new veritas investment research - - viewpoint · 2018. 8. 22. · cogeco cable inc. 47 ....

July 28, 2017

VIEWPOINT

WEEK ENDING JULY 27, 2017

W e e k l y R a t i n g P a g e s f o r

V e r i t a s C o v e r a g e U n i v e r s e

SUMMARY PAGES 3-11

V-LIST 12

WATCHLIST 13

RATING PAGES 14-105

Viewpoint July 28, 2017

CGI Group Inc. 45

Choice Properties REIT 46

Cogeco Cable Inc. 47

Constellation Software Inc. 48

Crescent Point Energy Corp. 49

Crombie REIT 50

CT Real Estate Investment Trust 51

Dollarama Inc. 52

ECN Capital Corp. 53

Element Fleet Management 54

Eldorado Gold Corp. 55

Emera Inc. 56

Empire Company Ltd. 57

Enbridge Inc. 58

Encana Corp. 59

Enerplus Corp. 60

Fortis Inc. 61

George Weston Ltd. 62

Goldcorp Inc. 63

Granite REIT 64

Home Capital Group Inc. 65

Hudson’s Bay Company 66

Husky Energy Inc. 67

Hydro One Ltd. 68

IAMGOLD Corp. 69

IMAX Corp. 70

Imperial Oil Ltd. 71

Kinross Gold Corp. 72

Linamar Corp. 73

Loblaw Companies Ltd. 74

MacDonald Dettwiler & Associates Ltd. 75

Agnico-Eagle Mines Ltd. 14

Aimia Inc. 15

Allied Properties REIT 16

Air Canada 17

Amaya Inc. 18

ARC Resources Ltd. 19

Artis REIT 20

ATCO Ltd. 21

Badger Daylighting Ltd. 22

Bank of Montreal 23

Bank of Nova Scotia 24

Barrick Gold Corp. 25

Baytex Energy Corp. 26

BCE Inc. 27

BlackBerry Ltd. 28

Boardwalk REIT 29

Bombardier Inc. 30

Bonavista Energy Corp. 31

Brookfield Renewable Energy PTR, LP 32

CAE Inc. 33

Callidus Capital Corp. 34

Cameco Corp. 35

Canada Goose Holdings Inc. 36

Canadian Imperial Bank of Commerce 37

Canadian Natural Resources Ltd. 38

Canadian REIT 39

Canadian Tire Corp. 40

Canadian Utilities Ltd. 41

Canadian Western Bank 42

Capital Power Corp. 43

Cenovus Energy Inc. 44

Macy’s, Inc. 76

Magna International Inc. 77

Manulife Financial Corp. 78

Maple Leaf Foods Inc. 79

Martinrea International Inc. 80

Metro Inc. 81

National Bank of Canada 82

Newmont Mining Corp. 83

Northland Power Inc. 84

Peyto Exploration & Development Corp. 85

PrairieSky Royalty Ltd. 86

Quebecor Inc. 87

Restaurant Brands International 88

Rogers Communications Inc. 89

Royal Bank of Canada 90

Shaw Communications Inc. 91

Sun Life Financial Inc. 92

Suncor Energy Inc. 93

Telus Corp. 94

The Jean Coutu Group Inc. 95

Toronto Dominion Bank 96

TransAlta Corp. 97

TransAlta Renewables Inc. 98

TransCanada Corp. 99

Tricon Capital Group Inc. 100

Valeant Pharmaceuticals Intl. Inc. 101

Vermilion Energy Inc. 102

Waste Connections Inc. 103

Wheaton Precious Metals 104

Yamana Gold Inc. 105

C O M P A N Y R A T I N G P A G E S

Click on company name below for a link to the rating page

Shading indicates an updated rating page

R E C E N T P U B L I C A T I O N S

COMPANY TICKER RATING RATING CHANGE DATE

FLASHES PUBLISHED

Home Capital Group Inc. HCG SELL Jul.26.2017

NEED-TO-KNOWS PUBLISHED

Encana Corp. ECA SELL Jul.25.2017

Husky Energy Inc. HSE BUY Jul.25.2017

IMAX Corp. IMAX SELL Jul.27.2017

Newmont Mining Corp. NEM BUY Jul.27.2017

PrairieSky Royalty Ltd. PSK SELL Jul.26.2017

Rogers Communications Inc. RCI.b BUY Jul.21.2017

Vermilion Energy Inc. VET BUY Jul.27.2017

Waste Connections Inc. WCN BUY Jul.27.2017

Telecommunications & Technology

Name Ticker Analyst RankingRecommen-

dation Date

Most Recent

Ratings Review

Closing Price

(Jul 27/17)Intrinsic Value

Quality

RatingAccounting Cash Flow

Balance

Sheet

Business

Operations

Corporate

GovernanceTotal

BlackBerry Ltd. BBRY Lau Buy 4/3/2017 6/29/2017 USD 9.74 USD 11.50 Neutral 2.0 2.0 3.0 2.0 3.0 12.0

