VISION - advisors.nbfwm.ca · Senior Fixed Income Economist ... Steve Parsons 416-869-6766 ... prices of non-euro-zone financial assets, limiting any upward

VISION —Monthly Economic and Financial Monitor

February 2015

Research Analysts—

Ihor Danyliuk 416-869-7522Head of Research

Greg Colman 416-869-6775Deputy Head of Research

Caroline Jukes 416-869-8039Administrative Manager

Tanya Bouchard 416-869-7934Supervisory Analyst

Research PublicationsVanda Bright 416-869-7141Manager, Publishing Services

Wayne Chau 416-869-7140Publishing Associate

Information and Distribution Institutional Clients

Giuseppe Saltarelli [email protected]

Retail Branches

Anoochka Gokhool [email protected]

Economics and Strategy Stéfane Marion 514-879-3781Chief Economist and Strategist Paul-André Pinsonnault 514-879-3795Senior Fixed Income EconomistKrishen Rangasamy 514-879-3140Senior EconomistMarc Pinsonneault 514-879-2589Senior EconomistMatthieu Arseneau 514-879-2252Senior Economist

Communications, Media and TelecomAdam Shine 514-879-2302Associate: Peter Stusio 514-879-2564Associate: Kevin Krishnaratne 416-869-6585

Energy Agriculture and Energy Services

Greg Colman 416-869-6775Associate: Andrew Jacklin 416-869-7571Associate: Sean Wetmore 416-869-6763Associate: Michael Storry-Robertson 416-507-8007

Junior and Intermediate Oil and Gas

Dan Payne 403-290-5441Brian Milne 403-290-5625Associate: Ryan Hoogendam 403-441-0952Associate: Mark Hirsch 403-441-0928

Senior and Intermediate Yield Oil and Gas

Kyle Preston 403-290-5102Associate: Jason Wai 403-355-6643

Pipelines, Utilities and Energy Infrastructure

Patrick Kenny 403-290-5451Associate: Michael Nguyen 403-290-5447

Financial Services Banking and Insurance

Peter Routledge 416-869-7442Associate: Parham Fini 416-869-6515Associate: Paul Poon 416-507-8006

Diversified Financials

Shubha Khan 416-869-6425Associate: Jaeme Golyn 416-869-8042

Merchandising and Consumer ProductsVishal Shreedhar 416-869-7930Associate: Ryan Li 416-869-6767

Metals and MiningShane Nagle 416-869-7936Associate: Raj Udayan Ray 416-507-8105Associate: Gregory Doyle 416-869-6538

Steve Parsons 416-869-6766Associate: Don DeMarco 416-869-7572

Adam Melnyk 604-643-2864Associate: David Lee 416-869-8045

Real EstateMatt Kornack 416-507-8104Associate: Dawoon Chung 416-507-8102

Trevor Johnson 416-869-8511Associate: Endri Leno 416-869-8047

Special SituationsLeon Aghazarian 514-879-2574Associate: Frédéric Tremblay 514-412-0021Associate: Jean-François Bourdon 514-390-7825

Trevor Johnson 416-869-8511Associate: Endri Leno 416-869-8047

Chris Bowes 416-869-7375Associate: John Xu 416-507-9115

Sustainability and Clean Tech Rupert Merer 416-869-8008Associate: Jeremy Mersereau 416-869-6768Associate: Mark Vernest 416-869-7476

Technology Kris Thompson 416-869-8049Associate: Auritro Kundu 416-869-7495Associate: Steven Walt 416-869-7938

Transportation and Industrials Cameron Doerksen 514-879-2579Associate: Umayr Allem 416-869-8577

Technical AnalysisDennis Mark 416-869-7427

ETF Research and Strategy Associate: Daniel Straus 416-869-8020Associate: Ling Zhang 416-869-7942

Geopolitical AnalysisPierre Fournier 514-879-2423Associate: Angelo Katsoras 514-879-6458

Table of Contents—Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 02

The Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05

Interest Rates and Bond Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Stock Market and Portfolio Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Technical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

NBF Action List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Sector Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Analyst Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Alphabetical Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

NBF Disclosures, please visit URL: http://www.nbcn.ca/contactus/disclosures.html

For a paper copy of the disclosures, please send a written request (indicating the name and date of the product) to:National Bank Financialc/o Giuseppe Saltarelli1155, Metcalfe Street 5th Floor Montreal (Quebec), CanadaH3B 4S9

VISIONFebruary 2015

02

—

Economy

The global economy is in better shape than what’s depicted by slumping commodity prices . In the advanced world, the U .S . is now growing at the fastest pace in years and largely offsetting continued weakness in the Eurozone . Emerging economies are benefiting from improving U .S . demand, more competitive currencies against the U .S . dollar, and lower oil prices . Cheaper energy will help keep inflation low, allowing central banks in most major economies to assist growth by keeping monetary policy highly accommodative . We remain comfortable with our forecast for global GDP growth to increase to 3 .5% this year .

The U .S . economy is on track to grow in 2015 at the fastest pace in a decade . The net stimulus provided by lower oil prices should give a further boost to a private sector that is already benefitting from low interest rates and high confidence . Adding to the good news, low inflation will cap the Fed’s ability to significantly tighten monetary policy . We have, accordingly, raised our forecast for 2015 U .S . GDP growth to 3 .3% .

The oil price slump has proven to be larger and more persistent than we had anticipated, prompting us to lower our forecast for WTI oil to an average of $55/barrel this year (from $70 in our previous forecast) and just $65 in 2016 . As a result, we have significantly downgraded our forecasts for Canadian real GDP growth, employment growth and inflation . The GDP deflator may even contract this year, causing nominal GDP growth to be the weakest on records outside of a recession . Under such a scenario, further interest rate cuts by the Bank of Canada cannot be ruled out .

Interest Rates and Currency

With central banks competing to weaken their respective currencies in support of exports, we think the Fed will have to revise its normalization strategy . We now see the upper bound of the target fed funds range ending the year at 0 .75% . We also expect that euro-zone QE will have some spillover effect on prices of non-euro-zone financial assets, limiting any upward movement in the 10-year Treasury yield . We see it trading at 2 .28% in December 2015 .

In light of Statistics Canada revisions showing a material loss of momentum in the labor market in late 2014 and the impact of euro-zone QE on foreign exchange markets, we believe the Bank has to be more aggressive in its support to non-energy exports, higher investment and a stronger labor market . Accordingly we expect a 25 bps rate cut to be announced on March 4, 2015 . Given the global outlook, 10-year Canadas are likely to be trading near 1 .85% at year end .

In light of lower forecasts for interest rates and oil prices, we’ve made room for a further depreciation of the Canadian dollar . The loonie’s decline will be cushioned somewhat if the Federal Reserve was to delay its first rate hike or if oil prices stabilize . Our end-of-2015 USDCAD target is now 1 .28 .

Recommended Asset Mix and Stock Market

Though whipsawed for much of January, global equity markets have been resilient . We note that emerging markets are leading the pack, which is unusual in a time of USD appreciation . Globally, we note that Brent oil is diving while leading indicators are trending up, a development likely to benefit most households .

With expansion now in full swing, the U .S . earnings outlook remains favourable . A quarter of the way into the Q4 earnings season, outcomes are running above expectations . Though some sectors of the S&P 500 are beginning to feel drag from the strong U .S . dollar, we doubt this will have much effect on the economy as a whole . True, about 40% of S&P 500 profits are earned overseas . But for national-accounts profits the share falls to 20% .

At this juncture, we remain comfortable with our recommendation to overweight equities relative to our benchmark while maintaining a slight underweighting in fixed income products . We are staying with an overweight recommendation for the S&P/TSX early in 2015 . This call hinges on our assumption of lower oil production and a delay in U .S . rate hikes (in order to limit USD strength) . Our year-end targets are 16,200 for the S&P/TSX and 2, for the S&P 500 .

Highlights—

Stéfane Marion Chief Economist and Strategist 514-879-3781

03

—

Highlights—

Benchmark (%)

NBF Recommendation (%)

Change (pp)

EquitiesCanadian Equities 30 33U.S. Equities 10 12Foreign Equities (EAFE) 10 7Emerging markets 5 8

Fixed IncomeCanadian Bonds 30 30Foreign Pay Bonds 0 0Real Return Bonds 10 5

Cash 5 5Total 100 100NBF Economics and Strategy

NBF Asset Allocation Actual ForecastLevel Q4 2015 (Est.)

INTEREST RATES

3-month US 0.02 0.69 CA 0.62 0.46

10 yrs US 1.83 2.28 CA 1.43 1.84

STOCK MARKET Q4 2015 (Est.)Target

S&P 500 2,030 2,220S&P/TSX 14,834 16,200

S&P/TSX Sectors Weight* Recommendation Change

Energy 21.5 Overweight

Materials 12.1 Market Weight

Industrials 8.6 Market Weight

Consumer Discretionary 6.3 Underweight

Consumer Staples 3.7 Underweight

Healthcare 4.1 Market Weight

Financials 34.1 Market Weight

Information Technology 2.4 Overweight

Telecommunication Services 5.0 Underweight

Utilities 2.3 Underweight

Total 100.0* As of January 27, 2015

NBF Sector Rotation

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The Economy—

VISIONFebruary 2015

06

—

World: Misleading commodities

The global economy is in better shape than what’s depicted by slumping commodity prices. In the advanced world, the U.S. is now growing at the fastest pace in years and largely offsetting continued weakness in the Eurozone. Emerging economies are benefiting from improving U.S. demand, more competitive currencies against the U.S. dollar, and lower oil prices. Cheaper energy will help keep inflation low, allowing central banks in most major economies to assist growth by keeping monetary policy highly accommodative. We remain comfortable with our forecast for global GDP growth to increase to 3.5% this year.

Looking solely at commodities, one may get the impression the global economy is stumbling badly . Oil prices have dropped nearly 60% since mid-2014, not far from the collapse seen during the 2008/09 global recession, and copper prices are down 20% since the summer . But things aren’t always what they seem, and the commodity collapse is a case in point . Besides the expected weakness in the Eurozone and oil exporting nations, the global economy generally remains resilient . And there is room for further improvement based on leading indicators . Demand is holding firm as evidenced by an uptick in China’s imports of commodities last year . So what is really going on with commodity prices? In the oil market, while there is admittedly some excess supply thanks to the shale boom in the U .S ., the magnitude of the price collapse is clearly not commensurate with demand and supply fundamentals, suggesting that speculative activity was likely behind the rout . Indeed, net short positions on oil by speculators are the highest in years .

Since the oil collapse is largely a supply story amplified by speculative activity, the drop in prices is arguably good news for the world as a whole . For one, cheaper oil helps in rebalancing the global economy by improving the current account balance of oil importing countries, which are often in deficit territory, at the expense of big oil exporters which usually enjoy large surpluses . Secondly, lower oil prices are equivalent to a stimulus for consumers globally . Third, lower inflation resulting from the oil plunge will allow central banks to keep interest rates low for longer or even cut them just like the Reserve Bank of India and People’s Bank of China did in recent weeks .

Even some central banks in the advanced world which are stuck at the zero bound are adding stimulus for fear of falling into deflation, the

latter’s probability having risen since the oil price collapse . The Bank of Japan is pressing ahead with quantitative easing which should further weaken its currency and give a boost to both growth and inflation in the world’s third largest economy . Even the European Central Bank hopped on the QE bandwagon in January .

Oil price collapse does not reflect state of global economyOECD leading economic indicators versus Brent oil price

NBF Economics and Strategy (data via OECD)

OECD (L)

IndexWorld (L)

Oil price (R)

US$/Barrel

China: Imports of commodities resilient in 2014Volume imports of crude petroleum, iron and copper

NBF Economics and Strategy (data via Datastream)

y/y % chg.

Copper

Iron

Crude

World: Speculators shorting oilNet long non-commercial positions, Nymex Brent crude oil


contracts

The Economy—

Krishen Rangasamy Senior Economist 514-879-3140

07

—

Eurozone: ECB ramps up the printing press

NBF Economics and Strategy (data via Bloomberg)

US$ trillionFed

ECB

Central bank balance sheet

Forecast* Forecast**

Fed

ECB

Central bank balance sheet as a % of GDP

%

*ECB’s QE at €60 bn/month from March 2015 to September 2016, unchanged thereafter; EURUSD at 1.10 end-2015 and 1.05 end-2016

** ECB’s QE at €60 bn/month from March 2015 to September 2016, unchanged thereafter; nominal GDP grows 2% in eurozone in both 2015 and 2016

ECB’s balance sheet will remain smaller than the

Fed’s in absolute terms ...

...but will surpass the Fed’s relative to the size

of the economy

Indeed, in addition to lowering the rate on its TLTRO loans and keeping its deposit rate unchanged at -0 .2%, the ECB announced a plan to purchase €60 bn of private and public bonds per month on the secondary market . The ECB intends to carry out the program from March 2015 to September 2016 (i .e . taking total purchases to €1 .1 trillion), although it made clear the program could be extended past that date or end sooner depending on whether or not economic objectives are met . While the ECB’s balance sheet won’t surpass the Fed’s in absolute terms, it will do so in relative terms — as a percentage of the size of the respective economies, the ECB’s balance sheet will be larger than the Fed’s .

Such drastic action, while belated in our view, had to be taken considering the mounting threat of deflation within the Eurozone . Regardless, the ECB’s actions won’t significantly change the 2015 outlook . The failure by the zone’s governments to implement growth-friendly reforms and policies should continue to cap employment and growth . We expect the zone’s GDP growth to be no better than 1% this year .

Eurozone: Headline inflation turns negativeConsumer price index


y/y % chg.

Headline CPI

Core CPI

The Economy—

World Economic Outlook

Forecast

2014 2015 2016Advanced countries 1.8 2.3 2.1United States 2.4 3.3 2.7Euroland 0.8 1.0 1.0Japan 0.1 1.0 0.8UK 2.6 2.7 2.4Canada 2.4 2.0 2.0Australia 2.8 2.9 3.0New Zealand 3.6 2.8 2.5Hong Kong 3.0 3.3 3.5Korea 3.7 4.0 4.0Taiwan 3.5 3.8 4.2Singapore 3.0 3.0 3.0

Emerging Asia 6.5 6.2 6.3China 7.4 6.5 6.5India 5.8 6.3 6.5Indonesia 5.2 5.5 5.8Malaysia 5.9 5.2 5.0Philippines 6.2 6.3 6.0Thailand 1.0 4.6 4.4

Latin America 1.2 1.8 2.5Mexico 2.1 3.2 3.5Brazil 0.1 0.3 1.5Argentina -1.7 -1.5 0.0Venezuela -3.0 -1.0 0.0Colombia 4.8 4.5 4.5

Eastern Europe and CIS 1.7 0.4 1.9Russia 0.6 -4.0 -1.0Czech Rep. 2.5 2.5 2.4Poland 3.2 3.3 3.5Turkey 3.0 3.0 3.7

Middle East and N. Africa 2.3 3.4 4.0

Sub-Saharan Africa 5.6 5.5 5.8

Advanced economies 1.8 2.3 2.1Emerging economies 4.4 4.3 4.8World 3.3 3.5 3.7

Source: NBF Economics and Strategy

VISIONFebruary 2015

08

—

In China, growth surprised to the upside in Q4 with GDP growing 6 .1% at a seasonally adjusted annualized rate in the quarter (or 7 .3% on a year-on-year basis) . Also positive was the handoff to 2015 which was quite good based on consensus-topping December data for industrial production and retail spending . For 2014 as a whole, China grew 7 .4%, the lowest in years, albeit not far from the government’s target of 7 .5% . It’s encouraging that consumption spending increased its share of contribution to growth, accounting for more than half of GDP growth last year . So, Beijing is starting to reap rewards for its efforts in rebalancing the economy away from exports and investment, and towards consumption .

Interestingly, despite the resilient yuan last year — an important element of the rebalancing process — exports managed to hit an all-time high, allowing the trade surplus to also hit a new record . Helped by the recent depreciation of the yuan and stronger U .S . demand, China’s exporters may well repeat the feat in 2015 .

China’s overall deceleration shouldn’t be surprising considering the rebalancing process underway and the government’s crackdown on shadow banking . Social financing, the aggregate measure of credit, was up 16 trillion yuans in 2014, i .e . a bit lower than the prior year’s increase . The deceleration was entirely due to loans made outside of banks, which grew at the slowest pace in three years . That offset the increase in conventional bank loans, the latter growing at the fastest pace in five years . So much so, that the share of new bank loans in social financing shot up to nearly 60%, the highest since 2009 . This is a positive development in terms of financial stability and hence sustainability of growth . However, China is not out of the woods just yet . There are still risks surrounding non-bank loans that were made during the boom years of shadow banking (e .g . 2013), particularly related to real estate investment . The real estate correction is far from over and related defaults could have a significant impact on financial markets .

Should things deteriorate in that regard, we remain hopeful that the central government will step in to prevent spillovers to the rest of the economy . While a sharp deceleration for fixed investment and housing is in the cards, there will be some offset thanks to spending by government on infrastructure and a further loosening of credit (in the non-shadow banking sector) by the People’s Bank of China made possible by below-target inflation . We remain comfortable with our forecast for China to grow by 6 .5% this year . That, together with contributions from other emerging economies, Japan and the U .S ., should help global GDP growth increase to 3 .5% in 2015 .

China: Pace of growth moderated in Q4


%

q/q chg. saar

y/y chg.

China: Exporters did well in 2014 despite strong yuanTrade balance


US$ bn

Trade balance (L)

Exports (R)

Imports (R)

US$ bn

China: Credit growth slowed last yearSocial financing and loan share


Trillion yuan

Social Financing (L)

Loan share of Social Financing (R)

%

The Economy—

09

—

U.S.: Best in a decade

The U.S. economy is on track to grow in 2015 at the fastest pace in a decade. The net stimulus provided by lower oil prices should give a further boost to a private sector that is already benefitting from low interest rates and high confidence. Adding to the good news, low inflation will cap the Fed’s ability to significantly tighten monetary policy. We have, accordingly, raised our forecast for 2015 U.S. GDP growth to 3.3%.

The U .S . economy is on fire . GDP results for the final quarter of 2014 were not available at this writing, but it’s clear from monthly reports that growth was again strong . Trade seems to have contributed to growth for a second consecutive quarter thanks to exports, which again grew faster than imports . Despite a moderation in investment spending — shipments of non-defense capital goods excluding aircraft, a reasonably good proxy, was weak in the quarter —, domestic demand was nonetheless well supported . That’s because of residential investment (based on solid single housing starts in the quarter), and consumption spending which accelerated based on strong retail results . Overall, the U .S . economy likely grew around 3% annualized in Q4, an impressive performance considering that comes after two very strong quarters .

Many of the forces that propelled the U .S . economy last year will remain in place in 2015 . For instance, consumption spending which last year benefitted from the best labour market since 1999 (roughly three million net new jobs were created in 2014) and improved confidence, should again be strong as employment creation remains well supported by further expansion in output and healthy corporate profits . Low gasoline prices will also help . While we expect pump prices to recover somewhat as oil pares back some of the recent losses, they should nonetheless still be down on a year on year basis, giving a significant stimulus to American consumers . Moreover, the re-leveraging process which started in 2014 should continue as better opportunities stemming from an even stronger labour market makes consumers more confident about borrowing and spending .

Additional help for consumers could come from better pay . Wage growth which was disappointing last year, has potential to improve . Not only did several states start 2015 with an increase in the minimum wage, but small businesses, which account for roughly two-thirds of job creation, seem to be considering a hike in pay . The latest NFIB small business survey suggested 17% of businesses were planning to raise worker compensation, a post-recession high . That said, there’s a limit to how much employers, particularly in the goods sector, can raise wages before contemplating automation . So, while we expect wage growth to pick up from last year’s pace, it could nonetheless remain soft in 2015 .

U.S.: Consumption growth remains strong


q/q % chg. saar

Retail volumes

Real consumption (from national accounts)

Q4

Retail volumes and real consumption spending University of Michigan sentiment index

Consumption spending strong in Q4 last year ...

... and odds are that it will be even stronger in 2015

11-year high in Jan.2015

U.S.: Best labour market since 1999Non farm payrolls


millions

Total

Private sector

U.S.: Wage inflation low


Non farm payrolls hourly earnings % of small businesses planning to raise compensationy/y % chg.

Wage inflation remained low last year ...

... but there’s hope for some improvement this year

The Economy—

VISIONFebruary 2015

10

—

While consumers will be the major driver of the U .S . economy, investment spending should also be a significant contributor to growth this year . Corporate profits are at all-time highs and on track to hit new records in 2015 . The improved economic outlook and better confidence should allow firms to invest those profits in productivity-enhancing capital goods and services . That is crucial in some industries, including the manufacturing sector, which compete globally and which have been under pressure to boost productivity in the wake of the U .S . dollar’s surge . The investment boost should offset the expected decline in outlays in the energy sector .

The oil price collapse means that investment and drilling are now unprofitable for many high cost producers . That’s clearly visible from the sharp decline in recent weeks in the number of horizontal rigs that are often used for shale oil production . Interestingly, that hasn’t yet affected output which hit an all-time high in December . Producers seem to be cutting costs (via layoffs, according to the Fed’s latest Beige Book) and maximizing revenues by pumping as much oil as possible to give themselves a better chance of surviving the current headwinds . All told, while employment and investment will be curbed in the energy patch this year, we doubt this will permanently derail the U .S . drive towards energy independence .

The housing market, one of the rare disappointments of 2014, should improve this year thanks to tailwinds such as improved consumer confidence, stronger employment, and low interest rates . A new program launched by the government last December will also help somewhat given that it allows, under strict underwriting standards, a down payment that is as low as 3% for first time home buyers . Still, don’t expect miracles . The housing recovery is likely to be slow, impeded in part by an apparent shift in preferences . Americans seem to be more and more comfortable with the prospect of renting — the homeownership rate indeed remains at a 20-year low —, and in living in more affordable multi-family homes . Builders are responding accordingly by skewing construction towards multis which contribute less per unit to GDP than single family homes .

All told, despite pockets of softness, i .e . housing and the energy patch, the U .S . economy should be able to post the strongest growth in a decade, buoyed by solid fundamentals for consumption and non-energy investment . The net stimulus provided by lower oil prices should give a boost to a private sector that is already benefitting from low interest rates and high confidence . We have, accordingly, raised our forecast for 2015 U .S . GDP growth to 3 .3% . That’s not to say the Fed will suddenly turn aggressive on monetary policy . In fact, the expected persistence of low inflation due to the oil price slump and tepid wages, prompted us to push to late Q3 the timing of the first hike to the fed funds rate .

U.S.: Corporations in good position to invest


US$ trillion

Corporate profits before tax Non-farm business productivity versus estimate derived by GDP and payroll hours

Q4 est.

Non-farm business productivity

Estimate

q/q % chg. saar

Solid corporate profits give firms ability to invest ...

… so that they can boost productivity

U.S.: Oil production at record high despite rig reduction

*13-week moving average

NBF Economics and Strategy (data via Baker Hughes, Datastream)

8-week change ‘000 barrels/day*

Rig count (L)

U.S. field production (R) Highest everin Dec.2014

index

Change in horizontal rigs and U.S. weekly production Oil and gas extraction

U.S.: Share of multis in 2014 was highest in three decadesHousing starts and Share of multiple units in total starts


millions

Share of multis (R)

Starts (L)

%

14

The Economy—

11

—

Canada: Losing energy

The oil price slump has proven to be larger and more persistent than we had anticipated, prompting us to lower our forecast for WTI oil to an average of $55/barrel this year (from $70 in our previous forecast) and just $65 in 2016. As a result, we have significantly downgraded our forecasts for Canadian real GDP growth, employment growth and inflation. The GDP deflator may even contract this year, causing nominal GDP growth to be the weakest on records outside of a recession. Under such a scenario, further interest rate cuts by the Bank of Canada cannot be ruled out.

The Great White short is back, but this time armed with slightly better arguments . Unlike the past couple of years when those shorting Canada did so based on a hunch that there was an “imminent” housing collapse (which never really materialized), the current case against Canada is arguably more compelling after the commodity price collapse . Even the Bank of Canada is worried based on its dovish message and surprise interest rate cut in January . The oil slump has indeed proven to be larger and more persistent than many had anticipated, prompting us to lower our forecast for WTI oil to an average of $55/barrel this year (from $70 in our previous forecast) and just $65 in 2016 . As a result, we have again downgraded our forecasts for 2015 real GDP growth to just 2 .0% .

Given the magnitude of the commodity price collapse, the GDP deflator may even contract for the first time since the 2008/09 recession . So much so that nominal GDP growth this year is set to be the weakest on records outside of a recession . That poses problems to government at both the federal and provincial levels . The projected revenue shortfall is likely to translate into tighter control on spending, and perhaps even cuts in some provinces . But the drag on the economy from tight fiscal policy will pale in comparison to that caused by slumping investment . The energy sector, which accounts for about a quarter of non-residential investment in Canada, should see the largest decline, although perhaps not as much as the near-40% drop observed during the last recession .

The negative impacts of the commodity slump on investment and hiring plans are already being felt . At least that’s the message brought out by the Winter edition of the Bank of Canada's Business Outlook Survey which showed declines in the balance of opinion regarding future sales, investment, and hiring . A rare positive from the survey was that manufacturers seemed willing to boost investment to increase production rather than just replace existing capital as was the case in the prior survey . Better U .S . demand and a cheaper Canadian dollar are clearly helping factories, providing a partial offset to the hit experienced by the energy patch . Still, on net, the survey results were mostly downbeat for Canada .

2.5

2.22.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

90 70 55

Canada: 2015 GDP growth forecast downgraded again because of oil slump

NBF Economics and Strategy (Forecasts by NBF)

Assumed WTI oil price average in 2015Ca

nada

Rea

l GDP

gro

wth

fore

cast

for 2

015

Canada: GDP deflator could be negative in 2015GDP deflator versus WTI oil price

NBF Economics and Strategy (data via Datastream, NBF calculations)

$50

y/y % chg.

$60

$70

y/y % chg.

