May 28, 2010 TODAY'S HIGHLIGHTS Canada/Int'l Rating Upgrades Cenovus Energy Estimates/Targets Raised Legend Int'l Holdings Zarlink Semiconductor Estimates/Targets Lowered CIBC Royal Bank TD Bank Potash One Featured Reports Food Prod.: Key Takeaways and Stock Implications from Our Barbecue Conference FINANCIALS Banks Canada CIBC Q2/10 Earnings Banks Canada CIBC Q2/10 Earnings: Credit and Capital Stronger Than... Banks Canada Royal Bank Q2/10 Earnings; The Burden of High Expectations Banks Canada Royal Bank Q2/10 Earnings: A Weak Quarter Relative to... Banks Canada TD Bank Solid Q2/10 Earnings Banks Canada TD Bank Q2/10 Earnings: Positive Momentum on the Asset... ENERGY & UTILITIES Oil & Gas Sector Comment Alberta Royalty Changes: Another Positive Surprise for... Integrated Oils Canada Cenovus Energy Upgraded to Outperform; Highlights From Investor... North American E&P Canada Paramount Resources Updated Resource Evaluation of Hoole Oil Sands Leases North American E&P Sector Comment Alberta Royalty Curves Finalized; Natural Gas Deep... MATERIALS Metals & Mining Sector Comment Mining & Commodity Roundup - May 27, 2010 Fertilizers Int'l Legend Int'l Holdings Still Waiting for Wengfu Fertilizers Canada Potash One Feasibility Capex/Tonne Rising But All-Inclusive
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May 28, 2010
TODAY'S HIGHLIGHTS
Canada/Int'l
Rating Upgrades Cenovus Energy Estimates/Targets Raised Legend Int'l Holdings Zarlink Semiconductor Estimates/Targets Lowered CIBC Royal Bank TD Bank Potash One Featured Reports
Food Prod.: Key Takeaways and Stock Implications from Our Barbecue Conference
FINANCIALS
Banks Canada CIBC Q2/10 Earnings
Banks Canada CIBC Q2/10 Earnings: Credit and Capital Stronger Than...
Banks Canada Royal Bank Q2/10 Earnings; The Burden of High Expectations
Banks Canada Royal Bank Q2/10 Earnings: A Weak Quarter Relative to...
Banks Canada TD Bank Solid Q2/10 Earnings
Banks Canada TD Bank Q2/10 Earnings: Positive Momentum on the Asset...
ENERGY & UTILITIES
Oil & Gas Sector Comment Alberta Royalty Changes: Another Positive Surprise for...
Integrated Oils Canada Cenovus Energy Upgraded to Outperform; Highlights From Investor...
North American E&P Canada Paramount Resources Updated Resource Evaluation of Hoole Oil Sands Leases
North American E&P Sector Comment Alberta Royalty Curves Finalized; Natural Gas Deep...
Notes: All values in C$; EPS are fully diluted; Cash EPS add back amortization of intangibles throughout Major Shareholders: Widely held First Call Mean Estimates: CANADIAN IMPERIAL BANK COMM (C$) 2010E: $6.28; 2011E: $7.25
Changes Annual EPS Annual EPS Quarterly EPS Target 2011E $7.30 to $7.20 2011E $7.23 to $7.13 Q3/10E $1.57 to $1.56 $80.00 to $78.00 Q4/10E $1.59 to $1.58
This report was prepared by an analyst(s) employ arch analyst(s) under FINRA rules. For disclosure statements, including
CIBC
May 28, 2010 Research Comment Corporate Debt – Banks George Lazarevski, CFA (416) 359-7488 [email protected] Assoc: Gaurav Dhiman
Q2/10 Earnings: Credit and Capital Stronger Than Expected
ed by BMO Nesbitt Burns Inc., and who is (are) not registered as a resethe Analyst's Certification, please refer to pages 7 to 8.
Event: CIBC reported Q2/10 results.
Impact: Neutral.
Key Points: CIBC reported cash earnings of $624 million, or $1.61
per share, compared with a loss of $81 million, or ($0.21) per share,
in the year-ago quarter. Adjusting for certain items, cash earnings of
$1.46 per share came in below the consensus estimate of $1.49 per
share. Overall, we would characterize the CIBC results as neutral
from a corporate debt perspective. The primary contributor to the
underperformance in the quarter was the Wholesale segment, which
saw a significant drop in advisory fees and equity new issue
revenue. In addition, the second quarter results did not include
merchant banking gains similar to Q1/10. On a positive note, asset
quality trends showed some improvement. Loan losses came in
below our expectations and gross impaired loans remained
relatively flat at $2.0 billion. In addition, new impaired loan
formations improved sequentially to $566 million compared to
$686 million in Q1/10. Finally, capital was stronger than expected
with a Tier 1 ratio of 13.7% and TCE ratio of 8.6%.
Credit and Spread Implications
Near Term: The sovereign debt crisis in Europe could result in
increased volatility of Canadian banks spreads over the near term.