Cogeco Cable Inc. CCA Lau Buy 4/15/2016 7/17/2017 87.43 85.00 Better 4.0 4.0 3.0 3.0 2.0 16.0

CGI Group Inc. GIB.a Leung Buy 11/10/2016 5/4/2017 66.48 71.00 Better 3.0 4.0 4.0 5.0 3.0 19.0

Quebecor Inc. QBR.b Lau Buy 5/9/2014 5/18/2017 44.28 45.00 Better 3.0 4.0 2.5 4.0 3.0 16.5

Rogers Communications Inc. RCI.b Lau Buy 1/13/2015 7/24/2017 64.87 66.00 Better 3.0 3.0 4.0 3.0 4.0 17.0

Shaw Communications Inc. SJR.b Lau Buy 8/23/2016 6/29/2017 27.75 31.50 Better 3.0 3.0 4.0 4.0 3.0 17.0

Telus Corp. T Lau Buy 5/18/2017 5/18/2017 45.47 50.00 Better 4.0 3.0 4.0 3.0 4.0 18.0

BCE Inc. BCE Lau Sell 5/18/2017 5/18/2017 59.13 60.00 Better 3.5 4.0 4.0 3.0 4.0 18.5

Constellation Software Inc. CSU Leung Sell 1/22/2016 5/18/2017 672.00 520.00 Better 1.0 4.5 4.0 2.0 3.5 15.0

July 28, 2017

Buy: Security has upside potential, with minimal downside.

Sell: Security is expected to decline in value under certain scenarios believed to be likely.

Intrinsic Value: The underlying long-term value of the enterprise using a discounted cash flow or equivalent model.

Desmond Lau

[email protected]

Financial Services

Name Ticker Analyst RankingRecommend

ation Date

Most Recent

Ratings Review

Closing Price


Quality


Balance

Sheet

Business

Operations

Corporate

GovernanceTotal

Canadian Imperial Bank of Commerce CM Buy 8/28/2015 6/22/2017 107.24 121.00 Best 4.0 4.0 4.0 4.0 4.0 20.0

Manulife Financial Corp. MFC Buy 8/10/2012 5/12/2017 25.53 27.00 Better 3.5 4.0 4.0 3.5 4.0 19.0

Royal Bank of Canada RY Buy 5/26/2017 6/23/2017 93.22 96.00 Best 4.5 4.0 4.0 4.0 4.5 21.0

Sun Life Financial Inc. SLF Buy 2/16/2016 5/12/2017 47.70 50.00 Better 3.5 4.0 4.0 3.5 4.0 19.0

Toronto Dominion Bank TD Buy 4/18/2012 6/23/2017 64.23 71.00 Best 4.0 4.0 4.0 4.0 4.0 20.0

Bank of Montreal BMO Sell 12/6/2013 6/22/2017 95.72 90.00 Best 4.0 4.0 4.0 4.0 4.0 20.0

Bank of Nova Scotia BNS Sell 7/30/2015 6/22/2017 77.63 73.00 Better 3.5 4.0 4.0 4.0 4.0 19.5

Canadian Western Bank CWB Sell 3/7/2013 6/23/2017 27.80 25.00 Better 4.0 4.0 3.0 3.0 4.0 18.0

ECN Capital Corp. ECN Sell 5/17/2017 6/14/2017 4.03 3.70 Neutral 3.0 2.0 3.5 2.5 1.5 12.5

Element Fleet Management EFN Sell 6/16/2016 6/6/2017 9.64 Under Review Risky 1.0 2.0 3.0 2.0 1.0 9.0

Home Capital Group Inc. HCG Sell 2/1/2017 7/27/2017 56.09 12.50 Neutral 2.0 3.5 4.0 2.0 2.0 13.5

National Bank of Canada NA Sell 4/18/2012 6/23/2017 56.09 53.00 Better 4.0 3.5 4.0 4.0 4.0 19.5

July 28, 2017



Veritas Sector Rankings


D'Souza

D'Souza

D'Souza

Levenstadt

D'Souza

D'Souza

D'Souza

D'Souza

D'Souza

D'Souza

D'Souza

D'Souza

Nigel D'Souza

[email protected]

