [email protected] Benchmarks Bish Koziol (Associate) (416) 842-7866; [email protected] • At the end of each month, this report summarizes the mid to long-term performance of the most commonly tracked Global benchmark indices. Chad McAlpine, CFA (Analyst) (416) 842-7869; [email protected] Benchmarks Bish Koziol (Associate) (416) 842-7866; [email protected] • At the end of each month, this report summarizes the mid to long-term performance of the most commonly tracked Global benchmark indices. Global - $US March 2015 Global - $CDN Global - RoR Technical Research Robert Sluymer, CFA (Analyst) (212) 858-7066; [email protected] Anna Drotman (Associate) (212) 858-7065; [email protected] A Non-Random Walk Through Global Equity Markets to Start Q2 • United States - Our 4 main Cycle trend barometers remain positive and have yet to show divergences often associated with cycle tops. The recent 12-month break-out by small-caps remains an encouraging Q1 development with relative performance vs the S&P continuing to build positively. To become more cautious/ defensive, we would need to see the 6-month relative performance uptrend show evidence of reversing. For now, we view the current uptrend as innocent until proven guilty. • Style and Sector Themes - Growth vs. Value: Uptrends intact, but pausing/ stalling intermediate-term. Healthcare: Leadership intact but pausing as Biotech 7 corrects – Too early to call Biotech a cycle peak. Technology: Pulling back as Semis and Communication remain weak with Service and Software leading. Discretionary: Leadership intact with Homebuilders emerging. Industrials: Rails correcting, Aerospace and Services rebuilding leadership. Energy: Recovery continues under long-term downtrends. • Europe - Pause pending? DAX becoming overbought intermediate-term under its 5+ year ‘trend channel’. Relative performance vs the S&P 500 in $US terms remains unimpressive. Sectors: Similar to the US, Healthcare, Discretionary and Technology lead but are advanced intermediate-term. Financials showing early signs of improving. Industrials stronger in Europe than the US. • Japan - Nikkei rallies through 2007 highs while USD/YEN consolidates below similar level. Sectors: Healthcare leads, Discretionary, Technology AND interestingly Staples emerging. • Emerging Markets - Struggling to rally back above 5-year uptrend. Relative performance vs the S&P 500 showing early evidence of reversing a 6-month downtrend. Far-East and Asia remain leadership, Latin America and Europe/ Middle East remain lag. China rally continues but less ‘timely’, Hong Kong poised to ‘break-out’ of a 4-year trading range, Korea challenging key 3-year overhead resistance, Mexico range bound while Brazil remains in a longer-term downtrend. Sectors: Healthcare and Technology lead, Discretionary accelerating after 2014 pause. 8 Required disclosures Non-U.S. analyst disclosure Nathan Piper;Al Stanton;Haydn Rodgers;Victoria McCulloch;Adam Naughton;Stephen D. Walker;Mark Mihaljevic;Robert Kwan;Kelsey Roste;Shailender Randhawa;Keith Mackey;Fraser Phillips;Dan Rollins;Des Kilalea;Chris Drew;Timothy Huff;Andrew D. Wong;Sam Crittenden;Paul Hissey;Chad McAlpine;Bish Koziol;Walter Spracklin;Derek Spronck (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). 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