Medium Term: The outlook on Canadian bank spreads over the
medium term is highly uncertain given the issues in Europe and the
potential for global growth to decline.
Recommendation
We remain cautious on Canadian bank credit given the uncertainty
in Europe and the potential contagion to other markets. Any
extension of the confidence problems beyond Europe would likely
put additional pressure on Canadian bank credit spreads, which
have widened over 60% since the end of the first quarter. We
recommend a market weight position in CIBC credit.
Notes: All values in C$; EPS are fully diluted; Cash EPS add back amortization of intangibles throughout Major Shareholders: Widely held First Call Mean Estimates: ROYAL BANK OF CANADA (C$) 2010E: $4.49; 2011E: $5.25
Changes Annual EPS Annual EPS Quarterly EPS Target 2010E $4.35 to $4.15 2010E $4.24 to $4.04 Q3/10E $1.11 to $1.08 $67.00 to $63.00 2011E $5.15 to $4.90 2011E $5.04 to $4.79 Q4/10E $1.15 to $1.13
This report was prepared by an analyst(s) employ arch analyst(s) under FINRA rules. For disclosure statements, including
Royal Bank
May 28, 2010 Research Comment Corporate Debt – Banks George Lazarevski, CFA (416) 359-7488 [email protected] Assoc: Gaurav Dhiman
Q2/10 Earnings: A Weak Quarter Relative to Expectations
ed by BMO Nesbitt Burns Inc., and who is (are) not registered as a resethe Analyst's Certification, please refer to pages 6 to 7.
Event: Royal Bank (RBC) released Q2/10 results.
Impact: Neutral.
Key Points: RBC reported Q2/10 cash earnings of $1.3 billion, or
$0.91 per share, compared to $938 million (excluding the $1 billion
goodwill charge), or $0.66 per share, in the year-ago period.
Excluding certain items, Q2/10 core earnings were $0.94 per share,
which was significantly below the consensus estimate of $1.10.
Overall, it was a relatively weak quarter for RBC. Capital markets
revenues came in lower than expected due to weaker trading
revenues and a 25% decline in corporate and investment banking
revenues. Management indicated that the sovereign debt crisis in
Europe put pressure on volumes in the early part of the quarter. In
addition, Canadian banking earnings came in below our
expectations given margin compression from the narrowing in
Prime-BA spreads. On a positive note, asset quality trends showed
some improvement. Specific loan loss provisions were $477 million
compared to our estimate of $605 million. In addition, capital ratios
improved in the quarter with a Tier 1 ratio of 13.4%.
Credit and Spread Implications
Near Term: Canadian bank credit spreads will likely remain
volatile over the near term given the uncertainty in Europe.
Medium Term: We remain cautious on Canadian bank credit over
the medium term given the lack of clarity of the European sovereign
debt crisis and the potential contagion to other markets.
Recommendation
The sovereign debt crisis in Europe has caused increased volatility
in Canadian bank spreads over the past quarter, as exhibited by the
60% widening in deposit note spreads in the quarter. As a result of
the uncertainty in Europe, we remain cautious on Canadian bank
credit and believe any extension of the confidence problems beyond
Europe would likely put additional pressure on bank credit spreads.
We recommend a market weight position in RBC credit.
Royal Bank of CanadaSubordinated Debt Indicative Spreads
Notes: All values in C$; EPS fd; CEPS add back amort. of intang. & goodwill; 2009 cash EPS has not been restated to reflect adoption of financial instruments admendments. Major Shareholders: Widely held First Call Mean Estimates: TORONTO-DOMINION BANK (C$) 2010E: $5.93; 2011E: $6.79
Changes Annual EPS Annual EPS Quarterly EPS 2011E $6.65 to $6.60 2011E $6.09 to $6.04 Q3/10E $1.41 to $1.39 Q4/10E $1.42 to $1.40
This report was prepared by an analyst(s) employ arch analyst(s) under FINRA rules. For disclosure statements, including
TD Bank
May 28, 2010 Research Comment Corporate Debt – Banks George Lazarevski, CFA (416) 359-7488 [email protected] Assoc: Gaurav Dhiman
Q2/10 Earnings: Positive Momentum on the Asset Quality Front
ed by BMO Nesbitt Burns Inc., and who is (are) not registered as a resethe Analyst's Certification, please refer to pages 6 to 7.
Event: TD Bank released Q2/10 results.
Impact: Neutral.
Key Points: Despite earnings falling short of consensus, we view
this as a solid quarter for TD Bank from a corporate debt
perspective. The Canadian P&C division reported another quarter of
record earnings, the U.S. retail segment exceeded our expectations
due to lower loan loss provisions coupled with improved margins
and asset quality trends showed some improvement in the quarter.
Specific loan loss provisions of $482 million came in below our
expectations of $550 million. The one weak spot in the quarter was
Wholesale, which experienced a quicker moderation in earnings
than we expected. Trading revenues were $402 million, which was
slightly below our expectations of $425 million. The Tier 1 capital
ratio improved in the quarter, up 50 bps to 12.0%.
