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April 26, 2010
TODAY'S HIGHLIGHTS
Canada/Int'l
Rating Upgrades Royal Bank Estimates/Targets Raised TMX Group Consol Thompson Iron Mullen Group Yellow Pages Income Fund Estimates/Targets Lowered Incitec Pivot LM Ericsson Telephone Sector Revisions
REITs: Positive Multifamily Call Gaining Traction; Adjusting Ratings/Targets
Auto Parts: Target Prices Revised Reflecting Solid Sector Recovery; Q2/10...
Entertainment: Revisiting Print Media Valuations Featured Reports
Diversified Financials: Home Capital Group - IFRS: Style Versus Substance?
FINANCIALS
Banks Canada Royal Bank Upgraded to Outperform
Banks Canada Sector Comment PCL Forecasts Reduced to Reflect Better Environment...
Insurance Canada Sector Comment Coverage Interrupted
Exchanges Canada TMX Group Alpha Seeks Approval to Become an Exchange; Increasing...
ENERGY & UTILITIES
Oil & Gas Sector Comment Oil & Gas Weekly - April 25, 2010
North American E&P Sector Comment Oil & Gas Weekly
Services & Equipment Canada Ensign Energy Services Highlights From Investor Roadshow
MATERIALS
Metals & Mining Int'l BHP Billiton Spot Iron Ore Pricing Boosts Earnings and NPV...
Metals & Mining Canada Consol Thompson Iron Increased Earnings and Valuation Estimates on Higher...
Metals & Mining Canada Sherritt International Earnings Estimates Increased on Higher Nickel and...
Fertilizers Int'l Incitec Pivot H1/2010 (Mar) Earnings Preview
CAPITAL GOODS & SERVICES
Trucks & Logistics Canada Mullen Group Increasing Target Price to $16; Revising Forecast
CONSUMER
Auto Parts Sector Comment Target Prices Revised Reflecting Solid Sector...
TECH/TELECOM/MEDIA
Comms Equip Int'l LM Ericsson Telephone Better Margin Offset by Weaker Revenues
Entertainment Canada Yellow Pages Income Fund Reassessing Print Media Valuations
Entertainment Sector Comment Revisiting Print Media Valuations
This report was prepared by an analyst(s) employ d as a research analyst(s) under FINRA rules. For disclosure statements, including
Royal Bank (RY-TSX; RY-NYSE) Stock Rating: OutperformIndustry Rating: Market Perform
April 26, 2010 Research Comment Toronto, Ontario
John Reucassel, CFA BMO Nesbitt Burns Inc. (416) 359-4379 [email protected] Assoc: John Fong, CFA, FSA
Price (23-Apr) $61.73 52-Week High $62.00 Target Price $67.00 52-Week Low $40.91 Upgraded to Outperform
ed by BMO Nesbitt Burns Inc., and who is (are) not registerethe Analyst's Certification, please refer to pages 6 to 8.
2.5
3.0
3.5
4.0
4.5
Royal Bank of Canada (RY)Price: High,Low,Close Earnings/Share
Event Strong results from U.S. banks suggest that credit conditions and the business
environment are improving faster than we had expected.
20
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40
50
60
Impact Positive. RY’s share price has lagged the group average in 2010 but we believe
its wealth management and insurance operations, as well as domestic retail
banking, should provide good earnings leverage beyond 2010. In 2010, a better
environment should lower losses in U.S. retail banking. Strong trading results
from the large U.S. banks could increase expectations for RY’s Q2/10 trading
revenue; however, our Q2/10 trading estimate is unchanged at $1 billion.
Forecasts We increased our 2010E and 2011E cash EPS to $4.35 and $5.15 from $4.25
and $5.00, respectively, primarily due to lower PCL forecasts. In an
accompanying sector comment, we increased our 2010 and 2011 cash earnings
expectations for the Canadian bank sector.
Valuation We increased the target price to $67 from $63 reflecting a target multiple of 13x
2011E cash EPS, which is up from a previous target multiple of 12.6x.
Recommendation We upgraded RY to Outperform from Market Perform. Looking past the
recovery in loan losses, we believe that RY has amongst the most attractive
potential earnings growth rates in the group due to large asset management and
insurance operations as well as consistent results from domestic banking.
Regulatory and government actions (in response to the recent crisis) should be
the biggest risk to RY investors, particularly vis-à-vis wholesale banking.
0
100
200Volume (mln)
0
100
200
2005 2006 2007 2008 200950
100
150RY Relative to S&P/TSX Comp
Last Data Point: April 23, 2010
50
100
150
(FY-Oct.) 2008A 2009A 2010E 2011E EPS - Cash $3.47 $3.40 $4.35 $5.15P/E 14.2x 12.0x EPS - GAAP $3.38 $2.57 $4.24 $5.04P/E 14.6x 12.2x Cash ROE 18.2% 15.2% 18.3% 19.3% Specific Prov. ($mm)$1,430 $2,785 $2,133 $1,525 Dividend $2.00 $2.00 $2.00 $2.00 T
ier One Capital 9.0% 13.0% 12.7% 12.3%
Quarterly EPS - Cash Q1 Q2 Q3 Q4 2008A $0.97 $0.72 $0.95 $0.84 2009A $0.81 $0.66 $1.08 $0.85 2010E $1.03a $1.06 $1.11 $1.15 Dividend $2.00 Yield 3.2% Book Value $23.12 Price/Book 2.7x Shares O/S (mm) 1,421.4 Mkt. Cap ($mm) $87,746 Float O/S (mm) 1,421.4 Float Cap ($mm) $87,746 Wkly Vol (000s) 20,993 Wkly $ Vol (mm) $1,087.4 Net Debt ($mm) na Next Rep. Date 28-May (E)
Notes: All values in C$; EPS are fully diluted; Cash EPS add back amortization of intangibles throughout Major Shareholders: Widely held First Call Mean Estimates: ROYAL BANK OF CANADA (C$) 2010E: $4.45; 2011E: $5.14
Changes Annual cash EPS Annual EPS Quarterly EPS Target 2010E $4.25 to $4.35 2010E $4.13 to $4.24 Q2/10E $1.04 to $1.06 $63.00 to $67.00 2011E $5.00 to $5.15 2011E $4.89 to $5.04 Q3/10E $1.08 to $1.11 Rating Q4/10E $1.10 to $1.15 Mkt to OP
This report was prepared by an analyst(s) employed by BMO Nesbitt Burns Inc., and who is (are) not registered as a research analyst(s) under FINRA rules. For disclosure statements, including the Analyst's Certification, please refer to pages 6 to 7.
Financials - Banks
Industry Rating: Market Perform
April 26, 2010 Research Comment Toronto, Ontario John Reucassel, CFA (416) 359-4379 [email protected] Assoc: John Fong, CFA, FSA
PCL Forecasts Reduced to Reflect Better Environment; Bank Sector Remains Rated Market Perform
Recently released U.S. banking results and economic data suggest that the
operating environment, particularly with respect to credit, is improving faster
than we expected. When the financial crisis started, we had a relatively
pessimistic PCL forecast of $16 billion for 2010. Over the last year, we have
been reducing this forecast and, admittedly, we have been behind the curve on
this issue. We are reducing 2010E specific PCLs by 7% to $8.7 billion from
$9.3 billion and reducing our 2011E specific PCL forecast by 11% to $6.0
billion (Table 1). Based on our 30-year analysis of loan losses and adjusting
for the shift in loan books, $6 billion is the level of “normalized” loan losses.
