1. finance
2. bank

EQUITY RESEARCH
CANADIAN RESEARCH AT A GLANCE
November 20, 2014
Price Target Revisions
! Aecon Group Inc.
! Mercer International Inc.
! Metro Inc.
! Primero Mining Corp.
Summary
Solid value play with strong growth in F15, moderating price target to $17 on time line
Summary
Simpler corporate structure ahead should bring more investors into the name
Summary
Recipe for success: F15 looks promising, target to $95 from $88
Summary
Challenges at Black Fox continue to overshadow San Dimas
Summary
Q4 First Glance: Solid cashflow and EBITDA beat
Summary
2015 Budget – Generally In-Line
Summary
Investor Day: A core message for the core investor
Summary
RBC 13th Annual Senior Gold Miners Conference
First Glance Notes
! Redknee Solutions Inc.
Company Comments
! Suncor Energy Inc.
! TransCanada Corp.
Industry Comments
! Adapting to Survive in a Weak
Commodity Price Environment
Canadian Banks
Summary
!
! CommTech: New guests crash optical Summary
Earnings Preview, Branch Consolidation (?) and a "Time Out" on some stocks
!
! RBC International E&P Daily
Summary
P&W paper stats: NA demand continues to decline and import gains aren't helping
Summary
AMER; PRE; BG ;TLW
party
Paper & Forest Products
Priced as of prior day's market close, EST (unless otherwise noted).
For Required Non-U.S. Analyst and Conflicts Disclosures, see Page 11.
EQUITY RESEARCH
U.S. RESEARCH AT A GLANCE
November 20, 2014
Initiations
! Strategic Hotels & Resorts Inc.
Summary
Initiating with an Outperform rating and $14 price target
Summary
Can’t catch a break; lowering rating and price target
Summary
It’s not about the TAM, it’s about the “TUM”
Summary
Time to Deliver, Upgrading to Outperform
Summary
Can they build the (Tru)Bridge fast enough to mind the Gap?
Summary
Lost momentum and Demand Gap dim growth outlook
Summary
TrueDeal - Upgrading TrueCar
Summary
ACT/AGN a "core" pharma holding – our view on three key questions; remains Top Pick
Summary
A bridge across the "Gap" - From Philly to the PopHealth Promised Land
Summary
Can it Keep Going and Going?
Summary
Strong FIA sales continuing
Summary
Solid sales trends and strong margin performance; Modestly raising estimates
Summary
Simpler corporate structure ahead should bring more investors into the name
Summary
EPS beat on costs and more ahead; Traffic still slow; Will it matter to the public?
Summary
All Eyes Turn to the AprQ to Determine How Much of Snap Back We Really Have
Summary
EPS Beat, but again lower quality; Inventory normalizes
Summary
FY14 adj. EBIT beats, reinstating dividend a positive
Summary
October Quarter Preview and Tear Sheets
Summary
Bad overhang over?
Summary
Evolve II Results In-Line with Expectations; Focus Shifts to Bench Trial with JNJ
Summary
Slight Delay for Newbuild Deliveries; No New Contracts
Summary
The Sound of Freedom
Summary
Analyst Day Recap: Relentless Drive to Enhance Long-Term Value
Summary
Growth story on track after solid Q4 and FY15 guide; Outperform
Summary
Moving Past the FX Risk; Fundamentals Strong: F3Q15 Earnings Recap
Summary
2015 Budget – Generally In-Line
Summary
MHPS Meeting Highlights
Ratings Revisions
! Allscripts Healthcare Solutions
! athenahealth, Inc.
! BG Group plc
! Computer Programs and Systems
! Quality Systems Inc.
! TrueCar, Inc.
Price Target Revisions
! Actavis PLC
! Cerner Corporation
! Energizer Holdings, Inc.
! Fidelity & Guaranty Life
! Lowe's Companies, Inc.
! Mercer International Inc.
! PetSmart, Inc.
! Semtech Corporation
! Williams-Sonoma, Inc.
First Glance Notes
! ThyssenKrupp AG
Earnings Preview
! Hewlett-Packard Company
Company Comments
! Alliant Techsystems Inc.
! Boston Scientific Corp.
! Diamond Offshore Drilling
! Lockheed Martin Corp.
! National Oilwell Varco, Inc.
! Nord Anglia Education, Inc.
! salesforce.com
! Suncor Energy Inc.
