focus août 2012 en
Post on 20-Jun-2015
2.058 Views
Preview:
DESCRIPTION
TRANSCRIPT
retail strategy
Volume 23, N°8, august 2012
eDItoRIal ed sollbach, CFAPortFolio StrAtegy And QuAntitAtive reSeArCh AnAlySt
F CuS
Please see the last Page of thIs DocumeNt foR comPaNy sPecIfIc DIsclosuRes.
Continued on PAge 2
message fRom the geNeRal maNageRbruno desmaraisviCe-PreSident And generAl MAnAger Full ServiCe BrokerAge EuropE
The outline of a comprehensive pan-
European banking union, similar to what
we have in Canada and the US, was finally
announced at the end of June.
Although Europe has made some progress
over the last month, policy makers are
still not moving fast enough to deal with
serious bank and sovereign debt problems.
Infighting among the 17 member nations
has prevented concrete details from
emerging as much as a month after the
21st emergency eurozone summit. This
means it will likely take months before the
much needed reforms are put in place.
Hence, eurozone worries, centred on Spain
and Greece especially, will likely continue to
overhang the markets. Spain is in the difficult
position of having to cut unsustainable deficits
while also raising 100 billion euros to bail out
its banks. At the end of July, 10-year Spanish
bond yields spiked through 7.5%, a level at
which it becomes increasingly difficult for any
government to borrow in the debt markets.
This situation highlights the urgent need for a
banking union where all EU nations share the
burden of backstopping the banks.
Greece continues to struggle with its
austerity program, risking the International
Monetary Fund aid payments needed to
avoid a debt default that could lead to its
quick exit from the eurozone. However,
the EU will likely avoid a disastrous break-
up. The all-powerful European Central
Bank (ECB) President Mario Draghi said on
July 26, “the ECB is ready to do whatever it
takes to preserve the euro. And believe me,
it will be enough”.
ChinaChina’s GDP growth slowed to 7.6% year-
over-year in the second quarter from 8.1% in
the first quarter. However, the strong increase
in lending activity in June suggests that its
growth should bottom this summer, then
rebound as borrowed money is put to work.
unitEd StatESThe US economy has also slowed in
2012, making the historically high US
unemployment rate of 8.1% the main
issue in the November presidential election.
Ben Bernanke confirmed that the Federal
Reserve (Fed) “is prepared to take further
action” to bring down this number. If US jobs
growth continues to be weak, we believe
the Fed will roll out a third quantitative
easing program in September in the form of
mortgage debt purchases. This would drive
mortgage rates even lower than the current
record lows of 3.6%.
“Stocks have shown resilience over the last month because they have become
very cheap vs bonds, their competing asset class.“
Someone you can count on!
The international situation has been
problematic for several months now,
with Greece in a downward spiral, Italy
on the brink, and now Spain joining
the ranks of too many European
countries in serious financial difficulty.
Hardly a cheerful picture, especially
when you consider the problems we’re
experiencing at the provincial level,
particularly the impasse our government
finds itself in following its negotiations
with the student associations. Although
it’s hard to be optimistic, there are some
encouraging signs, so we mustn’t give
up hope. Certainly not.
Now more than ever, your Investment
Advisor is the person who can answer
your questions, ease your concerns
and, especially, reassess and align your
investment strategies so that they take
into account your investor profile and
current economic conditions.
Enjoy the rest of the summer!
EDITORIAL (continued) REcOmmEnDATIOns
PRIC
E ($
)PR
ICE
(US$
) Vo
lUm
E (m
) Vo
lUm
E (m
)
BOMBARdIER INC.
YAMANA GOld INC.
0204060
3
4
5
6
7
Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
It is record-low mortgage rates that are
spurring the emerging recovery in US
housing after a five-year depression. Prices
have increased 7.9% year-over-year, the
largest gain since 2005, which eases the
burden of struggling US consumers and
makes banks more profitable as there are
fewer defaults on mortgages.
Over the past month, US bond yields have
fallen 20 basis points (bps) to a record low
as capital continues to flee Europe. More
importantly, with a continuing “need for
yield” from investors, corporate bond
yields have fallen even more, plunging
30 bps this month to new record lows. All
companies with debt are benefiting from
corporate borrowing costs that are down
136 bps (25%) from last year, but the
biggest beneficiaries are stable companies
with high debt levels such as REITS, utilities
and telecoms that can continue to refinance
debt at significantly lower rates.
rElativE yiEldSAt the time of writing, there is a positive
spread of 75 bps between record-low
US bond yields of 1.40% and the S&P 500
yield of 2.15%, a situation only seen for a
few days in December 2008 and January
2009 when dividends were being slashed. In
contrast, dividends are now up an attractive
15% year-over-year.
