JMRD Market Observer for March 31st, 2017 – NBFM Monthly Economic Monitor – April 2017

In This Week’s JMRD Market Observer



  • NBFM Monthly Economic Monitor – April 2017

  • Technology (Thematic Research) – Rise of the Robots – Artificial Intelligence Primer

  • NBFM Monthly Fixed Income Monitor – April 2017

  • JMRD Basket Corner

  • Retirement Corner

  • Reads of the week

  • Economic Calendar

  • Earnings Reports



NBFM Monthly Economic Monitor – April 2017




  • The global economy seems to have turned the corner based on recent consensus-topping economic data. But optimism should not breed complacency considering significant risks which may cause a relapse or worse. Mounting trade protectionism, credit and geopolitical risks could indeed derail growth.


  • While many are suggesting that the failure of Republicans to reform Obamacare will stall U.S. tax reform, we take the opposing view. Republicans are now under pressure to deliver something substantial before next year’s mid-term elections or risk the wrath of voters. But considering low fiscal multipliers associated with tax cuts for corporations and wealthy individuals, don’t hold your breath for the 4% GDP growth that was promised during the election campaign. A more realistic target for U.S. growth is arguably in the 2-3% range, but under such scenario inflation is unlikely to spin out of control.


  • In light of a stronger-than-expected handoff from last year and the good start to 2017, we have raised by three ticks our Canadian GDP growth forecast for this year to 2.2%. Despite an elevated debt load, consumers are showing resilience thanks to a solid labour market, credit availability, and the housing wealth effect. Consumption growth should moderate later this year as employment creation ramps down to a more sustainable pace, but government spending is set to take up the baton as Ottawa increases outlays. Trade should also contribute to growth buoyed by the Comprehensive Economic and Trade Agreement with Europe and improving demand stateside. But the threat of protectionism should not be underestimated given its potential to derail exports and hence growth.


See the full article.



Technology (Thematic Research) – Rise of the Robots – Artificial Intelligence Primer


A timely thematic piece on Artificial Intelligence (AI). Some of the following companies that have some if not growing potential for AI and that our held in JMRD’s Baskets include: CGI Group, Kinaxis, OpenText and Shopify.




Rise of the Robots – Artificial Intelligence Primer


As we get set for our Lunch and Learn today titled – Rise of the Robots – How Artificial Intelligence (AI) is Changing What We Know About Technology, we thought it might be useful to provide our take on what you should be thinking about when it comes to this disruptive innovation.


As you have no doubt read, seen, or heard over the past year, we’ve entered another phase of evolution when it comes to automation – and that’s the rise in the application of artificial intelligence technology. While it’s become a prominent technology theme globally, it’s been equally – and we’d argue proportionately more pervasive in Canada. We believe this is due in large part to Canada’s global leadership when it comes to AI as it is home to some of the world’s most renowned experts in the field like Geoffrey Hinton and Yoshua Bengio. Like you, we’ve been following the above with great interest as AI has implications from many perspectives – from the rise of new companies, to how incumbents are (or are not) positioning themselves to embrace this tidal wave of disruption. More importantly, we believe the technology has seen an acceleration in advances in recent years given notable breakthroughs such as achieving milestones in computing power, developments in neural networks (resemble how the human brain operates), combined with a significant capital and infrastructure injection into the sector that’s accelerating research and development. It’s for the reasons noted above why we’ve pulled together a recent Lunch and Learn on this topic with a cross section of perspectives – from those creating the technology, to those using it on a daily basis. To be clear, we are by no means experts in the field. In fact, we’ll candidly admit our knowledge of this complex topic only scratches the surface. As such, we make no attempt at any academic discussion on this topic, there are countless articles on that which are freely available (call us if you’d like some direction on that). Yet, we think it’s important to highlight the technology given the accelerating advances and importantly how it may impact our coverage names. This note looks at the following:


  • • What is Artificial Intelligence (AI)?

  • • Why Now?

  • • Where Will We See the Most Disruption / Opportunity?

  • • Where’s the Money Going?

  • • What Segments of AI Are Getting the Money?

  • • What’s Happening in the Public Market?

  • • The Canadian Perspective On Investment Opportunities


In short, within in our coverage universe, we see the following names as having some if not growing potential for AI at the time of writing: Altus Group (OP; C$39 target), CGI Group (OP; C$80 target), Kinaxis (OP; C$85 target), OpenText (OP; US$45 target), Sandvine (SP; C$3.00 target), and Shopify (OP; US$80 target). Beyond a discussion of the public names, this note also highlights some of the notable private companies in Canada.