! Terex Corporation
2
EQUITY RESEARCH
! TransCanada Corp.
Summary
Investor Day: A core message for the core investor
! Adapting to Survive in a Weak
Summary
RBC 13th Annual Senior Gold Miners Conference
!
! Paper & Forest Products
! RBC European Industrials Daily
! RBC International E&P Daily
! The looming “demand gap” in HCIT
Summary
Analyzing the potential legal and financial fallout from the SCOTUS decision
Summary
P&W paper stats: NA demand continues to decline and import gains aren't helping
Summary
China's manufacturing PMI falls again
Summary
AMER; PRE; BG ;TLW
Industry Comments
Commodity Price Environment
Health Care Services
Summary
spending
In-Depth Reports
! Becton, Dickinson and Co.
Summary
Takeaways Post Recent HQ Visit And Updated BDX/CFN Proforma Model
3
EQUITY RESEARCH
UK & European Research at a Glance
November 20, 2014
Ratings Revisions
! BG Group plc
Summary
Time to Deliver, Upgrading to Outperform
Summary
Staying on target
Summary
Cliffs to exit Eastern Canadian Iron Ore operations
First Glance Notes
! Assicurazioni Generali SpA
! Cliffs Natural Resources Inc.
Industry Comments
! Adapting to Survive in a Weak
!
Summary
Commodity Price Environment
CommTech: New guests crash optical Summary
party
Traffic Trend Tracker: Air
Summary
!
! Traffic Trend Tracker: Road
RBC 13th Annual Senior Gold Miners Conference
Another robust month, N Atl signs of strength again
Summary
Dip from Q2 but forward signals still good
Summary
Platanillo Site Visit - Pipeline Ready
In-Depth Reports
! Amerisur Resources plc
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
Aecon Group Inc.(TSX: ARE; 12.45)
Sara O'Brien, CFA, CA (Analyst)
(514) 878-7256; sara.obrien@rbccm.com
Juliane Szeto (Associate)
(416) 842-3806; juliane.szeto@rbccm.com
Rating:
Price Target:
52 WEEKS
29NOV13 - 17NOV14
18.00
Solid value play with strong growth in F15, moderating price target to $17 on
time line
We believe Aecon will gradually improve EBITDA margin with a
project-mix shift, including from a focus on larger, more complex project bids with
margin commensurate with project risk. We believe improving margin will re-rate
ARE's valuation multiple on its core construction business. Near term, we expect
a profitable sale of Quito airport concession to drive share upside and deleverage
the balance sheet.
16.00
14.00
12.00
3000
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1000
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2013A
2014E
2015E
2016E
A
M
2014
J
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N
Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
EBITDA, Adj Prev. EV/Adj. EBITDA
184.0
6.0x
169.6↓
172.3
6.8x
223.3↓
228.8
5.1x
245.3↓
250.8
4.7x
All values in CAD unless otherwise noted.
Rating:
Price Target:
52 WEEKS
29NOV13 - 17NOV14
Outperform
17.00 ▲ 15.00
Simpler corporate structure ahead should bring more investors into the name
Reiterate Outperform rating and raising target to $17 (from $15). NBSK markets
are holding up better than we expected, and together with a weaker Euro/C$ and
the recent debt financing (which will lead to the elimination of the complicated
restricted/unrestricted structure next month), we see further upside.
12.00
10.00
8.00
2000
1000
N D
• Deep value for LT investors, moderating price target to $17 from $20 on time
line. We have reduced our price target on time line to EBITDA growth and our
revised EV/EBITDA valuation using F14 net debt and assuming no conversion of
debentures to equity. We have also reduced our estimates to account for some
continuation of deferred start dates for certain contracts into early Q4 (which are
now ramping up), as discussed in ARE Q3 outlook. We continue to recommend
investors buy ARE shares on weakness for solid earnings upside in 2015 and for
near-term catalyst of Quito concession sale.
• Closer look at resource-based revenue. Approximately 10-15% of consolidated
revenue relates to oil sands development in both mining and energy, which we
expect could be at risk if oil prices continue to decline. Mgmt points out it has
had no indication of any project slowdown.
• Strong backlog and pipeline of opportunities. Backlog at Q3/14 stood at $2.7B,
up 30% YoY. ARE has made a strategic shift in backlog to more diversified, mgmt.
sees current mix able to drive its 9% EBITDA margin target (7.5-8% excluding
Quito by our estimates). Mgmt currently does not see any major project issues
in its backlog.