Credit and Spread Implications
Near Term: We believe Canadian bank credit spreads will remain
volatile over the near term given the continued uncertainty of the
European sovereign debt crisis.
Medium Term: We remain cautious on Canadian bank credit over
the medium term given the lack of clarity of the European sovereign
debt crisis and the potential contagion to other markets.
Recommendation
The sovereign debt crisis in Europe has caused increased volatility
in Canadian bank spreads over the past quarter, as exhibited by the
60% widening in deposit note spreads in the quarter. As a result of
the uncertainty in Europe, we remain cautious on Canadian bank
credit and believe any extension of the confidence problems beyond
Europe would likely put additional pressure on bank credit spreads.
TD Bank remains one of our preferred credits among Canadian
large bank alternatives due to its strong domestic franchise and
robust capital position.
Toronto Dominion Bank Subordinated Debt Indicative Spreads
Sector Value: TD Bank trades the tightest among large Canadian
bank alternatives. The current spread differential between TD
credit and BMO credit looks attractive, at 9 bps, compared to
trading in line in the first quarter. We believe the spread widening
in BMO credit is overdone and should outperform relative to other
bank credit.
Credit Curve: YTD, average bank 2s-5s and the 5s-10s curves
have steepened by 8 bps and 2 bps, respectively, to 20 bps and 33
bps. We prefer the short end of the curve (5-year or less) given the
current uncertainty in the market.
DBRS S&P Moody’s
AA AA- Aaa
Stable Stable Negative
This report was prepared by an analyst(s) employed by BMO Nesbitt Burns Inc., and who is (are) not registered as a research analyst(s) under FINRA rules. For disclosure statements, including the Analyst's Certification, please refer to pages 6 to 7.
Energy - Oil & Gas
Industry Rating: Market Perform
May 28, 2010 Research Comment Calgary, Alberta Randy Ollenberger (403) 515-1502 Mark Leggett, CFA (403) 515-1508
Alberta Royalty Changes: Another Positive Surprise for the Cardium Players
The Government of Alberta finalized royalty curves, which has a minimal
impact. More importantly, several new incentive programs targeting
emerging resources and technologies were also announced, which we expect
will be positively received by industry and the market. Of these programs, we
believe the extension of the 5% initial royalty rate on horizontal oil and
natural gas drilling has the most immediate impact. Other incentives that
were announced included a 5% shale gas royalty rate incentive (over a period
of 36 months with no volume limit) and the adjustment of the Natural Gas
Deep Drilling Program (NGDDP) to include wells with a vertical depth of
2,000 metres (2,500 metres previously).
Summary
The Government of Alberta finalized royalty
curves as part of the follow-up to the Alberta
Competitiveness Review. More importantly,
several new incentive programs targeting
emerging resources and technologies were
also announced, which we expect will be
positively received by industry and the
market.
The extension of the 5% initial royalty rate on
horizontal oil drilling positively impacts our
NAV estimates for the Cardium players,
including Midway, Angle, Vero, Anderson,
PetroBakken and Crew. NuVista also
maintains Cardium acreage. Large Cap
Producers and Integrateds that benefit include
Canadian Natural, Husky, Cenovus and
Talisman.
We believe North American natural gas prices
will remain relatively weak and that the new
royalty incentive programs will likely further
stimulate additional natural gas drilling
activity in Alberta, which could contribute to
the oversupply and weak price environment.
We again expect the impact on equity prices
to be minimal for the natural gas-focused
producers, but positive for Cardium players.
For all new horizontal oil wells spud on or after May 1, 2010, the 5% front
end rate has been extended, depending on the measured depth of the well, to
apply to 50,000–100,000 boe of initial volumes over a time period of 18–48
production months (see Table 1 for details). This announcement positively
impacts our NAV estimates for the Cardium players, including Midway,
Angle, Vero, Anderson, PetroBakken and Crew (see Table 2). NuVista
also maintains Cardium acreage. Other unconventional oil plays that will
benefit include Angle’s Lone Pine oil play, Orleans’ Waskahigan oil play
and, to a lesser extent, Crew’s Princess play given significant freehold land.
On the natural gas side, the extension of the 5% royalty rate benefits lower-
impact plays given that the 0.5 Bcf volume limit was maintained. The shale
gas incentive is positive for Duvernay shale players including Celtic. We
note the shale gas incentive program does not include the Montney.
For the Large Cap Producers and Integrateds, the changes should provide a
modest benefit. In particular, Canadian Natural, Husky and, to a lesser
degree, Cenovus could benefit due to relatively larger proportion of
production and activity related to Alberta oil assets. Talisman could also see
a benefit given its exposure to Cardium oil and deep natural gas drilling.
We believe North American natural gas prices will remain relatively weak and
that the new royalty incentive programs will likely further stimulate additional
natural gas drilling activity in Alberta, which could contribute to the
oversupply and weak price environment. As such, we again expect the impact
on equity prices to be minimal for the natural gas-focused producers, but
positive for Cardium players.