Summary
We have reduced our 2010E and 2011E
specific PCL forecasts by 7% and 11%,
respectively, reflecting improving economic
data and relatively strong results from U.S.
banks.
These changes translate into a 2–3% increase
in our 2010E and 2011E cash EPS estimates.
We also raised our target prices based on
higher estimates and higher target valuations.
Concurrent with our higher estimates, we
increased our rating on Royal Bank to
Outperform from Market Perform in a
separate research comment.
The bank sector remains rated Market
Perform.
0.0%-10.8%
Table 1
Q2/10E Specific PCLs 2010E Specific PCLs 2011E Specific PCLsOld New % Chng Old New % Chng Old New % Chng
RY 655 605 -7.6% 2,358 2,133 -9.5% 1,725 1,525 -11.6%CM 380 360 -5.3% 1,414 1,344 -5.0% 1,210 1,080 -10.7%BMO 350 330 -5.7% 1,363 1,238 -9.2% 1,075 955 -11.2%BNS 525 465 -11.4% 1,846 1,716 -7.0% 1,400 1,190 -15.0%TD 585 550 -6.0% 2,172 2,057 -5.3% 1,285 1,210 -5.8%NA 45 45 0.0% 173 173 0.0% 80 80 Total 2,540 2,355 -7.3% 9,326 8,661 -7.1% 6,775 6,040
These new estimates indicate that PCLs relative to loans and BAs should be
0.68% in 2010 and 0.45% in 2011. It appears that specific PCLs peaked at
$9.1 billion in 2009 or 0.73% of loans and BAs. Particularly noteworthy in
this past credit cycle has been the strong performance from business lending,
which appears to have peaked at 0.87% in 2009, well below previous peaks
(Chart 1 below).
This report was prepared by an analyst(s) employed by BMO Nesbitt Burns Inc., and who is (are) not registered as a research analyst(s) under FINRA rules. For disclosure statements, including the Analyst's Certification, please refer to pages 2 to 9.
Financials - Insurance
Industry Rating: Outperform
April 23, 2010 Research Comment Toronto, Ontario Paul Campbell (416) 359-5424 [email protected]
Coverage Interrupted
Coverage of the following insurance stocks has been briefly interrupted as we
transfer coverage of the Insurance sector from John Reucassel to Tom
MacKinnon. These stocks are temporarily not rated until coverage is resumed
shortly.
Financials – Insurance Company Ticker Previous Rating New Rating Great-West LifeCo GWO-TSX Outperform Not Rated Industrial Alliance IAG-TSX Outperform Not Rated Intact Financial IFC-TSX Outperform Not Rated Manulife Financial MFC-TSX Outperform Not Rated Sun Life Financial SLF-TSX Market Perform Not Rated
This report was prepared by an analyst(s) employ d as a research analyst(s) under FINRA rules. For disclosure statements, including
TMX Group (X-TSX) Stock Rating: Market PerformIndustry Rating: Market Perform
April 26, 2010 Research Comment Toronto, Ontario
John Reucassel, CFA BMO Nesbitt Burns Inc. (416) 359-4379 [email protected] Assoc: Natalie Medak
Price (23-Apr) $29.40 52-Week High $38.38 Target Price $35.00 52-Week Low $27.79 Alpha Seeks Approval to Become an Exchange;
Increasing Q1/10E EPS Estimate Event Late last week, Alpha announced its intention to seek regulatory approval to
become a stock exchange, broadening its potential product offering to include
listings as well as facilitate trading and market data. The TMX is expected to
report Q1/10 results on Wednesday, April 28. 1.0
1.5
2.0
2.5
3.0
TMX Group Inc. (X)Price: High,Low,Close Earnings/Share
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60
ed by BMO Nesbitt Burns Inc., and who is (are) not registerethe Analyst's Certification, please refer to pages 7 to 10.
Impact Greater competition from Alpha is negative. However, stronger-than-expected
trading during the quarter is positive for our Q1/10 earnings estimates.
Forecasts We increased our Q1/10E GAAP to $0.67 from $0.61. We increased our 2010E
and 2011E GAAP EPS to $2.67 and $3.02, respectively. Our 2010E and 2011E
cash EPS are $2.90 and $3.40, respectively.
Valuation Our target price of $35.00 is unchanged, reflecting 13.1x 2010E GAAP EPS and
12.1x 2010E cash EPS.
Recommendation We continue to believe that the company has good long-term growth
opportunities in clearing, financial and commodity derivatives. However, the
launch of these new products is taking longer than expected. Alpha’s recent
announcement to seek approval to become a stock exchange is likely to heighten
concerns about long-term earnings power at the TMX. The TMX’s valuation
remains well below global peers who face no less competition and the dividend
appears safe. Accordingly, TMX remains Market Perform rated.
BMO Nesbitt Burns Inc. is a shareholder of Alpha ATS Inc. and limited
partner of Alpha Trading Systems Limited Partnership.
0
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2005 2006 2007 2008 200950
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150X Relative to S&P/TSX Comp
Last Data Point: April 23, 2010
50
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(FY-Dec.) 2008A 2009A 2010E 2011E EPS $2.45 $2.45 $2.67 $3.02P/E 11.0x 9.7x Rev. ($mm) $533 $537 $580 $590 Ttl Vol - Equities (bn) 153 165 146 139 Ttl Vol - Derivatives (mm)38 34 38 41 Cash EPS $2.91 $2.73 $2.90 $3.40 Quarterly EPS Q1 Q2 Q3 Q4 2008A $0.49 $0.65 $0.66 $0.65 2009A $0.58 $0.63 $0.56 $0.68 2010E $0.67 $0.65 $0.66 $0.68 Dividend $1.52 Yield 5.2% Book Value $10.37 Price/Book 2.8x Shares O/S (mm) 74.3 Mkt. Cap ($mm) $2,185 Float O/S (mm) 74.3 Float Cap ($mm) $2,185 Wkly Vol (000s) 1,785 Wkly $ Vol (mm) $56.7 Net Debt ($mm) $237.9 Next Rep. Date 28-Apr (E)
Notes: All values in C$; IPO@$9 11/02; *Net cash avail. for dist. to shareholders Major Shareholders: Widely held First Call Mean Estimates: Not Available
Changes Annual EPS Quarterly EPS 2010E $2.60 to $2.67 Q1/10E $0.61 to $0.67 2011E $2.95 to $3.02
This report was prepared in part by an analyst(s) employed by a Canadian affiliate, BMO Nesbitt Burns Inc., and who is (are) not registered as a research analyst(s) under FINRA rules. For disclosure statements, including the Analyst's Certification, please refer to pages 14 to 15.
Energy - Oil & Gas
April 25, 2010 Research Comment BMO Capital Markets Energy Team
Oil & Gas Weekly
Summary
Natural gas prices closed above the US$4/Mcf level this week largely on a smaller than expected build in inventories. Although this week’s injection was below expectations, support for natural gas stemming from the week’s inventory report may be premature and short lived given the injection was well above last year’s build of 42 Bcf and the five-year average injection of 33 Bcf for this time of year. We believe this week’s report is further evidence of an expected rapid rebuilding of inventories on strong production and weak demand. Given the current pace of injections and already high storage levels at the start of the injection season, we believe that natural gas prices could come under significant downward pressure through the second quarter. As such, we continue to favour companies leveraged to crude oil over natural gas.