• Quito concession sale on track, proceeds to strengthen balance sheet. The
Quito sale is running its course (we would expect news in Q4) and we view a sale
as positive for ARE stock. We estimate Quito proceeds at ~$220M.
Mercer International Inc.(NASDAQ: MERC; 13.80; TSX: MRI.U)
Paul C. Quinn (Analyst)
(604) 257-7048; paul.c.quinn@rbccm.com
Hamir Patel (Analyst)
(604) 257-7145; hamir.patel@rbccm.com
14.00
Outperform
17.00 ▼ 20.00
J
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M
A
M
2014
J
J
A
Rel. S&P 500
EPS, Adj Diluted Prev.
2013A
(0.78)
2014E
1.00↓
1.12
2015E
1.29↑
1.17
2016E
1.36↑
1.21
All values in USD unless otherwise noted.
S
O
MA 40 weeks
P/E
13.8x
10.7x
10.1x
N
• Stendal debt refinanced – On November 18, Mercer successfully refinanced at a
weighted average annual interest rate of 7.46% ($250MM due 2019 at 7.00% and
$400MM due 2022 at 7.75%). With the refinancing resolved, and Mercer recently
gaining 100% ownership of Stendal, the company will be able to eliminate its
complicated restricted/unrestricted corporate structure in December. This will
also assist Mercer with lowering its future tax bill at the Rosenthal mill as it will
be able to share Stendal's NOLs.
• Potential for further upside to our estimates from commodity/FX tailwinds –
In terms of FX, MERC sees $5MM of additional EBITDA for every 1c decline in
the Euro and $3MM for every 1c drop in the Canadian dollar. MERC also has
significant leverage to higher NBSK prices (~$13MM in EBITDA for every $10/
5
tonne price change), and option value from its ongoing C$250MM NAFTA claim
against Canada (final decision expected in H215).
• Softwood pulp markets remain strong – NA NBSK list prices have moved up $60/
tonne y/y to $1,030. We expect NA NBSK list prices to average $1,025/tonne in
FY14, $1,035 over FY15 and $1,050 over FY16. World-20 softwood pulp stocks in
September of 27 days were below balanced market levels (~30 days), and while
we anticipate a slight increase in days supply when the October data is released
on November 21, we still expect the softwood market to remain tight in the nearterm.
Metro Inc.(TSX: MRU; 90.50)
Irene Nattel (Analyst)
(514) 878-7262; irene.nattel@rbccm.com
Martin Gravel, CFA (Associate)
(514) 878-7264; martin.gravel@rbccm.com
Alex Carette (Associate)
514 878 7254; alexandre.carette@rbccm.com
52 WEEKS
Rating:
Price Target:
Outperform
95.00 ▲ 88.00
Recipe for success: F15 looks promising, target to $95 from $88
29NOV13 - 17NOV14
80.00
76.00
72.00
Q4/F14 results delivered the strongest quarterly momentum since early F13,
reflecting strong merchandising strategies and accelerating inflation. SSS of +3.1%
beat inflation by 60 bps and is the strongest print since Q4/F11. Looking ahead,
combination of modest top line growth, focus on cost containment and NCIB
execution should enable MRU to deliver double-digit EPS growth.
68.00
64.00
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1500
1000
500
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2014
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Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
EPS, Ops Diluted Prev.
2013A
4.92
2014A
5.13↓
5.14
2015E
5.90↑
5.71
2016E
6.62↑
6.40
P/E
18.4x
17.6x
15.3x
13.7x
All values in CAD unless otherwise noted.
Dan Rollins, CFA (Analyst)
(416) 842-9893; dan.rollins@rbccm.com
Mark Mihaljevic (Associate)
(416) 842-3804; mark.mihaljevic@rbccm.com
N
• Inflation creep, promotional activity drive solid earnings
• Q4/F14 EPS $1.32, +15% Y/Y and 4% above forecast, and a nice step-up
from prior quarter +9%. EBITDA print of $188.4 MM (+2.6% Y/Y) was $2MM/
$4MM above forecast/consensus as the top line beat trickled down the Income
Statement. NCIB transforming +6.2% Net Income growth into solid +15.1% EPS
growth.