GDP deflator (L)

WTI oil price (R)

Difficult end to 2014 according to Bank of Canada survey Real GDP versus Bank of Canada’s Business Outlook Survey

NBF Economics and Strategy (data via Bank of Canada, Statistics Canada)

Real GDP (L)q/q % chg. saar

Change in balance of opinion on investment

and hiring (R)

points

Recession

Uncertainty caused by European financial crisis

Uncertainty caused by oil price collapse

Q4

The Economy—

VISIONFebruary 2015

12

—

The oil collapse is also hurting the housing market, particularly in western provinces . Residential construction took a dive in Q4 as evidenced by the near-25% annualized drop in Canadian housing starts — in Alberta, starts fell more than 35% annualized . Builders are taking a breather, probably due to slower demand . In the resale market, the number of homes sold last December dropped 25% from the prior month on a seasonally adjusted basis in Calgary (the biggest decline since 2008) and 26% in Edmonton (the worst monthly decline on records) . Outside of Alberta, sales fell a milder 3 .1% . Alberta’s housing market has for years benefited from the large number of migrants attracted by job opportunities in a fast-growing economy . The oil collapse has changed that dynamic, at least until prices recover to more profitable levels for producers/employers . So, the shrinking number of home buyers shouldn’t really be surprising . While house prices are likely to drop in Alberta, gains in other parts of the country, notably in Ontario, may be enough to keep prices roughly flat nationally in 2015 . Fundamentals are generally still solid e .g . low interest rates, generally good credit quality of mortgage holders, healthy demand helped by immigration growth, and a sound banking system .

The labour market is also a crucial determinant of whether or not the rest of Canada manages to offset the expected housing slump in Alberta . Employment should continue growing in synch with the economy, although at a slower pace than last year . Western Canadian provinces, which created more than 80% of all new jobs last year, are unlikely to repeat the feat considering what happened to energy prices . In contrast, employment creation should remain healthy in Ontario, supported by a manufacturing sector that got a new lease on life thanks to a weakening Canadian dollar . Cheaper energy will also help lower costs of production for energy-intensive manufacturers such as makers of autos and parts . Quebec, another manufacturing-centric and export-driven province, will also benefit, and should see a rebound for both growth and employment after a disappointing 2014 . More generally, thanks to the combination of a more competitive loonie and a stronger U .S . economy, we expect exports to remain the main driver of Canadian growth this year .

While domestic demand will be restrained by investment spending and, to a lesser extent, by government and housing, not all is bleak for the domestic economy . Consumption may provide some offset thanks to savings brought by lower fuel prices — savings of over C$20 bn, or 2% of household disposable incomes . That should be enough for Canada to register growth of 2% in 2015, a touch above potential . But with downside risks to growth and inflation — according to the Bank of Canada’s latest Monetary Policy Report, the annual inflation rate does not come back to 2% until the end of 2016 — further rate cuts by the Bank of Canada cannot be ruled out .

NBF Economics and Strategy (data via CMHC, Statistics Canada)

Canada: Residential construction weak in 2014Q4Real residential investment and Housing Starts

q/q % chg. saar

Real residential investment, from national accounts (L)

Housing starts (R)

q/q % chg. saar

-20-10

01020304050607080

BC AB SK MB ON QC NB NS PE NL

Canada: Difficult for labour market to top even the disappointing 2014 performance

NBF Economics and Strategy (data via Statistics Canada)

Employment creation according to Labour Force Survey

2014 job creation by provinces, in thousands

Labour market created just 121K net new jobs last year ...

... and 84% of those jobs were inWestern Canada

Total

Private

thousands

Canada: Oil stimulus for consumers

NBF Economics and Strategy (data via CAPP)

Motor gasoline, diesel, fuel oil consumption

Billion litres

0

5

10

15

20

25

-22 -20 -15 -10 -5

Savings for consumers

C$ bn

% change in fuel price(2015 average versus 2014 average)

The positive impact of lower fuel prices on consumers could be …

… as much as C$23 bn or 2% of household disposable income

The Economy—

13

—

Q4/Q4(Annual % change)* 2012 2013 2014 2015 2016 ### 2014 2015 2016

Gross domestic product (2009 $) 2.3 2.2 2.4 3.3 2.7 2.6 2.9 2.5Consumption 1.8 2.4 2.5 3.3 2.9 2.9 3.1 2.5Residential construction 13.5 11.9 1.4 3.1 4.2 1.6 4.0 4.2Business investment 7.2 3.0 6.3 5.7 4.3 6.0 4.9 3.8Government expenditures (1.4) (2.0) (0.2) 0.8 0.3 0.8 0.7 0.2Exports 3.3 3.0 3.3 4.0 3.4 2.8 2.7 4.1Imports 2.3 1.1 3.6 3.9 4.1 3.9 4.5 3.7Change in inventories (bil. $) 57.1 63.6 66.7 52.6 46.6 64.7 52.0 48.8Domestic demand 2.1 1.9 2.4 3.1 2.6 2.8 2.9 2.3

Real disposable income 3.0 (0.2) 2.3 2.4 2.5 2.7 2.4 2.6Household employment 1.8 1.0 1.6 1.8 1.6 2.2 1.7 1.6Unemployment rate 8.1 7.4 6.2 5.6 5.3 5.8 5.5 5.2Inflation 2.1 1.5 1.6 0.4 2.3 1.2 1.1 2.4Before-tax profits 11.4 4.2 (0.2) 8.1 5.1 2.3 6.0 4.5Federal balance (unified budget, bil. $) (1,089.2) (680.2) (483.3) (469.0) (536.0) ... ... ...Current account (bil. $) (460.8) (400.3) (395.9) (384.7) (376.7) ... ... ...

-304* or as noted

Current Q4 Q4 2015 Q4 20161/28/15 Q1 2015 Q2 2015 Q3 2015 Q4 2015 2015 2016

Fed Fund Target Rate 0.25 0.25 0.25 0.50 0.75 0.75 1.50 3 month Treasury bills 0.02 0.03 0.10 0.52 0.69 0.69 1.49 Treasury yield curve 2-Year 0.50 0.66 0.84 1.22 1.41 1.41 2.15 5-Year 1.25 1.38 1.48 1.74 1.90 1.90 2.48 10-Year 1.73 1.94 2.09 2.16 2.28 2.28 2.65 30-Year 2.29 2.51 2.62 2.66 2.75 2.75 3.05 Exchange rates U.S.$/Euro 1.13 1.10 1.08 1.07 1.05 1.05 1.00 YEN/U.S.$ 118 120 122 124 128 128 135

National Bank Financial** end of period

United StatesEconomic Forecast

Financial Forecast**

The Economy—

VISIONFebruary 2015

14

—

Q4/Q4(Annual % change)* 2012 2013 2014 2015 2016 2014 2015 2016

Gross domestic product (2007 $) 1.9 2.0 2.4 2.0 2.0 2.3 1.8 1.9Consumption 1.9 2.5 2.8 2.2 2.0 2.7 1.9 1.9Residential construction 5.7 (0.4) 2.5 1.0 (0.2) 4.7 (1.3) 0.0Business investment 9.0 2.6 0.1 (1.2) (0.1) 2.1 (3.1) 0.5Government expenditures 0.2 0.1 (0.0) (0.0) (0.1) 0.6 (0.6) 0.2Exports 2.6 2.0 5.2 6.5 6.6 5.9 7.9 5.2Imports 3.7 1.3 1.4 4.1 3.6 1.4 5.0 3.0Change in inventories (millions $) 7,437 12,368 3,922 5,000 5,249 (3,050) 4,886 4,566Domestic demand 2.5 1.5 1.7 1.3 1.1 2.1 0.7 1.2

Real disposable income 2.8 2.5 1.7 1.9 1.9 1.7 1.9 1.9Employment 1.3 1.4 0.6 0.8 1.0 0.7 0.7 1.0Unemployment rate 7.3 7.1 6.9 6.8 6.7 6.7 6.8 6.7Inflation 1.5 0.9 1.9 0.5 2.3 1.9 1.2 2.2Before-tax profits (4.2) (0.6) 9.7 (0.9) 4.2 8.5 (0.7) 5.0Current account (bil. $) (59.9) (56.3) (43.6) (52.6) (44.5) .... .... ....

* or as noted

Current Q4 Q4 2015 Q4 20161/28/15 Q1 2015 Q2 2015 Q3 2015 Q4 2015 2015 2016

Overnight rate 0.75 0.50 0.50 0.50 0.50 0.50 1.00 Prime rate 2.75 2.50 2.50 2.50 2.50 2.50 3.00 3 month T-Bills 0.60 0.46 0.46 0.46 0.46 0.46 0.96 Treasury yield curve 2-Year 0.44 0.55 0.63 0.68 0.78 0.78 1.26 5-Year 0.69 0.79 0.86 0.90 1.27 1.27 1.76 10-Year 1.35 1.42 1.47 1.53 1.84 1.84 2.12 30-Year 1.93 1.96 1.97 2.02 2.30 2.30 2.51

CAD per USD 1.24 1.26 1.26 1.27 1.28 1.28 1.23 Oil price (WTI), U.S.$ 44 50 54 58 60 60 70

National Bank Financial** end of period

CanadaEconomic Forecast

Financial Forecast**

The Economy—

Interest Rates and Bond Markets—

VISIONFebruary 2015

16

—

The ECB joins the club …

On January 22 the European Central Bank finally delivered on the expectations it had built up, announcing officially that it will join the club of central banks that have been using the printing press to buy government bonds . At €60 billion a month, the purchase program is larger than expected, even though that amount includes current programs for purchase of asset-backed securities and covered bonds . The expanded program, scheduled to begin March 2015 and run “at least” until September 2016, would in that period swell the ECB balance sheet from €2 .158 trillion to €3 .238 trillion – from roughly 20% of GDP to slightly more than 30%, compared to roughly 26% for the Fed program . However, the final total of the ECB’s purchases will depend on its confidence that euro-zone inflation is on a path consistent with its target of “below, but close to, 2% .” In other words, the program will be extended if needed . The announcement of open-endedness is important, given that euro-zone prices are currently in deflation and demographic trends will brake the ECB’s achievement of its inflation objective . It shows commitment, a key factor for the success of monetary policy when the policy rate is near zero .

The central bank will coordinate purchases of 2- to 30-year bonds, including inflation-linked and floating-rate securities, issued by central governments, certain agencies or certain international or supranational institutions located in the euro zone . Amounts to be purchased by national central banks will be allocated according to each country’s contribution to the capital of the ECB .

NBF Economics and Strategy (data via Bloomberg) 2015-01-23

The ECB accelerates the fall of the euroWe see the euro declining another 6%, to 1.05 against the U.S. dollar

Draghi: “This would imply altering early next year the size, pace and composition of our measures.” (Dec. 4, 2014)

EURUSD

Although QE affects the economy and the inflation outlook through many transmission mechanisms, the main channel in this case is likely to be the foreign exchange market . So far it seems to be working . Between year-end 2014 and January 23, the day following the announcement, the euro fell 7% against the U .S . dollar . We think it will fall more; we would not be surprised to see another 6% decline to 1 .05 EUR/USD . Such a devaluation would both support euro-zone exports and contribute to the ECB’s reflation target via import prices .

We also expect some spillover effect of euro-zone QE on prices of non-euro-zone financial assets . The search for yield by European and global investors will become even more intense and substantial central bank purchases will make European bonds even more expensive .

1-Year 5 10 20 30

World: Looking for yield and liquidity !Sovereign debt yield curves

NBF Economics and Strategy (data via Bloomberg)2015-01-23

%Australia

U.S.

Canada

Germany

Switzerland

Under these conditions U .S . Treasuries will become quite attractive, offering higher yields, the possibility of exchange-rate gain and the highest liquidity .

... and the Fed will take notice

Despite strong headwinds braking the energy patch and some softness in housing, we expect the U .S . economy to grow 3 .3% in 2015 . Low gasoline prices will benefit U .S . consumers and a healthy labour market will foster consumer confidence . Consumer lending has accelerated in recent months and commercial and industrial lending is up 14% from a year ago, comforting our view of the strength of the U .S . economy .

However, economic softness in other parts of the world and the strength of the U .S . dollar will make life harder for U .S . exporters . Already in its January manufacturing survey, the Kansas City Fed reports businesses complaining that the strong dollar is hurting their ability to compete with European producers . The survey’s diffusion index for expected new export orders in the next six months fell from 8 in December to −2 in January .


Paul-André Pinsonnault Senior Fixed Income Economist 514-879-3795

17

—

USD index: How much more will the U.S. tolerate? Appreciation of the U.S. dollar against a basket of trading-partner currencies


Index

Given the rise of the trade-weighted value of the U .S . dollar since then and our expectation that it will rise more, we expect to hear many more complaints from U .S . exporters in the coming months .

The Fed’s dual mandate: Still room to waitUnsatisfactory broad measure of unemployment, no inflation threat

Unemployed,marginally attached and part-time

Unemployment rate


Core PCE, 12-month change

%

This at a time when core inflation remains below the Fed target rate, large pockets of the labour force remain under-utilized and the number of full-time jobs is still lower than before the recession . In this environment the doves in the FOMC will be inclined to see falling headline inflation as an opportunity to maximize job creation .

As Bank of England governor Mark Carney noted in Davos:

“In the U .S . there’s a big difference between the path of monetary policy implied by the Fed through the famous dot plots and that implied in the market . That gap will close somewhat this year and the question is in what direction will (it) close and what impact that will have on volatility …”

While the doves will incline toward a policy path in line with current market expectations, many FOMC participants will want to move away from the zero bound more rapidly . A need to make sure the exit strategy does not become even more challenging down the road is one of their arguments . At some point the fed funds rate will have to be raised and the longer the FOMC waits the steeper the adjustment will have to be . Proponents of this view want to avoid a repeat of the 2013 one-point jump in the 10-year Treasury yield . In that episode,

the 10-year rate was low relative to fundamentals and Fed chairman Ben Bernanke’s talk about the possibility of scaling down Fed asset purchases sent the bond market into turmoil . Adding to the complexity of monetary policy normalization is that investors have been chasing yields for quite some time now . They are long in corporate bonds, directly or through investment in open-end funds (ETFs), leaving financial conditions vulnerable to large outflows from these markets . A steep readjustment in Treasury yields could spark a stampede out of corporate debt, and disruption of the corporate financing market could create stiff headwinds for the economy . These are risks the FOMC must take into consideration . Abating them may require a gradual but early move away from the current policy stance .

Effective fed funds rateFed funds

futures

Sept. 12, 2014

Jan 16, 2015

Fed funds futures say: Normalization will be slow!


%

The futures market has revised down its expectations since September …

FOMCparticipants’views of themidpoint of

the target fed funds range at year end

2015… and is now pricing in a year-end fed funds rate of 0.5%, lower than most FOMC participants expect

At the end of the day, we think that with central banks competing to weaken their respective currencies in support of exports, the Fed will turn out to be less aggressive in its monetary policy normalization than is suggested by the dot plot . We expect the FOMC to set the upper bound of the fed funds target range at 0 .75% in Q4 2015, compared to our previous forecast of a range of 1% to 1 .25% .

Bottom line: Having revised down our forecast for the target policy rate, and expecting some spillover effect on U .S . financial asset prices from the ECB’s QE, we have lowered our forecast for the 10-year yield . We expect Treasuries to trade near 2 .28% at year end 2015 and close to 2 .65% a year later .


U.S. interest ratesWeekly observations and quarter-end forecasts

%

U.S. 2-year

U.S. 10-year

Target fed funds – upper bound


VISIONFebruary 2015

18

—

... and in Canada

Although the Bank of Canada had been quite transparent in its view that lower oil prices were bad news for the Canadian economy, markets were surprised by its January rate cut . With the outlook for oil prices dogged by uncertainty – how low for how long? – the Bank decided to take out an insurance policy against the downside risks facing the economy .

In the BoC’s estimate, assuming no policy response and oil averaging $60 a barrel, the output gap would not close until late 2017 . With some of the impact of the oil price collapse already visible – in Calgary the number of existing-home sales dropped 25% in December – and given our own forecast that WTI will average $55 a barrel this year, we certainly support the Bank’s move .

Since the BoC rate decision, Statistics Canada has revised the Labour Force Survey data using its latest population estimates . The revision shows that Canada created a net 121K jobs in 2014, compared to the original estimate of 186K . Much of the 2014 downgrade came from Ontario and BC where 2014 employment creation was chopped in half versus what was previously reported .

The updated data now indicate an even larger dependence of the Canadian labor market to Western Canada in 2014 . Indeed, 84% of job creation came from the four westernmost provinces, 14 points of percentage more than previously estimated . That’s bad news for the 2015 employment outlook because Western provinces are unlikely to repeat the feat considering what happened to energy prices . Employment growth will have to come from other regions, manufacturing-centric and export-driven .

Canada: Jobs growth revised down in 2014Created 121.3K jobs in 2014, a 65K downward revision

NBF Economics and Strategy (data via Statistics Canada)2015-01-28

Exports will be supported by the strength of the U .S . economy, for which lower energy prices are a net plus . That said, U .S . producers are not the only competition for Canadian exporters seeking U .S . market share, and thus the USD/CAD exchange rate is not the only factor in our competiveness in that market . In the trade-weighted value of the greenback, the weight of imports from Canada is 13 .4% .

This compares to 16 .5% for the euro zone, 14% for Mexico, 7 .9% for Japan and 25 .2% for China . And since the U .S . dollar has gained more against the euro than against the Canadian dollar, some of Canada’s main competitors are gaining more advantage than we are .


Jan 2014 = 100

Devaluation against the USD: Some win more than othersWeekly observations

CAD

EUR

JPY

MXN

The USD has appreciated:21% against the euro15% against the yen12% against the CAD10% against the peso

In the January 2015 MPR, the Bank was already looking for soft growth in the first half of 2015 to result in a material setback to its projected return, by late 2016, to full employment and sustainable 2 per cent inflation . With Statistics Canada revisions showing a material loss of momentum in the labor market in late 2014, we believe the Bank has to be more aggressive in its support to non-energy exports, higher investment and a stronger labor market .

Bottom line: Our central bank will need to keep an eye not only on oil prices but on developments in the foreign exchange market . In this landscape we see the Bank cutting its policy rate another 25 basis points on March 4, 2015 . Given global conditions and a cautious Fed, we see 10-year Canadas trading near 1 .85% by year end .

Canadian interest ratesWeekly observations and quarter-end forecasts

%



19

—


Recommended bond allocationRecommended duration 7.52 vs.7.52 for the benchmark Neutral weight in provincialsUnderweight bank paper

Long32.7%

Short42.6%

Mid24.7%

Federal33.6%

Corporate32.1%

Provinces34.3%

Benchmark Allocation

Short 42.6%, Mid 24.7%, Long 32.7%Federal 37.3%, Provinces 34.3%

Corporations 28.4 %

U.S. interest ratesLast observation January 23, 2015

%


Long corporate

U.S. 10-year

U.S. 2-year

Target fed funds

30-year mortgage

Canadian Bond Market – Total Returns


Canadian interest ratesWeekly, last observation January 23, 2015

%Long corporate A

Long provincial

Canada 10-yearCanada 2-year

BoC overnight target


Bond Market - Canada

Close-on1/23/2015 12/26/2014 10/24/2014 7/25/2014 1/24/2014

Interest Rates90-day (B/A's) 1.03 1.29 1.27 1.27 1.272 years 0.54 1.06 1.01 1.08 0.975 years 0.79 1.44 1.50 1.48 1.5910 years 1.45 1.91 2.01 2.12 2.4030 years 2.02 2.44 2.56 2.67 2.97Spreads90 d - 2 years -49 -23 -27 -19 -302 - 5 years 25 38 49 39 632 - 10 years 91 85 101 103 14310 - 30 years 58 53 55 55 57CurrenciesCAD / USD 1.2421 1.1629 1.1231 1.0814 1.1088EUR / CAD 0.7183 0.7061 0.7025 0.6886 0.6594

Source: NBF Economics and Strategy (data via Bloomberg)


Stock Market and Portfolio Strategy—

VISIONFebruary 2015

22

—

A volatile start to 2015

Though whipsawed for much of January, global equity markets have been resilient . At this writing the MSCI AC World index is up 0 .8% year to date with most regions positive . We note that emerging markets are leading the pack, which is unusual in a time of USD appreciation .

3.8-1.9

5.23.1

1.42.9

4.21.3

-1.20.6

0.8

-3 -1 1 3 5

MSCI EM Asia MSCI EM Latin America

MSCI EM EMEA MSCI EM

MSCI Japan MSCI Pacific ex Jp

MSCI Europe MSCI Canada

MSCI USA MSCI World

MSCI AC World

Global equity market performance (Year-to-date)


%

P/Es since 1988: MSCI World and MSCI Emerging MarketPrice to 12-month forward earnings

Ratio

Emerging

World


So why are emerging markets outperforming? To answer this question we need perspective on the impact of a supply-induced oil-price

collapse . Globally, we note that Brent oil is diving while leading indicators are trending up, a development likely to benefit most households .

World: A highly unusual dynamicOECD leading economic indicators and Brent oil price

NBF Economics and Strategy (data via OECD)

OECD(left)

Index

World(left)

Brent oil(right)

US$/ barrel

But there’s more . The price of food has also been falling (second chart below) and so have interest rates . That makes three sources of relief for the disposable income of global consumers . The lift they bring will be felt most in urban areas of emerging economies, where food and energy generally account for two-thirds of the CPI basket . Thus it is hardly surprising that the consensus expects double-digit earnings growth for the MSCI EM index (10 .1%, table) .

World: Food prices since 2007CRB Foodstuffs (in USD)

NBF Economics and Strategy (CRB data via Datastream)

−20%

Index


Matthieu Arseneau Senior Economist 514-879-2252

Stéfane Marion Chief Economist and Strategist 514-879-3781

23

—

MSCI indexes: % EPS growth, y/y and 12-month-forward


2013 2014 2015 201612 forward

growthMSCI AC World 8.1 4.4 6.2 12.2 7.0MSCI World 6.4 5.1 5.6 12.2 6.6MSCI USA 8.4 5.0 5.2 13.0 6.3MSCI Canada -6.2 12.6 -2.6 14.8 -0.6MSCI Europe -5.4 2.1 6.8 12.2 7.3MSCI Pacific ex Jp 0.0 8.1 0.7 8.3 3.6MSCI Japan NA 74.8 11.1 11.0 11.0

MSCI EM 19.7 0.0 9.7 11.9 10.1MSCI EM EMEA 87.0 -13.1 2.6 12.6 4.5MSCI EM Latin America 5.4 -8.9 13.4 17.3 13.7MSCI EM Asia 8.3 7.1 11.1 10.5 11.0

1/27/2015

Though the outlook for global growth is generally promising, industrial production will grow more slowly than in the past decade . The most recent data, for November, show volume industrial production in emerging Asia up 4 .2% from a year earlier, the slowest pace since the 2008-09 recession (chart) . This deceleration is consistent with China’s decision to emphasize the development of its service economy over the addition of industrial capacity . The end result is that the trend growth of global IP is probably closer to 2% than to 3%-4% (chart) .

Global industrial production since 1995

NBF Economics and Strategy (data via CPB)

EmergingAsia

% y/y

WorldOECD

AsianCrisis

That doesn’t mean global GDP and earnings cannot grow faster than industrial production in 2015 . In fact, all eyes should be riveted on services this year: this is the part of the economy most likely to benefit from higher consumer spending as energy and food prices decline and highly stimulative monetary policy in most regions of the world keeps interest rates low all along the yield curve (and negative in some countries) .

U.S. earnings trending up

This low interest rate environment has significant ramifications on relative valuations of financial assets . We note that the current gap between the U .S . earnings yield and long-term interest rates is unusually large for a U .S . expansion (the current one began officially in September 2013) . Based on this perspective, equities do not look particularly expensive .

U.S.: Valuations since 1960S&P 500 earnings yield, Moody’s Baa corporate yield, 30-year government bond (constant maturity)

%


S&P 500: 6.2%

Baa: 4.5%

30-years: 2.5%

Moreover, with expansion now in full swing, the U .S . earnings outlook remains favourable . A quarter of the way into the Q4 earnings season, outcomes are running above expectations . Of the 128 companies reporting at this writing, 97 have surprised on the upside . The overall “beat factor” is an impressive 4 .6% . Though some sectors of the S&P 500 are beginning to feel drag from the strong U .S . dollar, we doubt this will have much effect on the economy as a whole . True, about 40% of S&P 500 profits are earned overseas . But for national-accounts profits the share falls to 20% .

U.S.: Profits remain firmBefore-tax profits (with IVA and CCA), national-accounts basis


$ billionTotal

Domestic

The domestic economy

accounts for 80% of all

U.S. profits


VISIONFebruary 2015

24

—

The story for 2015 is quite different from that of the early days of recovery from the last recession, when the U .S . needed exports for an unusual portion of its growth . This time around, we think the focus must be on domestic indicators – consumption, construction, the labour market . Particularly encouraging is the January surge of consumer confidence coupled with the large rise in the share of survey respondents expecting their incomes to increase in the next six months (chart) .

U.S.: Consumers very optimistic on future income% of consumers surveyed who expect to have higher incomes in 6 months


%

Jan. 2015

Canada: What to think?

The Bank of Canada began the year with a bang, moving its policy rate for the first time in four years . Unexpectedly, the move was a cut – 25 basis points, to 0 .75% . The BoC’s argument was the risk to growth posed by slumping oil prices: “The oil price shock increases both downside risks to the inflation profile and financial stability risks .” Consequently the central bank lowered its inflation forecasts, projecting that neither core nor headline inflation would return to 2% before late 2016 .

The BoC move sank the Canadian dollar to a new multi-year low of 80 cents US . Many investors want it lower still . While a small depreciation might still be possible – we see the Bank cutting its overnight rate another 25 basis points – we think the CAD is near its bottom . After all, it has depreciated more than 20% over the last 24 months . As the next chart illustrates, a move of that magnitude is unprecedented . If oil prices stabilize and/or if the Federal Reserve delays the launch of its tightening (it wouldn’t be the first time this year that a central bank has surprised markets), there is scope for some firming of the Canadian dollar . Meanwhile, we note that the depreciation of the CAD over the last two years is beginning to catch the attention of equity analysts . Profit expectations for the S&P/TSX have become much less downbeat: the one-month change in 12-month forward earnings shows signs of stabilizing for the first time since last summer (chart) .

NBF Economics and Strategy (data via Datastream and Federal Reserve Bank of St. Louis)

S&P/TSX: change in 12-month forward earnings

%

Canadian dollar: % 24-month change

%

3-month change

1-month change

Canada: Record CAD depreciation offers hope for earnings

Record CAD depreciation …

… offers hopefor earnings

It will be interesting to see how the Q4 announcement season unfolds . As of January 23, the consensus sees earnings growth of 5 .2% from a year earlier with gains in seven of the 10 TSX sectors, led by IT (+362 .5%) and Consumer Staples (+46 .8%) . Materials (−21 .5%) and Utilities (−21 .0%) are expected to be the laggards .

