**May 30th Issue of The JMRD Market Observer**

May 30, 2014

**May 30th Issue of The JMRD Market Observer**

In This Week’s Market Observer…

  • Two New JMRD Team Members
  • National Bank Economists Recognized Once Again    
  • Oil Sands Infrastructure – Catching the next wave of growth
  • NBF Monthly Equity Monitor – June 2014
  • JMRD Basket Corner
  • Retirement Corner
  • Week at a Glance
  • Reads of the week
  • Economic Calendar
  • Earnings Reports

Two New JMRD Team Members

We wish to inform you about two recent additions to the JMRD team. We want to officially welcome Steve Lockner and Josie McCann to the JMRD Team. Josie is a third year student at Western University in London studying Finance and Economics. She will be assisting the team this summer with various projects, including increasing the team’s presence on social media and providing research on stock and business ideas.

Steve is an Investment Advisor situated in our Waterloo office, alongside Wilf Jenkins and Catherine Sunga-Doucet. Steve has over 13 years’ experience in the wealth management business and is a Personal Financial Planner (PFP), Chartered Investment Manager (CIM) and is Level 2 Insurance Licensed. From his industry experience both on the investment side and insurance side, he is a great addition to our team! See more on Steve in the below attachement.

Welcome Josie and Steve!

 National Bank Economists Recognized Once Again

 MONTREAL, May 27, 2014 /CNW Telbec/ – The Chief Economist and Strategist of National Bank, Stéfane Marion, is once again ranked among the top 20 forecasters in the world by Bloomberg. This time, Mr. Marion is sharing the honours with his colleague, Krishen Rangasamy, for the accuracy of their U.S. economic forecasts.

Messrs Marion and Rangasamy were ranked first among forecasters from Canadian financial institutions on this list, which includes institutions from all over the world. They also received the top rank overall in the U.S. Gross Domestic Product forecast category.

“This honour is, first and foremost, the result of teamwork,” said Stéfane Marion. “The U.S. economy is keeping us on our toes because of its impact on Canada. After a difficult winter, we are forecasting substantial growth in the U.S. over the next few months, and the Canadian economy will benefit.”

To determine the ranking, Bloomberg compiled forecasts from 68 economists over a two year-period (that ended in February 2014) for various economic indicators, including the Gross Domestic Product, unemployment figures, the Consumer Price Index, residential home sales, industrial production and personal spending.

Last year, Stéfane Marion also ranked among the top 20 best in his profession for his forecasts on the state of the U.S. economy. In 2011, Bloomberg ranked him first in Canada, and second worldwide among the top forecasters of the Canadian economy.

Bloomberg also ranked the Economy & Strategy Team at National Bank Financial, led by Stéfane Marion, as first among Canadian banks–and third worldwide–for its 2012-2013 forecasts on the Canadian dollar against the U.S. greenback. The team was also ranked as one of the top currency forecasters in 2011-2012. In addition to Mr. Marion, the group is made up of economists Matthieu Arseneau, Marc Pinsonneault, Paul-André Pinsonnault and Krishen Rangasamy.

About National Bank of Canada

With $195 billion in assets as at January 31, 2014, National Bank of Canada (www.nbc.ca), together with its subsidiaries, forms one of Canada’s leading integrated financial groups, and has been named among the 20 strongest banks in the world by Bloomberg Markets magazine. The Bank has close to 20,000 employees and is widely recognized as a top employer. Its securities are listed on the Toronto Stock Exchange (TSX: NA). Follow the Bank’s activities via social media and learn more about its extensive community involvement at clearfacts.ca and commitment.nationalbank.ca.

Oil sands infrastructure – catching the next wave of growth

A very good update from NBF analyst Patrick Kenny on the growth of Canadian Oil Sands infrastructure and impact on pipeline and midstream companies. We own Gibson, Keyera and Pembina in the JMRD DIG Basket and Inter Pipeline in the JMRD All-Cap Growth Basket

Highlights

With crude prices perched above the US$100/bbl mark, we refresh our oil sands infrastructure outlook and identify the next wave of projects and corresponding demand for infrastructure. Given export pipeline projects remain caught in the regulatory crossfire, we recommend investors accumulate positions in those companies with exposure to intra-Alberta oil sands infrastructure growth opportunities. Highlights include:

Alberta oil sands – peddle to the metal: oil sands production is forecast to nearly triple through 2030 to 5.2 mmbpd from 2012 levels of 1.8 mmbpd (~6% CAGR) with 75% stemming from diluted bitumen (DilBit) and 25% from upgraded synthetic crude oil (SCO).

Gathering pipelines (IPL, ENB, PPL, TRP) – we break down the various gathering pipeline projects by oil sands region – Athabasca, Cold Lake and Peace River – with production growth calling for >2.0 mmbpd of lateral connections and/or trunkline expansions.

Crude oil storage & terminalling (GEI) – every 100,000 bpd of incremental oil sands production requires ~400,000 bbls of Alberta-based storage capacity (one tank / four days terminalling buffer). Assuming ~$50-mln capex per tank, we forecast $1.25 bln of industry capex required to support growing oil sands production through 2030 (25 tanks; 2.5 mmbpd).