North of the border, 10-year government
bond yields have fallen to a record low of
1.58% with the global slowdown while the
TSX currently yields ~3.15%. The TSX–bond
spread is now over 150 bps, the biggest
spread since World War II. Of note, 67%
of TSX companies and 81% of TSX market
capitalization now yield more than 10-year
Canadian government bonds.
Contrarian analySiSDespite record-high bond prices (low yields),
strategists in general have increased their
bond allocation to record highs. Likewise,
despite cheap valuations, equity funds also
have a record allocation to cash. In both
cases, previous record allocations occurred
at or near stock market bottoms.
Contrarian investing suggests going against
prevailing market trends and sentiment,
particularly when these hit multi-year
extreme levels. Thus, we believe stocks will
rise as negative sentiment and funds flows
turn more positive toward stocks, while
record-high bond valuations (with record-
low yields) are at risk given extremely
positive sentiment toward bonds after a
32-year bond bull market.
invEStmEnt StratEgy Stocks have shown resilience over the last
month because they have become very
cheap vs bonds, their competing asset
class. We continue to advocate owning a
core portfolio composed mainly of high-
yielding stocks—REITs, utilities, telecoms
and pipelines—to which we recommend
adding a smaller but riskier component
comprised of growing companies (pref-
erably with a dividend yield greater than
2% to provide protection) in the financial,
technology, industrial, consumer discretion-
ary, transportation and gold sectors. Also,
we have become more positive on the oil
& gas and oil & gas services sectors as we
believe oil prices have probably bottomed at
US$79 per barrel. n
010203012
14
16
18
20
Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
RATING BUY–ABOVE-AVERAGE RISKTarget $6.00Symbol BBD.BSector Transportation & AerospaceRecent price $3.83Total potential return 57%52-week range $3.30–6.42Market cap $6,603mYear-end Dec-31Adjusted EPS 2012E US$0.36 2013E US$0.52P/E 2012E 10.6x 2013E 7.4xDividend yield 2.6%
Sources: Desjardins Securities, company reports, Bloomberg
RATING BUY–ABOVE-AVERAGE RISKTarget US$22.00Symbol AUY, YRIExchange NYSE, TSXSector GoldRecent price US$14.07, $14.30Total potential return 59%52-week range US$12.35–18.16Market cap US$10,496mYear-end Dec-31Reserves 18.6m ozsResources 23.9m ozsAdjusted EPS1 2012E US$1.35CFPS2 2012E US$1.86Dividend yield 2.6%
1 From continuing operations 2 Before changes in working capitalSources: Desjardins Securities, company reports, Bloomberg
3
Recommendations
Volume 23, n°8, august 2012 2-3
Sources: Desjardins Securities, company reports, Bloomberg
BOMBARdIER INC.
YAMANA GOld INC.
n Bombardier outpacing Embraer and atr on the regional
aircraft order front so far in 2012
n transportation division provides a support level of ~uS$3.50/share
n attractive dividend yield of 2.6%
Bombardier (BBD) is an international, diversified manufacturing com-
pany that operates within two segments, Aerospace and Transportation.
In contrast to poor booking activity last year, Bombardier Aerospace post-
ed a solid first half of the year in 2012 as its recent marketing campaigns
(Nordic Aviation Capital, WestJet, NetJets) are starting to pay off. The back-
log is now much sounder and we estimate it is meeting management’s
guidance for four out of five aircraft families (vs one out of five at the end of
2011). In our view, this is very positive as it provides strong revenue visibility.
Moreover, we believe momentum in Aerospace will continue to build,
given BBD’s strong booking activity as additional marketing campaigns are
scheduled in the US (Delta, SkyWest, US Airways, American Airlines). Most
of the orders should be placed in 2013 (unlikely this year) and will depend
on airline negotiations with labour unions in connection with the right to
operate larger regional jets and on the ability to secure financing.
Positive news on the development of the CSeries aircraft is a key cata-
lyst, in our view. Bombardier continues to aim for first flight in late 2012
and entry into service in 2013, whereas we believe the market is already
pricing in a delay of six months (the flight control system is the main
concern).