This report was prepared by an analyst(s) employ d as a research analyst(s) under FINRA rules. For disclosure statements, including
Cenovus Energy (CVE-TSX; CVE-NYSE) Stock Rating: OutperformIndustry Rating: Market Perform
May 28, 2010 Research Comment Calgary, Alberta
Randy Ollenberger BMO Nesbitt Burns Inc. (403) 515-1502 [email protected] Assoc: Matthew Brink
Notes: All values in C$; EPS are diluted based on continuing operations; CFPS is diluted discretionary Major Shareholders: Widely Held First Call Mean Estimates: CENOVUS ENERGY INC (US$) 2010E: $1.56; 2011E: $1.77
Changes Annual EPS Annual CFPS Rating 2011E $1.79 to $1.82 2011E $3.87 to $3.91 Mkt to OP
This report was prepared by an analyst(s) employ d as a research analyst(s) under FINRA rules. For disclosure statements, including
ed by BMO Nesbitt Burns Inc., and who is (are) not registerethe Analyst's Certification, please refer to pages 4 to 7.
Event Paramount provided results of an updated resource evaluation on its Hoole oil
sands leases covering 48 sections (100% WI). The property is estimated to
contain roughly 634 MMbbl (best estimate case P50) of contingent bitumen
resources within the Grand Rapids formation, up from the initial evaluation of
458 MMbbl. The third-party evaluator assumes initial production of 25,000 b/d
in 2015 and fully developed production of 70,000 b/d in 2017 under the best
estimate case. Over the past six years, the company has drilled 59 oil sands
evaluation wells. Paramount expects to submit an application for the
commercial development of the Hoole Grand Rapids resource in 2011. We
have updated the contingent resource estimate in our sum-of-parts NAV
analysis. We estimate a value of $495 million (or $6.86 per share unrisked)
based on the updated best estimate contingent resource and a weighted average
transaction metric of $0.78/bbl for undeveloped SAGD projects since 2007. We
have risked this Hoole valuation (25%) in our sum-of-parts NAV, which implies
a risked value of $1.72 per share (up $0.60 from our previous estimate of
$1.11).
Impact
Slightly Positive.
Forecasts Our CFPS estimates of $1.28 in 2010 and $1.25 in 2011 are unchanged. Our
financial estimates are based on production forecasts of 13,667 boe/d in 2010
and 15,820 boe/d in 2011, which are also unchanged.
Valuation
Paramount currently trades at 2011E valuations of 9.7x P/CFPS and 13.8x
EV/EBITDA (excluding equity interests). Our target price is supported by our
updated sum-of-parts analysis of $18.56 (based on flat AECO $5.50/Mcf).
Recommendation
We continue to rate Paramount shares Market Perform.
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Last Data Point: May 26, 2010
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(FY-Dec.) 2008A 2009A 2010E 2011E CFPS $2.65 $0.90 $1.28 $1.25 P/CFPS 9.5x 9.7x EPS -$1.72 -$1.46 -$1.14 -$1.03 P/E na na CF/boe $35.66 $15.71 $20.65 $17.65 EV/EBITDA 5.9x 26.2x 14.1x 13.8x ROCE -12.0% -11.0% -15.0% -12.0% D/CF 0.4x 1.0x 1.8x 2.6x Quarterly CFPS Q1 Q2 Q3 Q4 2008A $0.36 $0.68 $0.60 $1.01 2009A $0.27 $0.21 $0.15 $0.30 2010E $0.30a $0.29 $0.34 $0.35 Dividend $0.00 Yield 0.0% Book Value $10.54 Price/Book 1.7x Shares O/S (mm) 72.2 Mkt. Cap ($mm) $1,261 Float O/S (mm) 37.5 Float Cap ($mm) $655 Wkly Vol (000s) 510 Wkly $ Vol (mm) $6.8 Net Debt ($mm) $162.8 Next Rep. Date Aug (E)
Notes: All values in C$; EPS (diluted), CFPS (diluted); P/CFPS ex. Paramount's per fd equity interests of $4.84 Major Shareholders: Insiders (>50%) First Call Mean Estimates: PARAMOUNT RESOURCES LTD (C$/CF) 2010E: na; 2011E: na
This report was prepared by an analyst(s) employed by BMO Nesbitt Burns Inc., and who is (are) not registered as a research analyst(s) under FINRA rules. For disclosure statements, including the Analyst's Certification, please refer to pages 7 to 8.
Energy - Royalty Trusts
Industry Rating: Market Perform
May 27, 2010 Research Comment Calgary, Alberta Gordon Tait, CFA (403) 515-1501 [email protected] Assoc : Chris Bolton, CFA/Peter Kranz, P. Eng.
Alberta Royalty Curves Finalized; Natural Gas Deep Drilling Program Expanded
The Government of Alberta finalized the new royalty curves for conventional
oil and gas production in the province. Changes to the royalty rates were
originally announced on March 11, 2010.