Asset allocation

At this juncture, we remain comfortable with our recommendation to overweight equities relative to our benchmark while maintaining a slight underweighting in fixed income products . Our year-end targets are 16,200 for the S&P/TSX and 2,220 for the S&P 500 .

We are staying with an overweight recommendation for the S&P/TSX early in 2015 . This call hinges on our assumption of lower oil production and a delay in U .S . rate hikes (in order to limit USD strength) . Though the timing of a supply response to sharply declining crude prices is uncertain, we think U .S . oil output could decline as soon this year . The most recent report from Baker Hughes shows a sharp contraction of the U .S . rig count in January . As the next chart shows, the decline in the number of horizontal rigs (used for shale-oil production) is the largest since the recession of 2008-09 . We also note that U .S . output dipped at that time and then was stable for two years .


25

—

U.S.: Will the drop in rig count affect production?Change in number of horizontal rigs vs. U.S. weekly output

* 13-week moving averageNBF Economics and Strategy (data via Baker Hughes)

8-week change Thousands of barrels per day*

Rig count(left)

U.S. field output(right)

If this sequence is repeated, the door will be open for an energy-driven rebound of the S&P/TSX . In the last few weeks, as the next chart shows, equity analysts have slashed earnings expectations to the same extent as in the 2008-09 recession, when the fall of oil prices reflected concerns over demand in the wake of a full-fledged global credit crisis . There is much bad news already priced into Canadian energy stocks and we certainly do not think 2015 will be as bad as 2008-09 for the global economy . If supply stabilizes and demand accelerates with world GDP, we would expect oil prices to be about $10 a barrel higher by year end .

Canada: Energy sector pummelled3-month change in 12-month forward earnings growth


%

Sector Rotation

Our sector rotation is unchanged this month .


VISIONFebruary 2015

26

—


NBF Fundamental Sector Rotation - February 2015

Name (Sector/Industry) Recommendation S&P/TSX weight

Energy Overweight 21.5%Energy Equipment & Services Overweight 0.8%Oil, Gas & Consumable Fuels Overweight 20.7%

Materials Market Weight 12.1%Chemicals Underweight 3.5%Containers & Packaging Market Weight 0.2%Metals & Mining * Market Weight 2.5%Gold Market Weight 5.4%Paper & Forest Products Overweight 0.5%

Industrials Market Weight 8.6%Capital Goods Overweight 1.7%Commercial & Professional Services Underweight 0.7%Transportation Market Weight 6.3%

Consumer Discretionary Underweight 6.3%Automobiles & Components Underweight 1.6%Consumer Durables & Apparel Overweight 0.6%Consumer Services Underweight 0.9%Media Market Weight 2.2%Retailing Underweight 1.2%

Consumer Staples Underweight 3.7%Food & Staples Retailing Underweight 3.0%Food, Beverage & Tobacco Underweight 0.7%

Health Care Market Weight 4.1%Health Care Equipment & Services Market Weight 0.8%Pharmaceuticals, Biotechnology & Life Sciences Market Weight 3.3%

Financials Market Weight 34.1%Banks Market Weight 21.2%Diversified Financials Market Weight 1.4%Insurance Overweight 6.5%Real Estate Market Weight 5.1%

Information Technology Overweight 2.4%Software & Services Overweight 1.8%Technology Hardware & Equipment Market Weight 0.6%

Telecommunication Services Underweight 5.0%Utilities Underweight 2.3%

* Metals & Mining excluding the Gold Sub-Industry.

27

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4.5%

2.4%

2.2% 4.8% 9.5%

-150%

-100%

-50%

0%

50%

100%

150%

Q1-99 Q1-00 Q1-01 Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Q1-13 Q1-14 Q1-15

S&P 500 Quarterly Operating Earnings Growth (YoY)

Realized

n.a.

Actual Q4 2015 (Est.) Actual Q4 2015 (Est.)Index Level Jan-27-15 Target Index Level Jan-27-15 Target S&P/TSX 14,834 16,200 S&P 500 2,030 2,220

Assumptions Q4 2015 (Est.) Assumptions Q4 2015 (Est.) Level: Earnings * 910 935 Level: Earnings * 116 126

Dividend 435 446 Dividend 40 44PE Trailing (implied) 16.3 17.3 PE Trailing (implied) 17.4 17.6

Q4 2015 (Est.) Q4 2015 (Est.) Treasury Bills (91 days) 0.62 0.46 Treasury Bills (91 days) 0.02 0.69 10-year Bond Yield 1.43 1.84 10-year Bond Yield 1.83 2.28* Before extraordinary items, source Thomson * S&P operating earnings, bottom up.NBF Economics and Strategy

NBF Market Forecast NBF Market ForecastCanada United States

VISIONFebruary 2015

28

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Local Currency (MSCI Indices are in US$) Canadian Dollar Correlation *

Close on with S&P 50001/27/2015 M-T-D Y-T-D 1-Yr 3-Yr Y-T-D 1-Yr 3-Yr

North America - MSCI Index 2084 -1.5% -1.5% 12.7% 49.0% 5.4% 26.3% 84.4% 1.00 United States - S&P 500 2030 -1.4% -1.4% 13.9% 54.2% 5.5% 27.6% 90.7% 1.00 Canada - TSE 300 14834 1.4% 1.4% 9.2% 19.0% 1.4% 9.2% 19.0% 0.93Europe - MSCI Index 1632 1.5% 1.5% -4.7% 23.4% 8.6% 6.8% 52.7% 0.88 United Kingdom - FTSE 100 6812 3.7% 3.7% 4.0% 18.8% 8.2% 6.9% 42.6% 0.89 Germany - DAX 30 10629 8.4% 8.4% 13.7% 63.2% 9.2% 6.2% 75.3% 0.96 France - CAC 40 4624 8.2% 8.2% 11.6% 39.3% 9.1% 4.2% 49.6% 0.94 Switzerland - SMI 8403 -6.5% -6.5% 3.3% 39.3% 10.1% 15.0% 75.4% 0.95 Italy - Milan Comit 30 221 8.2% 8.2% 8.3% 26.9% 9.1% 1.2% 36.3% 0.91 Netherlands - Amsterdam Exchanges 454 7.1% 7.1% 16.3% 42.3% 7.9% 8.6% 52.8% 0.97Pacific - MSCI Index 2363 2.5% 2.5% 1.1% 16.4% 9.7% 13.2% 44.0% 0.84 Japan - Nikkei 225 17768 1.8% 1.8% 18.4% 101.0% 11.1% 15.7% 62.4% 0.95 Australia - All ordinaries 5512 2.3% 2.3% 4.9% 26.7% 6.3% 6.8% 17.3% 0.92 Hong Kong - Hang Seng 24807 5.1% 5.1% 12.9% 21.0% 12.5% 26.7% 49.7% 0.78World - MSCI Index 1706 -0.2% -0.2% 6.3% 36.9% 6.7% 19.1% 69.3% 0.99World Ex. U.S.A. - MSCI Index 1811 1.2% 1.2% -2.6% 18.4% 8.2% 9.1% 46.4% 0.89EAFE - MSCI Index 1808 1.8% 1.8% -2.7% 20.9% 8.9% 9.0% 49.5% 0.89Emerging markets (free) - MSCI Index 990 3.5% 3.5% 6.2% -2.6% 10.7% 19.0% 20.5% 0.17

* Correlation of monthly returns (3 years).

Global Stock Market Performance Summary

Returns Returns

S&P 500 Sectoral Earnings- Consensus*1/27/2015

Weight Index 5 year PEG RevisionS&P 500 Level 3-m 12-m 2015 2016 12-m 2015 2016 12-m Growth Ratio Index**

% forward forward Forecast

S&P 500 100 2030 3.46 13.92 6.92 5.07 6.09 17.56 16.71 16.45 10.61 2.70 -5.51

Energy 8.39 575 -6.55 -6.86 1.19 -40.29 -36.52 13.03 21.82 21.24 3.42 neg. -42.02

Materials 3.18 302 1.49 9.54 7.52 10.89 11.81 18.23 16.44 16.10 11.57 1.36 -6.09

Industrials 10.31 475 2.77 10.21 10.16 9.31 9.54 17.35 15.87 15.75 11.34 1.65 -0.36

Consumer Discretionary 12.05 561 6.43 11.89 4.61 15.50 16.29 20.69 17.91 17.59 14.70 1.08 -1.12

Consumer Staples 9.99 505 6.52 18.72 4.36 4.73 5.93 20.89 19.94 19.62 8.05 3.31 -2.35

Healthcare 15.00 819 8.40 28.11 16.20 10.19 10.47 19.52 17.72 17.52 11.78 1.67 -0.02

Financials 16.13 319 2.23 12.65 -0.87 16.74 16.17 15.99 13.70 13.58 10.71 0.84 -1.20

Information Technology 19.23 668 2.80 17.20 11.92 9.28 10.25 17.43 15.95 15.48 12.56 1.51 -0.99

Telecom Services 2.28 150 -4.66 0.77 11.78 5.68 5.64 14.59 13.81 13.75 6.51 2.44 -3.83

Utilities 3.42 250 10.84 29.34 8.44 1.89 2.11 18.51 18.17 18.10 4.42 8.58 -0.09* Source I/B/E/S** Three-month change in the 12-month forward earnings

Variation EPS Growth P/E

Technical Analysis—

VISIONFebruary 2015

30

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In this edition of Vision, we highlight the S&P/TSX chart . The volatility that began in the fourth quarter of 2014 changed the character of the market . Weak internal technical action in this market and a faltering trend in the financial sector are caution flags . Moreover, major chart breakdowns in copper and lumber are notable technical events that will have longer-term implications . The silver lining is the recovery in the gold and silver sector, at least over the near term .

S&P/TSX

A faltering pattern has emerged on the S&P/TSX chart . Recent volatility is a change in character following a steady rise in the index since mid-2013 . Albeit, much of the volatility can be attributed to the action in energy, but we are finding out that markets don’t trade in a vacuum and big changes can lead to repercussions in other sectors . The break of a rising trend line at 15,250 was a game changer . A potential top is being carved out as a series of lower highs indicate a loss of upside momentum with key support around 13,700 . Alternatively, an upside breakout across 14,800 will be needed to improve the technical position . Breaking 13,700 opens the door for at least 1000 more points on the downside .

Number of TSX 60 stocks above 200-day

The number of TSX 60 stocks trading above their 200-day averages hit 28 from a recent high of 37 and 51 back in the summer of 2014 . A series of lower highs in the index and a declining number of stocks holding their moving averages reflects a loss of upside momentum . In November coming off the October low 38 of the TSX 60 stocks that were trading above both their 50- and 200-day averages . Now this number has declined to 23, clear internal decay . This indicates a bias to the downside and potential for a breakdown of the formation .

S&P/TSX Financials

The energy and financial sectors are the two main engines for the TSX accounting for 50% to 60% of its weight . Energy is no longer supportive for the market and may at best be a neutral over the short to medium term . The S&P/TSX Financials chart is faltering as the chart trades under both moving averages . Both its 50- and 200-day averages are starting to roll over . Key support on the S&P/TSX Financials index at 233 is being tested . Failure to hold here breaks this index down from a 10-month top that projects a target of approximately 200 . With second-tier financials struggling and increasing selling pressure in Canadian banks from the United States, the bias is to the downside .


Dennis Mark, cfa 416-869-7427 dennis .mark@nbc .ca

Source: Reuters

0

100

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Jan-99

Jan-00

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Jan-10

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Jan-15

0

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Index Issues Above 200-day Moving Averages Source: NBF

Source: Reuters

31

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Copper

A major top in copper has been completed with bearish implications . Important support at US$3 .00 and US$2 .80 was broken recently resolving the big formation to the downside . The major trend of copper is now down . A target of US$2 .00 can be projected . Interim support comes into play around US$2 .50 and then support is thin to US$1 .40 .

Source: Reuters

Source: Reuters

Source: Reuters

Lumber

Lumber is another commodity that is carving out a potential top formation . A three-year triangle is poised to resolve . Given that most commodity charts are resolving on the downside, one would expect that lumber will likely resolve to the downside . The short-term chart has already suggested that the trend is down with its recent breakdown at US$320 . In turn, the key support at US$310 is vulnerable . A downside resolution projects a target of US$180 to US$200 . In this scenario, lumber and forest product related issues will be at risk .

Gold Bugs/Gold

Gold stocks represented by the Gold Bugs index relative to gold have been in a major bear market for five years . This decline took this ratio back to the 2001 major low . A double bottom formation reversed this trend to the upside suggesting improved technical action in the gold sector . So far this year, the gold sector is among the leading sectors in the equity market .


NBF Action List—

VISIONFebruary 2015

34

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Company Symbol AdditionDate

AdditionPrice

CurrentPrice

AdditionTarget Price

CurrentTarget Price

Est.Total

ReturnRating

MarketCap.

(Mln C$)Analyst

American Hotel Income Properties REIT LP HOT.UN 04/16/2014 C$10.21 C$10.15 C$12.50 C$12.50 32.00% Outperform 248 Trevor Johnson

Canam Group Inc. CAM 05/14/2014 C$13.52 C$10.38 C$17.50 C$15.00 46.10% Outperform 437 Leon Aghazarian

Cineplex Inc. CGX 08/07/2014 C$39.96 C$45.19 C$46.50 C$49.00 11.80% Outperform 2847 Adam Shine

DIRTT Environmental Solutions Ltd. DRT 04/21/2014 C$3.56 C$3.94 C$4.25 C$5.00 26.90% Outperform 302 Rupert Merer

Element Financial Corp. EFN 09/25/2014 C$13.41 C$13.61 C$19.00 C$20.00 47.00% Outperform 3594 Shubha Khan

Gildan Activewear Inc. GIL 12/05/2014 C$62.48 C$65.98 C$71.00 C$71.00 8.60% Outperform 8135 Vishal Shreedhar

Milestone Apartments REIT MST.UN 01/15/2015 C$12.21 C$12.34 C$14.25 C$14.25 21.80% Outperform 760 Matt Kornack

Quebecor Inc. QBR.B 12/16/2014 C$31.14 C$32.05 C$38.00 C$38.00 18.90% Outperform 3945 Adam Shine

Sandvine Corporation SVC 09/09/2014 C$3.04 C$3.05 C$4.50 C$4.50 47.50% Outperform 451 Kris Thompson

Tamarack Valley Energy Ltd. TVE 09/26/2014 C$6.51 C$3.10 C$9.00 C$6.50 109.70% Outperform 241 Dan Payne

Tourmaline Oil Corp. TOU 08/07/2014 C$50.43 C$38.15 C$68.00 C$52.50 37.60% Outperform 7741 Dan Payne

Whitecap Resources Inc. WCP 11/21/2012 C$12.22 C$11.12 C$15.50 C$18.00 68.40% Outperform 2819 Brian MilneOvernight US Exchange rate: 1.1986. Exchange rate and last prices as of 2015/01/16. Source: NBF

The NBF Action List highlights our Analysts’ most compelling investment ideas .

In developing The NBF Action List, we’ve followed these guidelines:

A short list of Names: We’ve kept the number of securities on the Action List small, allowing only 10% of an Analyst’s coverage on the list at any time . This means many Analysts can only have a single name on the Action List .

We do not require that an Analyst always have a name on The Action List. This way we can ensure that only the most compelling ideas are presented .

The Decision Making Resides with our Equity Analysts: Our Action List is not managed by a committee: instead, the decision is solely our Equity Analysts - those individuals who know the names better than anyone .

Strong Opinions - Either Bullish or Bearish: Recognizing that identifying stocks that should be sold can be as valuable to an Investor as names that should be bought, we’ve allowed Analysts to include names on the Action List they strongly believe should be sold .

There are No Market Cap or Liquidity Requirements: Some of the best returns can come from small and mid-cap stocks . As such, we want to ensure they are included on The Action List when appropriate .

Restricted Stocks: Stocks placed under restriction while on The NBF Action List will remain on the list, but with the rating changed to Restricted and target price and estimated total return removed in accordance with compliance requirements .

NBF Action List—

Sector Analysis—In this section, commentaries and stock closing prices are based on the information available up to January 19, 2015 . Information in this section is based on NBF analysis and estimates and ThomsonOne .

VISIONFebruary 2015

36

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Agriculture

Difficult start to the New Year for the agri-complex. Monthly losses for near futures in Wheat (-8%), Corn (-2 .2%) and Soybeans (-4 .1%) more than offset a gain in near futures for Canola (4 .4%) . Year-to-date the grains have lost just over 6% (on average), after losing an average of nearly 3% in 2014 . We continue to see a relatively soft market for soft commodities (and hence the broader agri-complex via declining farmer income) after another bumper crop harvest from U .S . farmers, which continues to temper any grain price increases as volumes flow through the system .

On the equities side, our top performer for the period is Arianne Phosphate Inc. (DAN:TSX.V, Outperform, $1.95 target). Gaining an incredible 61% over the last month, DAN’s share price likely rallied off of tax-loss selling, and should be further buoyed by near-term catalysts including permitting and ongoing drill results and resource updates . After last fall’s $2 million investment in Arianne Phosphate by Ressources Québec, we view the permitting process favourably . We await resource and OPEX updates as DAN continues to progress forward in the Paul, Nicole, TraMan and Traverse zones, which we suspect will be received favourably .

Agriculture and Energy ServicesSector Analysis

— Greg Colman

Analyst 416-869-6775 —

Associates: Andrew Jacklin: 416-869-7571 Sean Wetmore, CA, CFA: 416-869-6763

Michael Storry-Robertson: 416-507-8007

Shares Stock Last FDEPS EBITDA(min) Net Y1 Net 12-MthStock Stock Risk O/S Price Year (A) est. est. (A) est. est. Debt Debt/ PriceSym. Rating Rating (Mln) 01/19 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 (min) EBITDA Target

Ag Growth International Inc. AFN-T OP AA 14.2 53.73$ Dec-13 1.72$ 2.14$ 4.26$ 25.1x 12.6x 61.59$ 74.40$ 114.18$ 10.7x 9.6x 273.62$ 3.7x 57.00$ Cervus Equipment Corporation CVL-T SP AA 16.0 19.70$ Dec-13 1.49$ 1.07$ 1.17$ 18.4x 16.8x 51.88$ 46.00$ 63.48$ 9.5x 6.4x 104.15$ 2.3x 20.00$ Input Capital Corp INP-V OP AA 85.4 2.22$ Mar-14 nmf (0.10)$ 0.00$ n/a n/a nmf (4.10)$ 11.64$ nmf 11.8x (64.10)$ nmf 3.50$ Vicwest Inc. VIC-T T AA 17.6 12.44$ Dec-13 (0.26)$ 0.09$ 0.81$ nmf 15.4x 13.60$ 23.71$ 39.14$ 13.5x 8.2x 108.77$ 4.6x 12.70$

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted Risk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative

P/E EV/EBITDA

Shares Shares O/S O/S Stock Last Market Est. Est. Est. Est. 12-Mth

Stock Stock Risk (Min) (Min) Price Year Cap Cash Cash Price/ NAV NAVPS PriceSym. Rating Rating f.d. (f.d.,f.f) 01/19 Reported (Min) EV (Mln) per Sh. Cash (Mln) (f.d.,f.f.) P/NAV P/NAVPS EV/NAV Target

Arianne Phosphate Inc. DAN-V OP AA 92.7 341.78 0.81$ Dec-13 69.52$ 75.03$ 6.40$ 0.07$ 11.7x 649.39$ 1.90$ 0.0x 0.4x 0.1x 1.95$ MBAC Fertilizer Corp. MBC-T UR S 176.1 176.1 0.09$ Dec-13 10.56$ 264.92$ 3.13$ 0.02$ 5.1x n/a n/a n/a n/a n/a UR

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted Risk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative

37

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Agriculture and Energy ServicesSector Analysis

— Greg Colman

Analyst 416-869-6775 —

Associates: Andrew Jacklin: 416-869-7571 Sean Wetmore, CA, CFA: 416-869-6763

Michael Storry-Robertson: 416-507-8007

Energy Services

Challenging year in store for Canadian energy services in 2015… The TSX Energy Services Sub-index (STENRE) is down 12% since the turn of the New Year as commodity prices continue to slide . In light of the current macroeconomic conditions, our top defensive picks include Secure Energy Services (SES; Outperform, $21 .50 target) and Canadian Energy Services (CEU; Outperform, $9 .00 target) on the high quality side with businesses weighted towards production (versus drilling), while Horizon North Logistics (HNL; Outperform $3 .75 target), Xtreme Drilling & Coil Services (XDC; Outperform, $4 .25 target), Savanna Energy Services (SVY; Outperform, $4 .00 target) and High Arctic Energy Services (HWO; Outperform, $5 .25 target) are the deepest value with HWO being the best performer over the last month with an 11% gain . On the cautionary side, we are most hesitant regarding all three fracers (Trican $7 .50 target, Calfrac $11 .00 target and Canyon $10 .00 target, all Sector Perform) owing to both operating leverage and financial leverage

(excepting Canyon), plus being effectively non-contracted and a large portion of the E&P capital budgets which are under material pressure .

…but with valuations near all-time lows we believe the energy services sector in Canada is far closer to the bottom than the top. Valuation multiples in the sector have fallen substantially during the recent selloff with large cap services companies trading at levels not seen since the depth of the 2008/2009 financial crisis (1 .1x price-to-net tangible book value) . In the past 25 years, valuations have only been this low seven times and in the 12 months following these periods equity prices have increased an average of 36% . We believe the space is ripe with buying opportunities for value-oriented investors and emphasize stocks with strong balance sheets and a high degree of sustainability .

Shares StockStock Stock Risk O/S PriceSym. Rating Rating (Mln) 01/19 2013 2014e 2015e 2014e 2015e 2013 2014e 2015e 2014e 2015e Target Return

Black Diamond Group Ltd. BDI OP AA 41.4 10.49 142.57 139.71 130.22 11.3 14.9 4.63 4.67 5.25 1.1 1.4 15.50 49% Calfrac Well Services Ltd. CFW SP AA 94.4 8.98 193.53 348.99 205.12 10.1 -44.0 7.42 4.50 7.93 2.1 3.9 11.00 22% Canadian Energy Services & Tech CEU OP AA 214.2 5.46 110.41 176.29 175.07 16.8 24.4 12.23 7.95 9.00 1.7 1.5 9.00 77% CanElson Drilling Inc. CDI OP AA 92.7 3.95 89.46 108.99 79.73 8.4 14.0 4.35 3.85 4.97 0.6 0.5 5.00 49% Canyon Services Group Inc. FRC SP AA 68.6 7.55 32.66 129.70 79.53 8.7 55.7 13.83 4.09 6.33 n/m n/m 10.00 33% Cathedral Energy Services Ltd. CET OP AA 36.3 2.27 28.05 35.56 23.04 5.7 22.3 4.64 3.61 4.96 1.3 1.4 3.25 44% ENTREC Corp. ENT SP AA 108.9 0.50 53.64 45.63 35.01 8.7 n/m 3.53 4.66 5.89 3.5 4.3 0.75 47% Essential Energy Services Ltd. ESN OP AA 125.8 1.38 66.09 70.04 42.46 7.4 14.1 3.06 3.02 4.62 0.7 0.8 1.75 35% High Arctic Energy Services Inc. HWO OP AA 55.8 3.68 41.50 46.25 48.69 8.3 12.2 3.84 3.91 3.72 n/m n/m 5.25 45%Horizon North Logistics Inc. HNL OP AA 110.3 2.18 126.33 89.97 79.60 13.2 40.9 2.80 4.58 4.87 1.5 1.4 3.75 63%Lonestar West LSI OP AA 23.7 2.26 10.91 19.23 10.91 20.5 7.7 7.93 4.95 7.93 2.5 2.3 4.00 90% Mullen Group Ltd. MTL OP AA 91.6 19.17 303.27 293.14 278.43 20.4 20.0 7.15 7.45 8.84 1.2 1.9 23.50 25% Pason Systems Corp. PSI OP AA 82.7 18.88 204.95 268.82 203.73 16.5 22.2 6.88 5.03 6.36 n/m n/m 27.00 49% PHX Energy Services Corp. PHX OP AA 35.1 5.81 52.81 72.26 46.27 8.8 22.6 4.84 4.34 6.23 1.6 2.0 8.50 52% Savanna Energy Services Corp. SVY OP AA 89.7 2.66 150.90 157.28 112.78 n/m n/m 3.47 3.95 4.24 2.2 2.8 4.00 53%Secure Energy Services Inc. SES OP AA 120.0 14.54 137.51 213.51 232.34 29.4 58.9 18.97 13.08 9.50 1.8 1.8 21.50 97% Student Transportation Inc. STB OP BA 82.1 7.08 70.07 81.22 102.26 n/m n/m 10.92 9.04 7.99 3.0 2.8 8.50 20%Trican Well Services TCW SP AA 149.1 5.70 180.06 270.75 220.03 20.7 n/m 7.49 4.95 5.78 2.5 2.2 7.50 35% Trinidad Drilling Ltd. TDG OP AA 138.9 4.90 150.90 157.28 112.78 16.2 13.6 3.47 3.95 4.24 2.1 2.1 7.50 44% Xtreme Drilling and Coil Services Corp. XDC OP AA 81.8 1.78 73.67 75.09 60.79 19.9 8.4 3.46 3.73 4.01 1.9 1.7 4.25 149%

Risk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative

EBITDA (mm) EV/EBITDAP/E

12-Mth PriceNet Debt / EBITDA

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted

VISIONFebruary 2015

38

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Oil and GasSector Analysis

—

Dan Payne Analyst 403-290-5441 —

Associates: Ryan Hoogendam: 403-441-0952

Mark Hirsch: 403-441-0928

Brian Milne Analyst 403-290-5625 —

Associates: Ryan Hoogendam: 403-441-0952

Mark Hirsch: 403-441-0928

Kyle Preston, CFA, CMA Analyst 403-290-5102 —

Associate: Jason Wai: 403-355-6643

Junior and Intermediate Oil and Gas

Senior and Intermediate Yield Oil and Gas

Crude – Oil is leading a collapse in commodities this year (down 55% since its high in June) as increases in supply, most notably North American shale oil, have yet to be met by increased demand . Saudi Arabia’s strategy to gain market share appears to be working, as oil prices continue to remain at a level where many projects fail to break even, as can be witnessed by the major capital cuts by oil producers across North America . With the recent rig count numbers from Baker Hughes showing a decline in oil rigs continuing to support the thesis that not only are most plays uneconomical at strip pricing, but in order to see an eventual rebound in oil prices, the rig count needs to fall below 1,000 which is what we could see rigs trending towards .