Operations in the Transportation division continue to perform well and,
based on our calculations, provide a support level of ~US$3.50/share—
which should significantly reduce downside risk for the shares. Booking
activity remains solid and there is a strong pipeline of opportunities;
management remains committed to achieving EBIT margins of 8.0% in
2013 (we forecast 7.8%).
Given the aforementioned factors, we maintain a constructive view
on Bombardier. At current levels, we believe the stock offers an at-
tractive value for investors and dividend yield of 2.6%.
We rate Bombardier Buy–Above-average Risk with a $6/share target,
which is derived from an average of four valuation methods and
includes a value of US$1.20/share for the CSeries program.
n Forecast cash costs of uS$485/oz gEo in 2012 below the
industry average
n Expected production increase of 27% year-over-year in 2013
with the start-up of new operations
n proposed acquisition of Extorre’s 2.4m oz Cerro moro project
should provide further production growth in 2015–16
Yamana Gold Inc. is a Canadian-based gold producer focused on
Latin America, with significant production, development and ex-
ploration properties, and land positions in Brazil, Chile, Argentina,
Mexico and Colombia.
The company’s key assets include the El Peñón, Gualcamayo and
Chapada mines, which provide the bulk of 2012 production of
1.21m ozs GEO (gold-equivalent ounces). Furthermore, produc-
tion recently commenced at the Mercedes mine in Mexico at a rate
of 120,000ozs GEO per year. The company is considering increas-
ing throughput, which it expects will allow production to surpass
130,000ozs GEO per year in 2013.
Yamana also operates the Chapada copper-gold mine in Brazil, with
annual production of 145-150m lbs of copper, and holds a 12.5%
equity interest in the Alumbrera copper-gold mine in Argentina.
With these assets, the company is poised to benefit from a
potential increase in copper prices in the event of a global
economic recovery.
Thanks to its portfolio of stable or growing operations and its focus
on organic growth, the company has outperformed many of its
peers during the recent economic turmoil. With a diversified asset
base and significant near-term production growth, Yamana is cur-
rently our preferred large capitalization gold producer.
Our net asset value for Yamana is US$14.88/share. Our target price
of US$22.00/share is derived by applying operational multiples of
1.6x to El Peñón and Chapada, 1.4x to the remaining mines and
1.3x to the development assets.
BENOIT POIRIER, CFA, ANALYST
BRIAN ChRISTIE, ANALYST
DesjarDins securities top 25
Volume 23, n°8, august 2012 4
DESJARDINS SECURITIES INC. LEGAL DISCLAIMERSFor company specific disclosures, analyst certification and legal disclaimer,
please visit http://www.desjardins-securities.ca/Disclosures/English.aspx or send request to Desjardins Securities Inc., 1170 Peel Street, Suite 300, Montreal, Quebec H3B 0A9, Attention : Research
Dissemination of Research
Desjardins Securities makes all reasonable effort to provide research simultaneously to all eligible clients. Research is available to our institutional clients via FirstCall Research Direct, Multex and Bloomberg. In addition, sales personnel distribute research to institutional clients via email, fax and regular mail.
Analyst Certification
Each Desjardins Securities research analyst named on the front page of this research publication, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst’s personal views about the company and securities that are the subject of this publication and all other companies and securities mentioned in this publication that are covered by such research analyst, and (ii) no part of the research analyst’scompensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this publication.
Additional Disclosures
Desjardins Securities’ equity research analysts are compensated from revenues generated by various Desjardins Securities businesses, including Desjardins Securities’ Investment Banking Department. Desjardins Securities may have a long or short position or trade as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. The reader should not rely solely on this publication in evaluating whether or not to buy or sell the securities of the subject company. Desjardins Securities expects to receive or will seek compensation for investment banking services within the next three months from all issuers covered by Desjardins Securities Research.
Legal Matters
This publication is issued and approved for distribution in Canada by Desjardins Securities Inc., a member of the Investment Industry Regulatory Organization of Canada (IIROC) and a member of the Canadian Investor Protection Fund (CIPF). In the US, this publication is issued via the exemptive relief described in SEC Rule 15a-6, and through reliance on Desjardins Securities International Inc., a member of FINRA and SIPC.