Summary
The Government of Alberta finalized the new
royalty curves for conventional oil and gas
production in the province. Changes to the
royalty rates were originally announced on
March 11, 2010.
The minimum required Total Vertical Depth
(TVD) to qualify for the Natural Gas Deep
Drilling Program was reduced to 2,000m from
2,500m. The Natural Gas Deep Drilling
Program will now pay $625 per metre for
each metre of a well drilled over 2,000m
TVD. Within our coverage universe, we
believe Peyto Energy Trust (Outperform)
has the greatest exposure to deep natural gas
drilling in Alberta.
Overall, the changes were largely as expected.
Consequently, we are leaving estimates,
ratings and target prices unchanged. We have
Outperform ratings on ARC, Baytex,
Bonavista, NAL Oil & Gas, Peyto,
Pengrowth and Vermilion. We are currently
restricted on Crescent Point.
The Government also unveiled the Emerging Resources and Technologies
Initiative (ERTI) to “accelerate new technologies to encourage development
of Alberta’s vast unconventional and deep resource pools”. Most notably, the
minimum required Total Vertical Depth (TVD) to qualify for the Natural Gas
Deep Drilling Program was reduced to 2,000m from 2,500m. The Natural Gas
Deep Drilling Program will now pay $625 per metre for each metre of a well
drilled over 2,000m TVD. For example, the majority of Cardium natural gas
wells in Alberta average TVD of approximately 2,200m. Under the changes,
the drilling program will give producers approximately $125,000 for each new
Cardium well drilled (200 metres over 2,000 metres x $625 per metre). Within
our coverage universe, we believe Peyto Energy Trust (Outperform) has the
greatest exposure to deep natural gas drilling in Alberta.
The ERTI also contains incentives designed to encourage horizontal oil and
natural gas drilling, coalbed methane development and shale gas development.
Most of these initiatives were previously announced, but in some cases the
applicable time period has been extended, which we view as slightly positive.
For more details on the changes, please see the comment published
concurrently by BMO Capital Markets Oil & Gas Producers research team.
Overall, the changes were largely as expected. Consequently, our estimates,
ratings and target prices remain unchanged. We have Outperform ratings on
ARC, Baytex, Bonavista, NAL Oil & Gas, Peyto, Pengrowth and
Vermilion. We are currently restricted on Crescent Point.
This report was prepared in part by analysts emplo bitt Burns Inc., and a UK affiliate, BMO Capital Markets Ltd., authorised and regulated by the Financial Ser ho are not registered as research analysts under FINRA rules. For disclosure statements, including the Analys to 28
Mining & Commodity Roundup
May 27, 2010 Research Comment Bart Melek BMO Nesbitt Burns Inc. (Canada) (416) 359-4906 [email protected] Assoc: Lucas Litwiniuk, CFA
Biggest Commodity Movers
yed by a Canadian affiliavices Authority in the UK
t's Certification, please refer
te, BMO Nes, and wto pages 27
Biggest Stock Movers
Source: Bloomberg, BMO Capital Markets
Meredith Bandy, BMO Capital Markets Corp. (U.S.) (303) 436-1113 Andrew Breichmanas, BMO Nesbitt Burns Inc. (Canada) (416) 359-8387 David Cotterell, BMO Capital Markets Ltd. (U.K.) 44 (0)20 7246 5430 David Haughton, BMO Nesbitt Burns Inc. (Canada) (416) 359-4052 John Hayes, BMO Nesbitt Burns Inc. (Canada) (416) 359-6189
Andrew Kaip, BMO Nesbitt Burns Inc. (Canada) (416) 359-7224 David Radclyffe, BMO Capital Markets Ltd. (U.K.) 44 (0)20 7246 5433 Tony Robson, BMO Nesbitt Burns Inc. (Canada) (416) 359-4034 Edward Sterck, BMO Capital Markets Ltd. (U.K.)(44) (0)20 7246 5421 Data/Project Management: Simona Cheoreanu
This report was prepared by an analyst(s) employ d as a research analyst(s) under FINRA rules. For disclosure statements, including
Legend International Holdings (LGDI-NASDAQB) Stock Rating: Outperform(S)Industry Rating: Outperform
May 27, 2010 Research Comment Toronto, Ontario
Joel Jackson, P.Eng., CFA BMO Nesbitt Burns Inc. (416) 359-4250 [email protected]
Price (26-May) $0.99 52-Week High $1.60 Target Price na 52-Week Low $0.57
Still Waiting for Wengfu
ed by BMO Nesbitt Burns Inc., and who is (are) not registerethe Analyst's Certification, please refer to pages 4 to 6.
-0.20
-0.15
-0.10
-0.05
Legend Int'l Holdings Inc. (LGDI)Price: High,Low,Close Earnings/Share
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Event We have revised our model following recent announcements from LGDI, and
LGDI’s presentation at the BMO CM Ag, Protein and Fertilizer conference.