We are maintaining our Outperform rating for the U.S. Oilfield Services, Market Perform rating for the Integrated Oils, Oil & Gas Producers and Canadian Oilfield Services, and Underperform rating for the Independent Refiners. Our buy recommendations include Bankers, Baytex, Canadian Natural, Crescent Point, Crew, Halliburton, Hess, National Oilwell Varco, Noble, Occidental, PetroBakken, Schlumberger, Suncor and Talisman.
The S&P/TSX Energy Index was up 2.3% reflecting gains across all of the
major energy indices this week. Specifically, the S&P/TSX Producer and
Integrated indices led the way with gains of 2.9% and 2.6%, respectively.
The broader S&P TSX and S&P 500 were also stronger finishing up 1.4% and
2.1%, respectively.
Table 1: Energy Index Performance
Index Levels 23/04/2010 16/04/2010Wk/Wk Chg (%)
Y/Y Chg (%)
YTD Chg (%)
S&P 500 1,217.3 1,192.1 2.1% 43% 9%
S&P Oil Composite Index 485.0 469.9 3.2% 30% 7%
S&P E&P Index 431.0 420.8 2.4% 19% 5%
S&P Oil Refiners Index 359.8 343.0 4.9% 2% 15%
OSX Oil Services Index 228.2 211.6 7.8% 56% 17%
S&P/TSX Comp 12,239.6 12,070.7 1.4% 30% 4%
S&P/TSX Comp Energy Index 2,870.9 2,806.2 2.3% 25% 1%
S&P/TSX Integrated Index 3,269.5 3,188.0 2.6% 14% (1%)
S&P/TSX Oil & Gas E&P Index 3,241.0 3,149.9 2.9% 31% 3%
S&P/TSX Oil & Gas Services Index 1,238.6 1,215.7 1.9% 32% (1%)
Source: BMO Capital Markets, Bloomberg
After trading in negative territory for most of the week, West Texas
Intermediate (WTI) crude prices rebounded on Friday to finish the week up
2.3% at US$85.12/bbl largely reflecting optimism on new home sales data in
the U.S. NYMEX natural gas prices were also stronger closing at
US$4.26/Mcf (up 5.4%).
Table 2: Benchmark Energy Prices
Energy Prices 23/04/2010 16/04/2010Wk/Wk Chg (%)
Y/Y Chg (%)
YTD Chg (%)
WTI (US$/Bbl) 1 $85.12 $83.24 2.3% 72% 7%
Brent (US$/bbl) $87.21 $85.99 1.4% 74% 12%
Ed Light (C$/Bbl) 2 $81.30 $82.22 (1.1%) 47% (1%)
Bow River Heavy (C$/Bbl) 2 $72.41 $72.73 (0.4%) 46% 0%
AECO (C$/GJ) $3.57 $3.46 3.2% 10% (35%)
Nymex Gas (US$/MMbtu) 1 $4.26 $4.04 5.4% 25% (24%)
UK NBP Gas (US$/MMbtu) $4.67 $4.74 (1.4%) 11% (14%)
Henry Hub (US$/MMBtu) $4.06 $3.97 2.3% 17% (30%)
Source: BMO Capital Markets, Bloomberg, Imperial Oil; (1) NYMEX near month contract; (2) Imperial Oil posted prices
Please see pages 3-7 and 10-13 for analyst coverage.
Randy Ollenberger (403) 515-1502 Alan Laws, CFA (303) 436-1125 Gordon Tait, CFA (403) 515-1501BMO Nesbitt Burns Inc. (Canada) BMO Capital Markets Corp. (U.S.) BMO Nesbitt Burns Inc. (Canada)
Jim Byrne, P.Eng., CFA (403) 515-1557 Mike Mazar, CFA (403) 515-1538 Dan McSpirit (303) 436-1117BMO Nesbitt Burns Inc. (Canada) BMO Nesbitt Burns Inc. (Canada) BMO Capital Markets Corp. (U.S.)
Mark Leggett, CFA (403) 515-1508 Christopher Brown, P.Eng. (403) 515-1574BMO Nesbitt Burns Inc. (Canada) BMO Nesbitt Burns Inc. (Canada)
This report was prepared in part by an analyst(s) employed by a Canadian affiliate, BMO Nesbitt Burns Inc., and who is (are) not registered as a research analyst(s) under FINRA rules. For disclosure statements, including the Analyst's Certification, please refer to pages 14 to 15.
Energy - Oil & Gas
April 25, 2010 Research Comment BMO Capital Markets Energy Team
Oil & Gas Weekly
Summary
Natural gas prices closed above the US$4/Mcf level this week largely on a smaller than expected build in inventories. Although this week’s injection was below expectations, support for natural gas stemming from the week’s inventory report may be premature and short lived given the injection was well above last year’s build of 42 Bcf and the five-year average injection of 33 Bcf for this time of year. We believe this week’s report is further evidence of an expected rapid rebuilding of inventories on strong production and weak demand. Given the current pace of injections and already high storage levels at the start of the injection season, we believe that natural gas prices could come under significant downward pressure through the second quarter. As such, we continue to favour companies leveraged to crude oil over natural gas.
We are maintaining our Outperform rating for the U.S. Oilfield Services, Market Perform rating for the Integrated Oils, Oil & Gas Producers and Canadian Oilfield Services, and Underperform rating for the Independent Refiners. Our buy recommendations include Bankers, Baytex, Canadian Natural, Crescent Point, Crew, Halliburton, Hess, National Oilwell Varco, Noble, Occidental, PetroBakken, Schlumberger, Suncor and Talisman.
The S&P/TSX Energy Index was up 2.3% reflecting gains across all of the
major energy indices this week. Specifically, the S&P/TSX Producer and
Integrated indices led the way with gains of 2.9% and 2.6%, respectively.
The broader S&P TSX and S&P 500 were also stronger finishing up 1.4% and
2.1%, respectively.
Table 1: Energy Index Performance
Index Levels 23/04/2010 16/04/2010Wk/Wk Chg (%)
Y/Y Chg (%)
YTD Chg (%)
S&P 500 1,217.3 1,192.1 2.1% 43% 9%
S&P Oil Composite Index 485.0 469.9 3.2% 30% 7%
S&P E&P Index 431.0 420.8 2.4% 19% 5%
S&P Oil Refiners Index 359.8 343.0 4.9% 2% 15%
OSX Oil Services Index 228.2 211.6 7.8% 56% 17%
S&P/TSX Comp 12,239.6 12,070.7 1.4% 30% 4%
S&P/TSX Comp Energy Index 2,870.9 2,806.2 2.3% 25% 1%
S&P/TSX Integrated Index 3,269.5 3,188.0 2.6% 14% (1%)
S&P/TSX Oil & Gas E&P Index 3,241.0 3,149.9 2.9% 31% 3%
S&P/TSX Oil & Gas Services Index 1,238.6 1,215.7 1.9% 32% (1%)
Source: BMO Capital Markets, Bloomberg
After trading in negative territory for most of the week, West Texas
Intermediate (WTI) crude prices rebounded on Friday to finish the week up
2.3% at US$85.12/bbl largely reflecting optimism on new home sales data in
the U.S. NYMEX natural gas prices were also stronger closing at
US$4.26/Mcf (up 5.4%).