• MRU seems to have found the right recipe, succeeding in passing on CPI
measured inflation of +2.5%, but also in gaining 60 bps of SSS growth above
inflation as merchandising strategies/investments and reorganization of the
Ontario store network gained traction. As in Q3, most of the internal inflation
was FX-related, stemming from Fresh, principally meat, and to a lesser degree,
produce. The 3.1% SSS print represents a sharp acceleration from prior quarter
(+1%) and the first time since Q1/F13 that MRU beat L on that metric. Total Q4
top line growth of +3.9% was aided by the acquisition of specialty baker/retailer
Première Moisson (+0.5% contribution to sales growth).
• Tweaking estimates , target to $95 from $88
• Tweaking assumptions around top line, GM and D&A lifts our F15E/F16E EPS
from $5.65/$6.24 (preview) to $5.90/$6.62. Estimates reflect, i) an intense but
rational competitive environment as square footage growth moderates going
forward, ii) modest food price inflation and operating leverage in F15/F16,
augmented by iii) buyback in the range of 7% per year. Raising P/E and EV/
EBITDA multiples to 14x and 8.5x from 13.5x and 8.0x to reflect sector re-rating
as outlook improves drives a $95 target.
Primero Mining Corp.(NYSE: PPP; 4.42; TSX: P)
Rating:
Price Target:
Outperform
6.00 ▼ 7.00
Challenges at Black Fox continue to overshadow San Dimas
Our positive outlook on Primero remains unchanged following Q3 results as San
Dimas continues to deliver solid results. Although the market remains focused
on challenges at Black Fox, we believe these challenges will be addressed, albeit
gradually, over the next few quarters. Given our positive outlook and favourable
valuation, we reiterate our Outperform recommendation.
Flagship San Dimas mine continues to fire on all cylinders
6
5.00
• The consistent operational performance at San Dimas continued during the
quarter with throughput and recoveries increasing following tie-in of recent
expansion to 2,500 tpd. With Primero continuing to invest heavily in its flagship
mine, we not only expect the consistent performance to continue, but also
production to steadily rise and costs decrease over the next few years.
4.00
Black Fox open-pit to support underground reinvestment program
52 WEEKS
29NOV13 - 17NOV14
8.00
7.00
6.00
25000
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O
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MA 40 weeks
EPS, Adj Diluted Prev.
2013A
0.37
2014E
(0.07)↓
(0.02)
2015E
(0.06)↓
0.06
2016E
0.01↓
0.18
P/E
11.8x
All values in USD unless otherwise noted.
• With underground throughput at Black Fox likely to remain limited for the next
6-12 months, cash flow from the open-pit is expected to support increased
investment in underground development. Although the acquisition of Brigus has
yet to live up to its original billing, we continue to believe increased investment in
underground development is required to ensure steady and consistent operating
results. Only once sustainable underground throughput has been achieved will
the true potential/value of the acquisition be measured.
• Once the underground is brought up to design levels, Primero will be able to focus
on enhancing the long-term value through exploration, both at Black Fox and
neighbouring Grey Fox. Should the current reinvestment program fail to deliver
sustainable results, we expect the company would likely place the operation on
care and maintenance in order to re-engineer the mine before restarting. This
would ensure resource optionality is maintained, capital is effectively invested
and potentially better position the asset to benefit when metal prices recover.
First Glance Notes
Redknee Solutions Inc.(TSX: RKN; 3.90)
Paul Treiber, CFA (Analyst)
(416) 842-7811; paul.treiber@rbccm.com
Sean Ray, P.Eng. (Associate)
416 842 6133; sean.ray@rbccm.com
Rating:
Q4 First Glance: Solid cashflow and EBITDA beat
52 WEEKS
29NOV13 - 17NOV14
7.00
6.00
5.00
4.00
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2014
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Outperform
A
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Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
All market data in CAD; all financial data in USD.
N
• Healthy EBITDA beat. Q4 adj. EBITDA was $5.8MM, which exceeded RBC
($4.2MM) and the Street ($4.0MM) and is the highest since Q3/FY13. Revenue
was $61MM, in line with RBC, but slightly below the Street ($62MM). EPS
normalized for unusuals was -$0.05, above RBC at -$0.07 (assumes $8.75MM
restructuring charge).
• Solid +$20MM operating cashflow, above expectations. Operating cashflow was
+$20MM, above RBC (+$9MM). Q4 is the first quarter of positive operating
cashflow since Q3/FY13. Net cash rose to $62MM ($0.57/share), up from $51MM
Q3.
