1. business and industrial
2. business operations
3. management
4. business process

EQUITY RESEARCH
CANADIAN RESEARCH AT A GLANCE
February 4, 2015
Price Target Revisions
! Brookfield Infr Partners L.P.
! Uni-Select Inc.
Summary
Securing the base and positioning for a potential "step change" in growth
Summary
See timing right to buy UNS on positive 2015 outlook and valuation
Summary
Nevsun reports significant increase in resources from 2014 drilling
Summary
Tracking the IDRs on the heels of BIP's 10% distribution increase
Summary
Q3 unlikely to change the story
Summary
Q4/14 Preview: Lower prices to weigh on results
Summary
Operational visibility remains foggy
Summary
Adding in Ainsworth to our estimates
Summary
Key drivers all still pointing in the right direction
! Bulking Up - RBC's Weekly Review
! Intermediate Oil Sands and E&P
Summary
Iron ore prices continue to fall while met coal prices remain stable
!
Summary
First Glance Notes
! Nevsun Resources Ltd.
Earnings Preview
! Brookfield Asset Management
! SMART Technologies Inc.
! Teck Resources Limited
Company Comments
! Manitok Energy Inc.
! Norbord Inc.
! WestJet Airlines Ltd.
Industry Comments
Weekly Valuation Tables
Q1/15 Global Mining Best Ideas
Portfolio
RBC Canadian Energy
!
! RBC Global Energy Best Ideas List
! RBC International E&P Daily
! Uranium Weekly
Summary
Summary
Junior/Intermediate E&P: Weekly Review and Valuation Tables
Summary
Summary
LUPE; DETNOR; GPX; PPC
Summary
Ux spot price up $0.75/lb to $37.50/lb; TradeTech up $0.50/lb to $37.25/lb
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
February 4, 2015
Price Target Revisions
! AFLAC Inc.
! American Capital Agency Corp.
! Artisan Partners Asset Management
Summary
Some progress
Summary
Strong 4Q14 – Shares Remains Undervalued vs. Rate Risk
Summary
Needed: Better performance. It'll restore growth
!
! Boston Properties, Inc.
! Brookfield Infr Partners L.P.
! Edwards Lifesciences Corp.
! Gilead Sciences
! Heartland Express, Inc.
! LyondellBasell Industries NV
! National Oilwell Varco, Inc.
! Pentair Ltd.
! Spirit AeroSystems Holdings
! Stratasys, Ltd.
! The Ultimate Software Group, Inc.
! The Walt Disney Company
! The Wendy's Company
! United Parcel Service, Inc.
Summary
4Q14: Staying the course
Summary
Raising target on improved NAV outlook; Long term growth drivers remain in place
Summary
Securing the base and positioning for a potential "step change" in growth
Summary
Strong TAVR Performance Drives 4Q Beat; Raising Price Target
Summary
What to do now? What's the range of scenarios and what could the stock do?
Summary
Slight miss in the quarter
Summary
Raising Target on Resilient Ethylene Margins
Summary
Positioning for the Flip Side of the Cycle
Summary
Still Attractively Positioned Despite Ongoing FX and Oil Headwinds
Summary
4Q14 - More catches, more cash
Summary
Even 3D Printers Have Paper Jams
Summary
Billings Noise, Underlying Biz Solid: 4Q14 Earnings Recap
Summary
Not Too Shabby for Pit Stop on the Way to 2016
Summary
Wendy is growing up
Summary
The bar has been reset, time to move forward
Summary
4Q results initial take
Summary
Ahead by $0.06 on mix of low quality line items; new 2015 in line with Street
Summary
Results Ahead on Lower Expense with Initial Guidance Strong, Dividend Increased
Summary
Guidance conservative, dividend and buyback very impressive
Summary
1Q15 First Glance
Summary
4Q results well ahead of expectations
Summary
Announces $1.64bn deal to acquire Alkali Chemicals
Summary
Q4 earnings preview
Summary
More good things to come
Summary
Fourth Quarter Earnings Preview and Cheat Sheet
Summary
Fourth Quarter Earnings Preview and Cheat Sheet
Summary
FY 2014 Preview - Kibali ramp up the focus
Summary
Trimming 4Q Estimates a Bit on Auto, but See Improving Ad Outlook
Inc.
Bar Harbor Bankshares
First Glance Notes
! Arthur J. Gallagher & Co.
! CBL & Associates Properties
! Equity Residential
! Gilead Sciences
! Mueller Water Products, Inc.
! RenaissanceRe Holdings, Ltd.
! Tronox Ltd.
Earnings Preview
! Cadence Design Systems
! Cisco Systems, Inc.
! Imperva Inc.
! Q2 Holdings, Inc.
! Randgold Resources Ltd.
! Sinclair Broadcast Group, Inc.
2
EQUITY RESEARCH
! SMART Technologies Inc.