Table 2: Benchmark Energy Prices
Energy Prices 23/04/2010 16/04/2010Wk/Wk Chg (%)
Y/Y Chg (%)
YTD Chg (%)
WTI (US$/Bbl) 1 $85.12 $83.24 2.3% 72% 7%
Brent (US$/bbl) $87.21 $85.99 1.4% 74% 12%
Ed Light (C$/Bbl) 2 $81.30 $82.22 (1.1%) 47% (1%)
Bow River Heavy (C$/Bbl) 2 $72.41 $72.73 (0.4%) 46% 0%
AECO (C$/GJ) $3.57 $3.46 3.2% 10% (35%)
Nymex Gas (US$/MMbtu) 1 $4.26 $4.04 5.4% 25% (24%)
UK NBP Gas (US$/MMbtu) $4.67 $4.74 (1.4%) 11% (14%)
Henry Hub (US$/MMBtu) $4.06 $3.97 2.3% 17% (30%)
Source: BMO Capital Markets, Bloomberg, Imperial Oil; (1) NYMEX near month contract; (2) Imperial Oil posted prices
Please see pages 3-7 and 10-13 for analyst coverage.
Randy Ollenberger (403) 515-1502 Alan Laws, CFA (303) 436-1125 Gordon Tait, CFA (403) 515-1501BMO Nesbitt Burns Inc. (Canada) BMO Capital Markets Corp. (U.S.) BMO Nesbitt Burns Inc. (Canada)
Jim Byrne, P.Eng., CFA (403) 515-1557 Mike Mazar, CFA (403) 515-1538 Dan McSpirit (303) 436-1117BMO Nesbitt Burns Inc. (Canada) BMO Nesbitt Burns Inc. (Canada) BMO Capital Markets Corp. (U.S.)
Mark Leggett, CFA (403) 515-1508 Christopher Brown, P.Eng. (403) 515-1574BMO Nesbitt Burns Inc. (Canada) BMO Nesbitt Burns Inc. (Canada)
This report was prepared by an analyst(s) employ d as a research analyst(s) under FINRA rules. For disclosure statements, including
Ensign Energy Services (ESI-TSX) Stock Rating: OutperformIndustry Rating: Market Perform
April 25, 2010 Research Comment Calgary, Alberta
Michael Mazar, CFA BMO Nesbitt Burns Inc. (403) 515-1538 [email protected] Assoc: Jason A. Zhang
Highlights From Investor Roadshow Price (23-Apr) $14.57 52-Week High $18.29 Target Price $18.00 52-Week Low $13.00
ed by BMO Nesbitt Burns Inc., and who is (are) not registerethe Analyst's Certification, please refer to pages 7 to 9.
Event BMO Capital Markets hosted a series of investor meetings with Ensign
management on April 20 and 22 in Toronto and Montreal. Key take-aways
were management caution regarding the outlook for Canadian drilling activity
post spring break-up; continued expansion of U.S. footprint out of the
company’s traditional core U.S. Rockies market; evolution of the bifurcation in
the North American land rig market between deep, high spec equipment and
shallow, low-spec rigs; and the improved outlook for the international market,
particularly South America in light of improved crude prices.
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30
Ensign Energy Services (ESI)Price: High,Low,Close
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Impact
Slightly Positive.
Forecasts There are no changes to our 2010 and 2011 financial estimates. We expect
Ensign to generate EPS of $1.05 in 2010, growing in $1.68 in 2011 as North
American rig counts stabilize at a higher average level and the international
operation continues to improve. Free cash flow (operating cash flow after capex
and the dividend) is expected to reach roughly $102 million in 2010 and $220
million in 2011.
Valuation We continue to believe that Ensign’s shares offer compelling value at 5.9x
2010E EBITDA and 4.2x 2011E. We expect the valuation discount to its peers
to narrow as the company’s strong balance sheet, attractive global footprint and
high level of commodity diversification become more valuable in an uncertain
North American natural gas market.
Recommendation
We are maintaining our Outperform rating and $18 target price.
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2005 2006 2007 2008 20090
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200ESI Relative to S&P/TSX Comp
Last Data Point: April 22, 2010
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(FY-Dec.) 2008A 2009A 2010E 2011E EPS $1.72 $0.86 $1.05 $1.68 P/E 13.8x 8.7x CFPS $2.63 $1.68 $2.16 $2.94 P/CFPS 6.8x 4.9x Total Debt ($mm) $0.0 $169.0 $66.7 -$156.1 ROCE (%) 18% 8% 10% 16% LT Liab. (%) 6% 2% -4% -19% EV/EBITDA 3.4x 7.5x 5.9x 4.2x Quarterly EPS Q1 Q2 Q3 Q4 2008A $0.60 $0.25 $0.39 $0.49 2009A $0.46 $0.15 $0.11 $0.14 2010E $0.36 $0.10 $0.25 $0.33 Dividend $0.35 Yield 2.4% Book Value $9.99 Price/Book 1.5x Shares O/S (mm) 153.3 Mkt. Cap ($mm) $2,234 Float O/S (mm) 127.7 Float Cap ($mm) $1,861 Wkly Vol (000s) 1,980 Wkly $ Vol (mm) $31.1 Net Debt ($mm) $33.9 Next Rep. Date May (E)
Notes: All values in C$ Major Shareholders: N. Murray Edwards (Director) (16.7%) First Call Mean Estimates: ENSIGN ENERGY SERVICES INC (C$) 2010E: $0.97; 2011E: $1.29
This report was prepared by an analyst(s) employ d as a research analyst(s) under FINRA rules. For disclosure statements, including
BHP Billiton (BLT-LSE; BHP-NYSE) Stock Rating: OutperformIndustry Rating: Market Perform
April 25, 2010 Research Comment Toronto, Ontario
Tony Robson BMO Nesbitt Burns Inc. (416) 359-4034 [email protected] Assoc: Matthew Griffiths
Price (22-Apr) ₤20.98 52-Week High ₤23.46 Target Price ₤26.00 52-Week Low ₤12.75 Spot Iron Ore Pricing Boosts Earnings and NPV;
Quarterly Commodity Price Revision Billiton Plc(BLT)
Price: High,Low,Close
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Event BMO Research has updated its commodity price forecast and included Q1/10
actual average commodity prices. For BHP, this resulted in a 43% increase to
10/11E earning and a 26% increase in valuation. BHP’s push to move to spot
pricing on iron ore along with met coal has resulted in higher forecast earnings
and valuation. In addition to iron ore, changes to BMO Research’s long-term
metallurgical coal forecast price from US$135/t to US$152/t and long-term
thermal coal from US$75/t to US$85/t have also resulted in a higher estimated
valuation for BHP.
ed by BMO Nesbitt Burns Inc., and who is (are) not registerethe Analyst's Certification, please refer to pages 4 to 6.
Impact
Positive. BHP Billiton remains a key preferred portfolio investment.
Forecasts BMO Research earnings forecast for fiscal year ended June 2010E is
US$2.72/share (+16%) and for fiscal year ended June 2011E is US$4.46/share
(+43%).
Valuation BMO Research estimates BHP Billiton’s valuation at US$222B or £25.83/share
(+26%), using a 10% nominal discount rate and BMO Research’s updated
commodity price forecast.
Recommendation BHP is rated Outperform with a £26.00 price target, representing 1.0x estimated
NPV. The target price is derived from a weighted blend of NPV and EBITDA
multiples, mine life and growth factors.