Impact
Neutral.
Forecasts China’s Wengfu is completing a feasibility study focusing on the viability of
phosphoric acid manufacture at LGDI’s Queensland phosphate development
using washed phosphate rock from LGDI’s Paradise North asset. With results
from the study due in late June, the scenario is unconstrained, so we maintain a
phosphate rock-only forecast for now (sales ramp to 4 million tonnes by 2020).
Valuation Factoring in current FX rates and revised cost estimates, our 10% rock-only
NAVPS is $1.25 at $130/t fob long-term rock prices (high end of current spot
prices). A Wengfu phosphoric acid scenario could lead to a higher valuation
for LGDI, depending on a future deal, which, by no means, is certain.
Recommendation We maintain our Outperform (Speculative) rating. LGDI has a long-term
potential to become a phosphoric acid or phosphate fertilizer producer in
conjunction with Wengfu and/or a de facto integrated phosphate rock source
for India’s IFFCO. Execution as well as commitment from one or both of these
parties are key. The Queensland phosphate project schedule is expected to be
based on Wengfu’s feasibility study recommendation, and Wengfu’s support
may be imperative for any project scenario to materialize.
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(FY-Dec.) 2008A 2009A 2010E 2011E EPS -$0.09 -$0.17 -$0.13 -$0.07P/E na na CFPS -$0.08 -$0.13 -$0.12 -$0.03P/CFPS na na Rev. ($mm) A$0 A$0 A$0 A$60 EBITDA ($mm) -A$23 -A$40 -A$33 -A$13 Quarterly EPS Q1 Q2 Q3 Q4 2008A -$0.02 -$0.02 -$0.02 -$0.03 2009A -$0.03 -$0.03 -$0.05 -$0.05 2010E -$0.05a -$0.04 -$0.03 -$0.02 Dividend $0.00 Yield 0.0% Book Value $0.38 Price/Book 2.6x Shares O/S (mm) 226.3 Mkt. Cap (US$mm) $224 Float O/S (mm) 130.0 Float Cap (US$mm) $129 Wkly Vol (000s) 1,706 Wkly $ Vol (USmm) $1.5 Net Debt ($mm) -$57.8 Next Rep. Date Aug (E)
Notes: Share price, target price and market capitalization in US$, all other values in A$; (S) in rating denotes Speculative Major Shareholders: Renika Pty Ltd. (22%), IFFCO (15%), Atticus Capital (14%), Soros Fund Management (10%), Chabad House (9%)First Call Mean Estimates: Not Available
Changes Annual EPS Annual CFPS 2011E -A$0.11 to -A$0.07 2011E -A$0.07 to -A$0.03
This report was prepared by an analyst(s) employ d as a research analyst(s) under FINRA rules. For disclosure statements, including
Potash One (KCL-TSX) Stock Rating: Outperform(S)Industry Rating: Outperform
May 27, 2010 Research Comment Toronto, Ontario
Joel Jackson, P.Eng., CFA BMO Nesbitt Burns Inc. (416) 359-4250 [email protected]
capex, our NAV rises 13% after assuming a larger initial mine, but our NAVPS
falls 14% due to greater upfront financing needs and associated dilution.
Recommendation With feasibility relatively imminent, KCL is the most advanced Saskatchewan
potash developer with all-inclusive feasibility capex/tonne estimates tracking
lower than some incumbent producer brownfield expansions. Procurement of
considerable project financing in 2010 remains KCL’s key catalyst. We
maintain our Outperform (S) rating but lower our target price to $3.50 from
$4.00.
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Dividend $0.00 Yield 0.0% Book Value $1.07 Price/Book 2.1x Shares O/S (mm) 80.8 Mkt. Cap ($mm) $183 Float O/S (mm) 79.6 Float Cap ($mm) $181 Wkly Vol (000s) 4,471 Wkly $ Vol (mm) $12.9 Net Debt ($mm) -$35.3 Next Rep. Date Jun (E)
Notes: All values in C$; (S) in rating denotes Speculative Major Shareholders: Widely held First Call Mean Estimates: POTASH ONE INC (C$) 2010E: -$0.09; 2011E: -$0.01
Notes: Share price, target price and capitalization in C$, all other values in US$ Major Shareholders: Stonehill Capital (9.0%), T. Rowe Price (8.9%) First Call Mean Estimates: ZARLINK SEMICONDUCTOR INC (US$) 2010E: $0.07; 2011E: $0.18; 2012E: $0.25
Changes Annual EPS Annual CFPS Quarterly EPS 2012E $0.31 to $0.34 2011E $0.28 to $0.27 Q1/11E $0.06 to $0.05 2012E $0.33 to $0.34 Q2/11E $0.07 to $0.06 Q3/11E $0.06 to $0.07 Q4/11E $0.06 to $0.07
Abstain) that the overall risk-benefit assessment of Egrifa (tesamorelin)
supports its approval for the treatment of excess abdominal fat in HIV-
infected patients with lipodystrophy.