! Teck Resources Limited
! Corporate Executive Board
Summary
Q3 unlikely to change the story
Summary
Q4/14 Preview: Lower prices to weigh on results
Summary
Thoughts ahead of Q4 results; Outperform
Summary
Concentrating Too Hard Can Cause Issues
Summary
Debbie Downer at Oil and Gas
Summary
Wrapping up a strong year
Summary
4Q14 Production Was 1% Below Consensus, But With An Oilier Mix
Summary
Sum of Incremental Positives = Outsized Reaction
Summary
Validates Hyperconverged Opportunity with Release of VSPEX BLUE
Summary
Hard to Get Enthused Right Here with Such a Stormy Forecast
Summary
Consistent performance continues, results largely in line with expectations
Summary
Strong results; guidance below but could prove conservative
Summary
Thoughts on activist call for break-up
Summary
Afrezza launched; bull bear debate likely to heat up fast
Summary
Knowing the real thing when you see it
Summary
Solid results, material lease fleet growth starting now
Summary
Capital Markets Day Update
Summary
Setting the Table for 2015
Summary
Share repurchase: The LTC charge shouldn't upset it
Summary
Steady improvements
Company Comments
! Benchmark Electronics, Inc.
! Black Hills Corp.
! Chipotle Mexican Grill, Inc.
! Continental Resources, Inc.
! Eaton Corporation plc
! EMC Corporation
! Emerson Electric Co.
! Fiserv, Inc.
! HCA Holdings, Inc.
! Lear Corp.
! MannKind Corporation
! Provident Financial Services
! Ryder System, Inc.
! SAP SE
! Sensata Technologies N.V.
! Unum Group
! W.R. Berkley Corporation
Industry Comments
! Autos: Solid Start to the Year;
Summary
16.7mm January SAAR
Bulking Up - RBC's Weekly Review
Summary
!
! Commercial Trucks: Prelim net orders Summary
Iron ore prices continue to fall while met coal prices remain stable
!
Adjusting Forecasts
!
off to healthy start in January
Global Energy Research Commodity Summary
Price Revisions
IT Hardware: Implications from
Summary
Lenovo’s Earnings
RBC European Industrials Daily
Summary
!
! RBC International E&P Daily
Class 8 preliminary orders +2% y/y to 35,400
Emerson cautious on process industry, VDMA data, NOV 2015 guidance
Summary
LUPE; DETNOR; GPX; PPC
Summary
More noise, but steady progress in Brazil
In-Depth Reports
! BG Group plc
3
EQUITY RESEARCH
UK & European Research at a Glance
February 4, 2015
Ratings Revisions
! Deutsche Lufthansa AG
Summary
The challenges have not changed
Summary
Time for execution
Summary
Faster equity growth, cheaper than easyJet
Summary
TALK – Growth accelerating, EBITDA needs to keep pace
Summary
Tracking the IDRs on the heels of BIP's 10% distribution increase
Summary
More good things to come
Summary
FY 2014 Preview - Kibali ramp up the focus
Summary
Targets in line with valuation
Summary
Iron ore prices continue to fall while met coal prices remain stable
Summary
Capital Markets Scorecard January
Price Target Revisions
! Millicom International Cellular SA
! Ryanair Holdings PLC
! TalkTalk Telecom Group PLC
Earnings Preview
! Brookfield Asset Management
! Cisco Systems, Inc.
! Randgold Resources Ltd.
Company Comments
! Banco Santander SA
Industry Comments
! Bulking Up - RBC's Weekly Review
! Global Investment Banks
! Q1/15 Global Mining Best Ideas
Summary
Portfolio
In-Depth Reports
! BG Group plc
Summary
More noise, but steady progress in Brazil
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
Brookfield Infr Partners L.P.(NYSE: BIP; 42.53; TSX: BIP.UN)
Robert Kwan, CFA (Analyst)
(604) 257-7611; robert.kwan@rbccm.com
Michelle Zuliani (Associate)
604 257 7064; michelle.zuliani@rbccm.com
52 WEEKS
Rating:
Price Target:
14FEB14 - 03FEB15
Securing the base and positioning for a potential "step change" in growth
Due to a low payout ratio and attractive FX hedges, BIP was able to deliver a 10%
distribution increase, and we expect a similar increase in 2016. Looking forward,
we believe accretive acquisitions (e.g., TDF) and organic growth should deliver
future FFO/unit growth, which, combined with ample liquidity, positions BIP very
well to capitalize on "opportunities for step change growth."
42.00
40.00
38.00
2000
1500
1000
500
F
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A
M
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2014
J
A
S
O
Rel. S&P 500
N
D
2015
J
F
MA 40 weeks
FFO/Unit Prev.
3.30
3.44↓
3.47
3.70↓
3.88
4.08↓
4.20
2013A
2014A
2015E
2016E
All values in USD unless otherwise noted.
• Potential opportunities for a step change in growth. Management was
enthusiastic with respect to the potential for acquisitions in 2015, in the smaller
"bolt-on" range (i.e., $100–300 million) as well as much larger transaction sizes
(could be into the billions). BIP sees the best opportunities in two categories:
(1) acquiring infrastructure from Brazilian construction companies (similar to
previous acquisitions from European construction companies); and (2) corporate
deleveraging and carve-outs (similar to BIP's VLI and Trapac acquisitions).
• Capital recycling remains on the front burner. In all of our coverage universe,
BIP is the only company that regularly recycles large amounts of capital by selling
non-core assets, targeting high valuations (or conversely, lower expected IRRs)
and re-deploying that capital into new acquisitions. BIP has identified $1 billion
of non-core assets and is currently working on two asset sale processes (one of
which is its 26%-stake in NGPL).
• Modestly reducing estimates primarily to reflect weaker FX rates (mostly Brazil
as it is unhedged). Our new 2015 and 2016 FFO/unit estimates are $3.70 and
$4.08, respectively (down from $3.88 and $4.20, respectively).