0
100
200Volume (mln)
0
100
200
0
1
2
0
1
2
2005 2006 2007 2008 2009
Last Data Point: April 16, 2010
(FY-Jun.) 2009A 2010E 2011E 2012E EPS $1.92 $2.72 $4.46 $4.47 P/E 11.9x 7.2x 7.2x CFPS $2.82 $3.47 $5.13 $5.29 P/CFPS 9.3x 6.3x 6.1x EV/EBITDA 8.3x 7.0x 4.1x 3.7x WTI Oil (US$/bbl) $69.32 $75.72 $82.80 $85.00 China Iron CIF 95.9 123.2 148.8 132.5 A$/US$ 0.75 0.89 0.95 0.93 Quarterly EPS H1 H2 2009A $1.10 $0.82 2010E $1.02a $1.70 2011E $2.21 $2.26 Dividend $0.84 Yield 2.6% Book Value $7.27 Price/Book 4.4x Shares O/S (mm) 5,600.0 Mkt. Cap (mm) ₤117,488 Float O/S (mm) 5,600.0 Float Cap (mm) ₤117,488 Wkly Vol (000s) 54,032 Wkly ₤ Vol (mm) ₤910.3 Net Debt ($mm) $5,586 Next Rep. Date Aug (E)
Notes: Share price, target, market capitalization & weekly volume in £, all other values in US$; Fines on JFY basis Major Shareholders: Widely held First Call Mean Estimates: Not Available
This report was prepared by an analyst(s) employ d as a research analyst(s) under FINRA rules. For disclosure statements, including
Consolidated Thompson Iron Mines (CLM-TSX) Stock Rating: Outperform(S)I ndustry Rating: Market Perform
April 23, 2010 Research Comment Toronto, Ontario
Tony Robson BMO Nesbitt Burns Inc. (416) 359-4034 [email protected] Assoc: Jessica Fung
Price (22-Apr) $9.58 52-Week High $10.32 Target Price $11.50 52-Week Low $2.31
Increased Earnings and Valuation Estimates on Higher Iron Ore Price Forecasts
ed by BMO Nesbitt Burns Inc., and who is (are) not registerethe Analyst's Certification, please refer to pages 5 to 8.
-0.35
-0.30
-0.25
-0.20
-0.15
-0.10
-0.05
Consolidated Thompson Iron Mines Ltd. (CLM)Price: High,Low,Close Earnings/Share
0
2
4
6
8
10
Event BMO Research’s quarterly revision of commodity price forecasts has resulted in
increased earnings and valuation estimates for CLM (see “Metals & Mining –
Forecast Update: Non-Precious Metals Miners”). Iron ore forecasts by BMO
are now on a quarterly basis, derived from spot iron ore fines delivered to
China.
Impact Positive. Iron ore price forecasts have increased significantly, although the new
figures are not comparable with previous forecasts, as previous forecasts were
on a Japanese fiscal year fob basis.
Forecasts CLM’s EPS estimates have increased to C$1.04 from C$0.37 for 2010E and to
C$1.71 from C$0.84 for 2011E. BMO Research continues to estimate first
shipment of iron ore concentrate from the Bloom Lake project in early June.
Like all iron ore producers adjusting to the new pricing regime, there is a great
deal of uncertainty around CLM’s earnings forecasts. BMO Research continues
to assume CLM’s realized prices would be based on Vale’s SSF prices.
Valuation BMO Research has significantly increased CLM’s NPV to C$15.54/share, up
34% from previous estimates of C$11.65/share.
Recommendation CLM is rated Outperform (Speculative). The target price is unchanged at
C$11.50 and represents 0.7x NPV.
0
50Volume (mln)
0
50
2005 2006 2007 2008 20090
2000
4000CLM Relative to S&P/TSX Comp
Last Data Point: April 22, 2010
0
2000
4000
(FY-Dec.) 2008A 2009A 2010E 2011E EPS $0.00 -$0.29 $1.04 $1.71 P/E 9.2x 5.6x CFPS -$1.35 -$0.27 $1.13 $1.90 P/CFPS 8.5x 5.0x EV/EBITDA na na 4.5x 1.9x Iron Ore Fines 65% -28% 142% -6% Real'd Price (C$/t) $0 $0 $132 $126 C$/US$ 0.94 0.88 0.99 0.99 Quarterly EPS Q1 Q2 Q3 Q4 2008A -$0.04 -$0.11 $0.01 $0.01 2009A -$0.01 -$0.10 -$0.12 -$0.06 2010E -$0.05 $0.29 $0.37 $0.43 Dividend $0.00 Yield 0.0% Book Value $3.76 Price/Book 2.5x Shares O/S (mm) 215.8 Mkt. Cap ($mm) $2,067 Float O/S (mm) 149.7 Float Cap ($mm) $1,435 Wkly Vol (000s) 6,484 Wkly $ Vol (mm) $37.3 Net Debt ($mm) -$325.0 Next Rep. Date Mar (E)
Notes: All values in C$; (S) in rating denotes Speculative Major Shareholders: WISCO (19.6%), Acuity Investments (6.6%), I.G. Investment (6.5%) First Call Mean Estimates: CONSOLIDATED THOMPSON IRON MINES (C$) 2010E: $0.47; 2011E: $1.28
This report was prepared by an analyst(s) employ d as a research analyst(s) under FINRA rules. For disclosure statements, including
Sherritt International (S-TSX) Stock Rating: Market PerformIndustry Rating: Market Perform
April 25, 2010 Research Comment Toronto, Ontario
Tony Robson BMO Nesbitt Burns Inc. (416) 359-4034 [email protected] Assoc: Jessica Fung
Price (22-Apr) $8.13 52-Week High $9.05 Target Price $9.00 52-Week Low $4.46 Earnings Estimates Increased on Higher Nickel and
Thermal Price Forecasts
0.0
0.5
1.0
1.5
2.0
2.5
Sherritt Intl Corp. (S)Price: High,Low,Close Earnings/Share
0
5
10
15
Event BMO Research has published revised commodity forecasts (see “Metals &
Mining – Forecast Updated: Non-Precious Metals Miners”), increasing
Sherritt’s earnings and valuation estimates slightly. Nickel forecasts increased
to US$9.78/lb from US$8.50/lb in 2010E and to US$9.00/lb from US$8.00/lb in
2011E. The thermal coal price increased to US$98/t from US$92/t for JFY
2010E, and the long-term price increased to US$85/t from US$75/t.
ed by BMO Nesbitt Burns Inc., and who is (are) not registerethe Analyst's Certification, please refer to pages 4 to 6.
Impact Slightly Positive. Sherritt’s earnings and valuation estimates increased
somewhat on higher commodity price forecasts though the impact was subdued
relative to its nickel sector peers that are less diversified and therefore more
leveraged to the nickel price.
Forecasts Sherritt’s estimated EPS increased to C$0.91 from C$0.85 for 2010E and to
C$0.90 from C$0.86 in 2011E.
Valuation BMO Research estimates Sherritt’s NPV at C$10.09/share, up 7% from
previous estimates of C$9.41. The C$9.00 target price represents 0.9x NPV,
derived from a weighted blend of NPV and EBITDA multiples, mine life and
growth factors relative to peers.
Recommendation Sherritt remains rated Market Perform. BMO Research assumes the Ambatovy
nickel project ramps up in H2/11 and reaches commercial production in 2012.