Natural Gas – Natural gas prices have dropped 14% over the last month as cold weather across the Midwest and Northeast began to subside . U .S . natural gas storage now stands at 2 .9 Bcf (11% above last year) . However, with gas falling materially more than coal recently, there may be additional coal to gas switching and increased demand for power burn, a positive for gas prices . For 2015, we are currently forecasting NYMEX and AECO to average US$3 .85/mcf and Cdn$3 .65/mcf, respectively .

NBF Energy Selections

Seniors: Canadian Natural Resources (CNQ)

Intermediate Yield: Vermilion (VET) and Whitecap (WCP)

Junior Yield: TORC Oil & Gas (TOG)

Intermediate Non-Yield/Juniors: RMP Energy (RMP), Spartan (SPE), Tourmaline (TOU) and Tamarack Valley (TVE)

39

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Oil and GasSector Analysis

—Dan Payne Share Share Market NAV

Stock Stock Risk O/S Price Cap. est. est. est. est. est. est.Sym. Rating Rating (Mln) 01/19 (Mln) 2013 2014 2015 2014e 2015e 2013 2014 2015 2014e 2015e 2013a Target Return

Junior Oil & GasArtek Exploration RTK OP AA 77.8 $1.63 $127 9.6x 5.7x 4.5x 2.4x 1.8x $0.41 $0.44 $0.51 3.7x 3.2x $1.80 $3.00 84%Bellatrix Exploration BXE OP AA 191.5 $3.31 $634 6.8x 4.0x 3.7x 2.1x 2.1x $1.19 $1.55 $1.52 2.1x 2.2x $6.50 $5.50 66%Birchcliff Energy BIR OP AA 152.2 $7.12 $1,083 7.8x 5.0x 6.0x 1.6x 2.5x $1.20 $2.08 $1.79 3.4x 4.0x $9.00 $12.00 69%Bonterra Energy BNE OP AA 32.2 $39.06 $1,257 9.2x 6.3x 8.0x 0.9x 1.4x $5.95 $6.89 $5.29 5.7x 7.4x $31.00 $50.00 37%Cardinal Energy CJ OP AA 56.7 $13.19 $748 3.4x 8.4x 7.4x 0.6x 0.2x $0.75 $2.13 $1.80 6.2x 7.3x $11.80 $18.50 47%Chinook Energy Inc. CKE OP AA 215.1 $1.07 $230 nm 2.9x 5.2x -0.7x 0.1x nm $0.25 $0.21 4.3x 5.1x $2.30 $2.00 87%Hawk Exploration HWK'A SP S 45.6 $0.24 $11 3.7x 3.0x 4.3x 1.6x 2.5x $0.14 $0.14 $0.09 1.7x 2.6x $0.37 $0.35 46%Kelt Exploration KEL OP AA 126.7 $6.58 $834 nm 8.2x 8.4x 0.9x 1.7x $0.32 $0.93 $0.92 7.1x 7.2x $5.73 $10.50 60%Leucrotta Energy LXE OP AA 165.2 $1.00 $165 nm nm 8.2x nm 1.4x nm $0.10 $0.14 nm 7.4x $0.90 $2.75 175%Long Run Exploration LRE OP AA 193.5 $1.32 $255 3.0x 2.9x 3.7x 2.4x 3.3x $1.83 $1.88 $1.10 0.7x 1.2x $5.20 $3.00 143%Marquee Energy MQL OP AA 120.3 $0.45 $54 5.6x 2.7x 2.6x 1.7x 1.7x $0.19 $0.33 $0.35 1.3x 1.3x $0.90 $1.35 200%NuVista Energy NVA SP AA 138.4 $6.80 $941 10.8x 10.1x 7.0x 1.9x 2.2x $0.63 $0.78 $1.27 8.7x 5.4x $4.66 $11.00 62%Painted Pony Petroleum PPY OP AA 99.4 $7.54 $749 14.5x 7.2x 8.3x 0.0x 1.7x $0.58 $1.10 $1.08 6.9x 7.0x $5.80 $11.00 46%Perpetual Energy PMT SP AA 150.0 $0.98 $147 6.3x 4.3x 4.8x 4.0x 5.1x $0.39 $0.53 $0.48 1.8x 2.0x $0.60 $1.75 79%Pinecliff Energy PNE OP AA 233.5 $1.43 $334 7.6x 8.8x 7.1x 0.7x 0.3x $0.08 $0.19 $0.20 7.4x 7.3x $1.20 $1.90 33%Raging River Exploration RRX R R R R R R R R R R R R R R R R R RRock Energy RE OP AA 40.4 $2.90 $117 3.7x 2.8x 3.2x 1.0x 1.5x $0.76 $1.57 $1.50 1.8x 1.9x $8.30 $6.50 124%Storm Resources SRX OP AA 111.3 $3.36 $374 6.4x 8.3x 5.9x 1.1x 1.2x $0.30 $0.46 $0.68 7.3x 4.9x $2.60 $6.50 93%Surge Energy SGY OP AA 217.7 $2.90 $631 6.0x 4.4x 4.5x 2.3x 2.1x $1.17 $1.27 $1.04 2.3x 2.8x $5.25 $6.75 143%Tamarack Valley Energy TVE OP AA 77.9 $3.10 $241 3.7x 5.2x 4.1x 2.1x 1.7x $1.09 $1.10 $1.11 2.8x 2.8x $3.30 $6.50 110%Torc Oil & Gas TOG OP AA 96.5 $7.70 $743 9.4x 5.1x 6.4x 1.3x 1.7x $1.60 $1.96 $1.50 3.9x 5.1x $10.10 $12.75 73%Tourmaline Oil TOU OP AA 201.7 $38.15 $7,694 15.8x 8.8x 7.7x 0.9x 1.0x $2.80 $4.82 $5.56 7.9x 6.9x $24.18 $52.50 38%

** Risk Ratings: BA = Below Average; A = Average; AA = Above Average; S = Speculative * Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted

EV/DACF Net Debt/Cash Flow

CFPS - FDP/CFPS

12-MthPrice

Share Stock Market CNAVKyle Preston Stock Stock Risk O/S Price Cap. est. est. est. est.

Sym. Rating Rating (Mln) 1/19 (Mln) 2013 2014 2015 2014e 2015e 2013 2014 2015 2014e 2015e 2014a Target ReturnOil & GasARC Resources Ltd. ARX R R R R R R R R R R R R R R R R R RBaytex Energy Corp. BTE SP A 166.1 $18.82 3,125.4 9.1x 5.5x 5.8x 2.5x 2.8x $4.83 $6.02 $4.85 3.1x 3.9x $35.05 $30.00 66%Bonavista Energy Corporation BNP SP A 215.6 $6.65 1,433.5 7.2x 4.0x 4.6x 1.9x 2.1x $2.40 $2.75 $2.33 2.4x 2.9x $14.12 $8.00 27%Canadian Natural Resources CNQ OP A 1088.4 $35.51 38,648.6 5.9x 5.7x 6.8x 1.7x 2.0x $6.86 $8.38 $6.88 4.7x 5.2x $43.66 $43.00 24%Canadian Oil Sands COS UP A 484.6 $8.27 4,007.6 7.9x 5.2x 9.7x 1.8x 4.4x $2.78 $2.25 $1.12 3.7x 7.4x $13.49 $10.00 31%Cenovus Energy CVE SP A 756.9 $24.64 18,649.2 6.9x 5.8x 9.7x 1.1x 2.3x $4.77 $4.74 $2.84 5.2x 8.7x $26.99 $27.00 14%Crescent Point Energy Corp. CPG OP A 442.9 $30.07 13,319.1 8.0x 6.6x 7.6x 1.4x 1.7x $5.29 $5.71 $4.72 5.3x 6.4x $40.67 $40.00 42%Encana Corp.* ECA SP A 741.1 $13.62 10,093.8 5.8x 4.6x 5.4x 2.1x 2.5x $3.50 $4.24 $3.39 3.2x 4.0x $22.11 $18.00 34%Enerplus Corporation ERF OP A 204.8 $10.81 2,213.5 5.4x 3.8x 4.7x 1.5x 2.0x $3.74 $4.18 $3.52 2.6x 3.1x $21.44 $17.00 67%Freehold Royalties FRU SP A 74.3 $17.17 1,275.5 13.2x 10.4x 11.5x 1.3x 1.2x $1.78 $1.92 $1.58 9.0x 10.8x n/a $18.00 15%Lightstream Resources Ltd. LTS UP AA 203.0 $1.13 229.4 4.7x 2.7x 5.4x 2.8x 7.1x $3.37 $2.81 $1.11 0.4x 1.0x $4.25 $1.00 4%Northern Blizzard Resources Inc. NBZ OP AA 102.1 $8.46 863.4 -0.4x 4.5x 5.3x 1.5x 1.6x n/a $2.76 $2.02 3.1x 4.2x $17.51 $14.00 77%MEG Energy MEG OP AA 223.7 $19.90 4,451.1 15.1x 7.4x 9.4x 4.3x 6.0x $1.15 $3.70 $2.54 5.4x 7.8x $38.58 $30.00 51%Penn West Exploration PWT UP AA 492.2 $2.10 1033.6 7.5x 3.1x 5.1x 2.5x 4.6x $1.89 $1.90 $1.10 1.1x 1.9x $8.64 $3.00 49%Pengrowth Energy Corporation PGF SP AA 528.1 $3.65 1927.6 6.7x 6.6x 6.6x 3.8x 3.9x $1.08 $0.96 $1.02 3.8x 3.6x $5.98 $5.00 50%Peyto Exploration & Development Corp. PEY OP A 153.7 $33.91 5,211.7 10.9x 8.9x 8.5x 1.5x 1.8x $2.94 $4.33 $4.64 7.8x 7.3x $39.26 $43.00 31%PrairieSky Royalty PSK OP AA 149.3 $26.06 3,891.5 15.7x 25.3x 14.8x -0.4x -0.5x $1.48 $1.17 $1.71 22.3x 15.3x n/a $40.00 58%Suncor Energy SU SP A 1456.9 $36.00 52,449.1 5.6x 6.0x 7.7x 0.8x 1.3x $6.26 $6.25 $4.96 5.8x 7.3x $38.38 $38.00 9%Trilogy Energy TET SP AA 125.9 $6.38 803.3 12.4x 3.9x 5.8x 2.1x 3.2x $2.41 $2.82 $1.65 2.3x 3.9x $15.28 $8.00 25%Vermilion Energy Inc. VET OP A 106.6 $52.34 5580.5 8.8x 8.2x 9.2x 1.6x 1.8x $6.51 $7.45 $6.50 7.0x 8.0x $57.31 $68.00 35%

*In USD ** Risk Ratings: BA = Below Average; A = Average; AA = Above Average; S = Speculative * Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted

Cash FlowCFPS - FD

P/CFPSEV/DACF 12-Mth

PriceNet Debt/

Brian Milne Share Share Market NAVStock Stock Risk O/S Price Cap. est. est. est. est. est. est.Sym. Rating Rating (Mln) 01/19 (Mln) 2013 2014 2015 2014e 2015e 2013 2014 2015 2014e 2015e 2013a Target Return

Junior Oil & GasAdvantage Oil & Gas AAV OP AA 169.4 $5.69 $964 8.5x 7.2x 7.2x 1.6x 2.0x $0.58 $0.98 $1.02 5.8x 5.6x $2.76 $7.50 32%Arsenal Energy AEI OP AA 17.9 $4.45 $79 3.7x 2.6x 2.4x 1.3x 1.0x $2.35 $3.08 $2.71 1.4x 1.6x $8.48 $8.00 86%Cequence Energy CQE OP AA 211.0 $0.96 $203 7.2x 3.3x 3.5x 1.0x 1.6x $0.25 $0.34 $0.41 2.9x 2.4x $1.80 $2.50 160%Crew Energy CR OP AA 123.4 $5.92 $730 5.7x 5.0x 8.5x 1.4x 2.9x $1.42 $1.40 $0.87 4.2x 6.8x $4.10 $7.50 27%DeeThree Exploration DTX OP AA 88.8 $4.91 $436 7.4x 3.5x 3.7x 1.0x 1.1x $1.18 $1.91 $1.72 2.6x 2.9x $10.87 $8.50 73%Delphi Energy DEE OP AA 155.4 $1.30 $202 7.2x 5.0x 5.0x 2.6x 2.7x $0.25 $0.40 $0.39 3.2x 3.3x $2.47 $3.00 131%Legacy Oil + Gas LEG OP AA 199.3 $1.41 $281 4.3x 2.8x 3.4x 2.5x 3.2x $1.77 $1.85 $1.28 0.8x 1.1x $7.37 $5.00 255%LGX Oil + Gas OIL SP AA 88.7 $0.17 $15 7.3x 4.9x 6.5x 3.7x 5.8x $0.05 $0.09 $0.07 1.8x 2.2x $0.51 $0.40 142%Manitok Energy MEI OP AA 65.8 $0.76 $50 4.9x 2.8x 3.1x 1.9x 2.4x $0.57 $0.65 $0.78 1.2x 1.0x $3.25 $2.25 196%RMP Energy RMP OP AA 122.1 $4.25 $519 8.9x 3.7x 4.1x 0.7x 0.7x $0.68 $1.34 $1.19 3.2x 3.6x $3.37 $8.00 88%Spartan Energy SPE OP AA 262.6 $2.44 $641 16.5x 8.2x 6.4x 1.0x 0.8x $0.38 $0.39 $0.41 6.2x 6.0x $2.21 $4.00 64%Spyglass Resources SGL SP AA 128.1 $0.31 $39 7.6x 3.2x 4.4x 3.4x 4.8x $0.47 $0.43 $0.29 0.7x 1.1x $2.37 $0.75 146%Strategic Oil & Gas Ltd. SOG SP AA 542.3 $0.20 $108 13.7x 7.3x 7.2x 1.8x 3.7x $0.08 $0.04 $0.04 5.6x 5.4x $0.46 $0.40 100%Twin Butte Energy TBE OP AA 349.9 $0.72 $252 4.1x 2.7x 3.0x 1.8x 1.9x $0.52 $0.57 $0.50 1.3x 1.4x $2.17 $1.75 160%Whiltecap Resources WCP OP AA 253.3 $11.12 $2,817 6.8x 7.3x 6.7x 1.7x 1.5x $1.83 $2.01 $1.92 5.5x 5.8x $8.25 $18.00 69%Zargon Energy ZAR UP AA 30.2 $3.80 $115 4.8x 3.8x 5.3x 2.2x 3.2x $2.07 $1.68 $1.19 2.3x 3.2x $7.20 $5.00 41%

Risk Ratings: BA = Below Average; A = Average; AA = Above Average; S = Speculative * Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted

EV/DACF Net Debt/Cash Flow

CFPS - FDP/CFPS

12-MthPrice

VISIONFebruary 2015

40

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In 2014, the Pipelines, Utilities & Energy Infrastructure sector delivered a total return of 19% versus 11% for the S&P TSX Composite Index – reflecting declining long-term interest rates, continued per share growth in corporate cash flow, earnings and dividends, partially offset by the rapid sell-off in oil prices late in the year . Year-to-date, both the Pipelines, Utilities & Energy Infrastructure sector are relatively flat .

Since the beginning of 2014, Canada 10-year bond rates have moved down ~120 bps to 1 .5% . Looking ahead, our Economic and Strategy Group is forecasting a Canada 10-year bond rate of 2 .75% by Q4 2016 . Of note, our cost of capital assumptions within our valuations continue to be anchored by a longer-term 10-year government of Canada bond rate assumption of 3 .0% . As such, we expect steadily rising long-term interest rates through 2015 to keep a lid on current valuation multiples for both the high payout and low payout groups (currently ~13 .5x EV/Free-EBITDA versus historical average of ~12x) .

Meanwhile, since mid-2014, crude oil prices have been cut in half to sub-US$50/bbl WTI levels, putting downward pressure across the board on the Pipeline / Midstream names as the market grapples with the uncertainty surrounding oil & gas drilling activity and the corresponding impact on near-term cash flows and longer-term

growth outlook . However, we tally $83 billion of secured growth for the space, underpinning double-digit annual EBITDA growth profiles for several players through 2018 .

For 2014, we highlight two macroeconomic factors expected to offset rising long-term interest rates and lower oil & gas activity:

1. Several companies on our coverage list generate a material portion of their cash flow in U .S . dollars – a longer-term valuation tailwind not to be overlooked by investors as the Canadian dollar continues its slide towards US$0 .80 and potentially lower (i .e ., on Jan . 21st, the BoC shocked the market by cutting its overnight rate by 25 bps to 0 .75%) . Of note, every US$0 .05 decline to our long-term US$0 .90 Canadian dollar assumptions boosts valuations by ~2 .5% on average .

2. We view the sharp crude price correction as a rare opportunity for Midstream companies to acquire energy infrastructure assets (namely gas processing plants) from oil & gas producers looking to shore up balance sheets amid weak oil prices through 2015 . On average, we see ~10% valuation upside from potential M&A activity for the gas / NGL Midstream players .

Overall, we recommend investors continue to own those companies with the strongest secured EBITDA growth profiles – underpinning steady dividend growth while also mitigating valuation headwinds stemming from rising long-term interest rates .

Selections

Superior Plus, Gibson, Pembina, AltaGas, Keyera, Enbridge Inc . and Inter Pipeline

Pipelines, Utilities and Energy InfrastructureSector Analysis

—

Patrick Kenny, CFA Analyst 403-290-5451 —

Associate: Michael Nguyen 403-290-5447

Units Unit MarketStock Stock Risk O/S Price Cap. est. est. est. est. est. est. Debt/ Price CombinedSym. Rating Rating (Mln) 1/19 (Mln) 2014 2015 2016 2015e 2016e 2014 2015 2016 2015e 2016e 15e DCF Target Return Return

Pipeline & MidstreamAltaGas ALA OP A 133.1 40.91 5,450 1.67 1.90 2.19 4.7% 5.3% 2.88 3.38 3.57 12.1 11.5 8.5 52.00 27.1% 32.1%Canexus CUS UP AA 183.2 2.60 480 0.47 0.20 0.20 7.7% 7.7% 0.22 0.28 0.30 9.3 8.7 11.2 2.50 -3.8% 3.8%Enbridge Inc. ENB OP BA 848.8 56.02 47,550 1.40 1.86 2.14 3.3% 3.8% 3.63 4.87 5.69 11.5 9.8 10.1 67.00 19.6% 23.2%Enbridge Income Fund ENF SP A 470.2 39.97 18,790 1.39 1.62 1.78 4.0% 4.5% 1.92 2.71 2.93 14.8 13.6 33.2 42.00 5.1% 9.3%Gibson Energy GEI OP A 124.2 24.19 3,000 1.18 1.28 1.40 5.3% 5.8% 1.96 2.00 2.21 12.1 10.9 4.1 32.00 32.3% 37.8%Inter Pipeline IPL OP A 325.4 31.13 10,130 1.31 1.53 1.73 4.9% 5.6% 1.56 2.16 2.26 14.4 13.8 7.6 37.00 18.9% 24.1%Keyera KEY OP A 84.1 78.00 6,560 2.51 2.71 2.98 3.5% 3.8% 5.22 5.77 6.46 13.5 12.1 2.7 93.00 19.2% 22.9%Pembina Pipelines PPL OP A 329.5 38.08 12,550 1.72 1.78 1.92 4.7% 5.0% 2.20 2.00 2.59 19.0 14.7 7.1 49.00 28.7% 33.5%Superior Plus SPB OP AA 126.2 11.82 1,490 0.62 0.72 0.83 6.1% 7.0% 1.26 1.30 1.63 9.1 7.2 4.0 16.00 35.4% 41.9%TransCanada Corp. TRP SP BA 709.0 53.18 37,700 1.92 2.07 2.24 3.9% 4.2% 5.27 4.97 5.32 10.7 10.0 9.4 61.00 14.7% 18.8%Valener Inc. VNR SP A 38.1 16.05 610 1.00 1.00 1.00 6.2% 6.2% 1.10 1.11 1.10 14.5 14.6 4.4 17.00 5.9% 12.1%Veresen Inc. VSN SP A 280.4 16.05 4,500 1.00 1.00 1.00 6.2% 6.2% 1.07 1.10 1.05 14.6 15.2 5.4 17.50 9.0% 15.3%Power Producers & UtilitiesATCO Ltd. ACO'X SP BA 115.1 49.28 5,670 0.86 0.99 1.14 2.0% 2.3% 3.88 4.72 5.04 10.4 9.8 19.0 54.00 9.6% 11.7%Brookfield Renewable BEP SP BA 273.4 38.88 10,630 1.55 1.66 1.77 4.3% 4.6% 2.02 2.39 2.47 16.3 15.7 10.8 41.00 5.5% 9.9%Canadian Utilities Ltd. CU SP BA 263.3 43.79 11,530 1.07 1.18 1.29 2.7% 3.0% 3.07 3.68 4.15 11.9 10.6 9.4 47.00 7.3% 10.2%Capital Power CPX SP A 101.6 26.66 2,710 1.31 1.41 1.53 5.3% 5.7% 3.44 2.82 2.87 9.5 9.3 6.2 29.00 8.8% 14.3%Emera Inc. EMA SP BA 143.1 40.43 5,780 1.48 1.57 1.67 3.9% 4.1% 2.91 3.18 3.29 12.7 12.3 10.3 41.00 1.4% 5.4%Fortis Inc. FTS SP BA 275.3 40.15 11,050 1.28 1.36 1.43 3.4% 3.6% 2.40 3.33 3.62 12.1 11.1 14.8 42.00 4.6% 8.1%Northland Power NPI R R R R R R R R R R R R R R R R R R RTransAlta TA UP A 273.4 11.16 3,050 0.72 0.72 0.72 6.5% 6.5% 0.59 1.19 1.18 9.4 9.4 16.1 10.50 -5.9% 0.5%

Risk Ratings: BA = Below Average; A = Average; AA = Above Average; S = Speculative Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted

12-MthDistributions per Share Distr. CF per Share - FDCash Yield P/Distr. CF

41

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Top Pick Updates

Element Financial Corp. (EFN-T) – Significant upside to our estimates

The company confirmed its 2015 outlook for operating earnings per share of $0 .99 (pre-tax $1 .33) . Although this outlook is in line with our forecasts, we see significant upside to our estimates coming from the following:

1. Launch of managed and advisory funds for investors: management expects fee-based revenue in the range of $20 million to be originated from their new structured finance team in 2015 . We believe this captures less than 50% of EFN’s revenue contribution target and acknowledge the potential upside from these mandates to deepen relationships and broaden their client reach without necessarily entering the market as a principal lessor .

2. Portfolio purchases: approximately $1 billion to $2 billion in portfolio purchases sometime in 2015, following the completion of the PHH integration in February . We note that management did not discuss any specific vertical as a potential target .

3. Fleet management services fee growth: EFN expects the combination of new services and increased penetration to drive 2015 fee-based

revenue to ~48% (from 40%) of total fleet management revenues . Furthermore, EFN expects the increased focus on service offerings to lower operating expenses from north of 3% in 2014 to approximately 3% (or lower) in 2015 .

4. Integration synergies: EFN remains on track for $25 million in total cost synergies; however, management suggested there is upside to this outlook .

5. Investment grade credit ratings: securing at least another investment grade credit rating will allow EFN to tap the MTN (Medium Term Note) market, which management believes will help bring the overall average cost of funds down by 10 to 15 basis points for the full-year 2015 .

Callidus Capital (CBL-T) – Recent Updates Support our Outlook

CBL’s addressable market in Canada remains underserved . We believe the company’s access to capital and expertise in lending to medium-sized enterprises facing unique/temporary challenges will result in market share gains . In addition, CBL intends to exploit growth opportunities in the United States and expand its product offering .

In line with this view, CBL recently announced that gross loans receivable amounted to $823 million as at Dec . 23, approximately ~20% higher than on Nov . 4 and more than double the 2013 year-end level . As well, CBL has purchased Catalyst Fund IV’s participating interest in the loan portfolio in exchange for CBL shares . CBL also updated investors on the terms of the bridge loan facility provided by Catalyst Group and announced a $62 .5 million increase in its low-cost senior credit facility . Overall, CBL is successfully exploiting growth opportunities in a clearly underserved market . We continue to rate the shares Outperform .