Diluent supply, handling & storage (KEY, PPL) – condensate imports are expected to reach ~550 mbpd by 2030 – well above ultimate capacity on ENB’s Southern Lights pipeline (275 mbpd) and Kinder Morgan’s Cochin Pipeline (95 mbpd), suggesting significant demand growth for importing by rail longer term. Meanwhile, regardless of how condensate lands in Alberta, we expect producers to continue signing long-term condensate transportation, storage, handling and terminalling contracts within the Edmonton / Fort Saskatchewan area.

Catching the next wave of growth – we highlight our unrisked oil sands infrastructure upside for each company based on their existing asset footprint and projects under consideration. Overall, we rank Inter Pipeline (+12% upside), Keyera (+10% upside) and

Gibson (+10% upside) as having the greatest valuation torque and recommend investors accumulate core positions in each name amid continued strength in oil sands fundamentals.

Gibson Pipelines

NBFM Monthly Equity Monitor – June 2014 

Highlights: 

•After several disappointing quarters, the environment for Canadian earnings has improved considerably. In the announcement season now ending, S&P/TSX companies reported sales up 14.5% and net earnings up 14.7% in Q1. For earnings it was the first double-digit growth in five quarters and the strongest growth since 2011 Q3. In Canada, not only have 12-month trailing profits improved but forward earnings are being revised up – by 2.7% in the last three months, the sharpest three-month rise since 2011. By way of comparison, global forward earnings have been further revised down in the last three months. We continue to think that in the months ahead the performance of equity indexes will depend mainly on earnings growth.

 

•The earnings outlook continues to benefit from generally favourable conditions. The global economy is poised to accelerate in the second half of the year, monetary policy remains accommodative and corporate bond yields are near historic lows (a support to equity valuations). In the U.S., economic reports are beginning to surprise on the upside after a few months of disappointment. We wouldn’t be surprised to see growth near 4% annualized in the current quarter. Retail sales, industrial production, factory shipments and the labour market have shown strong gains in recent weeks. While policy missteps remain a concern, we note that the Chinese economy is still on track to expand at nearly 7% annually despite Beijing’s announcement of credit restrictions in some industries.

 

•Our asset mix is unchanged this month. Our recommendation to continue overweighting equities relative to fixed income is based on a scenario of growth acceleration that could exceed expectations in the second half of 2014. Our sector rotation is also unchanged this month. We continue to assume a moderate rise in interest rates that will brake defensive sectors such as Consumer Staples, Telecoms and Utilities.

Monthly Equity Monitor

JMRD Basket Corner

 DIG Basket

Bank of Nova Scotia (BNS) – This week was a busy week for the Bank of Nova Scotia as they announced Q2 results and the majority sale of their CI Financial stake. Q2 earnings were slightly ahead of consensus of $1.33 vs $1.31 per share with strength across all business segments. On Wednesday, BNS announced a secondary offering to divest the bulk of its investment in CI Financial Corp., which is also held in the DIG Basket. BNS sold 72 million shares at $31.60 per share for total proceeds of $2.275

billion. Following the sale, BNS will retain 11.4% of common shares outstanding in CIX (7.7% should an over-allotment option be exercised). The selling price represents a 6% discount to CIX’s price at market close and a 12% discount since BNS announced its intention to monetize its position. There was very strong investor demand for the CI shares and the stock traded up 3% as of the time of this writing.

BNS 052914

BNS

Keyera (KEY)“Behind the ‘sweet spot’ at investor favorite Keyera Corp.” (Financial Post)

U.S. Basket

Lockheed Martin (LMT) – Lockheed announced a small acquisition this week to add to their space system business: “Lockheed Martin to acquire satellite firm Astrotech Space Operations for $61 million” http://www.washingtonpost.com/business/capitalbusiness/lockheed-martin-to-acquire-satellite-firm-astrotech-space-operations-for-61-million/2014/05/29/97bc63ca-e733-11e3-a86b-362fd5443d19_story.html

Retirement Corner

1)     “Parenting your parents: The cost of caring for your elderly loved ones” (Financial Post)

2)     “Plan to retire? You may need to pay your Gen Y kids’ debts first” (Globe and Mail)

Week at a Glance

 Week At A Glance

 Reads of the Week

Solar Farmers in Japan to Harvest Electricity With Crops” (Bloomberg)

“World’s largest asset manager rails against companies’ short-term thinking (The Globe and Mail)

“ARC Financial Corp.: Rushing to the Right LNG Deal”

“The cold logic behind Elon Musk’s $5 billion gigafactory gamble”

 “Golf Market Stuck in Bunker as Thousands Leave the Sport” (Bloomberg)

 “Don’t Diss Cheap Smartphones. They’re About to Change Everything” (Wired)

Economic Calendar

Monday June 2nd – RBC Canadian Manufacturing PMI, ISM Manufacturing, U.S. Construction Spending

Tuesday June 3rd – U.S. Factory Orders, U.S. Total Vehicle Sales

Wednesday June 4th – Bank of Canada Rate Decision, U.S. ADP Employment Change, U.S. Trade Balance, U.S. Nonfarm Productivity, U.S. ISM Non-Manufacturing Composite, U.S. Federal Reserve releases Beige Book

Thursday June 5th – Canadian Building Permits, Ivey Purchasing Managers Index

Friday June 6th – Canadian Unemployment Rate, U.S. Change in Nonfarm Payrolls, U.S. Unemployment Rate, U.S. Consumer Credit

Earnings Reports

Monday June 2nd – None

Tuesday June 3rd – None

Wednesday June 4th – Laurentian Bank of Canada

Thursday June 5th – Canadian Western Bank

Friday June 6th – None

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