NBFM Monthly Fixed Income Monitor – April 2017




  • At this point, we are sticking with our view that the fed funds target range will be raised three times in 2018, to 2.00–2.25% from 1.25–1.50% at year-end 2017. This scenario is far from fully incorporated in financial markets. On the morrow of the health care debacle, markets were giving odds of less than 50% for a 1.25–1.50% target range by year end. Thus our base case scenario remains a more aggressive monetary normalization path than the markets have priced in at this writing. Our economic forecast remains one of decent growth over the coming three quarters. This in our view will be consistent with 10-year Treasuries trading around 3.00% in early 2018.


  • Our base case scenario remains a first BoC rate hike in Q1 2018. With the central bank on the sidelines in 2017, movements in the longer portion of the yield curve will continue to reflect developments south of the border. We see 10-year Canadas trading around 2.22% by year end, 73 bps below Treasuries, little changed from the current spread.


See the full article.



JMRD Basket Corner


DIG Basket


Dollarama (DOL) – Canadian discount retailer Dollarama Inc reported a higher-than-expected quarterly profit on Thursday as customers spent more in its stores. The Montreal-based company said the rise in sales was aided by a 7.8 percent increase in the average checkout bill. Dollarama also said it opened 26 new stores in the fourth quarter. The retailer has revised its long-term target of 1,400 stores to 1,700 stores, over the next 8-10 years across Canada, after a review of market potential. Dollarama increased its quarterly dividend to $0.11 per share from $0.10. The shares were up 10% this week, as of the time of this writing.  See the full article.


WSP Global – Canadian engineering firm WSP is on the hunt for U.S. acquisitions


All-Cap Growth Basket


Enercare (ECI) – Cheung Kong Property Holdings Limited announced on Friday that they are acquiring Reliance Home Comfort from U.S. private equity firm Alinda Capital Partners. Reliance is the primary competitor to ECI’s domestic home services business, providing heating, cooling, water, plumbing, protection plans and other ancillary services. More specifically, Reliance is believed to rent ~1.5 mln water heaters in Ontario (ECI ~1.1 mln at year end) and another ~200k HVAC units. The acquisition consists of an equity purchase price of $2.8 bln. As a private entity, deal metrics for Reliance beyond this are not directly available, but based on a January 2017 “Credit Opinion” published by Moody’s we know that: 1) Reliance’s total debt is approximately $1.8 bln; 2) its TTM top line as at Q3/16 was approximately $600 mln; and 3) its EBITDA margins are approximately 60%. From this we calculate an implied TTM EV/EBITDA takeout valuation of ~12.5-13x. Enercare shares traded higher by 4% on Friday. See the full article


New Flyer (NFI) – Paul Soubry, CEO of New Flyer Industries joined BNN this week to talk about the potential implications of Donald Trump’s “Buy American” plan and the health of the transit and bus market.



Retirement Corner




Reads of the Week


  • Economic News – Canada: Blistering start to 2017: It’s fair to say that Canada has adjusted to the oil shock. January’s GDP growth was twice as big as what was expected by consensus, pushing up the 3-month annualized rate of growth to a stunning 6%, the best performance since 2011. The economy continues to find support from a resilient services sector (17th straight month of expansion), the latter’s output at a record high. But the economy got an added boost in January from the goods sector as rising exports gave a lift to the manufacturing sector whose output is now back to levels of 2008. Construction, oil and gas and mining also continued to expand at a healthy pace, the latter’s output even hitting an all-time high. January’s overall output gains puts the economy in a good position to expand further in the first quarter after a strong handoff from last year. Our forecast for Q1 GDP growth is 2.6% annualized (not far from the Bank of Canada’s estimate of 2.5%) but that assumes a give back in February after January’s unsustainable gains. The string of strong growth numbers explain not just the phenomenal employment gains we’ve seen since last August, but also the surge in home prices and credit growth. It’s unclear why the Bank of Canada would want to maintain its dovish tone and emphasize the few negatives (e.g. inflation and business investment) amidst an abundance of positive data, unless of course the central bank is trying to restrain the Canadian dollar.  See the full article.







Economic Calendar


Monday April 3rd – Canada Manufacturing PMI; US Manufacturing PMI, US Vehicle Sales, US ISM Manufacturing

Tuesday April 4th – US Factory Orders

Wednesday April 5th – US ISM Non-Manufacturing, US FOMC Minutes

Thursday April 6th – Canada Building Permits; US Initial Jobless Claims

Friday April 7th – Canada and US Employment Change and Unemployment Rate



Earnings Reports


Monday April 3rd – None

Tuesday April 4th – Hudson’s Bay Co, Sirius XM Canada Holdings

Wednesday April 5th – Monsanto

Thursday April 6th – Cogeco, Sandvine

Friday April 7th – None


Have a good weekend!

By | 2017-03-31T20:26:02+00:00 March 31st, 2017|JMRD Updates|0 Comments

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