Selections

Callidus Capital, Element Financial and Equitable Group

Financials (Diversified)Sector Analysis

—

Shubha Rahman Khan Analyst 416-869-6425 —

Associate: Jaeme Golyn 416-869-8042

Shares Stock Last FDEPS Book Value per Share 12-MthStock Stock Risk O/S Price Year Last est. est. P/E Last est. est. P/BV Div. PriceSym. Rating Rating (Mln) 1/19 Reported FY FY1 FY2 FY1 FY2 Quarter FY1 FY2 FY1 FY2 % Target

BankingCanadian Western Bank CWB SP A 80.4 27.69 Oct-14 2.39 2.75 2.88 10.1 9.6 19.52 19.52 21.71 1.4 1.3 2.9% 37.00Laurentian Bank LB SP BA 28.9 47.23 Oct-14 5.07 5.31 5.61 8.9 8.4 45.89 45.89 48.81 1.0 1.0 4.4% 51.00

Mortgage FinanceEquitable Group EQB OP A 15.4 59.90 Dec-13 5.82 6.69 7.57 8.9 7.9 39.61 41.23 48.23 1.5 1.2 1.1% 84.00First National Financial FN SP A 60.0 21.45 Dec-13 2.24 2.13 2.52 10.1 8.5 6.01 6.22 7.18 3.4 3.0 7.0% 24.00Genworth MI Canada MIC OP A 95.0 32.05 Dec-13 3.58 3.92 3.97 8.2 8.1 34.96 35.49 37.88 0.9 0.8 4.4% 47.00Home Capital Group HCG SP AA 70.1 40.59 Dec-13 3.69 4.12 4.57 9.8 8.9 19.57 20.45 24.23 2.0 1.7 1.6% 56.00MCAN Mortgage Corp. MKP SP BA 20.6 13.45 Dec-13 1.44 1.36 1.53 9.9 8.8 10.68 10.85 11.30 1.2 1.2 8.3% 16.00Equipment FinanceElement Financial EFN OP A 264.1 13.48 Dec-13 0.34 0.55 0.99 24.3 13.6 8.93 9.12 10.07 1.5 1.3 0.0% 20.00Callidus Capital Corp. CBL OP AA 48.7 17.48 Dec-13 -0.27 0.78 1.79 22.3 9.7 8.13 9.09 10.96 1.9 1.6 0.0% 33.00Securities ExchangeTMX Group X SP BA 54.3 48.00 Dec-13 3.39 3.87 4.29 12.4 11.2 53.30 53.86 56.55 0.9 0.8 3.3% 57.00InsuranceIntact Financial Corp. IFC SP BA 131.5 83.07 Dec-13 3.60 5.34 6.36 15.6 13.1 36.44 37.41 41.53 2.2 2.0 2.3% 80.00

Asset ManagersAGF Management Ltd. AGF'B SP AA 85.9 7.57 Nov-13 0.54 0.69 0.68 11.0 11.1 10.95 10.85 11.29 0.7 0.7 14.3% 10.00CI Financial Corp CIX OP BA 282.9 31.92 Dec-13 1.50 1.83 2.17 17.4 14.7 6.68 6.84 7.71 4.7 4.1 3.8% 40.00Fiera Capital Corp. FSZ OP A 68.0 12.15 Dec-13 0.72 0.87 0.98 14.0 12.4 6.28 6.35 6.59 1.9 1.8 4.0% 17.00Gluskin Sheff + Assoc. GS OP A 30.8 27.40 Jun-14 1.66 3.61 2.43 7.6 11.3 4.00 3.09 4.69 8.9 5.8 2.9% 36.00IGM Financial Inc. IGM OP BA 252.0 43.79 Dec-13 3.02 3.31 3.60 13.2 12.2 18.74 19.05 20.43 2.3 2.1 4.9% 55.00

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T=Tender; UR= Under Review; R=RestrictedRisk Rating: BA = Below Average, A = Average, AA = Above Average, S = Speculative

VISIONFebruary 2015

42

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Canada’s Big Six Banks – Credit Card Long-Term Delinquencies Continue to Rise

We regularly update our readers about the performance of Canadian credit card trust data as we believe this data provides a window into the state of the consumer credit cycle . For example, credit cards typically generate higher loss rates and delinquency levels than mortgages because consumers are more motivated to pay their mortgage, which is secured by their house, than they are to pay unsecured credit card debt . In looking solely at credit card data, we avoid the potential impacts of loan mix changes .

In recent data from October 2014, we observe that the charge-off rate of 3 .24% has risen materially both month-over-month (from 3 .03% in September 2014) and year-over-year (from 2 .94% in 2013) . Despite the uptick, the charge-off rate remains relatively low compared with previous years (3 .33% in 2012 and 4 .03% in 2011) .

While one data point does not make a pattern, the rise in the charge-off rate corresponds with a pattern of increasing 90+ day delinquencies … and this combination concerns us . In October, the weighted average 90+ day delinquency ratio rose to 0 .85% from 0 .74% year-over-year; the delinquency ratio in September, August and July were also higher y/y (September – 0 .87% vs . 0 .73%; August – 0 .82% vs . 0 .71%; July – 0 .79% vs . 0 .71%) . ) .

In contrast to weakening long-term delinquencies (90+ days), 30-60 day and 60-90 day delinquency rates were in line with historic rates . Payment rates also improved year-over-year – i .e ., credit card holders paid down a greater proportion of their monthly balances than they did last year – which suggests to us that at least some households have become more creditworthy by reducing the balances of credit card debt .

We remind readers that credit card delinquencies have a seasonal pattern . They tend to peak after the holiday season in January or February and improve in the spring following tax and RRSP season, when consumers have more disposable cash . In the autumn, credit card delinquencies re-ascend . Therefore, we expect long-term delinquency levels to deteriorate further in the coming months . We will also be cautious of rising short-term delinquency rates .

So what does October’s credit card delinquency data say about the state of Canadian household credit?

October’s data suggests to us that household creditworthiness has weakened, but does not provide sufficient insight into the severity of that deterioration . Furthermore, the trends in the aforementioned indicators suggest a divergence among Canadian households: some households are managing debt well (e .g ., paying it down), while other households appear to be struggling (e .g ., going delinquent on required debt payments) . This fits well with data from a recent Bank of Canada report which found that 40% of household debt is owed by households with debt-to-income levels in excess of 250% .

More importantly, we need to consider the impact of the sharp decline in the price of oil on household credit . In the short term, lower gasoline prices could provide a financial boost via higher additional disposable income for Canadian households . However, we believe that the long-term macroeconomic impact of falling oil prices (rising job losses and declining output) could result in greater stress for households, particularly in Western Canada .

Financial ServicesSector Analysis

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Peter Routledge Analyst 416-869-7442 —

Associates: Parham Fini, J .D ./MBA,BBA: 416-869-6515 Paul Poon: 416-507-8006

Shares Stock Last FDEPS Book Value per Share 12-MthStock Stock Risk O/S Price Year Last est. est. P/E Last est. est. P/BV Div. PriceSym. Rating Rating (Mln) 1/19 Reported FY FY1 FY2 FY1 FY2 Quarter FY1 FY2 FY1 FY2 % Target

BankingBank of Montreal BMO SP BA 650.0 75.48 Oct-14 6.60 6.93 7.35 10.9 10.3 48.18 52.11 55.38 1.4 1.4 4.2% 86.00Bank of Nova Scotia BNS SP BA 1,217.0 61.65 Oct-14 5.46 5.71 6.20 10.8 9.9 36.96 40.48 43.61 1.5 1.4 4.3% 73.00CIBC CM SP BA 397.0 90.93 Oct-14 8.69 9.38 9.52 9.7 9.6 44.30 50.57 55.20 1.8 1.6 4.5% 105.00National Bank NA NR BA 329.0 45.12 Oct-14 4.45 4.66 5.14 9.7 8.8 25.76 28.47 31.19 1.6 1.4 4.4% N/ARoyal Bank of Canada RY SP BA 1,442.0 75.80 Oct-14 6.19 6.52 6.89 11.6 11.0 33.69 37.32 40.71 2.0 1.9 4.0% 86.00Toronto-Dominion Bank TD OP BA 1,846.0 50.54 Oct-14 4.27 4.50 4.95 11.2 10.2 28.45 31.48 34.16 1.6 1.5 3.7% 59.00InsuranceGreat-West Lifeco GWO SP BA 997.0 31.51 Dec-13 2.33 2.52 2.81 12.5 11.2 16.54 16.94 18.46 1.9 1.7 3.9% 35.00Industrial Alliance IAG SP A 101.0 40.48 Dec-13 3.55 3.69 3.98 11.0 10.2 33.00 33.72 36.61 1.2 1.1 2.8% 48.00Manulife Financial MFC OP A 1,864.0 20.30 Dec-13 1.43 1.73 2.17 11.7 9.4 15.88 16.18 18.02 1.3 1.1 3.1% 26.00Sun Life Financial SLF SP BA 612.0 37.90 Dec-13 2.79 2.78 3.49 13.6 10.9 25.95 26.31 27.81 1.4 1.4 3.8% 43.00Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted; NR = Not RatedRisk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative

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Alimentation Couche-Tard

Company Update / Acquisition: Looking for growth in The Pantry

Acquiring The Pantry Inc. to accelerate U.S. growth. ATD signed a definitive agreement to acquire The Pantry Inc . (PTRY) in an all-cash transaction valued at an EV of US$1 .7 billion . The Pantry shareholders will receive $36 .75/share, which is a 39% premium to the 30-day average share price ending on Dec . 16, 2014 . The Pantry operates 1,512 convenience stores in the Southeast and Gulf coast regions of the United States . Stores are primarily operated under the Kangaroo Express banner . The transaction is expected to close in the first half of 2015, subject to regulatory and shareholder approval .

Purchase price is largely in line. We calculate an acquisition multiple of ~7 .7x LTM EBITDA which is largely in line with historical average acquisition multiples of ~7 .0x . We believe that the purchase price is relatively attractive vs . recent U .S .convenience store transactions .

The deal will be accretive to EPS; synergies are the x factor.In F2014, The Pantry reported revenue of $7 .5 billion and adjusted EBITDA of $221 million . For reference, ATD’s F2014 revenue was $38 .0 billion with adjusted EBITDA of $1 .6 billion . For the combined entity, we estimate F2016 revenue of $44 .3 billion and EBITDA of $2 .1 billion . While The Pantry’s network has been underperforming (suggests risk), we believe that Couche-Tard’s strong track record implies potential for operational improvement . We estimate acquisition synergies of $100 million over two to three years obtained in SG&A and COGS . Our estimate, in part, is based on normalization of The Pantry merchandising SG&A . We also revise our tax assumptions lower, as per management’s indications . We caution that ATD has not provided financial synergy guidance .

Maintain Outperform rating; price target is Cdn$52 from Cdn$43. We value ATD at 21 .5x our blended F16/F17 EPS (adj . for F/X) .

Merchandising and Consumer ProductsSector Analysis

—

Vishal Shreedhar Analyst 416-869-7930 —

Associate: Ryan Li 416-869-6767

Shares Stock Last FDEPS EBITDA Debt/ 12-MthStock Stock Risk O/S Price Year (A) est. est. P/E (A) est. est. EV/EBITDA Book Total PriceSym. Rating Rating (Mln) 01/19 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value Capital Target

General MerchandiseCanadian Tire CTC.a OP BA 79.2 120.80 Dec-13 7.02 8.04 8.34 15.0 14.5 1,245 1,388 1,472 9.2 8.7 66.37 0.38 132.00Dollarama DOL OP BA 132.7 59.37 Feb-14 1.74 2.15 2.45 27.6 24.2 402 452 504 18.7 16.8 5.25 0.46 58.00

Specialty StoresCouche Tard ATD.b OP AA 568.6 45.00 Apr-14 1.35 1.70 1.86 22.1 20.2 1,591 1,813 2,088 12.5 10.9 7.25 0.27 52.00 Rona RON SP A 118.0 12.69 Dec-13 0.41 0.65 0.89 19.4 14.3 185 230 260 7.3 6.5 13.88 0.10 15.00

ApparelGildan GIL OP A 123.3 55.12 Sep-14 2.94 3.11 3.78 17.7 14.6 468 528 622 13.1 11.1 16.41 0.04 71.00

Drug StoresJean Coutu PJC.a SP A 186.8 24.94 Mar-14 1.09 1.19 1.30 20.9 19.2 335 338 351 13.5 13.0 5.28 (0.10) 27.00

GrocersEmpire Company EMP.a SP BA 92.3 87.34 May-14 4.80 5.66 6.52 15.4 13.4 1,050 1,340 1,438 8.1 7.5 63.62 0.32 90.00Loblaw L OP BA 412.5 59.92 Dec-13 2.49 3.03 3.52 19.8 17.0 2,111 3,140 3,672 11.5 9.9 30.49 0.48 65.00Metro MRU OP A 85.6 92.78 Sep-14 5.14 5.53 5.87 16.8 15.8 788 816 842 11.0 10.6 31.36 0.28 92.00

Food ManufacturerSaputo SAP SP A 397.9 34.46 Mar-14 1.44 1.61 1.70 21.4 20.3 1,020 1,151 1,169 13.6 13.4 7.69 0.39 33.00

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted u=US dollarsRisk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative

VISIONFebruary 2015

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Cineplex – Q4 represented another quarter of box office underperformance ahead of stronger anticipated 2015 trends due to a materially better release schedule: According to data from the Motion Theatre Association of Canada, the domestic box office was down 6 .6% in Q4 . If we adjust the data to better conform to Cineplex’s Oct . 1 to Dec . 31 period, we calculate a drop closer to 5 .6% versus the anticipated gain of 0 .7% we thought could materialize, especially in the face of a relative easy comparable in late December due to 2013 weather issues . The decline in Q4 marked a 5th consecutive quarter of underperformance at the box office which was down $92 .7 million or 8 .9% in 2014 . Some will argue that this dynamic reflected the start of secular pressures . While the latter warrants closer scrutiny going forward, we believe that a materially weaker film slate in 2014 was a key driver for the underperformance along with about half a dozen movies whose release date was postponed to 2015 . Excluding these postponements, the box office in Canada might very well have only been down negligibly by less than 1% . We adjusted our estimates on Jan . 19 . Cineplex will report its Q4 results on Feb . 12 . We expect

box office receipts to be up each quarter in 2015 which is poised for record results on the back of a meaningfully stronger release schedule that will benefit from a larger number of sequels to proven blockbusters and the postponement of several 2014 titles . At the time of this writing, Cineplex was trading at EV/EBITDA multiples of 12 .9x our 2015 estimates and 11 .2x our 2016 estimates . Our $49 target is based on 12x our 2016 estimates, with a back-check to our sum-of-the-parts analysis which uses multiples of 8 .5x for core theatre ops and 13 .5x for Cineplex Media . With potential capital appreciation of 9 .4% complemented by a monthly-paid dividend which is poised to rise with Q1/15 reporting in May and currently yields 3 .3%, we reiterate our Outperform rating on Cineplex which we placed on NBF’s Action List on Aug . 6, 2014 .

Selections

Quebecor, Cineplex, Cogeco Cable, Sirius XM Canada and TELUS

Communications Media and TelecomSector Analysis

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Adam Shine, cfa Analyst 514-879-2302 —

Associates: Peter Stusio, MBA, CFA .: 514-879-2564

Kevin Krishnaratne, B .Eng, MBA, CFA .: 416-869-6585

Shares Stock Last FDEPS EBITDA ($mln) ND/ 12-MthStock Stock Risk O/S Price Year (A) est. est. P/E (A) est. est. Book Total PriceSym. Rating Rating (Mln) 1/19 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value Capital Target

Broadcasting & EntertainmentCineplex Inc. CGX OP BA 63.0 44.79 Dec-13 1.35 1.07 1.78 41.9 25.2 202.4 194.5 247.7 16.3 12.9 11.48 0.36 49.00Corus Entertainment Inc. CJR.b SP AA 86.2 21.95 Aug-14 1.76 1.86 2.00 11.8 11.0 289.6 300.5 305.1 9.0 8.6 15.44 0.40 21.50

DHX Media DHX.b UP AA 119.9 8.95 Jun-14 0.10 0.10 0.35 81.4 25.6 23.4 37.0 87.6 13.7 11.8 1.77 0.51 9.00Sirius XM Canada Holdings XSR OP AA 128.1 6.19 Aug-14 0.16 0.25 0.36 24.8 17.2 79.0 82.0 91.3 11.7 10.3 NM NM 7.00

The Intertain Group Limited IT OP AA 30.2 13.58 NA NA 0.20 0.95 15.8 14.3 NA 19.7 45.9 12.3 10.8 5.09 0.31 16.00TVA Group Inc. TVA.b UP AA 23.8 6.73 Dec-13 0.59 0.19 0.30 35.4 22.4 53.7 41.7 54.9 6.4 7.2 11.42 0.19 6.50

Printing & PublishingSupremex Inc. SXP SP AA 28.9 3.30 Dec-13 0.32 0.38 0.38 8.7 8.7 25.2 26.4 26.3 4.6 4.2 2.22 0.30 3.25Thomson Reuters TRI OP A 807.6 47.65 Dec-13 1.91 1.96 2.34 20.3 17.0 3427.0 3427.5 3754.6 11.6 10.5 18.60 0.33 47.00Torstar Corporation TS.b SP AA 80.2 6.39 Dec-13 1.12 0.60 0.55 10.7 11.6 173.5 105.0 92.0 2.4 2.9 10.92 NM 7.00Transcontinental Inc. TCL.a SP AA 78.0 15.50 Oct-13 1.90 2.16 2.11 7.2 7.3 338.6 360.4 363.4 4.2 4.1 10.15 0.36 16.50Advertising & MarketingAimia Inc. AIM OP AA 172.8 13.69 Dec-13 0.53 1.04 0.89 13.2 15.4 351.5 318.5 307.5 9.2 9.2 2.77 0.07 18.50TelecommunicationsBCE Inc. BCE SP A 778.1 57.05 Dec-13 2.98 3.17 3.42 18.0 16.7 8089.0 8361.0 8703.3 8.4 8.1 12.86 0.67 53.00Cogeco Cable CCA OP A 49.1 71.92 Aug-14 3.88 4.26 5.18 16.9 13.9 780.5 893.4 920.5 6.9 6.5 30.95 0.66 80.00

Manitoba Telecom Services Inc. MBT SP A 77.4 27.95 Dec-13 1.69 1.69 1.52 16.5 18.4 551.3 574.4 599.5 6.0 5.7 14.32 0.59 31.50Quebecor Inc. QBR.b OP AA 123.1 32.70 Dec-13 1.59 1.84 1.61 17.8 20.3 1480.5 1500.7 1465.6 6.4 6.3 9.09 0.75 38.00Rogers Communications Inc. RCI.b OP A 514.7 46.92 Dec-13 3.42 2.95 3.15 15.9 14.9 4993.0 4969.6 5157.9 7.7 7.4 10.19 0.58 47.00Shaw Communications SJR.b UP A 458.2 29.53 Aug-14 1.69 1.78 1.88 16.6 15.7 2220.0 2262.0 2396.3 7.9 7.9 11.05 0.46 28.50

Telus Corp. T OP A 615.0 42.77 Dec-13 2.02 2.32 2.66 18.4 16.1 4018.0 4223.3 4488.0 8.3 7.8 13.24 0.53 43.00TeraGo TGO OP AA 11.6 6.20 Dec-13 0.36 (0.24) 0.20 N/A 31.0 18.4 16.0 17.4 5.7 5.7 3.61 0.33 7.50Communications EquipmentCOM DEV CDV OP AA 76.7 3.88 Oct-14 0.28 0.13 0.21 29.8 18.5 40.4 29.4 40.1 9.9 7.9 2.71 0.09 4.75

Risk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative TRI estimates in US$, rest is CAD$.Stock Rating: OP = Outperform; SP = Sector Perform; UP = Underperform; T=Tender; UR= Under Review; R=Restricted

EV/EBITDA

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While Yield Spreads Stay above Long Term-Average, Funds Flow Likely to Impact Valuation in the Near Term. Select REIT equities (large cap / defensive focused names) have rebounded from a late 2014 sell-off with some entities trading closer to their NAVs, although the sector on the whole is still trading well below all-time highs and intrinsic value . On the back of a fragile global economic outlook and downward pressures in Energy prices, many yield names on the TSX have enjoyed a sector rotation – funds flow coming out from commodity stocks into Telecom / Real Estate / Pipelines . Generally negative sentiment dominated the markets with the 10-year government of Canada bond yield pulling back to ~1 .5% (versus 2 .8% in September 2013) . Currently, the REIT yield spreads on average are ~400 bps (vs . ~310 bps five-year average), which is sitting at one of the highest levels in recent history .

Target Canada Departure: In mid-January 2015, Target Canada surprised many by announcing its plan to discontinue operations in Canada – Target had 133 stores with over 15 million sq .ft . of GLA . The following public entities have exposure to Target: RioCan (1 .9% of rev ., 26 stores, 12 .7 yrs lease term, 2 .2 mln sq . ft .), H&R (9 stores - 4 in 50% JVs, 0 .6% of rev ., 5 .5 yrs term), Cominar (1 .0% of NOI, 7 stores, 4 .1 yrs term), Morguard REIT (6 stores), Crombie (3 stores, 0 .7% of AMR,

9 .4 yrs term, 0 .3 mln sq . ft .), First Capital (0 .5% of rent, 2 stores), CREIT (2 stores), Calloway (2 stores) and Artis (1 store disclosed as at AIF publication) . Certain landlords have leases that are guaranteed by Target’s U .S . parent, but this is not a universal characteristic across all issuers . Target’s sudden exit is likely attributable to an inability to execute on its strategy rather than weakness in the Canadian retail sector . Target is looking to sell the lease rights that it purchased from HBC in 2011 – while we expect its prime locations in large cities to be taken up quickly (potential for bidding wars), disposing space in secondary markets may be more challenging . We expect in certain cases that landlords will need to demise the space into smaller tenancies, increasing costs to lease but also potentially driving higher rents .

Selections

AHIP (HOT .un:TSX, Outperform, $12 .50 target), Crombie REIT (CRR .un:TSX; Outperform; $15 .25 target), InterRent REIT (IIP .un:TSX; Outperform, $6 .85 target), Milestone Apartments REIT (MST .un:TSX; Outperform, $14 .25 target) and Pure-Multi Family REIT (RUF .u:TSX .V; Outperform, $5 .25 target) .

Real EstateSector Analysis

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Matt Kornack Analyst 416-507-8104 —

Associate: Dawoon Chung 416-507-8102

Trevor Johnson, cfa Analyst 416-869-8511 —

Associate: Endri Leno 416-869-8047

Units Unit FD FFO P/FFO NetREIT Stock Risk O/S Price (A) est. est. (A) est. est. Current (A) est. est. (A) est. est. Asset Combined

Sym. Rating Rating (Mln) 1/19 2013 2014 2015 2013 2014 2015 Annualized 2013 2014 2015 2013 2014 2015 Value Target Return Return (1)

Retail

Choice Properties REIT CHP.un OP ↔ BA 384 10.56 0.32 0.65 0.65 0.0% 6.2% 6.2% 6.2% 0.43 0.91 0.92 - 11.6 11.4 11.50 11.50 8.9% 15.1%Crombie REIT CRR.un OP ↔ BA 131 13.16 0.89 0.89 0.89 6.8% 6.8% 6.8% 6.8% 1.10 1.10 1.14 12.0 12.0 11.5 14.85 15.25 15.9% 22.6%First Capital Realty FCR OP ↔ BA 221 19.36 0.84 0.85 0.86 4.3% 4.4% 4.4% 4.4% 1.03 1.05 1.10 18.8 18.4 17.5 17.85 20.00 3.3% 7.7%Partners REIT PAR.un R R R R R R R R R R R R R R R R R R R R ROffice & DiversifiedAllied Properties REIT AP.un R ↔ R R R R R R R R R R R R R R R R R R R RArtis REIT AX.un OP ↔ BA 137 15.16 1.08 1.08 1.08 7.1% 7.1% 7.1% 7.1% 1.40 1.41 1.50 10.8 10.8 10.1 16.65 17.75 17.1% 24.2%BTB REIT BTB.un SP ↔ BA 34 4.71 0.40 0.41 0.42 8.5% 8.7% 8.9% 8.9% 0.45 0.48 0.53 10.4 9.9 9.0 5.00 5.00 6.2% 14.9%Cominar REIT CUF.un OP ↔ BA 157 19.17 1.44 1.46 1.47 7.5% 7.6% 7.7% 7.7% 1.77 1.86 1.97 10.8 10.3 9.8 20.60 22.50 17.4% 25.0%DREAM Office REIT D.un SP ↔ BA 109 26.83 2.23 2.24 2.24 8.3% 8.3% 8.3% 8.3% 2.86 2.85 2.84 9.4 9.4 9.5 33.70 31.00 15.5% 23.9%FAM REIT F.un SP ↔ BA 20 7.80 0.76 0.75 0.75 9.7% 9.6% 9.6% 9.6% 0.96 0.82 1.01 8.1 9.5 7.7 9.65 8.50 9.0% 18.6%H&R REIT HR.un OP ↔ BA 296 23.29 1.35 1.35 1.35 5.8% 5.8% 5.8% 5.8% 1.78 1.84 1.86 13.1 12.6 12.5 24.55 25.75 10.6% 16.4%Melcor REIT MR.un SP ↔ A 26 10.38 0.45 0.68 0.68 4.3% 6.5% 6.5% 6.5% 0.85 0.89 0.98 12.2 11.7 10.5 11.00 11.00 6.0% 12.5%NorthWest H.P. REIT NWH.un SP ↔ BA 47 9.37 0.80 0.80 0.80 8.5% 8.5% 8.5% 8.5% 1.00 0.99 0.96 9.4 9.5 9.8 11.05 10.50 12.1% 20.6%IndustrialDREAM Industrial REIT DIR.un OP ↔ BA 76 9.00 0.69 0.70 0.70 7.7% 7.8% 7.8% 7.8% 0.91 0.95 1.00 9.9 9.4 9.0 10.50 10.50 16.7% 24.4%Pure Industrial REIT AAR.un OP ↔ BA 193 4.67 0.31 0.31 0.31 6.7% 6.7% 6.7% 6.7% 0.39 0.36 0.42 11.9 13.0 11.2 4.60 4.90 4.9% 11.6%WPT Industrial REIT WIR'U-T R ↔ R R R R R R R R R R R R R R R R R R R RSeniors HousingAmica Mature Lifestyles ACC SP ↔ BA 31 6.98 0.42 0.42 0.42 6.0% 6.0% 6.0% 6.0% 0.42 0.48 0.58 16.6 14.5 12.1 8.50 8.00 14.6% 20.6%HotelsAmerican Hotel Income Properties HOT.un OP ↔ BA 24 10.15 0.77 0.90 0.90 7.6% 8.9% 8.9% 8.9% 0.70 0.89 1.19 14.6 11.4 8.5 12.50 12.50 23.2% 32.0%Temple Hotels TPH SP ↔ AA 41 2.63 0.54 0.54 0.30 20.5% 20.5% 11.4% 11.4% 0.78 0.55 0.54 3.4 4.8 4.8 3.00 3.00 14.1% 34.6%

Multi-ResBoardwalk REIT BEI.un SP ↔ BA 52 63.19 1.98 2.04 2.04 3.1% 3.2% 3.2% 3.2% 3.21 3.37 3.61 19.7 18.7 17.5 69.45 74.00 17.1% 20.3%CAP REIT CAR.un OP ↔ BA 113 27.10 1.13 1.17 1.18 4.2% 4.3% 4.4% 4.4% 1.54 1.59 1.67 17.6 17.0 16.2 26.30 27.50 1.5% 5.8%InterRent REIT IIP.un OP ↔ BA 59 6.20 0.19 0.20 0.22 3.0% 3.3% 3.5% 3.5% 0.34 0.32 0.42 18.0 19.2 14.8 6.70 6.85 10.5% 13.8%Milestone Apartments REIT MST.un OP ↔ BA 62 12.44 0.53 0.65 0.65 4.3% 5.2% 5.2% 5.2% - 0.98 1.06 - 12.6 11.7 12.35 14.25 14.5% 19.8%

Pure Multi-family REIT RUFu.V OP ↔ A 35 4.67 0.37 0.38 0.38 7.8% 8.0% 8.0% 8.0% 0.37 0.46 0.51 12.6 10.2 9.2 5.25 5.25 12.4% 20.4%True North Apartment REIT TN.un SP ↔ BA 33 7.87 0.56 0.70 0.70 7.1% 8.9% 8.9% 8.9% 0.71 0.69 0.72 11.0 11.4 10.9 9.25 9.00 14.4% 23.2%InternationalDREAM Global REIT DRG.un SP ↔ BA 111 8.82 0.80 0.80 0.80 9.1% 9.1% 9.1% 9.1% 0.84 0.87 0.91 10.6 10.1 9.7 10.15 10.25 16.2% 25.3%Inovalis REIT INO.un OP ↔ A 17 8.84 0.00 0.83 0.83 0.0% 9.3% 9.3% 9.3% - 0.85 0.96 - 10.4 9.2 9.60 10.25 16.0% 25.3%Asset ManagementTricon Capital Group TCN OP ↔ A 91 8.33 0.24 0.24 0.24 2.9% 2.9% 2.9% 2.9% 0.70 (2) 0.60 (2) 0.72 (2) 12.1 14.2 11.7 NA 10.50 26.1% 28.9%

Stock Rating: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted Risk Rating System: BA = Below Average; A = Average; AA = Above Average; S = Speculative(1) Combined return = price return + 12 months rolling forward distribution return; For Amica, distribution is quarterly.(2) Figures represent DCPS

12-MthPrice

Cash YieldMatt Kornack, Trevor Johnson Distributions per Unit

VISIONFebruary 2015

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Metals and Mining: Precious MetalsSector Analysis

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Shane Nagle, CFA Analyst 416-869-7936 —

Associates: Raj Ray, MBA: 416-507-8105 Gregory Doyle: 416-869-6538

Adam Melnyk Analyst 604-643-2864 —

Associate: David Lee 416-869-8045

Steve Parsons, P.Eng Analyst 416-869-6766 —

Associate: Don DeMarco 416-869-7572

(All dollar amounts in Canadian dollars unless noted)

Weakening oil and currencies provide strong cost backdrop in recent gold price rally

Margins positively impacted by lower energy prices The average price of WTI and Brent crude oil has fallen dramatically from a peak of ~US$110/bbl in June 2014 to current levels of less than US$50/bbl . While we generally expect the mining sector to benefit from lower energy prices, companies with open-pit operations will likely see a higher impact on margins given the fuel consumption related to trucking . Companies in our coverage universe that are most likely to benefit from lower energy prices are DGC, SMF and ASR .

