**May 13th Issue of The JMRD Market Observer**
In This Week’s JMRD Market Observer Market
- Markets’ Review – April
- Canada Home Prices
- JMRD Basket Corner
- Retirement Corner
- Week at a Glance
- Reads of the Week
- Economic Calendar
- Earnings Reports
Markets’ Review – April
Global equities fared well in April, posting modest gains in local currency terms. Corporate earnings in general were mixed and commodity-driven sectors bolstered equity returns across the board. Here in Canada, while domestic markets were robust, renewed strength in the loonie impacted returns denominated in foreign currencies. As such, most major indices were thrust into negative territory when converted into Canadian dollars.
Commodities were the talk of the street this month. Crude oil prices, which bottomed earlier in the year, have since rebounded, extending their run well into April. Despite failure by some of the world’s major producers to agree on freezing oil output at the Doha meeting on April 17, oil prices rose steadily over the course of the period. Saudi Arabia has declared it won’t freeze production without the participation of Iran, which for its part, has stated that it would increase oil output until it is back at the pre-sanction levels (4 million barrels a day).
Offsetting this lack of progress at the negotiation table were oil supply disruptions. Specifically, a workers strike in Kuwait coupled with a noticeable decline in oil output in Nigeria contributed to rising crude oil prices in April. In addition, weaker-than-expected oil inventory surges in the U.S. and a waning U.S. dollar also contributed to higher oil prices.
See attached report for full details.
Canada Home Prices
OPINION: For those living in Vancouver, Victoria, Toronto and Hamilton, the housing boom continues. Quite a contrast with the seven other metropolitan areas covered by the Index, where prices have on average declined on a y/y basis over the last ten months (top chart). Within the group of four hot housing markets, Vancouver is in a league of its own, with a y/y price gain of almost 20%. It must be said that the resale market in that metropolitan area is very tight judging from active listings and sales published by the Real Estate Board of Greater Vancouver (middle chart). While some will keep blaming foreign capital for the housing boom in Vancouver and Toronto, it’s worth noting those cities are also blessed with the strongest labour markets in the country and hence are able to accommodate large migration flows (bottom chart – left panel). Especially in Vancouver, existing home sales are at a historically high level while supply is at a trough. Fortunately, real estate promoters and homebuilders are aware of that situation. Consequently, housing starts in Vancouver since the beginning of the year were almost 50% above the highest levels of the previous 15 years (bottom chart – right panel). This reaction in new housing construction should sooner or later help alleviate the price pressure on Vancouver’s housing market.
See the attached report for full details.
JMRD Basket Corner
Emera (EMA) – Q1 results ahead on strong Energy Services – EMA reported Q1 2016 adj. EPS (FD) of $0.93 (excl. non-recurring items), ahead of our estimate of $0.84 and consensus of $0.88 on stronger contributions from Energy Services (partly due to prior hedges), partially offset by weaker NSPI contributions owing to warm winter weather.
WSP Global (WSP) – Above consensus expectations where it matters – Net revenue of $1.2 bln (marginally ahead of consensus of $1.1 bln and in line with our forecast), while EBITDA stood at $91.5 mln (ahead of consensus forecast of $88.5 mln; we were Street high at $93.2 mln). Diluted EPS of $0.33 was in line with Street’s estimate of $0.34 (we were at $0.37; the numbers do not exclude amortization of intangibles). $5.5 bln backlog up 6% q/q (and 18% y/y) and represents 10.2 months’ worth of work (highest since Q1/14); organic backlog growth on constant currency basis was 2.0% (backlog momentum correlates to that of revenue, boding well for the remainder of the year for the latter metric). (Report attached) WSP Global
Brookfield Asset Management (BAM.A) – Brookfield Builds Record $25 Billion War Chest for Acquisitions
All-Cap Growth Basket
Milestone Apartment REIT (MST.UN) – How was the quarter? Q1 Fund from operations (FFO)/unit was $0.25 per unit ($0.29 excl. prepayment penalties), in line with our estimate of $0.29 and consensus of $0.28/unit. Net Operating Income came in 4.1% ahead of our forecast while G&A was higher but contained several one-time items related to the Landmark transaction (and unit-based comp mark-to-market). FFO/unit was 1.3% below our estimate but we had lower weighted average units outstanding as we were assuming a mid-quarter close to the M&A trade. Maintaining Outperform and Increasing Target to $20.25 (from $19.50): Our target represents a 5% premium to our NAV estimate of ~Cdn$19.26. (Report attached) Milestone
Boyd Group (BYD.UN) – Positive Q1 results with same store sales growth (SSSG) of 7.4% and we didn’t get the weakness (because of warm weather) that we were looking for. Revenues came in at $350mm (vs. $320mm est. & $282mm Q1/15) and adj. EBITDA $29.5mm (vs. $25mm est. & $21.1mm Q1/15). SSSG (ex-FX) of 7.4%, incremental contribution from LTM store additions (~20) and favorable FX all behind the results. Performance similarly ahead of the Street’s $325/$27mm expectations.
New Flyer Industries (NFI) – Reported another great quarter. Positive Q1 results with revenues at US$553mm (vs. US$560mm est. & US$380mm Q1/15) and adj. EBITDA US$68.2mm (vs. US$56.7mm est. & US$31.4mm Q1/15). Results similarly above the Street’s US$530mm top-line / US$57mm EBITDA. Enhanced average EBITDA/delivery on the transit side + aftermarkets momentum behind the beat. NFI reported EBITDA per unit of $55k UP 22% Y/Y/ and the dividend increased +37% to $0.95 (was $0.70).
Sun Life Financial (SLF) – SLF reported Q1 f2016 IFRS EPS of $0.88, just above of our forecast of $0.87/share but below consensus of $0.90. Dividend increased. As we expected, SLF announced a dividend increase of $0.015/share (4%) to $0.405 taking effect in Q2 f2016. Reiterate Outperform rating, price target of $44. In considering SLF’s results this quarter, the company did fairly well in combating various structural headwinds. (Report attached) Sun Life
Plus you can see the CEOs comments at the link below:
Premium Brands (PBH) – Premium Brands reported earning this week. The stock had an incredible run (up ~50% YTD prior to results) and as such we’re not surprised by Thursday’s sell-off. Having said that, our estimates, target price and thesis are unchanged as we view the issues as transient. Our unchanged $64 target is based on 12.0x 2017e EBITDA, above peers at 10.5x due to 10%+ organic growth, margin expansion and attractive dividend yield. Maintain $64.00 target and Outperform rating. Although they missed consensus estimates, we still think there is upside potential in the stock and this week added to the All Cap Basket position on the recent weakness. (Report attached) Premium Brands
“Ways to pay less tax in retirement” (MoneySense)
Week at a Glance
Full report attached
Reads of the Week
- “How to Tell Facts About Debt from Political Hype” (Bloomberg)
- “How a house can become a prison after it soars in value” (Globe and Mail)
- “Life Insurance: A do-it-all tool for the wealthy” (Globe and Mail)
Monday May 16th – Existing Home Sales MoM (CAD)
Tuesday May 17th – Housing Starts, Industrial Production MoM
Wednesday May 18th –
Thursday May 19th – Initial Jobless Claims
Friday May 20th – Existing Home Sales
Monday May 16th – Penn West Petroleum Ltd
Tuesday May 17th – Home Depot Inc./The
Wednesday May 18th – L Brands Inc.
Thursday May 19th –
Friday May 20th – None
Have a good weekend!