This publication is provided for informational purposes only, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this publication may not be suitable for all types of investors; their prices, value and/or income they produce may fluctuate and/or be adversely affected by exchange rates. This publication does not take into account the investment objectives,
financial situation or specific needs of any particular client of Desjardins Securities. Before making an investment decision on the basis of any recommendation made in this publication, the recipient should consider whether such recommendation is appropriate, given the recipient’s particular investment needs, objectives and financial circumstances. Desjardins Securities suggests that, prior to acting on any of the recommendations herein, you contact one of our client advisors in your jurisdiction to discuss your particular circumstances. Since the levels and bases of taxation can change, any reference in this publication to the impact of taxation should not be construed as offering tax advice; as with any transaction having potential tax implications, clients should consult with their own tax advisors. Past performance is not a guarantee of future results.
This publication may contain statistical data cited from third party sources believed to be reliable, but Desjardins Securities does not represent that any such third party statistical information is accurate or com-plete, and it should not be relied upon as such. All estimates, opinions and recommendations expressed herein constitute judgments as of the date of this publication and are subject to change without notice.
US institutional customers: Desjardins Securities International Inc. (a wholly owned subsidiary of Desjardins Securities Inc.) accepts responsibility for the contents of this report subject to the terms and limitations set out above. Institutions receiving this report should effect transactions in securities in the report through Desjardins Securities International Inc., an institutional broker/dealer registered with FINRA and the US Securities and Exchange Commission.
Although each company issuing this publication is a wholly owned subsidiary of Desjardins Group, each is solely responsible for its contractual obligations and commitments, and any securities products offered or recommended to or purchased or sold in any client accounts (i) will not be insured by the Federal Deposit Insurance Corporation (“FDIC”), the Canada Deposit Insurance Corporation or other similar deposit insurance, (ii) will not be considered a deposit or an obligation of Desjardins Group, (iii) will not be endorsed or guaranteed by Desjardins Group, and (iv) will be subject to investment risks, including possible loss of the principal invested.
The Desjardins trademark is used under licence.
© 2012 Desjardins Securities Inc. All rights reserved. Unauthorized use, distribution, duplication or disclosure without the prior written permission of Desjardins Securities is prohibited by law and may result in prosecution.
NOTE: All information (including prices and returns) as at July 23, 2012
Desjardins Securities1170 Peel Street, Suite 300, Montreal, Quebec H3B 0A9 514-987-1749 1-888-987-1749
COMPANY TICKER RATING & RISK TARGET PRICE ($) MARKET CAP (M$)
Toronto-Dominion Bank (The) TD Top Pick–Average 97.50 71,990Bank of Nova Scotia (The) BNS Top Pick–Average 65.00 58,690Brookfield Asset Management Inc. BAM Top Pick–Average US$40.00 US$20,565TransForce Inc. TFI Top Pick–Average 22.00 1,596Algonquin Power & Utilities Corp. AQN Top Pick–Average 7.75 1,095Royal Bank of Canada RY Buy–Average 66.50 74,432Potash Corporation of Saskatchewan Inc. POT Buy–Average 58.00 39,171Canadian National Railway Company CNR Buy–Average 88.00 37,967Enbridge Inc. ENB Buy–Average 43.00 32,767BCE Inc. BCE Buy–Average 43.20 32,075Teck Resources Limited TCK.B Buy–Average 52.45 17,482Yamana Gold Inc. AUY Buy–Above-average US$22.00 US$10,496Cameco Corporation CCO Buy–Average 33.75 8,847First Quantum Minerals Ltd. FM Buy–Above-average 28.00 8,240Tim Hortons Inc. THI Buy–Average 60.00 8,205Bombardier Inc. BBD.B Buy–Above-average 6.00 6,603CGI Group Inc. GIB.A Buy–Above-average 27.00 6,164SNC-Lavalin Group Inc. SNC Buy–Above-average 54.00 5,780Metro Inc. MRU Buy–Average 59.00 5,319Baytex Energy Corp. BTE Buy–Average 68.00 5,068Vermilion Energy Inc. VET Buy–Average 59.00 4,596Dundee Real Estate Investment Trust D.UN Buy–Average 39.00 3,898Finning International Inc. FTT Buy–Average 33.00 3,865CAE Inc. CAE Buy–Average 14.00 2,610PetroBakken Energy Ltd. PBN Buy–Average 21.00 2,247Source: Desjardins Securities Portfolio Advisory Group in collaboration with Research analysts.
top related