• Bookings light on FX, support revenue declines. Implied Q4 bookings were
$57MM, slightly below our estimate ($64MM). Positively, book-to-bill was 1.1x,
which suggests that FX may have been a $7MM or more headwind to bookings.
Support revenue declined 15% Y/Y to $26.6MM, below our $30.5MM estimate,
which reflects several customers transitioning off Redknee’s platform (no new
customers since the NSN BSS acquisition closed); we believe the profitability of
these terminated support agreements is low.
• Healthy gross margins. Gross margins rose to 59.3%, above our 54% estimate
and the highest since the close of the NSN BSS acquisition. The strength likely
reflects a higher mix of software vs. service revenue and reduced proportion
of low-margin support customers. Stronger gross margins may help validate
the transformation of the acquired NSN BSS business. Redknee maintained its
target to achieve $30–35MM annual opex savings by FY16; Q4 restructuring was
$22.5MM, higher than guidance for $15–20MM as more senior employees were
eliminated.
Company Comments
Greg Pardy, CFA (Analyst)
(416) 842-7848; greg.pardy@rbccm.com
Dillon Culhane, CFA, CA (Analyst)
(416) 842-7915; dillon.culhane@rbccm.com
Franz Hargo Muljo, CA (Associate)
416 842 8588; franz.muljo@rbccm.com
Suncor Energy Inc.(TSX: SU; 38.71; NYSE: SU)
Rating:
Price Target:
Outperform
48.00
2015 Budget – Generally In-Line
7
52 WEEKS
29NOV13 - 17NOV14
46.00
44.00
42.00
Suncor Energy’s 2015 budget pointed toward 4% lower (mid-point) capital spending
of $7.5 billion and 1% lower (mid-point) production of 562,500 boe/d. This
production outlook encompasses in-line base oil sands volumes of 425,000 b/d
(including 130,000 b/d of bitumen).
40.00
38.00
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Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
EPS, Ops Diluted Prev.
2013A
3.13
2014E
3.51
2015E
3.00↑
2.91
2016E
2.94↑
2.83
P/E
12.4x
11.0x
12.9x
13.2x
All values in CAD unless otherwise noted.
• Capital Spending – 4% Lower. Suncor’s 2015 capital program of $7.2 – $7.8 billion
came in 4% below (at the mid-point) our $7.8 billion outlook. Approximately 55%
(up to $4.3 billion) of this program is allocated toward growth capital, with over
$2 billion earmarked for oil sands projects, including Fort Hills. The balance of
45% (up to $3.5 billion) is geared toward sustaining capital, including about $2.3
billion ($15/b) for Suncor’s base oil sands operations.
• Production – Broadly In-Line. Suncor's 2015 production guidance of 540,000 –
585,000 boe/d came in 1% below (at the mid-point) our 570,225 boe/d outlook.
This guidance excludes Libya production due to continued political unrest. The
company's (base) oil sands guidance of 410,000 – 440,000 b/d is in-line with our
previous estimate of 428,800 b/d.
• Our revised 2015 production outlook of 562,500 boe/d (vs. 570,200 boe/d
previously) includes base oil sands production of 425,000 b/d, both at the
mid-point of Suncor’s guidance range. We have reduced our base oil sands
cash operating costs by 2% to $32.50/b, while our oil sands royalties remain
unchanged at 6.5%.
TransCanada Corp.(TSX: TRP; 57.50; NYSE: TRP)
Robert Kwan, CFA (Analyst)
(604) 257-7611; robert.kwan@rbccm.com
Kelsey Roste (Associate)
(604) 257-7383; kelsey.roste@rbccm.com
Rating:
Price Target:
52 WEEKS
29NOV13 - 17NOV14
Outperform
68.00
Investor Day: A core message for the core investor
We believe that commentary on the smoothing of the dividend growth coupled
with additional definition on the timing of MLP dropdowns will be well-received
by the investors that management sees as "core" to the company. We believe
that these developments are positive for the share price and support our
Outperform rating.
62.00
60.00
58.00
56.00
54.00
52.00
50.00
48.00
16000
12000
8000
4000
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EPS, Adj Diluted
2013A
2.24
2014E
2.31
2015E
2.60
2016E
2.85
P/AEPS
25.7x
24.9x
22.1x
20.2x
All values in CAD unless otherwise noted.
N
• Dividends: guidance for higher growth, but no major change in the payout ratio.