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THERATECHNOLOGIES INC (TH)Price: High,Low,Close(US$) Relative to S& P 500
0
2
4
6
8
10
12
14
Analysis Although we expected a positive vote, we did not expect that it would beunanimous. The panel agreed that the Phase III trials clearly met the primaryendpoint (decreasing Visceral Adipose Tissue or VAT) for the proposed indication and that was the primary reason for the unanimous positive vote.On the safety side, as we expected, the panel mostly downplayed the risk ofdiabetes as small and manageable, but certainly worth studying in follow-up trials/patient registry. Some even argued against excluding diabetes patientsin the final label because they believe physicians could manage the risk. All panel members were understandably skeptical about the relationship betweenVAT and cardiovascular (CV) benefit and asked for more data to examine this relationship. Interestingly, most of panel acknowledged thatlipohypertrophy is a serious problem from the patients’ perspective (thanks in part to patient testimonials) and that the magnitude of the benefit mayhave not been adequately captured in the trials. With a unanimous vote, theprobability of FDA approval of Egrifa is now significantly higher, pendingnegotiations on final label, risk management, and post marketingcommitments between the company and the FDA.
Balance Sheet Data (02/26/10) Net Debt ($mm) -$70 TotalDebt/EBITDA nm Total Debt ($mm) $0 EBITDA/IntExp na Net Debt/Cap. nm Price/Book 4.5x Notes: All values in US$.
Source: BMO Capital Markets estimates, Bloomberg, FactSet, Global Insight, Reuters, and Thomson Financial.
Forecasts We expect the FDA to approve Egrifa either on July 27, 2010, or with a few months delay pending upcoming negotiations with the company.
Valuation We value TH shares at $8/share using our portfolio valuation model.
Recommendation We maintain our OUTPERFORM(S) rating on TH shares.
efer to pages 8 to 10 for Important Disclosures, in
Market Elements May 27, 2010 Research Comment Quantitative/Technical Research Mark Steele (416) 359-4641 [email protected] Assoc: Tiberiu Stoichita/Rahul Muralidhar
Equity markets rebounded en masse; every Global, U.S. and European economic sector rose at least 1%.
Flight to quality bonds sold off; Italy (a non-safe haven), part of the PIIGS, was the key mover to the downside; Western European sovereign and European financial default risk measures churned.
Commodity currencies led a broad-based rebound against the dollar and yen; yen carry trade implied volatility fell to 20%, off of the peak of 25% five sessions ago.
Commodities rose across the board; crude oil has had the largest two-day rebound (8.4%) since the December 2008 bottom.
Levels* Currencies (USD per) Commodities Government 10- Yr Benchmark Equity Indices & Sentiment
Symbol H/L Level %Chg Symbol H/L Level %Chg Symbol H/L Level Chg Symbol H/L Level %ChgDXY 86.29 -1.0% 0.17
0.12 0.06 0.05
-1.2% 0.070.08
0.03
0.010.06
0.060.02
0.000.04
DJ UBS 126.65 1.9% U.S. 3.36 S&P 1200 1,219 3.4%EUR 1.2363 1.5% WTI Oil 74.85 4.7% Canada 3.38 S&P 500 1,103 3.3%CHF 0.8688 0.8% NMX Gas 4.32 4.0% Germany 2.70 S&P/TSX 11,749 1.8%GBP 1.4578 1.3% Gold 1,212.5 0.1% France 2.96 Euro STOXX 2,619 3.5%JPYx10 0.1098 Silver 18.52 2.5% Switzerland 1.56 FTSE 100 5,195 3.1%CAD 0.9539 2.2% Platinum 1,562.5 2.8% Italy 4.10 Hang Seng 19,431 1.2%AUD 0.8514 3.6% Palladium 463.5 5.6% Spain 4.23 Topix 870 1.3%NZD 0.6837 3.1% CMX Cu 316.35 3.0% Greece 7.70 S&P/ASX 4,379 1.7%BRL 0.5510 3.0% LME Al 3m 0.94 2.5% U.K. 3.61 Shang/Shen 2,860 1.6%MXNx10 0.7804 2.3% LME Ni 3m 9.89 3.2% Australia 5.39 Sensex30 16,666 1.7%ZAR 0.1322 2.7% LME Zn 3m 0.88 2.6% Hong Kong 2.42 CDX IG 5Yr 119.19 -5.8%KRWx10 0.8271 2.6% Lumber 228.50 1.6% India 7.49 TRIN 0.33 -75%SGD 0.7139 0.7% Corn 373.25 0.5% Japan 1.26 VIX 29.68 -15.2%
Moves Currencies (spot) Commodities Government 10- Yr Benchmarks Equity Indices
India
Greece
Hong Kong
Spain
Japan
France
U.K.
Germany
Australia
Sw itzerland
Italy
Canada
U.S.