0
50
100Volume (mln)
0
50
100
2005 2006 2007 2008 20090
100
200S Relative to S&P/TSX Comp
Last Data Point: April 22, 2010
0
100
200
(FY-Dec.) 2008A 2009A 2010E 2011E EPS $0.97 $0.48 $0.91 $0.90 P/E 8.9x 9.1x CFPS $1.79 $1.35 $1.81 $1.91 P/CFPS 4.5x 4.3x Nickel (US$/lb) $9.60 $6.65 $9.78 $9.00 Cobalt (US$/lb) $38.77 $17.35 $21.94 $18.00 Therm. Coal (US$/t) $125 $72 $98 $100 EV/EBITDA 8.1x 7.2x 7.8x 7.6x Quarterly EPS Q1 Q2 Q3 Q4 2008A $0.38 $0.28 $0.48 -$0.15 2009A $0.05 $0.09 $0.19 $0.14 2010E $0.24 $0.27 $0.22 $0.20 Dividend $0.14 Yield 1.7% Book Value $11.66 Price/Book 0.7x Shares O/S (mm) 295.5 Mkt. Cap ($mm) $2,402 Float O/S (mm) 291.3 Float Cap ($mm) $2,369 Wkly Vol (000s) 7,852 Wkly $ Vol (mm) $50.1 Net Debt ($mm) $1,585.0 Next Rep. Date Jul (E)
Notes: All values in C$ Major Shareholders: M&G Investment (16.4%) First Call Mean Estimates: SHERRITT INTERNATIONAL CORP (C$) 2010E: $0.75; 2011E: $0.90
This report was prepared by an analyst(s) employ d as a research analyst(s) under FINRA rules. For disclosure statements, including
Incitec Pivot (IPL-ASX) Stock Rating: Market PerformIndustry Rating: Outperform
April 25, 2010 Research Comment Toronto, Ontario
Joel Jackson, P.Eng. BMO Nesbitt Burns Inc. (416) 359-4250 [email protected]
Price (23-Apr) A$3.23 52-Week High A$3.83 Target Price A$3.50 52-Week Low A$2.03 H1/2010 (Mar) Earnings Preview
Incitec Pivot Ltd.(IPL)Price: High,Low,Close
0
2
4
6
8
0
2
4
6
8
Event We are revising estimates downward in advance of IPL’s H1/10 (Mar) earnings
release on May 9 after taking into account a stronger Aussie dollar than
expected, and lower-than-forecast ammonium nitrate and nitrogen fertilizer
prices, offset by improved phosphate pricing expectations.
ed by BMO Nesbitt Burns Inc., and who is (are) not registerethe Analyst's Certification, please refer to pages 10 to 12.
Impact
Mixed.
Forecasts Our F2010E (Sep) and F2011E EPS estimates fall to A$0.22 and A$0.25 from
A$0.23 and A$0.30. Our FH1/10 (Mar) EPS estimate remains A$0.08.
Valuation
Our A$3.50 target is 8.4x F2011E (Sep) EV/EBITDA and 14.0x F2011E P/E.
Recommendation We maintain our Market Perform rating and A$3.50 target price. Fertilizer
fundamentals have improved, but Explosives remains a late 2010/early 2011
story, in our view, with continued U.S. construction softness, the belief U.S.
coal may have reached an inflection point, and promising signs from Chinese
and global iron ore demand. We estimate IPL’s share price already reflects
much of the upside to phosphate and nitrogen pricing. Fertilizer pricing has
cooled from recent peaks, and is challenged by moderated crop prices, offset
by reduced phosphate producer inventories. We believe investors should wait
for clearer indications of U.S. economic recovery, and robust southern
hemisphere fertilizer demand ahead of fall planting potentially boosting
fertilizer prices above current projections.
0
200
400Volume (mln)
0
200
400
2005 2006 2007 2008 20090
500
1000IPL Relative to Australia All Ordinaries Index
Last Data Point: April 16, 2010
0
500
1000
(FY-Sep.) 2008A 2009A 2010E 2011E EPS A$0.59 A$0.29 A$0.22 A$0.25P/E 14.7x 12.9x CFPS A$0.77 A$0.22 A$0.29 A$0.38P/CFPS 11.1x 8.5x Rev. (A$mm) A$2,918 A$3,419 A$2,955 A$3,314 EV (A$mm) A$10,490 A$6,027 A$6,484 A$6,498 EBITDA (A$mm) A$1,014 A$556 A$717 A$827 EV/EBITDA 10.3x 10.8x 9.0x 7.9x Half-Yearly EPS H1 H2 2008A A$0.19 A$0.42 2009A A$0.09 A$0.21 2010E A$0.08 A$0.14 Dividend A$0.04 Yield 1.2% Book Value A$2.19 Price/Book 1.5x Shares O/S (mm) 1,624.9 Mkt. Cap (mm) A$5,248 Float O/S (mm) 1,620.9 Float Cap (mm) A$5,236 Wkly Vol (000s) 72,844 Wkly A$ Vol (mm) 211.4 Net Debt (A$mm) A$1,463 Next Rep. Date May (E)
Notes: All values in A$ Major Shareholders: Widely held First Call Mean Estimates: INCITEC PIVOT LIMITED (A$) 2010E: $0.25; 2011E: $0.28
Changes Annual EPS Annual CFPS Half Yearly EPS 2010E $0.23 to $0.22 2010E $0.24 to $0.29 2011E $0.30 to $0.25 2011E $0.33 to $0.38 H2/10E $0.15 to $0.14
This report was prepared by an analyst(s) employ d as a research analyst(s) under FINRA rules. For disclosure statements, including
Mullen Group (MTL-TSX) Stock Rating: Market PerformI ndustry Rating: Market Perform
April 25, 2010 Research Comment Toronto, Ontario
Jason Granger, CA, CFA BMO Nesbitt Burns Inc. (416) 359-4293 [email protected] Assoc: Devin Dodge
Increasing Target Price to $16; Revising Forecast Price (23-Apr) $16.62 52-Week High $17.09 Target Price $16.00 52-Week Low $10.35
ed by BMO Nesbitt Burns Inc., and who is (are) not registerethe Analyst's Certification, please refer to pages 2 to 4.
Event In light of y/y improvements in drilling activity thus far in 2010 and industry
reports suggesting more signs of stability in industry conditions, we are
increasing our 2010 and 2011 earnings forecasts for Mullen Group.
1.0
1.5
2.0
2.5
Mullen Group Ltd. (MTL)Price: High,Low,Close Earnings/Share
0
10
20
30
40
Impact
Positive.
Forecasts We are raising our 2010 EPS forecast to $0.97 from $0.89. Our 2011 EPS
estimate is increased to $1.26 from $1.17.
Valuation To reflect increases to our earnings estimates, we are raising our target price to
$16 from $15. Our target is based on 6.8x our 2011 EV/EBITDA forecast.
Recommendation We believe freight movements have been stabilizing for Mullen’s trucking and
logistics segment and we expect capital investment in the oil sands to improve
in 2010. We are also modeling for some improvement in drilling activity;
however, we remain concerned that pricing will be slow to improve with the
significant level of excess capacity. We expect 2010 to be challenging but better
than 2009. Mullen Group should be well positioned when there is a meaningful
improvement in the environment. However, the timing and pace of such a
turnaround remain unclear. The company has scheduled its Q1/10 release for
April 29 before the market opens and will hold a conference call at 11:00AM
ET the same day. We rate Mullen Group Market Perform.