TransCanada is messaging at least an 8% dividend CAGR through 2017 based on
its visible portfolio of small to medium-sized projects. Further, as the company
gets visibility on the $33 billion of large-scale projects (e.g., Energy East, Keystone
XL, LNG pipes), there is the potential for a step up in the growth rate to 10%
or more. To be clear, the higher dividend growth guidance is in line with the
expected EPS CAGR (i.e., no change in the multi-year average payout ratio).
• MLP dropdowns: "conveyor belt" approach for U.S. gas assets could be
completed by the end of 2017; Keystone could be up next. The company
reiterated its guidance that it expects to use a "conveyor belt" approach of
multiple dropdowns over time rather than an "all at once" dropdown. Further,
the company confirmed that its funding plan assumes the dropdown of the entire
U.S. gas pipeline business into TC PipeLines roughly by the end of 2017.
• Step up in the growth rate driven mostly by new projects. TransCanada updated
its EBITDA build-up through 2020, which shows a roughly 8% CAGR through 2017
underpinned by the visible growth from small to medium-sized projects and the
potential for an approximate 16% CAGR from 2017-2020 due to the large scale
growth projects. Assuming all of the large projects move forward, this equates to
a roughly 12% EBITDA CAGR through 2020 (up from 10% from the 2013 Investor
Day).
Industry Comments
Jonathan Guy (Analyst)
+44 20 7653 4603; jonathan.guy@rbccm.com
Adapting to Survive in a Weak Commodity Price Environment
RBC 13th Annual Senior Gold Miners Conference
8
Stephen D. Walker (Analyst)
(416) 842-4120; stephen.walker@rbccm.com
Dan Rollins, CFA (Analyst)
(416) 842-9893; dan.rollins@rbccm.com
Richard Hatch, ACA (Analyst)
+44 20 7002 2111; richard.hatch@rbccm.com
Ioannis Masvoulas, CFA (Associate)
+44 20 7653 4647; ioannis.masvoulas@rbccm.com
Alexandra Slattery (Associate)
0044 0 2070290870; alexandra.slattery@rbccm.com
Mark Mihaljevic (Associate)
(416) 842-3804; mark.mihaljevic@rbccm.com
Jamie Kasprowicz, P.Eng., CFA (Analyst)
(416) 842-8934; jamie.kasprowicz@rbccm.com
All values in USD unless otherwise noted.
• Industry responds to lower prices with significant cost cutting measures - Whilst
this may persist into 2015, the cuts to exploration and development expenditures
and the shortening of mine lives as higher grade material is mined should result
in mined production for gold declining over the medium term.
• The industry would require material change if gold fell below US$1,000/oz - The
majority of companies presenting indicated that they would not have to make
significant further changes to their operations if the gold price held at current
levels, although a number of companies suggested that they would need to cut
some production or defer capital projects if prices were to decline below US
$1,100/oz for a prolonged period.
• Local currency weakness and lower oil prices provide some relief - The impact
of the lower oil price and other commodity-driven inputs such as steel, combined
with weaker currencies, has provided some measure of relief for the miners with
one CEO with significant emerging market exposure commenting that margins
were the same as at US$1,300/oz.
• Credit rating and balance sheet stability key, M&A still not a focus Management teams indicated that their first preference for allocating FCF would
be to strengthen balance sheets, with a focus for the larger miners on the
maintenance of ratings with the credit agencies.
Darko Mihelic, CFA (Analyst)
416 842 4128; darko.mihelic@rbccm.com
Canadian Banks
Brendon Sattich (Associate)
416 842 7804; brendon.sattich@rbccm.com
• The Canadian Banks begin reporting Q4/14 results on December 2, 2014 and we
have left our EPS estimates unchanged ahead of the quarter. Our Q4/14 core
cash EPS estimates equate to growth of 5% YoY. We also forecast that BMO, CM,
and NA will raise their quarterly dividends in Q4.
Vanessa Wan (Associate)
416 842 5638; vanessa.wan@rbccm.com
Earnings Preview, Branch Consolidation (?) and a "Time Out" on some stocks
All values in CAD unless otherwise noted.
Mark Sue (Analyst)
(212) 428-6491; mark.sue@rbccm.com
Ameet Prabhu (Associate)
(212) 618-3330; ameet.prabhu@rbccm.com
Spencer Green (Associate)
212 858 7153; spencer.green@rbccm.com
All values in USD unless otherwise noted.