Further potential cost relief expected from weakening currencies (relative to the USD), particularly for labour. We anticipate that some producers may find additional cost relief from currency depreciation . Notable decreases include the Brazilian real, Chilean peso, Australian dollar, Argentinean peso and the Canadian dollar . In the case of the Brazilian real and Argentinean peso, the currency depreciation has been met with significant in-country inflation, whereas a decline in the Canadian and

Australian dollar should provide more direct cost relief . In this regard, we highlight companies such as LSG, KGI, DGC, RIC, YRI and AUQ that we believe should benefit the most .

In selecting our overall Top Picks, we take a longer-term view and look at balance sheet strength along with the company’s ability to reduce/defer capex, particularly if they are accompanied by production sustainability. To that end, we prefer low-cost production growth with solid operating and development track records, as well as a robust balance sheet .

We continue to have a constructive outlook for high quality development companies. We contend that our outlook for contemporaneous production declines among certain senior and intermediate producers support a constructive thesis for development companies as M&A will be needed . With that, mines/projects that offer scale, scalability and favourable development logistics should be in focus . In other words, attributes that ease acquisition and subsequent execution risk for the acquirer . Most recently, the proposed acquisition of Probe Mines Ltd . by Goldcorp Inc . provides support to this thesis .

Selections

Royalties: Royal Gold (RGLD:TSX; Outperform, US$80 target) and Silver Wheaton (SLW:TSX; Outperform, $26 target)

Producers: Kinross Gold (K:TSX; Outperform, $4 .25 target) and B2Gold Corp . (BTO:TSX; Outperform, $2 .90 target)

Developers: Romarco Minerals (R:TSX; Outperform, $0 .90 target) and Rubicon Minerals (RMX:TSX; Outperform, $1 .80 target)

47

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Metals and Mining: Precious MetalsSector Analysis

—Stock 12-Mth FDEPS FDCFPS Net

Stock Risk Shares Price Price (A) est. est. (A) est. est. Asset Company Symbol Rating Rating O/S (Mln) 1/19 Target Analyst Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value P/NAVPS

Senior Producers (>1 mln oz production)Agnico-Eagle Mines Ltd. AEM-T OP AA 209.7 38.94$ 37.00$ Parsons 0.83u 0.87u 0.40u 41.5x 90.2x 2.87u 3.21u 3.20u 11.3x 11.3x 19.11 2.0xKinross Gold Corporation K-T OP AA 1144.5 4.31$ 4.25$ Parsons 0.28u 0.11u (0.03)u 35.4x - 0.94u 0.87u 0.80u 4.6x 5.0x 3.33 1.3xYamana Gold Inc YRI-T R R R R R Parsons R R R R R R R R R R R R

Royalty CompaniesFranco-Nevada Corp FNV-T SP AA 156.1 65.94$ 62.00$ Nagle 1.19u 0.96u 1.04u 58.9x 54.4x 2.00u 2.12u 2.35u 26.7x 24.1x 41.58 1.6xOsisko Gold Royalties Ltd. OR-T SP AA 85.7 18.07$ 18.00$ Nagle 0.00c 0.16c 0.34c 114.9x 53.2x 0.00c 0.19c 0.44c 94.3x 40.8x 12.21 1.5xRoyal Gold Inc RGLD-O OP AA 64.9 72.56$ 80.00$ Nagle 1.32u 0.98u 1.25u 74.2x 58.0x 2.59u 2.50u 3.24u 29.0x 22.4x 52.92 1.4xSilver Wheaton Corp SLW-T OP AA 364.4 28.25$ 26.00$ Nagle 1.08u 0.76u 0.72u 31.9x 33.7x 1.50u 1.23u 1.16u 19.7x 20.9x 18.61 1.5xSandstorm Gold Ltd SSL-T SP S 118.2 4.95$ 4.25$ Nagle 0.22u 0.08u 0.04u 53.1x 106.1x 0.36u 0.33u 0.32u 12.9x 13.3x 2.69 1.8x

Intermediate Producers ( >250 Koz production)Alamos Gold Inc. AGI-T OP AA 127.4 9.81$ 11.15$ Melnyk 0.54u 0.05u 0.09u n/a n/a 0.89u 0.44u 0.38u 18.7x 21.6x 10.54 0.9xAuRico Gold Inc AUQ-T OP AA 249.4 4.88$ 5.20$ Melnyk 0.05u (0.14)u (0.09)u n/a n/a 0.25u 0.30u 0.43u 13.4x 9.2x 4.15 1.2xB2Gold Corp. BTO-T OP AA 908.0 2.57$ 2.90$ Parsons 0.11u 0.03u 0.06u 95.8x 37.2x 0.23u 0.17u 0.20u 13.8x 12.2x 2.46 1.0xDetour Gold Corp DGC-T OP S 157.8 13.24$ 15.25$ Parsons n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 15.49 0.9xIAMGOLD Corporation IMG-T OP AA 376.8 3.70$ 3.50$ Parsons 0.35u 0.07u (0.15)u 51.0x - 0.82u 0.74u 0.55u 5.0x 6.7x 3.44 1.1xNew Gold Inc NGD-T OP AA 503.8 5.48$ 7.00$ Parsons 0.14u 0.08u 0.15u 67.4x 33.1x 0.56u 0.62u 0.71u 8.2x 7.2x 5.42 1.0xOceanaGold Corp. OGC-T OP AA 301.5 1.84$ 3.65$ Ray (0.16)u 0.27u 0.17u 6.7x - 0.85u 0.70u 0.57u 2.7x 3.2x 2.84 0.6x

Junior Producers (<250 Koz production)Alacer Gold Corp ASR-T SP AA 290.4 2.89$ 2.90$ Parsons (1.44)u 0.15u 0.07u 18.5x 37.5x 0.43u 0.34u 0.30u 7.9x 9.0x 3.01 1.0xGolden Star Resources Ltd GSC-T SP AA 259.4 0.23$ 0.50$ Ray (1.08)u (0.07)u (0.06)u - - 0.08u 0.01u 0.12u 18.7x 1.9x 0.49 0.5xKirkland Lake Gold Inc KGI-T OP S 72.1 3.00$ 6.00$ Ray (0.28)c 0.32c 0.19c 17.2x 7.7x 0.42c 0.86c 0.71c 4.5x 3.1x 5.46 0.5xLake Shore Gold Corp LSG-T OP AA 422.5 0.76$ 1.35$ Ray (0.55)c 0.08c 0.09c 10.6x 9.0x 0.15c 0.27c 0.22c 3.1x 3.8x 0.88 0.9xLuna Gold Corp. LGC-T UP S 141.5 0.32$ 0.15$ Nagle 0.08u (0.09)u (0.16)u n/a n/a 0.22u 0.07u 0.04u 3.8x 7.3x 0.19 1.7xRichmont Mines Inc. RIC-T OP AA 47.9 4.05$ 5.00$ Melnyk (0.26)c 0.17c 0.07c n/a n/a 0.76c 0.48c 0.67c 8.3x 5.9x 5.43 0.7xRio Alto Mining Ltd. RIO-T SP AA 332.6 3.36$ 3.70$ Parsons 0.17u 0.28u 0.20u 12.0x 16.5x 0.34u 0.35u 0.30u 9.6x 11.1x 2.44 1.4xSEMAFO Inc. SMF-T OP AA 277.4 2.81$ 5.00$ Ray 0.10u 0.08u 0.19u 33.9x 13.9x 0.35u 0.38u 0.42u 7.1x 6.4x 2.84 1.0xSilverCrest Mines Inc. SVL-T OP S 118.8 1.75$ 2.20$ Nagle 0.11u 0.02u 0.02u 75.0x 75.0x 0.21u 0.05u 0.14u 30.0x 10.7x 2.65 0.7xTimmins Gold Corp. TMM-T OP AA 179.6 1.38$ 1.80$ Nagle 0.16u 0.09u 0.04u 12.8x 29.6x 0.44u 0.28u 0.16u 4.3x 7.5x 1.53 0.9x

DevelopersBelo Sun Mining Corp BSX-T OP S 266.1 0.26$ 0.35$ Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0.40 0.6xDalradian Resources Inc. DNA-T OP S 139.8 0.90$ 1.20$ Parsons n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.36 0.7xKaminak Gold Corp. KAM-V OP S 122.8 0.97$ 1.20$ Melnyk n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.34 0.7xLydian International Ltd. LYD-T R R R R R Nagle R R R R R R R R R R R RMAG Silver Corp MAG-T OP S 68.7 10.11$ 11.00$ Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 10.10 1.0xMagellan Minerals Ltd MNM-V SP S 138.5 0.10$ 0.15$ Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0.19 0.5xMidas Gold Inc. MAX-T OP S 141.7 0.51$ 0.90$ Melnyk n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.10 0.5xMountain Province Diamonds Inc. MPV-T OP S 115.1 5.20$ 6.35$ Ray n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 6.35 0.8xNewstrike Capital Inc. NES-V OP S 116.7 1.00$ 1.40$ Melnyk n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.55 0.6xOrezone Gold Corp. ORE-T OP S 95.7 0.46$ 1.05$ Melnyk n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.25 0.4xRomarco Minerals Inc R-T OP S 722.0 0.66$ 0.90$ Parsons n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0.92 0.7xRubicon Minerals Corp RMX-T OP S 370.2 1.44$ 1.80$ Parsons n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.87 0.8xPilot Gold Corp. PLG-T OP S 103.0 1.20$ 1.90$ Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 1.85 0.6xSeabridge Gold Inc. SEA-T OP S 48.2 8.05$ 14.50$ Ray n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 18.05 0.4xTrue Gold Mining Inc. TGM-T OP S 397.6 0.21$ 0.70$ Ray n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 0.72 0.3x

OtherSprott Resource Corp. SCP-T OP AA 98.2 1.40$ 3.20$ DeMarco n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 221.30 0.7x

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted u = US dollars; c = Canadian dollarsRisk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative

P/CFP/E

VISIONFebruary 2015

48

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(All dollar amounts in Canadian dollars unless noted)

Maintaining Our Near-Term Cautious Outlook, But Potential Supply Deficits Could Provide Longer-Term Price Support

Slowdown in the Chinese and Global economy will continue to weigh on commodity prices throughout H1/15. Our near-term outlook for base metals remains cautious as 2014 clearly marked an end to the rapid Chinese urbanization/commodity super-cycle . Indeed, Chinese Manufacturing PMI continues to border contraction territory with a print of 50 .1 in December, versus 50 .0 for the month prior . The country’s factory sector has shown some resilience year-to-date and is at least partially attributable to ongoing infrastructure stimulus aided by the People’s Bank of China (PBoC) maintaining low interest rates and lowering reserve ratio requirements within the country’s banking sector . As this phase of seemingly unlimited demand for commodities draws to an end, the market has demonstrated significant concern with what demand will look like in a more consumer driven Chinese economy, exacerbated by the recent reduction in the World Bank’s global growth forecast to 3 .0% for 2015 from its previous projection of 3 .4% in June . As such, we continue to expect soft demand for base metals, particularly copper through the first half of the year .

Long-term outlook remains intact for copper, nickel and zinc as market fundamentals become more prevalent in price determination. With impartial demand for commodities out of China in recent years, metal prices have deviated from valuations implied by underlying market fundamentals . With the anticipated slowdown in Chinese GDP growth (NBF estimates 6 .5% in 2015, down from 7 .4% in 2014) and its government’s shift in emphasis toward reform over

short-term expansion, we contend that supply/demand factors will once again weigh more prominently in determining fair value . Looking forward, we expect this to translate into improved support long-term for copper, nickel and zinc, given a lack of significant investment in recent years and that current commodity prices are well below the incentive price for many large-scale development projects . On the other end of the spectrum, bulk commodities such as iron ore and coking coal are likely to remain oversupplied given expansion of production, particularly out of Australia, where a depreciating domestic currency and lower oil prices have moved the marginal cost of production even lower in recent months .

Lundin Mining (LUN-T) continues to offer the best combination of value, growth and defensiveness. Lundin maintains the strongest balance sheet in our base metals coverage universe with US$244 million of cash and US$1 .0 billion of long-term debt (due in 2020 and 2022) . The company’s shares continue to trade at an attractive EV/2015E CF multiple relative to its peers while benefitting from a stable multi-mine operating base, tangible near-term cash flow growth . Longer term, we see stepwise improvement in free cash flow, backed by comparably less exposure to capital cost increases and commissioning delays .

HudBay Minerals (HBM-T) offers the best growth profile; however, deferral of the Lalor mill expansion and debt refinancing will likely be necessary. With commissioning of the company’s Constancia project underway, we expect 2015 to represent a transformational year for HudBay with ~400% growth in operating cash flow . Although commissioning a new, 80,000 tpd operation is not without risk, softer ore and positive grade reconciliation at Constancia combined with flexible capital requirements at Lalor provide us comfort that, under a typical ramp-up scenario, the company will not be under undue financial stress in 2015 .

Metals and Mining: Base MetalsSector Analysis

—

Shane Nagle, CFA Analyst 416-869-7936 —

Associates: Raj Ray, MBA: 416-507-8105 Gregory Doyle: 416-869-6538

Steve Parsons, P.Eng Analyst 416-869-6766 —

Associate: Don DeMarco 416-869-7572

Stock 12-Mth FDEPS FDCFPS NetStock Risk Shares Price Price (A) est. est. (A) est. est. Asset

Company Symbol Rating Rating O/S (Mln) 1/19 Target Analyst Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value P/NAVPSBase Metals Producers

Copper Mountain Mining Corp. CUM-T SP AA 118.8 1.27$ 1.80$ Parsons 0.11 0.13 0.03 10.0x 44.6x 0.37 0.47 0.27 2.7x 4.7x 3.57 0.4xCapstone Mining Corp CS-T SP AA 381.9 1.28$ 1.75$ Nagle 0.01 0.08 -0.06 13.8x n/a 0.23 0.52 0.24 2.1x 4.6x 2.48 0.5xFirst Quantum Minerals FM-T SP AA 600.5 13.40$ 14.50$ Nagle 0.96 0.72 0.33 16.1x 34.5x 2.19 1.80 1.37 6.4x 8.4x 15.09 0.9xHudBay Minerals HBM-T OP AA 233.6 8.75$ 10.50$ Nagle -0.59 -0.06 0.30 n/a 29.5x 0.06 0.19 1.71 47.1x 5.1x 14.70 0.6xSherritt Int. Corp S-T SP AA 297.0 2.15$ 3.40$ Parsons -0.02 -0.66 -0.55 - - 1.03 0.84 0.84 2.6x 2.6x 4.68 0.5xTaseko Mines Limited TKO-T SP AA 227.6 1.02$ 1.90$ Parsons -0.08 -0.11 -0.17 - - 0.23 0.25 0.17 4.1x 6.1x 3.60 0.3xLundin Mining LUN-T OP S 718.1 4.38$ 5.75$ Nagle 0.25 0.19 0.23 19.8x 16.3x 0.59 0.63 1.01 6.0x 3.7x 5.99 0.7xTeck Resources TCK'B-T SP AA 576.3 14.41$ 14.00$ Nagle 1.66 0.58 0.57 24.6x 25.2x 4.57 3.45 3.35 4.2x 4.3x 20.98 0.7x

Base Metals Developers and ExplorersPolyMet Mining Corp. POM-T SP S 275.0 1.30$ 1.70$ Parsons -0.04 -0.02 -0.02 - - -0.04 -0.02 -0.02 - - 1.64 0.8x

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T=Tender; UR= Under Review; R=Restricted u = US dollars; c = Canadian dollarsRisk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative

P/CFP/E

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Highlights as of January 2015

Alaris Royalty (TSX: AD)

AD provided a company update consisting of: 1) its aerospace partner Killick selling the majority of its assets to a third party, resulting in AD’s interest being monetized; 2) tobacco testing firm Labstat continues its rebound following last year’s headwinds, resulting in AD recouping deferred royalty payments earlier than anticipated; 3) constrained liquidity from KMH Cardiology’s U .S . clinics given Obamacare challenges will result in a restructured royalty; 4) AD is investing another $3 million into infrastructure partner SM International at a 16% ROI; 5) guidance of +2 .5% net y/y increase in 2015e royalty revenue from the six partners with Jan . 1, 2015 reset dates; and 6) credit facility increased to $90 million (was $85 million) .

The sale of Killick provides AD with $44 .3 million in proceeds, having invested a total of $41 .2 million over three tranches since mid-2011 . In this period over $19 million in distributions had been received, implying a ~54% three-year total return and another example of management successfully deploying and recycling investor capital (LifeMark & Quetico others) .

After adjusting for all of the above AD is forecast to have a $90 million undrawn credit facility and ~$10 million in cash, and with share price performing well the company has access to significant liquidity to

continue growing its portfolio . We rate AD Outperform and our $40 price target implies ~20x forward EV/EBITDA and P/CF, and on a cap rate basis ~5%, which we argue is reasonable given AD’s relative attributes . With a 17 .5% implied total return to our revised target we reiterate an Outperform rating .

Boyd Group Income Fund (TSX: BYD.UN)

BYD acquired Craftmaster Auto Body for US$7 .4 million, a six-location portfolio operating in the Palm Bay area of Florida since 1981 . Craftmaster increases BYD’s store count to over 320 and grows run-rate revenue +1 .5% (Craftmaster TTM revenue ~$14 million) .

BYD entered Florida in 2011 and is already the largest operator in the state . Insurance company payors benefit from BYD entering new states and extending its Direct Repair Program (DRP) reach, this accretive and mutually beneficial strategy continuing with the recent entry into Louisiana .

We assume $90 million of acquisitions through Q3/15 to derive our forecasts, so our estimates are largely unchanged after adjusting for Craftmaster . That said it appears pricing is on the low end of what we expect for multi-store portfolio multiples (assuming 9% margins transaction priced at ~6x trailing vs . the 7x+ we model) . Management indicated the purchase price is within the range of recent BYD multi-location transactions, but it is still encouraging to see multiples well below double-digit levels given concerns about elevated seller expectations .

After funding Craftmaster we forecast BYD has over $40 million in cash, completely undrawn credit facilities of ~$135 million and leverage a conservative ~1x net debt to EBITDA . We reiterate an Outperform rating and $50 target price, which implies 11x 2015e EV/EBITDA and 14x P/CF, the premium to TSX diversified peers owing to BYD’s relative market position, growth outlook, financial health and defensiveness .

Special SituationsSector Analysis

—

Trevor Johnson, cfa Analyst 416-869-8511 —

Associate: Endri Leno 416-869-8047

Shares Stock Last FDDCPS EBITDA (mln) Net Y1 Net 12-MthStock Stock Risk O/S Price Quarter (A) est. est. P/DCPS (A) est. est. EV/EBITDA Debt Debt/ PriceSym. Rating Rating (Mln) 1/19 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 (Mln) EBITDA Target

Alaris Royalty AD OP AA 32.1 34.49 Sep-14 1.47 1.81 1.94 19.1 17.8 43.1 56.8 67.4 19.7 17.3 55.7 0.8 40.00Boyd Group Inc. BYD.UN OP A 16.6 46.15 Sep-14 1.97 2.76 3.61 16.7 12.8 41.4 67.8 87.2 12.0 9.9 87.1 1.0 50.00DH Corp. DH OP BA 86.4 35.07 Sep-14 2.46 2.51 2.63 14.0 13.4 247.5 349.7 377.3 11.7 10.7 958.0 2.5 39.00Exchange Income Corp. EIF OP AA 22.4 21.38 Sep-14 1.01 1.38 2.16 15.5 9.9 80.5 97.3 145.6 9.7 6.9 465.9 3.2 25.00Grenville Strategic Royalty Corp. GRC OP AA 59.4 0.60 Sep-14 n/a 0.06 0.09 9.9 6.9 n/a 9.2 17.2 8.5 5.7 1.8 0.2 1.00IBI Group Inc. IBG SP AA 28.9 1.75 Sep-14 (0.06) (0.10) 0.54 nmf 3.2 15.3 25.4 33.0 9.0 6.2 195.8 5.9 2.75K-Bro Linen Inc. KBL OP A 7.9 47.07 Sep-14 2.53 2.93 3.05 16.1 15.4 23.3 26.7 31.0 14.6 12.2 14.9 0.5 48.00Liquor Stores N.A. Ltd. LIQ SP A 27.2 15.02 Sep-14 1.32 0.94 1.11 15.9 13.5 46.1 38.7 46.6 13.4 11.5 109.4 2.3 14.00Just Energy Group Inc. JE SP AA 145.4 6.33 Sep-14 0.64 0.60 0.56 10.5 11.3 210.3 169.0 176.3 10.5 9.3 862.3 4.9 6.00Medical Facilities Corp. DR SP A 31.3 19.31 Sep-14 1.30u 1.27u 1.30u 14.0 13.8 99.7u 97.4u 101.8u 11.1 10.7 35.9u 0.4 17.00Morneau Shepell Inc. MSI SP BA 48.0 16.49 Sep-14 0.94 0.98 1.11 16.9 14.8 86.5 98.5 105.4 11.0 10.4 304.6 2.4 18.00Mosaic Capital Corp. M OP AA 8.6 9.80 Sep-14 0.68 0.95 1.62 10.3 6.0 18.0 24.4 36.1 8.9 6.6 5.7 0.2 16.00New Flyer Industries Inc. NFI OP A 55.5 13.00 Sep-14 0.83u 1.03u 0.99u 12.6 13.2 79.1u 88.4u 102.6u 9.5 9.0 236.3u 2.3 14.00Parkland Fuel Corp. PKI OP A 76.1 20.89 Sep-14 1.94 1.51 1.73 13.8 12.1 206.0 185.4 251.0 10.7 8.9 387.2 1.5 25.00Performance Sports Group PSG OP A 44.4 23.37 Nov-14 1.23 1.20 1.32 19.5 17.7 69.1 112.6 132.9 13.4 11.2 408.5 3.6 26.00

Rogers Sugar Inc. RSI SP A 94.3 4.44 Sep-14 0.36 0.37 0.39 12.0 11.5 61.1 63.9 66.0 9.5 9.2 189.5 2.9 4.50WesternOne Equity WEQ OP AA 37.8 2.75 Sep-14 1.15 0.59 0.69 4.7 4.0 46.8 38.0 52.5 7.8 5.6 192.3 3.7 4.50

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted u = US DollarsRisk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative

VISIONFebruary 2015

50

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Looking ahead to 2015 for our E&C universe. 2014 was marked by a number of significant acquisitions (WSP - Focus and Parsons Brinckerhoff; SNC - Kentz) within our Engineering & Construction (E&C) universe and we expect the integration and the performance of the entities acquired to largely drive returns in 2015 . Infrastructure spending, particularly in the United States, is also expected to be an important growth factor in 2015 . Another major issue in 2015 will be the uncertainty related to oil prices and the impact on capital spending .

What to look forward to regarding our coverage universe Aecon Group (Outperform, $19.00 target). We anticipate the upcoming sale of its 42 .3% interest in the Quito Airport located in Ecuador to be the major catalyst in 2015 (we expect net proceeds of ~$4 per share) . Following the decline of oil prices, Aecon has lost ~40% of its market value over the last six months and although ~20% of its revenues are related to Oil & Gas, we believe that the selloff was overdone .

Canam Group (Action List, Outperform, $15.00 target).Supported by a record backlog of more than $900 million, we forecast substantial margin improvement in 2015 as deliveries progress on large contracts . Moreover, the strength of the U .S . non-residential construction sector should allow Canam to continue to grow its revenue base and to further

improve its profitability going forward . CAM is our highest conviction name in the space for 2015 .