0.0% 2.0% 4.0% 6.0%
Gold
Corn
Lumber
DJ UBS
Silver
LME Al 3m
LME Zn 3m
Platinum
CMX Cu
LME Ni 3m
NMX Gas
WTI Oil
Palladium
This report was prepared in part by an analyst(s) employed by BMO Nesbitt Burns Inc., and who is (are) not registered as a research analyst(s) under FINRA rules. For disclosure statements, including the Analyst's Certification, please refer to pages 9 to 10.
2.0% 0.0% 2.0% 4.0%
JPY
SGD
CHF
GBP
EUR
CAD
MXN
KRW
ZAR
BRL
NZD
AUD
0.0% 1.0% 2.0% 3.0% 4.0%
Hang Seng
Topix
Shang/Shen
S&P/ASX
Sensex30
S&P/TSX
FTSE 100
S&P 500
S&P 1200
Euro STOXX
0.000.050.100.150.20
Sectors S&P Global 1200 S&P Europe 350 S&P 500 S&P/TSX Composite
0.0% 1.0% 2.0% 3.0% 4.0% 5.0%
Hlth Care
Cons Stap
Utilities
Telecom
Cons Disc
Info Tech
Industrials
Financials
Materials
Energy
0.0% 1.0% 2.0% 3.0% 4.0% 5.0%
Hlth Care
Cons Stap
Utilities
Telecom
Industrials
Cons Disc
Info Tech
Materials
Energy
Financials
0.0% 1.0% 2.0% 3.0% 4.0%
Info Tech
Hlth Care
Cons Stap
Telecom
Cons Disc
Utilities
Industrials
Materials
Energy
Financials
0.0% 1.0% 2.0% 3.0% 4.0%
Financials
Hlth Care
Industrials
Cons Disc
Cons Stap
Telecom
Utilities
Info Tech
Materials
Energy
Source for all data and graphics in this publication: BMO Capital Markets, Bloomberg, Thomson * H/L = at a new closing 52- wk High/Low; / = within 10% of the 52- week High/Low; Colour codes are inverted for bond and sentiment indications
Relative Strength Filter May 28, 2010 Research Comment Quantitative/Technical Research
Mark Steele (416) 359-4641 [email protected] Assoc: Tiberiu Stoichita/Rahul Muralidhar
Asia Credit Watch
Close attention is to be paid to China and Asia.
o Currency.
o Default risk.
o Fit to euro woe.
This month, a basket of Asian sovereign default risk started trading: iTraxx SovX Asia Pacific.
o Our stripped down and more focused version is an easier to remember “AsiaDoom.”
Figure 1: Asia Credit Watch at 6:50 a.m. This Morning
Source: BMO Capital Markets, Bloomberg, Thomson, Markit
This report was prepared in part by an analyst(s) employed by BMO Nesbitt Burns Inc., and who is (are) not registered as a research analyst(s) under FINRA rules. For disclosure statements, including the Analyst's Certification, please refer to pages 2 to 3.
Overnight action… U.S. equity futures point to a modestly higher open after yesterday’s blistering rally that saw the S&P 500 gain 3.3%. Volatility has returned in a big way with the VIX hitting its highest level since the March-2009 bottom in recent days, leaving the S&P 500 down 7% with one more trading day left in the month—this year, selling in May was indeed the right play. Despite yesterday’s strength, both the S&P 500 and the Dow remain stuck just below their 200-day moving averages, so follow through today and into next week will be important from a technical perspective. Meantime, commodity prices are holding firm with oil sitting above $75 and the euro continues to rebound off its Wednesday low, helping the overall risk appetite. Today’s data… Personal income and spending (8:30 am) likely rose 0.4% and 0.2%, respectively, in April. Income remains 1% below pre-recession levels, while spending has more than recouped its decline. As a result, the savings rate has fallen from a peak of 6.4% in May-2009 to 2.7% in March, but likely ticked up to about 3% in April. Core PCE prices likely inched up 0.1% in the in the month, which would pull the annual rate down to 1.1%, the slowest pace since 1963—more reason for inflation concerns to stay on the back burner. Later in the morning, we’ll get the Chicago PMI (9:45 am), which likely slipped to 62 in May from 63.8 in the prior month. Also, the final revision of the University of Michigan Consumer Sentiment Index (10:00 am) should come in at 73 for May, down slightly from the preliminary reading, but still up form last month’s 72.2 level and comfortably above the low of 65.7 set in August-2009. From the headlines… Debt Worries Stall Benefits Bill… “Sprawling legislation that would extend jobless benefits, revive an array of business tax cuts and impose a new levy on hedge-fund executives faltered in the House on Thursday after fiscally conservative Democrats voiced concern the bill would dig the nation deeper into debt.” Wall Street Journal, (Link to Article) Busy Hurricane Season Seen for the Atlantic… “The coming Atlantic hurricane season could be one of the busiest on record, with the possibility of the next six months bringing nearly as many hurricanes as in 2005, when Hurricane Katrina pummeled the Gulf coast, federal forecasters said Thursday.” Wall Street Journal, (Link to Article)
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