Consumer Staples & Consumer Discretionary

Name Ticker Analyst Ranking

Recommend

ation

Date

Most Recent

Ratings Review

Closing Price


Quality


Balance

Sheet

Business

Operations

Corporate

GovernanceTotal

Canadian Tire Corp. CTC.a Wong Buy 9/21/2011 5/15/2017 142.35 170.00 Neutral 3.0 3.0 3.0 3.0 2.0 14.0

Choice Properties REIT CHP.un Wong Buy 8/29/2013 7/28/2016 13.39 14.70 Better 3.0 3.0 3.0 3.0 3.0 15.0

CT Real Estate Investment Trust CRT.un Wong Buy 10/29/2013 8/5/2016 14.54 15.80 Better 3.0 3.0 3.0 4.0 3.0 16.0

Dollarama Inc. DOL Wong Buy 5/3/2017 6/8/2017 124.49 131.60 Better 3.0 4.0 4.0 3.0 3.0 17.0

Empire Company Ltd. EMP.a Wong Buy 6/20/2013 5/7/2017 20.26 23.50 Neutral 3.0 3.0 2.0 3.0 3.0 14.0

George Weston Ltd. WN Wong Buy 3/8/2011 5/11/2017 112.89 135.00 Better 2.0 3.0 5.0 3.0 3.0 16.0

Loblaw Companies Ltd. L Wong Buy 9/30/2009 5/5/2017 68.75 85.00 Better 4.0 3.0 3.0 3.0 3.0 16.0

Macy's, Inc. M Wong Buy 2/28/2017 5/23/2017 24.20 USD 29.00 Better 3.0 3.0 2.0 3.0 5.0 16.0

Maple Leaf Foods Inc. MFI Buy 3/18/2005 5/4/2017 34.14 35.50 Better 3.0 3.5 5.0 3.5 3.5 18.5

Metro Inc. MRU Wong Buy 9/30/2009 4/26/2017 42.30 51.00 Better 3.0 4.0 4.0 4.0 4.0 19.0

Restaurant Brands International QSR Wong Buy 11/8/2016 4/27/2017 USD 61.17 USD 60.00 Better 3.0 4.0 3.0 4.0 3.0 17.0

The Jean Coutu Group Inc. PJC.a Wong Buy 10/14/2008 7/11/2017 20.76 24.00 Better 3.0 3.0 4.0 4.0 2.0 16.0

Aimia AIM Wong Sell 3/1/2013 6/7/2017 1.54 0.90 Neutral 2.0 1.0 2.0 2.0 3.0 10.0

Amaya Inc. AYA Khmelnitsky Sell 10/14/2016 5/12/2017 22.60 19.00 Risky 1.0 2.0 0.0 2.0 0.0 5.0

Canada Goose Holdings Inc. GOOS Wong Sell 3/27/2017 6/6/2017 24.08 22.00 Neutral 1.0 3.0 4.0 3.0 2.0 13.0

Hudson's Bay Company HBC Wong Sell 11/26/2012 6/12/2017 10.77 7.00 Neutral 2.0 2.0 2.0 1.0 3.0 10.0

IMAX Corp. IMAX Leung Sell 1/22/2015 7/27/2017 USD 21.10 USD 19.00 Risky 2.0 1.0 3.0 1.0 2.0 9.0

July 28, 2017





Kathleen Wong

[email protected]

Yu

Industrials


ation Date

Most Recent

Ratings Review

Closing Price


Quality


Balance

Sheet

Business

Operations

Corporate

GovernanceTotal

Waste Connections Inc. WCN McCoubrey Buy 2/25/2016 7/27/2017 USD 65.82 USD 72.50 Better 4.0 5.0 3.0 4.0 3.0 19.0

Air Canada AC Fong Sell 4/26/2017 5/7/2017 2.41 16.25 Neutral 3.0 2.0 3.0 3.0 3.0 14.0

Badger Daylighting Ltd. BAD Khmelnitsky Sell 5/12/2017 5/12/2017 26.53 20.50 Neutral 2.0 2.0 4.0 0.0 2.0 10.0

Bombardier Inc. BBD.b Fong Sell 2/13/2015 5/16/2017 2.41 2.00 Risky 2.0 1.0 2.0 1.0 1.0 7.0

CAE Inc. CAE La Bell Sell 2/9/2015 4/1/2016 20.94 Under Review Neutral 2.0 3.0 3.0 3.0 2.0 13.0

Magna International Inc. MGA Fong Sell 2/7/2017 5/15/2017 USD 48.22 USD 44.00 Better 2.0 2.0 4.0 3.0 4.0 15.0

Martinrea International Inc. MRE Fong Sell 2/7/2017 5/2/2017 10.38 8.75 Neutral 3.0 1.0 2.0 2.0 2.0 10.0