SNC-Lavalin (Outperform, $60.00 target). Over the next quarters, SNC will complete the integration of Kentz and implement a major restructuring (workforce reduction of 4,000 employees) which will result in after-tax charges of $300 million and expected annual savings of $100 million . Another important catalyst for SNC in 2015 will be the monetization of its 16 .8% interest in 407 International of which we estimate a net value of ~$12 per share .

Stantec (Sector Perform, $38.25 target). In 2015, Stantec will make its first significant move in Quebec with the acquisition of Dessau’s Canadian assets . While the Quebec construction market has been struggling in the last years due to weak mining and manufacturing markets, its large infrastructure sector offers interesting opportunities . Additionally, U .S . building markets are recovering which should help to offset the anticipated slowdown in its Oil & Gas business .

Stuart Olson (SOX; Outperform, $10.00 target). Within our coverage universe, we believe that SOX is the most exposed to a slowdown in Canadian oil sands in 2015 (~60% of its EBITDA) . Furthermore, given that ~50% of its revenues come from the public sector, we expect that lower oil prices will translate into declining revenues for governments and potentially less infrastructure spending .

WSP Global (Outperform, $41.00 target). The recent acquisition of Parsons Brinckerhoff (PB) made WSP the world’s seventh largest pure-play design firm . Moreover, it added significant expertise in infrastructure markets while also offering margin expansion opportunities in challenging regions such as Australia . Moreover, PB’s top positioning in the U .S . transportation market bodes well for WSP given the growing need for infrastructure projects in the U .S . especially for transportation infrastructure .

Special SituationsSector Analysis

—

Leon Aghazarian, M.Sc. Analyst 514-879-2574 —

Associates: Frédéric Tremblay, M .Sc ., CFA: 514-412-0021 Jean-François Bourdon: 514-390-7825

Shares Stock Last 12-MthStock Stock Risk O/S Price Year (A) est. est. P/E (A) est. est. EV/EBITDA Div. Net Debt/ Price

Symbol Rating Rating (Mln) 1/19 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 yield FY2 EBITDA Target Special SituationsAecon Group ARE OP AA 54.1 10.30 Dec 13 0.84 0.52 1.36 19.9 7.6 183.9 169.1 233.0 5.9 4.3 3.5% 1.8 19.00

Canam Group CAM OP AA 42.1 10.70 Dec 13 0.74 0.73 1.10 14.7 9.7 75.4 82.8 106.7 8.6 6.7 1.5% 2.5 15.00Cascades CAS OP AA 94.1 7.32 Dec 13 0.31 0.42 0.77 17.4 9.5 342.0 356.7 376.6 6.5 6.2 2.2% 4.4 9.00Centric Health Corp. CHH OP AA 171.0 0.34 Dec 13 (0.32) (0.17) (0.10) nm nm 23.8 28.9 34.7 10.5 8.7 0.0% 6.1 0.50Colabor Group GCL OP AA 27.5 3.50 Dec 13 0.06 0.11 0.21 31.8 16.6 34.0 35.4 40.1 7.9 7.0 6.9% 4.6 5.50Domtar Corporation UFS OP AA 65.0 36.94 Dec 13 2.37 3.13 4.22 11.8 8.8 658.0 756.5 836.4 4.8 4.4 4.1% 1.5 50.00Dorel Industries DII.B SP A 32.3 40.54 Dec 13 2.09 2.55 2.88 13.3 11.8 168.8 201.3 226.9 7.6 6.7 3.5% 1.9 38.00Knight Therapeutics GUD OP A 92.7 7.57 Dec 13 N/A 0.01 0.20 nmf 37.7 N/A (3.9) 10.0 nmf 38.1 0.0% (22.8) 8.00KP Tissue KPT OP A 8.8 17.40 Dec 13 0.95 0.62 1.01 28.2 17.3 116.2 125.0 146.3 10.1 8.6 4.1% 2.3 18.00MTY Food Group MTY SP A 19.1 32.35 Nov 13 1.34 1.42 1.63 22.7 19.8 39.2 43.0 50.1 14.6 12.5 1.1% 0.1 35.00New Look Eyewear BCI OP AA 13.3 22.75 Dec 13 0.60 0.70 0.95 32.6 23.8 15.8 26.7 31.3 13.3 11.3 2.6% 1.7 25.50Park Lawn Corporation PLC OP AA 5.8 13.70 Dec 13 0.46 0.44 0.51 31.2 27.1 2.4 3.5 5.0 23.2 16.4 3.3% 0.6 15.00Premium Brands Holdings PBH OP A 22.3 24.34 Dec 13 0.60 0.94 1.79 25.9 13.6 70.9 78.4 102.2 11.8 9.0 5.1% 3.7 27.50Richelieu Hardware RCH OP A 19.6 56.60 Nov 13 2.22 2.59 2.87 21.8 19.7 70.4 76.3 84.2 14.2 12.9 1.0% (0.3) 58.00SNC-Lavalin Group SNC OP AA 152.9 41.97 Dec 13 0.24 0.32 3.10 nmf 13.5 480.3 838.5 822.8 14.0 7.7 2.3% 2.2 60.00Stantec STN SP A 93.8 30.16 Dec 13 1.57 1.82 2.26 16.5 13.4 261.1 305.7 369.0 9.9 8.2 1.2% 0.6 38.25Stella-Jones SJ OP BA 68.8 33.65 Dec 13 1.34 1.51 1.73 22.3 19.4 155.0 176.7 197.7 15.4 13.8 0.8% 2.1 35.00Stuart Olson SOX OP AA 25.0 6.67 Dec 13 0.21 (0.43) 1.31 nmf 5.1 41.1 39.7 66.9 6.3 4.9 7.2% 1.3 10.00

Uni-Sélect UNS OP BA 21.3 30.50 Dec 13 2.37 2.54 2.71 10.0 9.4 101.2 110.0 116.7 7.4 6.9 2.0% 2.3 33.00WSP Global WSP OP A 88.8 33.78 Dec 13 1.47 1.79 2.23 18.9 15.1 180.6 252.3 413.2 9.4 9.0 4.4% 0.6 41.00Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted Risk Rating: BA = Below Average; A = Average; AA = Above Average; S = SpeculativeNote: Dorel data is in USD except stock prices and target prices. KP Tissue: financial data reflects Kruger Products L.P. (in which KP Tissue has a 16.5% interest).

EBITDAFDEPS

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As we reflect on 2014, the performance of stocks in our coverage universe were shaped by a stronger U .S . economy, weaker oil prices and low interest rates, all of which seemed to accelerate in Q4 . As we look ahead to 2015, we believe that many of the same trends that were witnessed in 2014 will repeat – something we will highlight in our forthcoming Top Picks and Themes for 2015 report . Overall, we believe investors will continue to favour companies with highly predictable and growing cash flow generation, exposure to U .S . construction markets, solid organic growth opportunities and or dividend growth potential .

Notable highlights within our coverage universe from the past month include:

We resumed coverage of Boralex (BLX:TSX; Outperform, $17 .00 target) following the closing of its $127 million equity offering (9 .7 million shares), used for the $400 million acquisition of Enel Green Power France . The acquisition of 186 MW of operating wind assets in France and 10 MW under construction (for Q2 completion) appears to be accretive to cash flow and EBITDA per share . This equity should help to improve the liquidity of BLX and could help to close the valuation gap with BLX’s larger utility peers .

We include this acquisition and other updates to our estimates; we increased our target on BLX to $17/sh, based on 11x 2016E EV/EBITDA and a DCF with an 8 .5% discount rate (was 9%) .

Newalta (NAL:TSX; Outperform, $20 .00 target) announced the long awaited and telegraphed sale of its Industrial Division for $300 million plus the assumption of asset retirement obligations . The price of $300 million is slightly higher than our estimate at about 6 .0x EV/EBITDA, with an expected Q1/15 closing . With a stronger balance sheet and confidence in its business model, NAL also announced a capex budget that includes $25 million in maintenance and $165 million of growth capex (we had $30 million and $140 million) . With the fall in oil prices, we updated our estimates for 2015E/2016E . If the price of oil starts to show some recovery, we believe that the shares could appear attractive at these levels relative to comps and NAL could make an interesting M&A target . With this, we decreased our target to $20/sh, at 8 .4x EV/EBITDA on 2016E (was 9x), Outperform .

Interfor (IFP:TSX; Outperform, $24 .00 target) announced plans to issue $60 million in subscription receipts to support the acquisition of Simpson Lumber . The issuance followed its announcement of its plans to acquire four U .S . mills . With this issuance, we believe that IFP could close out 2015e with a debt/EBITDA at about 0 .6x (below our previous estimate at 1 .1x) . With improved balance sheet flexibility, IFP is well positioned to continue its investment in growth and productivity improvements . IFP could further benefit from a stronger U .S . dollar, improvements in the U .S . housing market and higher lumber prices . Outperform .

Sustainability and Clean TechSector Analysis

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Rupert Merer, P. Eng, CFA Analyst 416-869-8008 —

Associates: Jeremy Mersereau, P . Eng, CFA: 416-869-6768 Mark Vernest, CFA: 416-869-7476

Shares Stock LastStock Stock Risk O/S Price Year (A) est. est. (A) est. est. P/S Book Debt/ PriceSym. Rating Rating (Mln) 01/19 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value Capital Target

Energy TechnologyAlgonquin Power AQN SP A 247 9.85 Dec 13 0.24 0.33 0.40 30.3 24.6 3.29 4.31 4.23 2.3 2.3 7.06 0.47 10.00Alterra Power AXY SP S 467 0.33 Dec 13 0.02u 0.01u (0.02)u 63.9 nmf 0.14u 0.15u 0.14u 2.5 2.6 0.60u 0.40 0.40Atlantic Power ATP SP AA 122 3.16 Dec 13 (0.65)u (0.84)u (0.45)u nmf nmf 4.60u 4.71u 4.64u 0.8 0.8 7.00u 0.77 2.50uBoralex BLX OP AA 50 12.83 Dec 13 (0.15) (0.02) 0.31 nmf 41.9 4.41 4.79 3.93 2.7 3.3 8.60 0.65 17.00 Capstone Infrastructure CSE SP A 97 3.29 Dec 13 0.43 0.38 0.13 8.6 25.1 4.81 4.75 3.84 0.7 0.9 5.46 0.61 3.75 Chemtrade Logistics CHE.un OP A 68 20.36 Dec 13 (0.03) 0.12 0.94 nmf 21.8 20.07 19.98 18.59 1.0 1.1 11.69 0.27 24.00Conifex Timber Inc. CFF OP AA 21 6.55 Dec 13 0.45 0.19 1.25 33.8 5.3 12.22 16.16 18.92 0.4 0.3 5.70 0.38 10.00DIRTT Environmental Solutions DRT OP S 77 4.06 Dec 13 (0.18) 0.02 0.32 nmf 12.7 2.05 2.27 2.88 1.8 1.4 1.09 -0.24 5.00uEnerCare ECI OP A 92 14.25 Dec 13 0.15 0.30 0.35 47.3 40.4 5.08 5.89 6.13 2.4 2.3 0.97 0.48 17.00Etrion Corp ETX SP AA 335 0.40 Dec 13 (0.05)u (0.05)u (0.01)u nmf nmf 0.26u 0.15u 0.25u 3.0 1.8 0.14u 0.56 0.55 Innergex INE OP AA 97 11.41 Dec 13 0.13 0.09 0.27 nmf 42.6 2.09 2.37 2.49 4.8 4.6 3.02 0.65 12.50Interfor IFP OP AA 71 19.22 Dec 13 0.73 0.95 1.73 20.2 11.1 18.97 21.31 25.82 0.9 0.7 9.20 0.22 24.00 Mason Graphite LLG OP S 87 0.62 Jun 13 (0.12) (0.07) (0.04) nmf nmf 0.00 0.00 0.00 na na 0.26 0.20 1.20Newalta Inc. NAL OP AA 57 13.85 Dec 13 0.90 1.09 0.53 12.8 26.2 14.11 15.03 9.97 0.9 1.4 11.97 0.41 20.00 Ovivo Inc (formerly GLV Inc) OVI'A OP S 44 2.01 Mar 14 0.17 0.10 0.10 20.3 20.9 14.40 13.41 9.04 0.1 0.2 3.70 0.17 3.50Progressive Waste Solution BIN-US OP A 115 29.40u Dec 13 1.13u 1.31u 1.39u 25.5 24.1 17.59u 17.52u 17.90u 1.9 1.9 11.41u 0.52 32.00uShawCor SCL OP A 64 39.13 Dec 13 3.55 2.56 3.32 15.3 11.8 29.49 29.56 30.46 1.3 1.3 15.63 0.20 65.00TransAlta Renewables RNW SP AA 115 12.22 Dec 13 0.44 0.46 0.63 26.6 19.4 2.14 1.97 2.03 6.2 6.0 8.20 0.33 12.25Westport WPRT-US UP AA 64 3.31u Dec 13 (2.06)u (1.56)u (0.95)u nmf nmf 8.24u 7.90u 9.65u 0.5 0.4 3.64u 0.25 5.005N Plus VNP OP AA 84 2.32 Dec 13 0.13u 0.13u 0.25u 20.3 10.8 5.47u 6.42u 7.71u 0.4 0.3 2.38 0.14 4.25

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted Risk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative1 FD EPS are pro-forma numbers from continuing operations and exludes goodwill amortization, restructuring and one-time charges. u = US dollar

12-MthFDEPSP/E

Sales per share

VISIONFebruary 2015

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Not too much has changed over the past month in tech, but the falling price of oil has investors looking to other sectors . We continue to believe the tech market is positioned for further acceleration, driven by a number of factors including: GDP and employment growth, cashed-up balance sheets, low interest rates fueling M&A, a strong IPO pipeline, venture capital and emerging private-stage investment funds making a comeback, and Canadian dollar weakness .

CGI Group remains our favourite large cap stock trading at ~14x this year’s earnings, supported by a recurring business model that is based on a large backlog of long-term contracts . While European economic weakness and a lack of U .S . budget flush were evident in the September quarter, margin expansion was strong and cash flow supports more M&A . We expect M&A to be a major catalyst for this stock .

Constellation Software seems to be another decent place to hide as the company is a holdco of many software vendors and as such offers great global diversification . Constellation is much more expensive than CGI at nearly 19x this year’s earnings, which also assumes that M&A adds around $150-200 million of revenue (a major risk to estimates) . Constellation is also achieving margin expansion, which was a positive surprise in Q3 results .

Open Text disappointed on the top line with September results (a risk we highlighted) but delivered exceptional margins and cash flow . We recently attended the company’s annual customer conference and departed very excited about the company’s competitive positioning . As expected, the company recently announced an acquisition that should be accretive to earnings next year (we have not yet added to estimates) . We would maintain an overweight position heading into the seasonally strong December quarter .

In small-cap land Sandvine remains our top pick . Sandvine is trading at ~7x EV/EBITDA on F2015 estimates and is executing better than its peers Allot Communications and Procera Networks . Sandvine reported a record F2014 year, but outlook was slightly dampened by a lower expected operating margin in F2015 . Sandvine is about to enter a major new carrier infrastructure upgrade cycle that could be an important growth driver for several years . Sandvine has been actively buying back stock under its new NCIB announced on Oct . 9th .

Avigilon is another very topical name and delivered strong Q3 results on Nov . 4th . Consensus estimates have been coming down to a more achievable level to reflect some caution in growth outlook from lower-than-expected headcount additions . This stock has become more volatile in recent months . We continue to like the company’s outlook and view the stock as attractive below $20/share .

Lumenpulse has been under pressure since insiders sold some stock after the 180-day lock-up expiration, and a quarter that was perceived as somewhat weak by some investors . While the company delivered a strong October quarter, investors seem to be waiting for a better entry point into the stock .

Our coverage group average EV/EBITDA is ~11x and P/E is ~17x on our C2015 estimates . However, the EV/EBITDA range is ~6x-20x and the P/E range is ~9x-30x .

TechnologySector Analysis

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Kris Thompson, MBA Analyst 416-869-8049 —

Associates: Auritro Kundu: 416-869-7495

Steven Walt: 416-869-7938

Shares Stock Last FDEPS EBITDA ($mln) Debt/ 12-MthStock Stock Risk O/S Price Year (A) est. est. P/E (A) est. est. EV/EBITDA Book Total PriceSym. Rating Rating (Mln) 01/19 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value Capital Target

Avigilon Corporation AVO OP AA 46.6 17.01 2013 0.76 0.95 1.43 18.1 12.0 33.8 48.6 65.1 9.7 6.3 6.19 0% 25.00Axia NetMedia AXX OP AA 63.1 3.17 2013 NA NA NA NA NA 29.5 33.4 42.3 4.1 3.4 1.83 4% 3.30CGI Group Inc. GIB.A OP A 312.6 46.60 2013 2.93 3.22 3.32 14.0 NA 1845.8 1905.5 1987.9 8.5 NMF 15.96 35% 50.00Constellation Software Inc. CSU SP A 21.2 341.50 2013 9.72u 12.36u 15.11u 18.8 NA 243.8u 350.9u 402.5u 15.7 NMF 12.11u 59% 325.00CounterPath Corporation CCV UP S 42.5 0.90 2014 (0.11u) (0.10u) (0.10u) NMF NA (3.9u) (4.8u) (4.1u) NMF NMF 0.29 0% 1.00Difference Capital Financial Inc. DCF SP S 38.4 0.95 2013 NA NA NA NA NA NA NA NA NA NA 2.40 36% 1.85EXFO Inc. EXFO SP AA 60.2 3.54 2014 0.08u 0.16u 0.55u 22.8 6.5 14.4u 17.4u 52.9u 9.0 2.9 3.65 0% 3.50uGuestLogix Inc. GXI R R R R R R R R R R R R R R R R R RHalogen Software Inc. HGN OP AA 21.9 8.20 2013 (0.26u) (0.54u) (0.50u) NMF NMF (2.5u) (8.3u) (5.3u) NMF NMF 1.42 0% 12.00Kinaxis Inc. KXS OP AA 23.7 18.72 2013 0.50u 0.51u 0.67u 30.4 23.4 16.3u 19.6u 25.8u 16.0 12.2 2.03 0% 20.00Lumenpulse Inc. LMP OP AA 23.3 16.04 2014 NMF 0.05 0.60 38.1 17.8 0.4 4.7 21.5 19.7 10.2 4.47 0% 28.00Macdonald, Dettwiler and Associates Ltd. MDA SP AA 36.1 91.15 2013 5.14 5.66 6.37 14.3 NMF 314.1 336.5 371.8 10.8 NMF 24.73 45% 90.00Mediagrif Interactive Inc. MDF OP AA 15.8 18.16 2014 0.80 0.91 1.05 17.9 NMF 24.5 28.3 31.5 10.2 NMF 7.72 19% 24.00Open Text Corporation OTEX OP AA 122.0 58.36 2014 3.37u 3.95u 4.17u 14.5 NMF 537.9u 674.4u 704.2u 11.6 NMF 13.89 44% 65.00uSandvine Inc. SVC OP S 148.0 3.05 2014 0.11u 0.17u 0.17u 15.4 11.2 19.7u 31.5u 32.9u 7.0 5.3 1.11u 0% 4.50TIO Networks Corp. TNC OP S 57.1 0.85 2014 0.01 0.05 0.09 14.7 NMF 1.49 3.41 5.94 12.1 NMF 0.13 23% 1.50

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = RestrictedRisk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculative

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A weaker Cdn$ is a meaningful cost headwind for Air Canada (AC:TSX; Outperform; $15.00 target) and WestJet (WJA:TSX; Outperform; $37.00 target) as major cost line items such as aircraft maintenance and leasing are US$ denominated (plus Air Canada’s debt and interest expense is largely US$ based) . However, the dramatic drop in the price of jet fuel on its own will more than offset the increased cost related to f/x . The f/x adjusted price of jet fuel is currently Cdn$0 .61/liter versus the average of about Cdn$0 .90 in 2014 and the more than Cdn$0 .90/liter both airlines paid in Q1/14 .

We therefore expect Air Canada’s and WestJet’s near-term earnings to be boosted by significantly lower fuel prices and, as such, we believe that both stocks have room to move higher in the short-to-medium term . Our earnings forecasts for both airlines is based on an average 2015 fuel price of Cdn$0 .82/liter, which is well above the current spot price . As we highlight below, all else equal, earnings for both companies would be significantly higher if the current spot jet fuel price persisted through 2015 .

Our only caution on the airlines is that the market’s enthusiasm for the stocks could diminish later in 2015 for the following reasons:

Lower fuel may ultimately be passed through to consumers. We believe that ultimately at least some of the lower fuel costs will be passed through to customers in the form of lower air fares . While this may not manifest until later in 2015, investors should not necessarily assume a permanent increase in airline profitability .

Reversal of fuel prices could also reverse positive sentiment around airlines. Airline stocks have clearly benefited from improved sentiment driven by lower jet fuel prices . However, most forecasts call for the price of oil to stabilize and move higher by the end of 2015 . We expect that a reversal in oil prices could lead to some negative investor sentiment for the airlines later in 2015 .

More aggressive capacity growth in 2015. More aggressive capacity growth in 2015 could dampen air fares . We note that industry sun destination capacity growth this winter is expected up 13% . Air Canada’s system capacity growth plans in 2015 (9-10% system-wide and 4-5% domestically) are relatively aggressive while WestJet’s is expected to continue to deploy new capacity into regional routes where it expects to compete for market share .

New competitor still possible in 2015. We believe that at least one of the two groups attempting to raise capital to start a new airline in Canada may find success and begin operations later in 2015 . While a new competitor will initially be too small to have any meaningful financial impact on the incumbent airlines in 2015, the negative headlines around increased competition may be a drag on the stock .

Transportation and Industrial ProductsSector Analysis

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Cameron Doerksen, CFA Analyst 514-879-2579 —

Associate: Umayr Allem, CFA, MBA 416-869-8577

Shares Stock Last Cash EPS FDFCFPS 12-MthStock Stock Risk O/S Price Year (A) est. est. P/E (A) est. est. P/CFPS PriceSym. Rating Rating (Mln) 1/19 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Target

Air Canada* AC OP AA 286 12.21 Dec-13 1.20 1.56 2.09 7.8x 5.8x 2.51 3.22 4.19 3.8x 2.9x nmf 15.00 Bombardier Inc. BBD.b SP AA 1742 2.71 Dec-13 u0.33 u0.33 u0.38 6.8x 5.9x u0.69 u0.53 u0.65 5.1x 4.2x 75% 3.00 BRP Inc. DOO OP A 119 22.37 Jan-14 1.49 1.48 1.64 15.1x 13.6x 0.21 0.48 1.03 46.1x 21.8x 101% 28.00CAE Inc. CAE OP A 266 14.73 Mar-14 0.71 0.78 0.91 18.9x 16.2x 1.16 1.29 1.48 11.4x 10.0x 40% 16.00HNZ Group Inc. HNZ.a SP A 13 20.71 Dec-13 3.32 1.37 1.46 15.1x 14.2x 4.80 2.94 2.77 7.0x 7.5x -3% 20.00Canadian National Rail CNR SP BA 818 80.44 Dec-13 3.06 3.65 4.12 22.0x 19.5x 2.49 3.09 3.79 26.1x 21.2x 36% 83.00Canadian Pacific Rail CP OP A 168 215.81 Dec-13 6.42 8.34 10.75 25.9x 20.1x 4.98 4.84 6.63 44.5x 32.5x 48% 242.00 Cargojet Inc. CJT SP AA 9 26.75 Dec-13 0.42 -0.96 0.71 na 37.7x 2.06 0.42 4.21 63.7x 6.4x 65% 25.00Chorus Aviation Inc.* CHR.b SP AA 120 5.00 Dec-13 0.69 0.79 0.78 6.3x 6.4x 0.04 1.20 1.05 4.2x 4.8x 51% 4.75Héroux-Devtek Inc. HRX OP A 36 11.00 Mar-14 0.48 0.53 0.63 20.9x 17.5x 0.12 -0.86 -0.14 NM NM 15% 14.00Manac Inc. MA OP AA 17 8.20 Dec-13 0.96 0.60 1.04 13.6x 7.9x 1.17 0.38 1.23 21.3x 6.7x 8% 11.00Transat A.T. Inc. TRZ.b SP AA 39 8.35 Oct-14 1.16 0.82 0.85 10.2x 9.9x 1.14 1.22 0.82 6.9x 10.2x - 10.00TransForce Inc. TFI OP A 102 29.38 Dec-13 1.26 1.54 2.00 19.1x 14.7x 2.39 3.14 2.61 9.4x 11.3x 55% 34.00 Trimac Transportation Ltd. TMA OP A 28 6.50 Dec-13 0.51 0.56 0.68 11.5x 9.6x 0.48 0.99 0.43 6.5x 15.2x 67% 8.00WestJet Airlines* WJA OP A 128 33.70 Dec-13 2.03 2.38 2.82 14.1x 12.0x -0.81 0.83 -1.09 40.4x NM 40% 37.00

Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted

*based on EBITDAR (includes leases)

Net Debt / Cap

Risk Rating: BA = Below Average; A = Average; AA = Above Average; S = Speculativeu = US dollars