Paul C. Quinn (Analyst)
(604) 257-7048; paul.c.quinn@rbccm.com
Hamir Patel (Analyst)
(604) 257-7145; hamir.patel@rbccm.com
All values in USD unless otherwise noted.
CommTech: New guests crash optical party
• Optical industry consolidation gets rolling. Oplink Communications announced
it reached a deal to be purchased by Koch Industries for $445M or $24.25/share
in an all cash transaction. We believe the entrance of a well-capitalized buyer
from outside the traditional optical space changes dynamics and may increase
the pace of industry consolidation that has been foreshadowed over the past
year.
• An important positive change for the optical landscape. The deal signifies
an important change for the optical industry as most have been looking for
consolidation within the industry but didn’t factor in outside bidders in adjacent
markets. With large industrial competitors like Koch entering the fray, we believe
smaller competitors will faster realize the need for greater scale to offset annual
pricing pressures and high R&D requirements.
Paper & Forest Products
P&W paper stats: NA demand continues to decline and import gains aren't
helping
• Shipments decreased by 7% y/y – P&W shipments in October were down
by 6.5% on a y/y basis (+3.0% m/m). Coated groundwood (CGW) shipments
increased 4.0% y/y while uncoated groundwood (UGW) shipments were down
8.8%. Coated freesheet (CFS) shipments declined 4.1% y/y and uncoated
freesheet (UFS) shipments were 10.3% lower.
• P&W demand down for everything except CGW – Total P&W demand declined
4.6% y/y (+3.6% m/m). Demand for UGW fell 13.4% y/y while CGW demand was
3.2% higher. Groundwood markets have had to absorb ~10% annual declines in
NA newsprint demand. Demand for CFS declined 1.2% y/y and UFS was 4.9%
lower y/y (an acceleration on the -4.0% YTD).
• Overall inventories lower m/m – NA inventories declined 8.3% m/m (-113K
tonnes) to 1,250K tonnes. We note that October inventories have declined in
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nine of the last ten years (average 69K tonne drawdown). M/M (changes) were
CGW (-9.2%), UGW (-11.3%), CFS (-9.1%) and UFS (-6.2%).
• Operating rates lower y/y for 3/4 grades – The overall NA operating rate
(shipments-divided-by-capacity) was flat y/y at 97%. CFS was down y/y at 99%
(-100 bps y/y) while CGW was +900 bps y/y at 106%. UFS declined to 93% (-300
bps y/y) and UGW decreased to 95% (-300 bps y/y).
Al Stanton (Analyst)
+44 131 222 3638; al.stanton@rbccm.com
RBC International E&P Daily
Nathan Piper (Analyst)
+44 131 222 3649; nathan.piper@rbccm.com
AMER.L: Platanillo Site Visit - Pipeline Ready; TLW.L: Offshore French Guiana
update; PRE.TO: Reiterates share buyback; BG.L: Time to Deliver, Upgrading to
Outperform
Haydn Rodgers, CA (Associate)
+44 131 222 4911; haydn.rodgers@rbccm.com
AMER; PRE; BG ;TLW
Victoria McCulloch, CA (Analyst)
+44 131 222 4909; victoria.mcculloch@rbccm.com
All values in USD unless otherwise noted.
10
Required disclosures
Non-U.S. analyst disclosure
Al Stanton;Nathan Piper;Haydn Rodgers;Victoria McCulloch;Robert Kwan;Kelsey Roste;Jonathan Guy;Dan Rollins;Richard
Hatch;Ioannis Masvoulas;Alexandra Slattery;Mark Mihaljevic;Jamie Kasprowicz;Greg Pardy;Dillon Culhane;Franz Hargo Muljo;Paul
Treiber;Sean Ray;Paul C. Quinn;Hamir Patel;Irene Nattel;Martin Gravel;Alex Carette;Darko Mihelic;Brendon Sattich;Vanessa
Wan;Sara O'Brien;Juliane Szeto (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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the meanings are not the same because our ratings are determined on a relative basis (as described below).
Distribution of ratings
RBC Capital Markets, Equity Research
As of 30-Sep-2014
Rating
BUY [Top Pick & Outperform]
HOLD [Sector Perform]
SELL [Underperform]
Count
858
683
98
Percent
52.35
41.67
5.98
Investment Banking
Serv./Past 12 Mos.
Count
Percent
308
35.90
151
22.11
8
8.16
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To access our current policy, clients should refer to
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