0
5
10Volume (mln)
0
5
10
2005 2006 2007 2008 20090
100
200MTL Relative to S&P/TSX Comp
Last Data Point: April 23, 2010
0
100
200
(FY-Dec.) 2008A 2009A 2010E 2011E EPS $1.40 $1.10 $0.97 $1.26P/E 17.1x 13.2x CFPS $3.06 $1.37 $1.71 $2.00P/CFPS 9.7x 8.3x Rev. ($mm) $1,314 $978 $1,106 $1,257 EBITDA Margin 21% 20% 20% 20% EBITDA ($mm) $273 $192 $219 $251 E
V/EBITDA 6.8x 8.1x 8.1x 6.9x
Quarterly EPS Q1 Q2 Q3 Q4 2008A $0.62 $0.25 $0.45 $0.09 2009A $0.38 $0.22 $0.36 $0.14 2010E $0.38 $0.08 $0.23 $0.28 Dividend $0.50 Yield 3.0% Book Value $14.48 Price/Book 1.1x Shares O/S (mm) 61.9 Mkt. Cap ($mm) $1,029 Float O/S (mm) 55.1 Float Cap ($mm) $916 Wkly Vol (000s) 761 Wkly $ Vol (mm) $11.2 Net Debt ($mm) $323.9 Next Rep. Date May (E)
Notes: All values in C$; EPS are GAAP (for 2009, co. taxed as I.T. up to 5/1 & as corp. after; incl. unrealized FX gains/losses) Major Shareholders: Insiders own approximately 25% of trust units and B units First Call Mean Estimates: MULLEN GROUP LTD (C$) 2010E: $1.01; 2011E: $1.24
Changes Annual EPS Annual CFPS Quarterly EPS Target 2010E $0.89 to $0.97 2010E $1.63 to $1.71 Q1/10E $0.30 to $0.38 $15.00 to $16.00 2011E $1.17 to $1.26 2011E $1.91 to $2.00 Q2/10E $0.06 to $0.08
This report was prepared by an analyst(s) employed by BMO Nesbitt Burns Inc., and who is (are) not registered as a research analyst(s) under FINRA rules. For disclosure statements, including the Analyst's Certification, please refer to pages 4 to 5.
Consumer - Auto Parts
Industry Rating: Outperform
April 25, 2010 Research Comment Toronto, Ontario Peter Sklar, CA (416) 359-5188 [email protected] Assoc: Andrew McKendry, CA, CFA
Target Prices Revised Reflecting Solid Sector Recovery; Q2/10 Estimates Fine-Tuned
Summary
The North American auto parts sector
recovery continues to take hold. U.S. light
vehicle sales have stablized at an annual
SAAR of 11 million units, and inventories are
in a normal 50–70 day range.
We value the Canadian auto parts stocks
based on a multiple of projected enterprise
value to 2011E EBITDA. On this basis, we
have revised our target prices (target multiples
in brackets) as follows: Linamar to $25.00
(4.9x) from $21.00 (4.2x), Magna to
US$80.00 (4.5x) from US$70.00 (3.8x),
Martinrea to $12.00 (4.6x) from $11.00
(4.2x), and Wescast to $9.00 (3.5x) from
$6.00 (2.5x). Our target price and multiple for
Exco of $3.50 (5.4x) are unchanged.
Over the last ten years, Magna has been
valued at 4–6x EBITDA. We would argue
that Magna, as well as, Linamar and Martinrea
could be attributed a premium multiple
relative to the last ten years as a result of the
secular consolidation of the North American
auto parts supply base.
We have revised our forecast of Q2/10 North
American industry light vehicle production to
3.00 from 2.60 million units, and our forecast
of Q2/10 Detroit Three light vehicle
production to 1.68 from 1.47 million units.
Accordingly, we have made upward revisions
to our Q2/10 earnings estimates.
We have revised our target prices for the Canadian auto parts stocks as the
North American auto parts sector recovery continues to take hold. In
particular, we note that U.S. light vehicle sales appear to have stabilized.
Q1/10 U.S. auto sales represented a seasonally adjusted annualized rate
(SAAR) of about 11 million units and Wards Automotive is forecasting an
April SAAR of 10.9 million units. In addition, U.S. light vehicle inventories
(on a selling-day basis) have returned to normal levels, ranging from 50–70
days since December 2009. Stable sales and normalized inventories have
stimulated production, and we have noted that the Q2/10 production schedules
have been moving up.
In addition to these sector fundamentals, certain recent events may have a
positive impact on investor sentiment and sector valuation. Among these
events, GM announced that, on April 20, it had repaid its loans to the U.S. and
Canadian governments totaling US$4.7 billion and C$1.1 billion, respectively.
On April 21, Chrysler Group published its financial results, capturing the
period from June 10, 2009 to March 31, 2010. Notably, Chrysler reported a
Q1/10 operating profit of $143 million, substantially better than the
company’s Q4/09 operating loss of $267 million.
The auto parts sector recovery continues, investor sentiment is firming, and
we have adjusted our target prices accordingly. We value the Canadian auto
parts stocks based on a multiple of projected enterprise value to 2011E
EBITDA. On this basis, we have revised our target prices (target multiples in
brackets) as follows: Linamar to $25.00 (4.9x) from $21.00 (4.2x), Magna to
US$80.00 (4.5x) from US$70.00 (3.8x), Martinrea to $12.00 (4.6x) from
$11.00 (4.2x), and Wescast to $9.00 (3.5x) from $6.00 (2.5x). Our target
price and multiple for Exco of $3.50 (5.4x) are unchanged. We summarize
our target price revisions in a table on page 2.
In the following chart, we show the history of Magna’s trailing enterprise
value to EBITDA (EV/EBITDA) multiple since 1993. Over the last ten years,
the company has been valued at 4–6x EBITDA, after excluding the outliers
associated with the 2008/2009 downturn. Our revised valuation for Magna is
at about the mid-point of this range.
Please r cluding the Analyst's Certification.
LM Ericsson Telephone (ERIC-NASDAQ) Stock Rating: Market PerformI ndustry Rating: Market Perform
April 23, 2010
Communications Equipment
Tim LongBMO Capital Markets Corp.
Kevin Manning Ari Klein 212-885-4102 212-885-4103 [email protected] [email protected]
Securities Info Price (22-Apr) $11.26 Target Price $952-Wk High/Low $11/$8 Dividend --Mkt Cap (mm) $36,145 Yield --Shs O/S (mm, BASIC) 3,210 Float O/S (mm) 3,012Options O/S (mm) na ADVol (30-day, 000s) 6,233
Selected Bond Iss
Better Margin Offset by Weaker Revenues
Event Ericsson reported another confusing quarter, missing consensus EPS and
revenues. Gross margins were 38.5%, well above consensus of 35.5%, and
seemed to garner the most investor attention. Revenue of SEK 45.1B was far
below consensus estimates of SEK 48B due to weakness in 2G and emerging
markets. Revenues and margins were helped by the first full quarter of
results from the Nortel CDMA acquisition. Gross margins were better due to
strong North America/CDMA sales, weaker emerging markets, and weak
network rollout revenues. North America was 21% of revenue for the
quarter, and prior to the Nortel acquisition NA had never been above 11% of
revenues. JV results were better than expectations with better Sony Ericsson
results partially offset by worse ST Ericsson results.
efer to pages 7 to 9 for Important Disclosures, in
Impact Neutral. We believe some of the gross margin improvements are sustainable,but think any upside will be tempered by lower revenues from emerging markets and 2G. ERIC has been restructuring for three years, and supposedly it comes to an end in 2H10, which could improve investor confidence in thenumbers.