VISIONFebruary 2015

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VISIONFebruary 2015

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Alphabetical Listing —5N Plus VNP 51Advantage Oil & Gas AAV 39Aecon Group ARE 50Ag Growth International Inc . AFN-T 36AGF Management Ltd . AGF'B 41Agnico-Eagle Mines Ltd . AEM-T 47Aimia Inc . AIM 44Air Canada AC 53Alacer Gold Corp ASR-T 47Alamos Gold Inc . AGI-T 47Alaris Royalty AD 49Algonquin Power AQN 51Alliance Grain Traders Inc . AGT 36Allied Properties REIT AP .un 45AltaGas ALA 40Alterra Power AXY 51American Hotel Income Properties HOT .un 45Amica Mature Lifestyles ACC 45ARC Resources Ltd . ARX 39Arianne Phosphate Inc . DAN-V 36Arsenal Energy AEI 39Artek Exploration RTK 39Artis REIT AX .un 45ATCO Ltd . ACO'X 40Atlantic Power ATP 51AuRico Gold Inc AUQ-T 47Avigilon Corporation AVO 52Axia NetMedia AXX 52B2Gold Corp . BTO-T 47Bank of Montreal BMO 42Bank of Nova Scotia BNS 42Baytex Energy Corp . BTE 39BCE Inc . BCE 44Bellatrix Exploration BXE 39Belo Sun Mining Corp BSX-T 47Birchcliff Energy BIR 39Black Diamond Group Ltd . BDI 37Boardwalk REIT BEI .un 45Bombardier Inc . BBD .b 53Bonavista Energy Corporation BNP 39Bonterra Energy BNE 39Boralex BLX 51Boyd Group Inc . BYD .UN 49Brookfield Renewable BEP 40BRP Inc . DOO 53BTB REIT BTB .un 45CAE Inc . CAE 53Calfrac Well Services Ltd . CFW 37Callidus Capital Corp . CBL 41Canadian Energy Services & Tech CEU 37Canadian National Rail CNR 53Canadian Natural Resources CNQ 39Canadian Oil Sands COS 39Canadian Pacific Rail CP 53Canadian Tire CTC .a 43Canadian Utilities Ltd . CU 40Canadian Western Bank CWB 41Canam Group CAM 50CanElson Drilling Inc . CDI 37Canexus CUS 40Canyon Services Group Inc . FRC 37CAP REIT CAR .un 45Capital Power CPX 40Capstone Infrastructure CSE 51Capstone Mining Corp CS-T 48Cardinal Energy CJ 39Cargojet Inc . CJT 53Cascades CAS 50Cathedral Energy Services Ltd . CET 37Cenovus Energy CVE 39Centric Health Corp . CHH 50Cequence Energy CQE 39Cervus Equipment Corporation CVL-T 36CGI Group Inc . GIB .A 52Chemtrade Logistics CHE .un 51Chinook Energy Inc . CKE 39Choice Properties REIT CHP .un 45Chorus Aviation Inc . CHR .b 53CI Financial Corp CIX 41CIBC CM 42Cineplex Inc . CGX 44Cogeco Cable CCA 44

Colabor Group GCL 50COM DEV CDV 44Cominar REIT CUF .un 45Conifex Timber Inc . CFF 51Constellation Software Inc . CSU 52Copper Mountain Mining Corp . CUM-T 48Corus Entertainment Inc . CJR .b 44Couche Tard ATD .b 43CounterPath Corporation CCV 52Crescent Point Energy Corp . CPG 39Crew Energy CR 39Crombie REIT CRR .un 45Dalradian Resources Inc . DNA-T 47DeeThree Exploration DTX 39Delphi Energy DEE 39Detour Gold Corp DGC-T 47DH Corp . DH 49DHX Media DHX .b 44Difference Capital Financial Inc . DCF 52DIRTT Environmental Solutions DRT 51Dollarama DOL 43Domtar Corporation UFS 50Dorel Industries DII .B 50DREAM Global REIT DRG .un 45DREAM Industrial REIT DIR .un 45DREAM Office REIT D .un 45Element Financial EFN 41Emera Inc . EMA 40Empire Company EMP .a 43Enbridge Inc . ENB 40Enbridge Income Fund ENF 40Encana Corp . ECA 39EnerCare ECI 51Enerplus Corporation ERF 39ENTREC Corp . ENT 37Equitable Group EQB 41Essential Energy Services Ltd . ESN 37Etrion Corp ETX 51Exchange Income Corp . EIF 49EXFO Inc . EXFO 52FAM REIT F .un 45Fiera Capital Corp . FSZ 41First Capital Realty FCR 45First National Financial FN 41First Quantum Minerals FM-T 48Fortis Inc . FTS 40Franco-Nevada Corp FNV-T 47Freehold Royalties FRU 39Genworth MI Canada MIC 41Gibson Energy GEI 40Gildan GIL 43Gluskin Sheff + Assoc . GS 41Golden Star Resources Ltd GSC-T 47Great-West Lifeco GWO 42Grenville Strategic Royalty Corp . GRC 49GuestLogix Inc . GXI 52H&R REIT HR .un 45Halogen Software Inc . HGN 52Hawk Exploration HWK'A 39Héroux-Devtek Inc . HRX 53High Arctic Energy Services Inc . HWO 37HNZ Group Inc . HNZ .a 53Home Capital Group HCG 41Horizon North Logistics Inc . HNL 37HudBay Minerals HBM-T 48IAMGOLD Corporation IMG-T 47IBI Group Inc . IBG 49IGM Financial Inc . IGM 41Industrial Alliance IAG 42Innergex INE 51Inovalis REIT INO .un 45Input Capital Corp INP-V 36Intact Financial Corp . IFC 41Inter Pipeline IPL 40Interfor IFP 51InterRent REIT IIP .un 45Jean Coutu PJC .a 43Just Energy Group Inc . JE 49Kaminak Gold Corp . KAM-V 47K-Bro Linen Inc . KBL 49Kelt Exploration KEL 39Keyera KEY 40

Kinaxis Inc . KXS 52Kinross Gold Corporation K-T 47Kirkland Lake Gold Inc KGI-T 47Knight Therapeutics GUD 50KP Tissue KPT 50Lake Shore Gold Corp LSG-T 47Laurentian Bank LB 41Legacy Oil + Gas LEG 39Leucrotta Energy LXE 39LGX Oil + Gas OIL 39Lightstream Resources Ltd . LTS 39Liquor Stores N .A . Ltd . LIQ 49Loblaw L 43Lonestar West LSI 37Long Run Exploration LRE 39Lumenpulse Inc . LMP 52Luna Gold Corp . LGC-T 47Lundin Mining LUN-T 48Lydian International Ltd . LYD-T 47Macdonald, Dettwiler and Associates Ltd . MDA 52MAG Silver Corp MAG-T 47Magellan Minerals Ltd MNM-V 47Manac Inc . MA 53Manitoba Telecom Services Inc . MBT 44Manitok Energy MEI 39Manulife Financial MFC 42Marquee Energy MQL 39Mason Graphite LLG 51MBAC Fertilizer Corp . MBC-T 36MCAN Mortgage Corp . MKP 41Mediagrif Interactive Inc . MDF 52Medical Facilities Corp . DR 49MEG Energy MEG 39Melcor REIT MR .un 45Metro MRU 43Midas Gold Inc . MAX-T 47Milestone Apartments REIT MST .un 45Morneau Shepell Inc . MSI 49Mosaic Capital Corp . M 49Mountain Province Diamonds Inc . MPV-T 47MTY Food Group MTY 50Mullen Group Ltd . MTL 37National Bank NA 42New Flyer Industries Inc . NFI 49New Gold Inc NGD-T 47New Look Eyewear BCI 50Newalta Inc . NAL 51Newstrike Capital Inc . NES-V 47Northern Blizzard Resources Inc . NBZ 39Northland Power NPI 40NorthWest H .P . REIT NWH .un 45NuVista Energy NVA 39OceanaGold Corp . OGC-T 47Open Text Corporation OTEX 52Orezone Gold Corp . ORE-T 47Osisko Gold Royalties Ltd . OR-T 47Ovivo Inc (formerly GLV Inc) OVI'A 51Painted Pony Petroleum PPY 39Park Lawn Corporation PLC 50Parkland Fuel Corp . PKI 49Partners REIT PAR .un 45Pason Systems Corp . PSI 37Pembina Pipelines PPL 40Pengrowth Energy Corporation PGF 39Penn West Exploration PWT 39Performance Sports Group PSG 49Perpetual Energy PMT 39Peyto Exploration & Development Corp . PEY 39PHX Energy Services Corp . PHX 37Pilot Gold Corp . PLG-T 47Pinecliff Energy PNE 39PolyMet Mining Corp . POM-T 48PrairieSky Royalty PSK 39Premium Brands Holdings PBH 50Progressive Waste Solution BIN-US 51Pure Industrial REIT AAR .un 45Pure Multi-family REIT RUFu .V 45Quebecor Inc . QBR .b 44Raging River Exploration RRX 39Richelieu Hardware RCH 50Richmont Mines Inc . RIC-T 47Rio Alto Mining Ltd . RIO-T 47

RMP Energy RMP 39Rock Energy RE 39Rogers Communications Inc . RCI .b 44Rogers Sugar Inc . RSI 49Romarco Minerals Inc R-T 47Rona RON 43Royal Bank of Canada RY 42Royal Gold Inc RGLD-O 47Rubicon Minerals Corp RMX-T 47Sandstorm Gold Ltd SSL-T 47Sandvine Inc . SVC 52Saputo SAP 43Savanna Energy Services Corp . SVY 37Seabridge Gold Inc . SEA-T 47Secure Energy Services Inc . SES 37SEMAFO Inc . SMF-T 47Shaw Communications SJR .b 44ShawCor SCL 51Sherritt Int . Corp S-T 48Silver Wheaton Corp SLW-T 47SilverCrest Mines Inc . SVL-T 47Sirius XM Canada Holdings XSR 44SNC-Lavalin Group SNC 50Spartan Energy SPE 39Sprott Resource Corp . SCP-T 47Spyglass Resources SGL 39Stantec STN 50Stella-Jones SJ 50Storm Resources SRX 39Strategic Oil & Gas Ltd . SOG 39Stuart Olson SOX 50Student Transportation Inc . STB 37Sun Life Financial SLF 42Suncor Energy SU 39Superior Plus SPB 40Supremex Inc . SXP 44Surge Energy SGY 39Tamarack Valley Energy TVE 39Taseko Mines Limited TKO-T 48Teck Resources TCK'B-T 48Telus Corp . T 44Temple Hotels TPH 45TeraGo TGO 44The Intertain Group Limited IT 44Thomson Reuters TRI 44Timmins Gold Corp . TMM-T 47TIO Networks Corp . TNC 52TMX Group X 41Torc Oil & Gas TOG 39Toronto-Dominion Bank TD 42Torstar Corporation TS .b 44Tourmaline Oil TOU 39TransAlta TA 40TransAlta Renewables RNW 51Transat A .T . Inc . TRZ .b 53TransCanada Corp . TRP 40Transcontinental Inc . TCL .a 44TransForce Inc . TFI 53Trican Well Services TCW 37Tricon Capital Group TCN 45Trilogy Energy TET 39Trimac Transportation Ltd . TMA 53Trinidad Drilling Ltd . TDG 37True Gold Mining Inc . TGM-T 47True North Apartment REIT TN .un 45TVA Group Inc . TVA .b 44Twin Butte Energy TBE 39Uni-Sélect UNS 50Valener Inc . VNR 40Veresen Inc . VSN 40Vermilion Energy Inc . VET 39Vicwest Inc . VIC-T 36WesternOne Equity WEQ 49WestJet Airlines WJA 53Westport WPRT-US 51Whiltecap Resources WCP 39WPT Industrial REIT WIR'U-T 45WSP Global WSP 50Xtreme Drilling and Coil Services Corp . XDC 37Yamana Gold Inc YRI-T 47Zargon Energy ZAR 39

Branches—

InternationalNBF Securities UK(Regulated by The Financial Services Authority) 71 Fenchurch Street, 11th floor London, England EC3M 4HD Tel.: 44-207-680-9370 Tel.: 44-207-488-9379

New York65 East 55th Street, 31st Floor New York, NY 10022 Tel.: 212-632-8610

National Bank of Canada Financial inc.New York65 East 55th Street, 34th Floor New York, NY 10022 Tel.: 212-546-7500

Member of Montreal Exchange Toronto Stock Exchange Winnipeg Commodities Exchange Securities Industry Association CNQ Investment Dealers Association of Canada Canadian Investor Protection Fund Securities Investor Protection Corporation

Baie-Comeau • 337, boulevard Lasalle, Baie-Comeau, QC, G4Z 2Z1 • 418-296-8838 Barrie • 126 Collier Street, Barrie, ON, L4M 1H4 • 705-719-1190Beauce • 11505, 1re Avenue est, Bureau 100, St-Georges, QC, G5Y 7X3 • 418-227-0121Berthierville • 779, rue Notre-Dame, Berthierville, QC, J0K 1A0 • 450-836-2727Bin-Scarth • 24 Binscarth Rd, Toronto, ON, M4W 1Y1 • 416-929-6432Brampton • 10520 Torbram Road (at Sandalwood Parkway), Brampton, ON, L6R 2S3 • 905-456-1515Brandon • 633-C, 18th Street, Brandon, MB, R7A 5B3 • 204-571-3200Burnaby • 4211 Kingsway Street, Suite 218, Burnaby, BC, V5H 1Z6 • 604-541-8500Calgary • TCP Building, 450 - 1 Street SW, Suite 2800, Calgary, AB, T2P 5H1 • 403-531-8400Calgary - Southport • 10655 Southport Road SW, Suite 1100, Southland Tower, Calgary,AB, T2W 4Y1 • 403-301-4859Charlottetown • BDC Tower, 310-119 Kent Street, Charlottetown, PEI, C1A 1N3 • 902-569-8813Chatham • 380 St. Clair, Street, Chatham, ON, N7L 3K2 • 519-351-7645Chicoutimi • 1180, boulevard Talbot, Suite 201, Chicoutimi, QC, G7H 4B6 • 418-549-8888DIX30 • 9160, boulevard Leduc, Bureau 710, Brossard, QC, J4Y 0E3 • 450-462-2552Drumheller • 356 Centre Street, PO Box 2176, Drumheller, AB, T0J 0Y0 • 403-823-6857Drummondville • 150, rue Marchand, Bureau 401, Drummondville, QC, J2C 4N1 • 819-477-5024Duncan • 2763 Beverly Street, Suite 206 Duncan,BC, V9L 6X2 • 250-715-3050Edmonton • 10180 – 101 Street, Suite 3500, Edmonton, AB, T5J 3S4 • 780-412-6600Edmonton-North • 10088-102 Avenue, Suite 903, TD Tower, Edmonton, AB, T5J 2Z1 • 780-421-4455Eglinton • 295 Eglinton Avenue East, Delaware Square, Mississauga, ON, L4Z 3K6 • 905-507-4883 Fredericton • 551 King Street, P.O. Box 252, Suite B, Fredericton, NB, E3B 1E7 • 506-453-9040Gatineau • 920, St-Joseph, Bureau 100, Hull-Gatineau, QC, J8Z 1S9 • 819-770-5337Granby • 150, rue St-Jacques, Bureau 202, Granby, QC, J2G 8V6 • 450-378-0442Grand-Mère • 602, 6e avenue, Grand-Mère, QC, G9T 2H5 • 819-538-8628Halifax • Purdy's Wharf Tower II, 1969 Upper Water Street, Suite 1601, Halifax, NS, B3J 3R7 • 902-496-7700Halifax-Spring Garden • 5670 Spring Garden Road, Suite 901, Halifax, NS, B3J 1H6 • 902-425-1283Joliette • 40, rue Gauthier Sud, Bureau 3500, Joliette, QC, J6E 4J4 • 450-760-9595Kelowna • Suite 500 - 1632 Dickson Avenue, Kelowna, BC, V1Y 7T2 • 250-717-5510Kentville • 402 Main Street, Kentville, NS, B4N 3X7 • 902-679-0077La Pocatière • 608 C, 4e avenue, La Pocatière, QC, G0R 1Z0 • 418-856-4566Lac-Mégantic • 4947, boulevard des Vétérans, Lac-Mégantic, QC, G6B 2G4, 819-583-6035Laval • 2500, boulevard Daniel Johnson, Bureau 610, Laval, QC, H7T 2P6 • 450-686-5700Lethbridge • 404, 6th Street South, Lethbridge, AB, T1J 2C9 • 403-388-1900 London • 333 Dufferin Avenue, London, ON, N6B 1Z3 • 519-439-6228London-City Centre • 802-380 Wellington Street, London, ON, N6A 5B5 • 519-646-5711Metcalfe • 1155, rue Metcalfe, Suite 1450, Montréal, QC, H3B 2V6 • 514-879-4825Mississauga • 350, Burnhamthorpe road West, Suite 603, Mississauga, ON, L5B 3J1 • 905-272-2799Moncton • 735 Main Street, Suite 300, Moncton, NB, E1C 1E5 • 506-857-9926Montréal Centre-Ville • 1, Place Ville-Marie, Bureau 2201, Montréal, QC, H3B 3M4 • 514-879-2509Mont Saint-Hilaire • 436, boulevard Sir-Wilfrid-Laurier, Suite 100, Mont Saint-Hilaire, QC, J3H 3N9 • 450-467-4770Mont-Laurier • 906, Albiny-Paquette, Mont-Laurier, QC, J9L 1L4 • 819-623-6002Montréal 5 • 1155, rue Metcalfe, Bureau 1438, Montréal, QC, H3B 4S9 • 514-843-3088Montréal International • 1155, rue Metcalfe, Suite 1438, Montréal, QC, H3B 4S9 • 514-879-5287Montréal L'Acadie • 9001, boulevard de l’Acadie, Bureau 801, Montréal, QC, H4N 3H5 • 514-389-5506Montréal Siège Social • 1155, rue Metcalfe, 23e étage Montréal, QC, H3B 4S9 • 514-879-2512Nanaïmo • 75 Commercial Street, Nanaïmo, BC, V9R 5G3 • 250-751-1111North Bay • 680 Cassells Street, Suite 101, North Bay, ON, P1B 4A2 • 705-476-6360Oak Bay • #220 - 2186 Oak Bay Avenue, Victoria, BC, V8R 1G3 • 250-953-8400Oakville - Robinson St. • 105 Robinson Street, Oakville, ON, L6J 1G1 • 905-842-1925Ottawa • 50 O'Connor Street, Suite 1602, Ottawa, ON, K1P 6L2 • 613-236-0103Outremont • 1160, boulevard Laurier Ouest, App. 1, Outremont, QC, H2V 2L5 • 514-276-3532Penticton • City Center Building, 399 Main Street, Suite 305, Penticton, BC, V2A 5B7 • 250-487-2600Plessisville • 1719, rue St-Calixte, Plessisville, QC, G6L 1R2 • 819-362-6000

Pointe-Claire • 1, rue Holiday, Tour est, Suite 145, Pointe-Claire, QC, H9R 5N3 • 514-426-2522PVM Montréal • 1, Place Ville-Marie, Bureau 1805, Montréal, QC, H3B 4A9 • 514-879-5200Québec • 900, boulevard René-Lévesque Est, Bureau 640, Québec, QC, G1R 2B5 • 418-649-2525Québec - Sainte-Foy • Place de la Cité, 2600, boulevard Laurier, Bureau 700, Québec, QC, G1V 4W2 • 418-654-2323Québec 3 • Édifice Delta 3 - 2875, boulevard Laurier, Suite 700, Québec, QC, G1V 2M2 • 418-651-0680Red Deer • 4719 48th Avenue, Suite 200, Red Deer, AB, T4N 3T1 • 403-348-2600Regina • 1770-1881 Scarth Street, 17th Floor, McCallum Hill Centre - Tower II, Regina, SK, S4P 4K9 • 306-781-0500Repentigny • 534, rue Notre-Dame, Bureau 201, Repentigny, QC, J6A 2T8 • 450-582-7001Richmond • 135-8010 Saba Road, Richmond, BC, V6Y 4B2 • 604-658-8050Richmond Hill • 500 Highway 7 East, Gr. Floor, Richmond Hill, ON, L4B 1J1 • 905-477-2002Rimouski • 127, boulevard René-Lepage Est, Bureau 100, Rimouski, QC, G5L 1P1 • 418-721-6767Rivière-du-Loup • 10, rue Beaubien, Rivière-du-Loup, QC, G5R 1H7 • 418-867-7900 Rosemère • 218, boulevard Curé-Labelle, Rosemère, QC, J7A 2H4 • 450-437-8292Rouyn-Noranda • 74, avenue Principale, Rouyn-Noranda, QC, J9X 4P2 • 819-762-4347Saint John • 72 Prince William Street, Saint John, NB, E2L 2B1 • 506-642-1740Sainte-Marie-de-Beauce • 249, Du Collège, Bureau 100, Ste-Marie, QC, G6E 3Y1 • 418-387-8155Saint-Félicien • 1120, boulevard Sacré-Cœur, Saint-Félicien, QC, G8K 1P7 • 418-679-2684Saint-Hyacinthe • 1355, rue Johnson, Suite 4100, Saint-Hyacinthe, QC, J2S 8W7 • 450-774-5354Saint-Jean-sur-Richelieu • 383, boul. du Séminaire Nord, Suite 224, Saint-Jean-sur-Richelieu, QC, J3B 8C5 • 450-349-7777Saint-Jérôme • 265, rue St-George, Suite 100, Saint-Jérôme, QC, J7Z 5A1 • 450-569-8383Saint-Nicolas • 425, rue des Chutes, Bureau 100, Saint-Nicolas, QC, G7A 1E7 • 450-261-5268Saskatoon - 8th St. • 1220 8th Street East, Saskatoon, SK, S7H 0S6 • 306-657-3465Saskatoon - Downtown • 410-22nd Street East, Suite 1360, Saskatoon Square, Saskatoon, SK, S7K 5T6 • 306-657-4400Sept-Îles • 805, boulevard Laure, Suite 200, Sept-Îles, QC, G4R 1Y6 • 418-962-9154Sherbrooke • 1802, rue King Ouest, Suite 200, Sherbrooke, QC, J1J 0A2 • 819-566-7212Sidney • 2537, Beacon Avenue, Suite 205, Sidney, BC, V8L 1Y3 • 250-657-2200Sorel • 26, Pl. Charles-de-Montmagny, Suite 100, Sorel , QC, J3P 7E3 • 450-743-8474 St. Catharines • 40 King Street, St. Catharines, ON, L2R 3H4 • 905-641-1221Sudbury • 10 Elm Street, Suite 501, Sudbury, ON, P3C 1S8 • 705-671-1160Swift Current • 406 Cheadle Street West, Suite 202, Swift Current, SK, S9H 0B6 • 306-778-4770Thedford Mines • 222, boulevard Frontenac Ouest, bureau 107, Thedford Mines, QC, G6G 6N7 • 418-338-6183Thunder Bay • Hydro BLG 34 Cumberland Street North, 7th Fl., Thunder Bay, ON, P7A 4L3 • 807-683-1777Toronto 1 • Exchange Tower, 130 King Street West, Suite 3200, Toronto, ON, M5X 1J9 • 416-869-3707 Toronto Downtown • 121 King Street West, Toronto, ON, M5H 3T9 • 416-864-7791Trois-Rivières • 7200, rue Marion, Trois-Rivières, QC, G9A 0A5 • 819-379-0000Val d'Or • 840, 3e avenue, Val d'Or, QC, J9P 1T1 • 819-824-3687Valleyfield • 1356, boulevard Monseigneur-Langlois, Valleyfield, QC, J6S 1E3 • 450-370-4656Vancouver - Bentall V • 550 Burrard Street, Suite 1028, Vancouver, BC, V6C 2B5 • 604-685-6371Vancouver - Broadway • 1333 West Broadway Avenue, Suite 1488, Vancouver, BC, V6H 4C1 • 604-738-5655Vancouver 1 • Park Place, 666 Burrard Street, Suite 3300, Vancouver, BC, V6C 2X8 • 604-623-6777 Vancouver 2 • Park Place, 666 Burrard Street, Suite 3300, Vancouver, BC, V6C 2X8 • 604-643-2774 Vernon • 3100-30th Avenue, Suite 101, Vernon, BC, V1T 2C2 • 250-260-4580Victoria • 700-737 Yates Street, Victoria, BC, V8W 1L6 • 250-953-8400Victoria - Fort • 1480 Fort Street, Victoria, BC, V8S 1Z5 • 250-475-3698Victoriaville • 650, boulevard Jutras Est, Bureau 150, Victoriaville, QC, G6S 1E1 • 819-758-3191Waterloo • 180 King Street South, Suite 340 Allen Square, Waterloo, ON, N2J 1P8 • 519-742-9991West Vancouver • Suite 202, 545 Clyde Avenue, West Vancouver, BC V7T 1C5 • 604-925-5640White Rock • 2121 160th Street, Surrey, BC, V3Z 9N6 • 604-541-4925Willowdale • 9130 Leslie Street, suite 200, Richmond Hill, ON, L4B 0B9 • 416-756-4016Windsor • 1 Riverside Drive West,Suite 600, Windsor, ON, N9A 5K3 • 519-258-5810Winnipeg • 200 Waterfront Drive, Suite 400, Winnipeg, MB, R3B 3P1 • 204-925-2250Yorkton • 89 Broadway Street West, Yorkton, SK, S3N 0L9 • 306-782-6450

MontrealNational Bank Financial—Sun Life Building1155 Metcalfe StreetMontreal, QC H3B 4S9514-879-2222

TorontoNational Bank Financial—The Exchange Tower130 King Street West4th Floor PodiumSuite 3200Toronto, ON M5X 1J9416-869-3707

Canada (Toll-Free)—1-800-361-88381-800-361-9522

United States (Toll-Free)—1-800-678-7155

National Bank Financial (NBF) is an indirect wholly owned subsidiary of National Bank of Canada. National Bank of Canada is a public company listed on Canadian stock exchanges.The particulars contained herein were obtained from sources which we believe reliable but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein. The Firm may act as financial advisor, fiscal agent or underwriter for certain of the companies mentioned herein and may receive a remuneration for its services. The Firm and/or its officers, directors, representatives, associates, may have a position in the securities mentioned herein and may make purchases and/or sales of these securities from time to time in the open market or otherwise. To U.S. residents: With respect to the distribution of this report in the United States, National Bank of Canada Financial Inc. (NBCFI) is regulated by the Financial Industry Regulatory Authority (FINRA) and a member of the Securities Investor Protection Corporation (SIPC). This report has been prepared in whole or in part by, research analysts employed by non-US affiliates of NBCFI that are not registered as broker/dealers in the US. These non-US research analysts are not registered as associated persons of NBCFI and are not licensed or qualified as research analysts with FINRA or any other US regulatory authority and, accordingly, may not be subject (among other things) to FINRA restrictions regarding communications by a research analyst with the subject company, public appearances by research analysts and trading securities held a research analyst account. All of the views expressed in this research report accurately reflect the research analysts’ personal views regarding any and all of the subject securities or issuers. No part of the analysts’ compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. The analyst responsible for the production of this report certifies that the views expressed herein reflect his or her accurate personal and technical judgment at the moment of publication. Because the views of analysts may differ, members of the National Bank Financial Group may have or may in the future issue reports that are inconsistent with this report, or that reach conclusions different from those in this report. To make further inquiry related to this report, United States residents should contact their NBCFI registered representative.© 2014 National Bank Financial. All rights reserved. This report may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express consent of National Bank Financial.

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VISION - advisors.nbfwm.ca · Senior Fixed Income Economist ... Steve Parsons 416-869-6766 ... prices of non-euro-zone financial assets, limiting any upward