• Increasing price target to $48.00 (from $46.00). Our new price target is primarily
driven by ascribing incremental value to potential new acquisitions (i.e., our IRR
value-add analysis). We now assume $5 billion of incremental growth over the
next three years (up from $3 billion), and even with the step-up in the potential
incremental growth, we believe that there may be additional upside.
Uni-Select Inc.(TSX: UNS; 31.54)
Sara O'Brien, CFA, CA (Analyst)
(514) 878-7256; sara.obrien@rbccm.com
Juliane Szeto (Associate)
(416) 842-3806; juliane.szeto@rbccm.com
32.00
Outperform
48.00 ▲ 46.00
Rating:
Price Target:
52 WEEKS
14FEB14 - 03FEB15
Outperform
38.00 ▲ 35.00
See timing right to buy UNS on positive 2015 outlook and valuation
We believe UNS is reshaping its US operations for higher profitability and we
expect that rightsizing its US footprint will drive continued earnings growth
in F15. With improving margins continuing, we expect UNS will see a positive
multiple re-rating as investors gain confidence in the long term benefits of the US
restructuring plan.
30.00
28.00
26.00
400
200
F
M
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M
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2014
J
A
S
O
N
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2015
J
F
Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
EPS, Ops Diluted Prev. P/E Ops Diluted
2013A
2.36
10.8x
2014E
2.51
10.1x
2015E
2.62↓
2.71
9.7x
2016E
2.76↓
2.86
9.2x
All market data in CAD; all financial data in USD; dividends paid in
CAD.
• Taking target to $38 on FX, see timing right to buy UNS on positive US tailwinds
and low valuation. We expect UNS to benefit from current macro environment
in the US with low gasoline prices freeing up consumer disposable income for
automotive repair and maintenance spend. We have upped our target price
on UNS to $38 from $35, primarily on US FX. We see current valuation as an
attractive entry point and we maintain our Outperform recommendation.
• Margin expansion from US action plan. From conversations with management,
the US action plan is progressing well and nearing completion in Q1 F15. We see
2015 margins stronger vs. 2014, we currently model 6.4% EBITDA margin for F15
up 30bps YoY and vs. our Q4 estimate.
5
• RBC Q4E EPS is $0.56, down 10% YoY on tax, in line with Street at $0.57. We
see Q4 EPS down YoY on higher tax rate. We estimate revenue growth of 1% and
EBITDA margin at 6.1% up 30 bps YoY.
• UNS reports Q4 F14 results February 12th.
First Glance Notes
Nevsun Resources Ltd.(TSX: NSU; 4.58)
Fraser Phillips, P.Eng. (Analyst)
(416) 842-7859; fraser.phillips@rbccm.com
Steve Bristo, CFA (Associate)
(416) 842-7826; steve.bristo@rbccm.com
Thomas Klein (Associate)
(416) 842-5339; thomas.klein@rbccm.com
Rating:
Sector Perform
Risk Qualifier: Speculative Risk
Nevsun reports significant increase in resources from 2014 drilling
52 WEEKS
14FEB14 - 03FEB15
5.10
4.80
4.50
4.20
3.90
3.60
4500
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1500
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2015
J
• Bottom Line: Nevsun's drilling in 2014 met with good success. While total
measured and indicated resources were down slightly year over year, inferred
resources increased significantly. Total tonnes of inferred resources were up
341% while contained copper increased 570%, contained zinc 364%, contained
gold 180%, and contained silver 375%. We view Nevsun's Eritrean properties as
highly prospective and expect the company to meet with further success from
its planned $10 million drilling program in 2015. Drilling is currently underway.
• Nevsun intends to release updated mineral reserves with its year end financial
results. Timing has not been announced.
• Nevsun intends to carry out scoping studies on underground mining at both Bisha
and Harena in 2015.
F
Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
All market data in CAD; all financial data in USD.
Earnings Preview
Brookfield Asset Management(NYSE: BAM; 52.06; TSX: BAM.A)
Neil Downey, CFA, CA (Analyst)
(416) 842-7835; neil.downey@rbccm.com
Kevin Cheng, CFA (Associate)
(416) 842-3803; kevin.cheng@rbccm.com
Michael Smith, CFA (Analyst)
(416) 842-7805; michael.smith-tor@rbccm.com
52 WEEKS
Rating:
Price Target:
Outperform
55.00
Tracking the IDRs on the heels of BIP's 10% distribution increase
14FEB14 - 03FEB15
52.00
50.00
48.00
46.00
44.00
This morning Brookfield Infrastructure Partners (BIP) has announced its Q4/14 and
full year results, along with a 10% increase in its distributions per LP unit. Within
this brief note we illustrate how BIP's higher distribution rate drives a ~30% increase
in BAM's Incentive Distribution Rights (IDRs). We maintain our $55 price target and
we reiterate our Outperform rating on BAM's shares.
42.00
40.00
38.00
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2013A
2014E
2015E
2016E
CFPS Diluted
5.14
3.12
3.48
3.83
J
2014
J
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Rel. S&P 500
N
D
2015
J
MA 40 weeks
P/CFPS
10.1x
16.7x
15.0x
13.6x
All values in USD unless otherwise noted.
F
• BIP increases distributions by 10% – This morning BIP's Board declared a
quarterly distribution in the amount of $0.53/unit, payable on Mar-31. The new
annualized rate of $2.12/unit represents a 10% increase over the prior $1.92/
unit.
• Increase drives ~30% in BAM's IDRs – The IDR agreement entitles BAM to earn a
percentage of increases in distributions paid by its three managed listed entities
(“BIP”; “BEP”; “BPY”) above predetermined thresholds. BIP is well into the
top-tier incentive threshold whereby IDRs equate to 33% of BIP’s distributions
to limited partner distributions in excess of $1.32/unit. As such, today’s 10%
increase in BIP's distribution rate drives a ~30% increase in BAM's annualized
IDRs. In gross dollar terms, the BIP IDRs to BAM now equate to $60MM ($0.09/
share) annualized, up from $46MM ($0.07/share) formerly (refer to Exhibit 2 on
page 3).
• 2015 IDR forecast looking slightly too conservative – Our 2015 total IDR forecast
is currently $60MM. As noted, the new IDR run-rate from BIP alone equals this
figure and including the existing distribution rate from BEP, BAM is now entitled
to $62MM in annual ADRs. An expected distribution increase from BEP could
provide modest upside to this figure.
6
• Q4/14 and year-end results around the corner – BAM will report Q4/14 and
full-year results on Friday February 13th at ~8am ET. We forecast Operating
FFO/share of $0.65, up ~10% from Q4/13's $0.59 (excluding carried interest
realizations of ~$560MM or $0.89/share).
• Outperform rating and $55 price target reiterated
SMART Technologies Inc.(NASDAQ: SMT; 1.57; TSX: SMA)
Paul Treiber, CFA (Analyst)
(416) 842-7811; paul.treiber@rbccm.com
Sean Ray, P.Eng. (Associate)
416 842 6133; sean.ray@rbccm.com
5.00
52 WEEKS
14FEB14 - 03FEB15
4.00
Q3 unlikely to change the story
We believe the fundamental outlook on SMART won’t materially change following
Q3 results. We expect the quarter to be in line with guidance and FY15 outlook to
remain unchanged. Education remains challenging, and the ramp in enterprise is
delayed several quarters. Other new products are innovative, but may also take a
few quarters to meaningfully contribute to financials. Maintain Sector Perform.
3.00
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2013A
2014A
2015E
2016E
Rating:
Sector Perform
Risk Qualifier: Speculative Risk
Price Target: 2.50
J
2014
J
A
S
Rel. S&P 500
Revenue
589.4
589.2
496.6
480.6
All values in USD unless otherwise noted.
Fraser Phillips, P.Eng. (Analyst)
(416) 842-7859; fraser.phillips@rbccm.com
Steve Bristo, CFA (Associate)
(416) 842-7826; steve.bristo@rbccm.com
Thomas Klein (Associate)
(416) 842-5339; thomas.klein@rbccm.com
O
N
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2015
J
MA 40 weeks
F
• Expect Q3 in line with guidance. SMART is reporting Q3/FY15 on February 5
after market close. We expect GAAP revenue to decline 23% Y/Y to $121MM,
in line with the street ($121MM); our outlook implies $105MM core revenue
(excludes change in deferred revenue), in line with the mid-point of guidance
($100-110MM). For adj. EBITDA, we’re looking for $4.5MM, at the mid-point of
guidance ($3-6MM), but slightly below the street ($5MM). We expect adj. EPS at
-$0.03, vs. the street at -$0.05.
• FY15 guidance likely to be reaffirmed. We expect SMART to reaffirm its FY15
guidance for $420-440MM adj. revenue and $25-30MM adj. EBITDA. While FX
is a modest headwind to Q4/FY15 revenue (est. $2MM) and a tailwind to adj.
EBITDA (est. $2MM), we believe there is sufficient leeway in FY15 guidance to
accommodate.
• -25% Y/Y education growth, flat Y/Y enterprise estimated. Our outlook calls
for a 25% Y/Y decline in education revenue, which reflects the challenging
demand environment for whiteboards, as schools prioritize other initiatives.
We’re looking for SMART’s enterprise revenue to remain flat Y/Y, as rollouts of
SRS remain slow and face tough comps.
• SMART rolls out kapp and other new products, Microsoft announces Surface
Hub. SMART started shipping kapp in November. SMART is also launching
Notebook 2015 software and kapp premium services, which would be accretive
to margins. Competitively, Microsoft announced Surface Hub, an 84” capacitive
touchscreen that appears to be a descendant from its Perceptive Pixel acquisition
(2012).
Teck Resources Limited(TSX: TCK.B; 17.10; NYSE: TCK)
Rating:
Price Target:
Outperform
29.00
Q4/14 Preview: Lower prices to weigh on results
We do not expect any improvement in results from the coal business this quarter
as coal prices remain roughly where they were in Q3. Lower base metal prices
should also weigh on results. We expect the focus of the quarterly report and
conference call to be on increased efforts to reduce opex and capex to preserve
financial flexibility and protect the balance sheet.
• Q4/14 earnings expected to decrease sequentially: We forecast Q4/14 EPS of
$0.24 versus $0.32 in Q3/14 and $0.39 in Q4/13. Consensus is $0.21. We expect
the coal segment to remain weak and lower base metals prices to weigh on
results.
7
28.00
26.00
24.00
22.00
20.00
52 WEEKS
14FEB14 - 03FEB15
18.00
16.00
14.00
20000
15000
10000
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2015
J
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Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
EPS, Adj Diluted Prev.
2013A
1.76
2014E
0.97↓
0.98
2015E
1.24↓
1.27
2016E
2.04↓
2.06
All values in CAD unless otherwise noted.
• Coal results expected to remain weak: We are expecting Q4/14 coal sales
volumes of 6.5 million tonnes, in line with Teck's previous guidance for total
sales to be at or above 6.5 million tonnes. Teck had contracted sales of 6.3
million tonnes when it reported its Q3/14 results and expected to sell additional
tonnage, including spot sales, throughout the quarter. We assume a Q4/14
realized price of $110/t, a 7.5% discount to the benchmark of $119/t.
• Lower prices but higher sales volumes expected for copper: We are expecting
copper sales volumes to increase to 83,490 tonnes in Q4/14 from 81,348 in
Q3/14. Average copper prices for Q4/14 were $3.00/lb, down from $3.17/lb in
Q3/14.
• Lower prices and similar sales volumes expected for zinc: The 2014 shipping
season was completed on October 20, and Teck expects to sell 183,000 tonnes of
zinc from Red Dog in Q4/14, in line with 182,700 tonnes in Q3/14. Average zinc
prices for Q4/14 were $1.01/lb, down from $1.05/lb in Q3/14.
• Project updates: We expect an update on the ramp-up at Pend Oreille, which
shipped its first concentrates mid-December. We also expect an update on cost
estimates for the Elk Valley Water Quality Plan, which are not expected to differ
materially from previous company disclosure.
Company Comments
Manitok Energy Inc.(TSXV: MEI; 0.76)
Shailender Randhawa, CFA (Analyst)
(403) 299-6576; shailender.randhawa@rbccm.com
Keith Mackey, CFA (Associate)
403 299 6958; keith.mackey@rbccm.com
3.00
2.50
52 WEEKS
14FEB14 - 03FEB15
Operational visibility remains foggy
Manitok Energy fell short of its 2014 production targets on a slower than expected
ramp up at it's Entice farm-in. In our view, the company's decision to target debt
reduction through H1/15 is sensible, but the investment case for Entice remains
unclear even as commodity prices recover.
2.00
1.50
1.00
4500
3000
1500
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2013A
2014E
2015E
2016E
Rating:
Sector Perform
Risk Qualifier: Speculative Risk
Price Target: 1.00
M
J
2014
J
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S
O
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2015
J
Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
Total (boe/d) Prev.
4,113
4,509↓
4,750
4,300↓
5,750
4,500↓
6,700
All values in CAD 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
F
• Entice not a needle mover for MEI or PSK in H1/15. We're not looking for home
runs on Manitok's 97,000 net acre farm-in with PrairieSky Royalty, but results
from the last five hz wells appear quite mixed in our view with one strong Glauc
well versus a couple of dry holes, a gas well plus a mechanical failure. Although
the company estimates approximately 70 future drilling locations in the Lithic
Mannville channel sands, we think more work is needed to build confidence
in the area's type curves in order to assign risked value in our NAV. Manitok's
net $20.9 million 2015 capital commitment at Entice appears manageable, but
the sliding scale royalty of the farm-in limits the return potential at current
commodity prices based on our read of IP rates to date. Renegotiating to a lower
fixed royalty rate would make a lot of sense in order for Manitok to move forward
given the geological risk.
• Discounted valuation reflects above average execution risk. At current levels,
Manitok is trading at a 2015E debt-adjusted cash flow multiple of 6.5x (vs. <
15,000 boe/d peers at 10.3x) and a P/NAV of 0.2x (vs. peers at 0.7x).
• Maintaining Sector Perform, Speculative Risk with a $1.00 price target. Our
12-month price target reflects a 0.3x multiple of our adjusted base NAV plus
unbooked upside of $3.54/share, which assumes slower de-risking at Entice due
to lower commodity prices and balance sheet constraints.
Norbord Inc.(TSX: NBD; 27.82)
Rating:
Price Target:
Sector Perform
28.00
Adding in Ainsworth to our estimates
8
32.00
52 WEEKS
14FEB14 - 03FEB15
30.00
28.00
Incorporating Ainsworth into our Norbord estimates. We expect the merger to
be completed on time and to deliver on targeted synergies. Maintaining Sector
Perform rating and $28 price target.
26.00
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22.00
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2015
J
F
Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
EPS, Adj Diluted Prev.
2013A
2.75
2014A
0.35
2015E
0.34↑
0.28
2016E
2.62↑
1.91
P/AEPS
8.1x
63.9x
65.8x
8.5x
All market data in CAD; all financial data in USD; dividends paid in
CAD.
WestJet Airlines Ltd.(TSX: WJA; 31.10; TSX: WJA.A)
Walter Spracklin, CFA (Analyst)
(416) 842-7877; walter.spracklin@rbccm.com
Derek Spronck (Analyst)
(416) 842-7833; derek.spronck@rbccm.com
52 WEEKS
Rating:
Price Target:
14FEB14 - 03FEB15
34.00
Outperform
38.00
Key drivers all still pointing in the right direction
WestJet reported solid Q4/14 results and while management noted that they are
seeing some competitive pressures emerging, the overall demand environment
is robust. Adding further tail-wind is the lower jet fuel price environment, which
management clearly stated would go to the bottom line. We believe management
is prudently taking advantage of favourable industry conditions that we expect will
deliver higher profitability and valuations.