Forecasts Our 2010 EPS estimate moves from SEK 4.81/$0.67 to SEK 4.10/$0.56.
Valuation Our US$9 price target assumes the stock trades at 14x our 2011 EPS estimate.
Recommendation We rate ERIC shares MARKET PERFORM
Changes Annual EPS Annual FCF Quarterly EPS
2010E $0.67 to $0.56 2010E $0.33 to $0.41 Q2/10E $0.17 to $0.13 2011E $0.71 to $0.62 Q3/10E $0.15 to $0.11 Q4/10E $0.22 to $0.20
Ind Prc Rat’g Mdys/S&P YTW SpreadLMETEL 5.1% '12 105 Baa1 / BBB+ 2.47% 97bpLMETEL 5.0% '13 107 Baa1 / BBB+ 2.53% 128bpBond data from Bloomberg.
Price Performance
50
60
70
80
90
100
110
120
ERICSSON L M TEL CO (ERIC)Price: High,Low,Close(US$) Relati ve to S&P 500
5
10
15
20
0
100
200
300
2005 2006 2007 2008 2009
Volum e (mln)
Last Data Point: A pril 22, 2010
Valuation/Financial Data
0
100
200
300
(FY-Dec.) 2008A 2009A 2010E 2011E
EPS GAAP $0.91 $0.57 $0.56 $0.62 P/E 20.1x 18.2x First Call Cons. $0.72 $0.84
FCF $0.94 $0.86 $0.41 na P/FCF 27.5x na EBITDA ($mm) $3,102 $2,899 $2,333 na EV/EBITDA 12.7x na Rev. ($mm) $31,505 $27,910 $25,595 na EV/Rev 1.2x na
Quarterly EPS 1Q 2Q 3Q 4Q
2009A $0.10 $0.13 $0.12 $0.22 2010E $0.12A $0.13 $0.11 $0.20
Balance Sheet Data (09/30/09) Net Debt ($mm) -$6,414 TotalDebt/EBITDA 1.7x Total Debt ($mm) $4,029 EBITDA/IntExp na Net Debt/Cap. nm Price/Book 1.8x
Notes: All values in US$. Source: BMO Capital Markets estimates, Bloomberg, FactSet, Global Insight, Reuters, and Thomson Financial.
This report was prepared by an analyst(s) employ d as a research analyst(s) under FINRA rules. For disclosure statements, including
Yellow Pages Income Fund (YLO.UN-TSX) Stock Rating: Market PerformIndustry Rating: Market Perform
April 25, 2010 Research Comment Toronto, Ontario
Tim Casey, CFA BMO Nesbitt Burns Inc. (416) 359-4860 [email protected] Assoc: David Fidler
Price (23-Apr) $6.89 52-Week High $6.82 Target Price $6.50 52-Week Low $4.78
Reassessing Print Media Valuations
ed by BMO Nesbitt Burns Inc., and who is (are) not registerethe Analyst's Certification, please refer to pages 7 to 9.
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Yellow Pages Income Fund (YLO.UN)Price: High,Low,Close Earnings/Share
Event
Target price increase.
0
5
10
15
Impact
Neutral.
Forecasts
Unchanged.
Valuation We are increasing our one-year target price from $5.75 to $6.50 to reflect the
strong rally in print media stocks.
Recommendation Print media stocks have rallied sharply this year as investors concluded the
sector was priced as if it was going out of business, and then reconsidered this
notion on the back of an economic recovery. Yellow Pages has emerged from
this period with a stable balance sheet and provided clarity on a path to
conversion. We remain Market Perform rated based on growth profile relative to
valuation metrics and debt leverage.
0
50
100Volume (mln)
0
50
100
2005 2006 2007 2008 20090
100
200YLO.UN Relative to S&P/TSX Comp
Last Data Point: April 22, 2010
0
100
200
(FY-Dec.) 2008A 2009A 2010E 2011E EPU $0.89 $0.36 $1.04 $0.86 P/E 6.6x 8.0x FCFPU $1.24 $1.38 $1.21 $1.19 P/FCFPU 5.7x 5.8x CFPU $1.32 $1.47 $1.31 $1.29 Rev. ($mm) $1,697 $1,651 $1,660 $1,700 EBITDA ($mm) $931 $898 $910 $930 E
V/EBITDA 7.2x 6.2x 7.2x 6.7x
Quarterly EPU Q1 Q2 Q3 Q4 2008A $0.21 $0.24 $0.25 $0.17 2009A $0.26 $0.19 -$0.33 $0.25 2010E $0.25 $0.27 $0.26 $0.26 Dividend $0.80 Yield 11.6% Book Value $10.18 Price/Book 0.7x Units O/S (mm) 513.0 Mkt. Cap ($mm) $3,535 Float O/S (mm) 513.0 Float Cap ($mm) $3,535 Wkly Vol (000s) 11,227 Wkly $ Vol (mm) $62.2 Net Debt ($mm) $2,276.0 Next Rep. Date 06-May (E)
Notes: All values in C$; Voting Major Unitholders: Widely held First Call Mean Estimates: YELLOW PAGES INCOME FUND (C$) 2010E: $1.03; 2011E: $0.84
Changes Target $5.75 to $6.50
This report was prepared by an analyst(s) employed by BMO Nesbitt Burns Inc., and who is (are) not registered as a research analyst(s) under FINRA rules. For disclosure statements, including the Analyst's Certification, please refer to pages 19 to 20.
Consumer - Media & Entertainment
Industry Rating: Market Perform
April 26, 2010 Research Comment Toronto, Ontario Tim Casey, CFA (416) 359-4860 [email protected] Assoc: David Fidler
Revisiting Print Media Valuations
Print media stocks have rallied sharply this year as investors concluded the
sector was priced as if it was going out of business, and then reconsidered this
notion on the back of an economic recovery. The businesses faces long-term
challenges, but the advertising recovery confirms that cyclical pressures will
ease in the near term. The remaining business will survive this cycle intact –
although not without a significant culling of publicly traded entities – and as
such, we are re-assessing our target prices accordingly.
Summary
We have increased our target prices on print
media names under coverage to reflect the
revaluation of the businesses.
The stocks were priced for potential liquidity
events given several business failures during
the most recent recession.
We remain cautious on the outlook given
ongoing secular challenges.
Our ratings for Torstar Corporation, Glacier Media and Yellow Pages Group
remain Market Perform.
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Category
BMO Rating BMOCM US
Universe* BMOCM USIB Clients**
BMOCM USIB Clients***
BMOCM Universe****
BMOCM IB Clients*****
Starmine Universe
Buy Outperform 32.9% 13.1% 36.4% 39.4% 47.9% 53% Hold Market Perform 63.2% 11.9% 63.6% 55.3% 48.5% 41% Sell Underperform 3.9% 0% 0% 5.2% 3.6% 6%
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GAMELOFT (GLFT-PA) EDWARD S. WILLIAMS 212-885-4054
Stock Rtg: Outperform Sector Rtg: Outperform Price: €3.87 Target: €5.00 Mkt Cap (mm): €336 2009E EPS: €0.08 2010E EPS: €0.14 2011E EPS: €0.27 FY ends Dec
Title: Event: Impact: Forecasts: Valuation: Recommendation:
