**May 23rd Issue of The JMRD Market Observer**

May 23, 2014

In This Week’s Market Observer…

Diversified Equities: Calendar Q1 Recap & Coverage List Snapshot     

  • JMRD Basket Corner
  • Retirement Corner
  • Week at a Glance
  • Reads of the week
  • Economic Calendar
  • Earnings Reports

 Diversified Equities: Calendar Q1 Recap & Coverage List Snapshot     9

With calendar Q1 reporting season for diversified income equities behind us, NBF Diversified Equities analyst Trevor Johnson highlights which equities in NBF’s diversified coverage list: 1) had the best/worst earnings momentum in the quarter; 2) offer the most compelling yield opportunities; 3) provide the most attractive relative valuation; and from this, 4) are the best positioned to Outperform going forward.

Among the names listed, Boyd Group (BYD.un) and Parkland Fuel (PKI) are held in the JMRD All-Cap Growth Basket. We would note that the income names have had a strong move over the last year and valuations are elevated with bond yields backing off recently, we would be opportunistic buyers of a few of the names mentioned.

The top equities in terms of calendar Q1 earnings momentum are all rated Outperform:

Tricon Capital: Continued US housing recovery & co-investment strategy delivering results.

Boyd Group: Positive SSSG, acquisitions & new paint supply agreement provide solid growth.

New Flyer: Aftermarkets up nicely; 2014 bus margins to be weaker, but rebound still on track.

WesternOne: First quarterly beat in almost a year sets stage for improved 2014 performance.

Exchange Income: Better than expected start to ’14; Projected to get better as year progresses.

Parkland Fuel: Record quarterly EBITDA despite it being the first ex-Suncor refinery margins.

The most compelling opportunities for income-oriented investors include:

WesternOne: 8.1% cash yield vs. 48% 2015e DCPS payout.

Pure Multi-Family: 8% cash yield vs. 79% 2015e AFFO payout.

Exchange Income: 7.8% cash yield vs. 83% 2015e DCPS payout.

WPT Industrial: 7.1% cash yield vs. 86% 2015e AFFO payout.

Equities providing attractive forward relative valuations include:

Tricon: 11.3x P/E & 11.4x EV/EBITDA (sum-of-parts & peer multiples suggests undervalued).

WesternOne: 6.8x EV/EBITDA & 6.1x P/CF (low vs. growth outlook, equipment/housing peers).

Exchange Income: 7.6x EV/EBITDA & 9.6x P/CF (turnaround well underway).

Grenville: 8.5x EV/EBITDA & 11.3x P/CF (royalty peers typically 10-18x & 13-20x, respectively).

Parkland Fuel: 8.5x EV/EBITDA & 11.5x P/CF (acquisition growth outlook compelling).

Our top picks at current prices are:

WesternOne: Britco Canada rebound, less Australia bleed & WIS momentum to drive share px.

Tricon: US housing rally continues, and new investment verticals to drive AUM growth & returns.

Exchange Income: WesTower on track & RegionalOne, Calm Air & Stainless outperforming.

Boyd Group, WPT, Parkland Fuels, Grenville: all in a position to move higher.

Diversified Equities 

 JMRD Basket Corner

 DIG Basket

A quieter news week for the DIG Basket with many co’s already reporting quarterly results. Despite the lack of news, Brookfield Infrastructure, DH Corporation, Gibson Energy and Telus traded at 52-week highs

Keyera (KEY) – KEY announced at $276M financing on Tuesday. The net proceeds of the offering will be used to partially fund the Company’s capital growth program, to reduce short term indebtedness of the Company under its credit facilities and for general corporate purposes.

TD Bank (TD) – TD reported Q2 f2014 core cash EPS (excluding IFRS dilution) of $1.09.This compares with $1.06 last quarter and $0.95 one year ago. Earnings were above NBF’s forecast of $1.05 and the consensus estimate of $1.02. TD traded at a new year-high following the Q2 results.

TD Bank

All-Cap Growth Basket

AutoCanada (ACQ) – ACQ announced yesterday it has obtained approval from BMW Canada Inc. to acquire Automobile Canbec Inc. which owns and operates a BMW and MINI dealership in Montreal, Quebec. In 2013, this franchise retailed 1,652 new vehicles and 713 used vehicles and operate from a 120K sq. ft facility which includes a 35 car showroom, 35 service bays and a 30 bay body shop..

U.S. Basket

Lowe’s (LOW) – Lowe’s said an extended period of wintry weather weighed on sales in the fiscal first quarter, although its profit still rose. The shares traded higher by 3% as earnings topped analysts’ expectations and the retailer noted improved sales in May. Lowe’s, citing a lower tax rate, also boosted its full-year earnings outlook to $2.63 a share from its February guidance of $2.60, which was below consensus at the time.

Walgreen (WAG) – WAG was mentioned in Barron’s as the biggest holding of Jana Partners: http://online.barrons.com/news/articles/SB50001424053111903843804579532020233861260?mod=BOL_hp_mag

Retirement Corner

1)     “Retirement strategies for 30-year-olds” (Marketwatch)

2)     “Living in retirement: If you’re single, don’t move to the suburbs” (Globe and Mail)

Week at a Glance

Week At A Glance May 23

Reads of the Week

 “From bushel to bread: How Canada’s wheat feeds the world” (The Globe and Mail)

 “China’s Global Search for Energy” (New York Times)

 “Blackrock: Four Market Risks to Focus on This Summer: While there’s a long list of things that could go wrong in 2014, Russ lists four market risks to pay attention to this summer”

 “Rogers CEO Laurence lifting veil on company’s new regime” (Globe and Mail)

 Economic Calendar

Monday May 26th – U.S. Markets closed for Memorial Day holiday

Tuesday May 27th – U.S. Durable Goods Orders, U.S. Consumer Confidence Index

Wednesday May 28th – None

Thursday May 29th – Canadian Current Account Balance, U.S. GDP, U.S. Pending Home Sales, U.S. Initial Jobless Claims

Friday May 30th – Canadian GDP, Canadian Industrial Product, Canadian Raw Materials Price Index, U.S. Personal Income, U.S. Personal Spending,

Earnings Reports

Monday May 26th – None

Tuesday May 27th – Bank of Nova Scotia, National Bank of Canada

Wednesday May 28th – Bank of Montreal

Thursday May 29th – Canadian Imperial Bank of Commerce

Friday May 30th – None

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