32.00
30.00
28.00
26.00
24.00
4000
3000
2000
1000
F
M
A
Close
2013A
2014A
2015E
2016E
• Ainsworth transaction nearing completion – The merger with Ainsworth is on
track for closing by the end of Q1. More than 99% of shareholders from both
companies voted in favour of the transaction on January 27 and the BC Supreme
Court approval was achieved on January 30. While the DoJ's regulatory review
is ongoing, Norbord and Ainsworth expect a satisfactory outcome that will not
impact the expected timing of closing.
• Revising estimates to include Ainsworth (from Q215E) – While we only
recently revised our estimates (following the release of Q4 results), with
the Ainsworth merger close to completion we are now incorporating the
combination transaction into our model, and we see the new Norbord generating
$448MM of EBITDA in 2016 and $500MM on a trend basis. Norbord anticipates
achieving ~$45MM/yr of operational synergies over an 18- to 24-month period
(RBCe $36MM of synergy contribution in 2016E), with associated one-time costs
of ~$14MM.
M
J
2014
J
A
S
O
N
D
2015
J
Rel. S&P/TSX COMPOSITE INDEXMA 40 weeks
Revenue Prev.
3,662.5
3,976.6↓
3,989.1
4,137.1↓
4,169.8
4,311.2↓
4,345.3
All values in CAD unless otherwise noted.
F
• Solid Q4/14 results come with 17% dividend hike. WestJet reported Q4/14
adjusted EBITDAR of $240MM, which was in line with consensus estimate.
EBITDAR margins expanded 320 bps to 24.1% and WJA once again came in well
north of its 12% ROIC target at 14.3%. This led the Board to approve a meaningful
dividend increase of 17%, which was better than our 12% expectation.
• Some softness in yields - not a concern in our view. While we had anticipated
2% yield growth following the introduction of 1st bag fees in the quarter,
management indicated that the full run-rate benefit wouldn't be captured until
pre-bag fee ticket sales have been lapped. On the demand front, management
did note some competitive pressures; however, the overall demand environment
remains robust. After all the puts and takes, we believe we continue to be in a
supportive demand and pricing environment.
• Leveraging favourable industry conditions. On the conference call, the CEO
articulated a pricing strategy that was focused on yield maximization. The key
here is that management is properly viewing fare prices as a demand driven
factor, and not cost driven. As a result, we believe lower fuel prices will be a direct
benefit to shareholders.
• Maintain Outperform. We view the WJA shares as a low risk way to participate
in the cyclical upside of the airline industry. With a 22% implied all in return to
our target, we continue to maintain our Outperform rating.
Industry Comments
Fraser Phillips, P.Eng. (Analyst)
(416) 842-7859; fraser.phillips@rbccm.com
Bulking Up - RBC's Weekly Review
Iron ore prices continue to fall while met coal prices remain stable
Chris Drew, CFA (Analyst)
9
+61 2 9033 3060; chris.drew@rbccm.com
Ken Tham, CFA (Analyst)
+61 2 9033 3064; ken.tham@rbccm.com
Wen Tian, CFA (Associate)
(416) 842-4126; wen.tian@rbccm.com
All values in USD unless otherwise noted.
Mark J. Friesen, CFA (Analyst)
(403) 299-2389; mark.j.friesen@rbccm.com
Luke Davis (Associate)
403 299 5042; luke.davis@rbccm.com
Stephen D. Walker (Analyst)
(416) 842-4120; stephen.walker@rbccm.com
Fraser Phillips, P.Eng. (Analyst)
(416) 842-7859; fraser.phillips@rbccm.com
• What's Hot: Thermal coal prices (FOB Richards Bay and CIF ARA) ticked higher
this week.
• What's Not: Iron ore prices continued to trend down, with IODEX down 1.2% to
$63.00/t.
• Our View: Given the ongoing steel production cuts in China, a lack of a recovery
in steel demand, and the pessimistic market sentiment, iron ore prices continue
to slide to levels not seen since 2009. We expect weaker oil and freight rates to
provide margin support for iron ore miners through Q1/15 amid continued price
weakness.
• The daily steel production rate of Chinese mills for January 10–20, 2015,
declined to 1.69 Mtpd, down 5.1% from the prior 10-day period.
• Iron ore inventories at Chinese ports and Chinese steel inventories held by
traders and at mills all increased this week.
• Metallurgical coal prices rose slightly in Asia. The metallurgical coal market was
steady, with most participants waiting for a clear market direction.
• Thermal coal: FOB Newcastle prices posted a notable loss of 5.2% this week,
while Richards Bay and CIF ARA prices were both up.
• Iron ore prices continue to soften, with IODEX down 1.2% to $63.00/t, primarily
driven by steel production cuts in China and bearish expectations for the steel
market.
• Steel: HRC prices drifted lower in North America but ticked higher in Europe.
In China, domestic HRC was up slightly while export HRC and rebar prices were
down.
• Freight: Iron ore and coal freight rates continued to weaken this week.
Intermediate Oil Sands and E&P Weekly Valuation Tables
RBC has revised its commodity price assumptions.
• Our WTI estimates have dropped by 18% in 2015 and have risen 4% in 2016. Our
heavy oil pricing dropped by 10% in 2015 and rose 12% in 2016, now sitting at
C$53.72/bbl and C$77.78/bbl, respectively.
• Our long-term commodity price assumptions have been reduced with WTI
dropping to US$84.00/bbl (from US$89.00) and heavy oil dropping to C$74.64
from (C$77.22).
• In our opinion, investors should favor companies with quality assets, strong
balance sheets and/or liquidity positions, a strong track record of demonstrated
project execution, and reliable operational performance.
Q1/15 Global Mining Best Ideas Portfolio
• We are publishing our weekly update to our Global Mining Best Ideas portfolio.
• For the quarter-to-date, the Q1/15 Global Mining Best Ideas List is up 2%
compared to the MSCI World Metals & Mining Index, which is down 3%.
Sam Crittenden, P.Eng., CFA (Analyst)
(416) 842-7886; sam.crittenden@rbccm.com
Dan Rollins, CFA (Analyst)
(416) 842-9893; dan.rollins@rbccm.com
Des Kilalea (Analyst)
+44 20 7653 4538; des.kilalea@rbccm.com
Timothy Huff (Analyst)
+44 20 7653 4866; timothy.huff@rbccm.com
Jonathan Guy (Analyst)
+44 20 7653 4603; jonathan.guy@rbccm.com
Chris Drew, CFA (Analyst)
+61 2 9033 3060; chris.drew@rbccm.com
Andrew D. Wong (Analyst)
(416) 842-7830; andrew.d.wong@rbccm.com
Paul Hissey (Analyst)
+61 3 8688 6512; paul.hissey@rbccm.com
10
All values in USD unless otherwise noted.
Michael Harvey, P.Eng. (Analyst)
403 299 6998; michael.harvey@rbccm.com
RBC Canadian Energy
Mark J. Friesen, CFA (Analyst)
(403) 299-2389; mark.j.friesen@rbccm.com
News Items Last Week
Eric Gallie (Associate)
(403) 299-7434; eric.gallie@rbccm.com
• Commodity Prices. We have revised our RBC commodity price assumptions,
modifying our WTI oil price and foreign exchange assumptions in 2015, 2016, and
long term along with our 2015 Henry Hub outlook.Our revised 2015 Canadian
forecasts include Edmonton Par of C$60/bbl (down 12%) and AECO gas of
C$3.40/mcf (down 12%). A summary of the changes to our commodity price deck
is show below. For full commentary on the commodity price changes please refer
to our note published yesterday here.
Shailender Randhawa, CFA (Analyst)
(403) 299-6576; shailender.randhawa@rbccm.com
Keith Mackey, CFA (Associate)
403 299 6958; keith.mackey@rbccm.com
Kurt Hallead (Analyst)
(512) 708-6356; kurt.hallead@rbccm.com
Greg Pardy, CFA (Analyst)
(416) 842-7848; greg.pardy@rbccm.com
Dan MacDonald, CFA (Analyst)
(403) 299-2394; dan.macdonald@rbccm.com
Junior/Intermediate E&P: Weekly Review and Valuation Tables
RBC Global Energy Best Ideas List
• In January, the RBC Global Energy Best Ideas List was down 0.4% compared to
the S&P Global Energy Sector's decline of 4.9%. Since its inception in February
2013, the RBC Global Energy Best Ideas List is up 5% compared to the S&P Global
Energy Sector's decrease of 8%.
Robert Kwan, CFA (Analyst)
(604) 257-7611; robert.kwan@rbccm.com
Shailender Randhawa, CFA (Analyst)
(403) 299-6576; shailender.randhawa@rbccm.com
Mark J. Friesen, CFA (Analyst)
(403) 299-2389; mark.j.friesen@rbccm.com
Nelson Ng, CFA (Analyst)
(604) 257-7617; nelson.ng@rbccm.com
Michael Harvey, P.Eng. (Analyst)
403 299 6998; michael.harvey@rbccm.com
Leo P. Mariani, CFA (Analyst)
(512) 708-6381; leo.mariani@rbccm.com
Scott Hanold (Analyst)
(512) 708-6354; scott.hanold@rbccm.com
Elvira Scotto, CFA (Analyst)
(212) 905-5957; elvira.scotto@rbccm.com
TJ Schultz, CFA (Analyst)
(512) 708-6385; tj.schultz@rbccm.com
John Ragozzino, CFA (Analyst)
(303) 595-1115; john.ragozzino@rbccm.com
Shelby Tucker, CFA (Analyst)
(212) 428-6462; shelby.tucker@rbccm.com
Nathan Piper (Analyst)
+44 131 222 3649; nathan.piper@rbccm.com
Al Stanton (Analyst)
+44 131 222 3638; al.stanton@rbccm.com
John Musk (Analyst)
+44 20 7029 0856; john.musk@rbccm.com
Andrew Williams (Analyst)
+61 3 8688 6578; andrew.williams@rbccm.com
Victoria McCulloch, CA (Analyst)
+44 131 222 4909; victoria.mcculloch@rbccm.com
Martin Young (Analyst)
11
+44 20 7653 4481; martin.c.young@rbccm.com
Biraj Borkhataria, CFA (Analyst)
+44 20 7029 7556; biraj.borkhataria@rbccm.com
Brad Heffern, CFA (Analyst)
(512) 708-6311; brad.heffern@rbccm.com
All values in USD unless otherwise noted.
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
LUPE.ST: FY14 numbers in line; CMD to follow this afternoon; Nigeria: Catching
Fire; RBC Global Energy Best Ideas List; DETNORL.OL: Drilling Krafla exploration well
postponed indefinitely; Colombia Peace Process; GPX.L: EGM removes Ken Judge as
Commercial Director; PPC.L: Rt. Hon. Alistair Burt MP appointed as Non-Executive
Director
Victoria McCulloch, CA (Analyst)
+44 131 222 4909; victoria.mcculloch@rbccm.com
Haydn Rodgers, CA (Associate)
+44 131 222 4911; haydn.rodgers@rbccm.com
LUPE; DETNOR; GPX; PPC
All values in USD unless otherwise noted.
Fraser Phillips, P.Eng. (Analyst)
(416) 842-7859; fraser.phillips@rbccm.com
Uranium Weekly
Steve Bristo, CFA (Associate)
(416) 842-7826; steve.bristo@rbccm.com
• Ux spot price indicator was up $0.75/lb to $37.50/lb and TradeTech was up $0.50/
lb to $37.25/lb.
• Ux term price indicator was unchanged at $49.00/lb, and TradeTech was
unchanged at $50.00/lb (quoted monthly at month-end).
• Uranium Participation Corp. (UPC) traded down 3.8% over the past week to close
at C$5.43 per share (vs. S&P/TSX +0.7%).
• We estimate UPC is discounting a uranium price of $32.48/lb, a 13.4% discount
to spot. Last week we estimated that UPC discounted a uranium price of $31.65/
lb, a 13.9% discount to the then-prevailing spot price.
• We rate Uranium Participation Corp. Outperform with a target price of C$6.00
per share.
Thomas Klein (Associate)
(416) 842-5339; thomas.klein@rbccm.com
All values in USD unless otherwise noted.
Ux spot price up $0.75/lb to $37.50/lb; TradeTech up $0.50/lb to $37.25/lb
12
Required disclosures
Non-U.S. analyst disclosure
Al Stanton;Nathan Piper;Victoria McCulloch;Haydn Rodgers;Paul Treiber;Sean Ray;Michael Harvey;Mark J. Friesen;Eric
Gallie;Shailender Randhawa;Keith Mackey;Walter Spracklin;Derek Spronck;Sara O'Brien;Juliane Szeto;Robert Kwan;Michelle
Zuliani;Paul C. Quinn;Hamir Patel;Fraser Phillips;Chris Drew;Ken Tham;Wen Tian;Luke Davis;Steve Bristo;Thomas Klein;Neil
Downey;Kevin Cheng;Michael Smith;Stephen D. Walker;Sam Crittenden;Dan Rollins;Des Kilalea;Timothy Huff;Jonathan
Guy;Andrew D. Wong;Paul Hissey;Greg Pardy;Dan MacDonald;Nelson Ng;John Musk;Andrew Williams;Martin Young;Biraj
Borkhataria (i) are not registered/qualified as research analysts with the NYSE and/or FINRA and (ii) may not be associated
persons of the RBC Capital Markets, LLC and therefore may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on
communications with a subject company, public appearances and trading securities held by a research analyst account.
Conflicts disclosures
This product constitutes a compendium report (covers six or more subject companies). As such, RBC Capital Markets chooses
to provide specific disclosures for the subject companies by reference. To access current disclosures for the subject companies,
clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.aspx?entityId=1 or send a request to
RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.
Please note that current conflicts disclosures may differ from those as of the publication date on, and as set forth in, this report.
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including
total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated
by investment banking activities of the member companies of RBC Capital Markets and its affiliates.
Distribution of ratings
For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories
- Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick(TP)/
Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively,
the meanings are not the same because our ratings are determined on a relative basis (as described below).
Distribution of ratings
RBC Capital Markets, Equity Research
As of 31-Dec-2014
Rating
BUY [Top Pick & Outperform]
HOLD [Sector Perform]
SELL [Underperform]
Count
897
686
112
Percent
52.92
40.47
6.61
Investment Banking
Serv./Past 12 Mos.
Count
Percent
290
32.33
137
19.97
6
5.36
Conflicts policy
RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request.
To access our current policy, clients should refer to
https://www.rbccm.com/global/file-414164.pdf
or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South
Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time.
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13
proprietary INSIGHT website, via email and via third-party vendors. SPARC contains market color and commentary regarding
subject companies on which the Firm currently provides equity research coverage. Research Analysts may, from time to time,
include short-term trade ideas in research reports and / or in SPARC. A short-term trade idea offers a short-term view on
how a security may trade, based on market and trading events, and the resulting trading opportunity that may be available. A
short-term trade idea may differ from the price targets and recommendations in our published research reports reflecting the
research analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons,
methodologies and/or other factors. Thus, it is possible that a subject company's common equity that is considered a long-term
'Sector Perform' or even an 'Underperform' might present a short-term buying opportunity as a result of temporary selling pressure
in the market; conversely, a subject company's common equity rated a long-term 'Outperform' could be considered susceptible
to a short-term downward price correction. Short-term trade ideas are not ratings, nor are they part of any ratings system, and
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14
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Copyright © RBC Capital Markets, LLC 2015 - Member SIPC
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15