Linamar Corp. LNR Fong Sell 2/7/2017 5/15/2017 69.33 61.00 Better 3.0 3.0 3.0 4.0 2.0 15.0

July 28, 2017





Dan Fong

[email protected]

Pipelines & Utilities


ation Date

Most Recent

Ratings Review

Closing Price


Quality


Balance

Sheet

Business

Operations

Corporate

GovernanceTotal

ATCO Ltd. ACO.x McCoubrey Buy 11/26/2015 4/27/2017 49.69 52.00 Better 3.5 3.0 4.0 3.0 3.5 17.0

Canadian Utilities Ltd. CU McCoubrey Buy 11/2/2012 4/27/2017 41.46 46.25 Neutral 3.5 3.0 4.0 3.0 3.5 14.0

Capital Power Corp. CPX McCoubrey Buy 9/4/2013 5/2/2017 24.79 29.50 Neutral 3.0 2.0 2.0 3.0 2.5 12.5

Enbridge Inc. ENB McCoubrey Buy 2/24/2016 6/12/2017 51.65 66.00 Better 2.5 4.0 3.0 3.5 4.0 17.0

Fortis Inc. FTS McCoubrey Buy 8/4/2015 5/4/2017 44.67 45.00 Better 3.0 3.5 2.5 4.0 2.5 15.5

Hydro One Ltd. H McCoubrey Buy 5/6/2016 7/20/2017 22.43 27.50 Neutral 2.5 3.0 3.0 3.0 2.5 14.0

Northland Power Inc. NPI Akhmedova Buy 2/25/2013 7/7/2017 23.29 25.00 Better 3.0 3.5 3.0 4.0 4.0 17.5

TransAlta Corp. TA McCoubrey Buy 6/9/2016 5/9/2017 8.07 8.00 Neutral 3.5 1.0 2.0 4.0 1.0 11.5

TransAlta Renewables Inc. RNW Akhmedova Buy 9/1/2016 5/8/2017 14.55 15.50 Better 3.0 4.0 4.0 4.0 2.0 17.0

TransCanada Corp. TRP McCoubrey Buy 11/9/2015 2/17/2017 63.56 67.50 Better 4.0 4.0 3.0 3.0 2.5 16.5

Brookfield Renewable Energy Partners, LP. BEP Akhmedova Sell 5/6/2014 5/5/2017 USD 33.50 USD 25.50 Neutral 2.0 2.0 2.0 4.0 3.0 13.0

Emera Inc. EMA McCoubrey Sell 5/14/2012 2/14/2017 46.68 45.00 Neutral 2.5 2.5 2.5 3.0 2.5 13.0

July 28, 2017





Darryl McCoubrey

[email protected]

Healthcare & Pharmaceuticals


ation Date

Most Recent

Ratings Review

Closing Price


Quality


Balance

Sheet

Business

Operations

Corporate

GovernanceTotal

Valeant Pharmaceuticals Intl. Inc. VRX Khmelnitksy Sell 7/23/2014 4/18/2017 USD 17.13 USD 9.00 Torpedo 0.0 2.0 0.0 1.0 0.0 3.0

July 28, 2017





Dimitry Khmelnitsky

[email protected]

REITs


ation Date

Most Recent

Ratings Review

Closing Price


Quality


Balance

Sheet

Business

Operations

Corporate

GovernanceTotal

Allied Properties REIT AP.un Leung Buy 5/3/2017 6/27/2017 38.41 45.00 Best 4.0 3.0 4.0 5.0 4.0 20.0

Crombie REIT CRR.un Leung Buy 5/3/2017 6/27/2017 13.56 17.00 Better 3.0 4.0 3.0 4.0 4.0 18.0

Granite REIT GRT.un Leung Buy 5/3/2017 6/27/2017 50.02 54.00 Best 4.0 5.0 5.0 3.0 4.0 21.0

Tricon Capital Group Inc. TCN Leung Buy 7/20/2017 7/20/2017 10.73 12.80 Better 3.5 3.0 4.0 4.0 4.0 18.5

Artis REIT AX.un Leung Sell 5/3/2017 6/27/2017 13.14 9.00 Risky 2.0 1.0 2.0 2.0 2.0 9.0

Boardwalk REIT BEI.un Leung Sell 5/3/2017 6/27/2017 47.61 39.00 Neutral 2.0 1.0 4.0 2.0 4.0 13.0

Canadian REIT REF.un Leung Sell 5/3/2017 6/27/2017 45.02 42.00 Better 5.0 3.0 4.0 2.0 5.0 19.0

July 28, 2017





Howard Leung

[email protected]

Energy

Name Ticker Analyst RankingRecommendation

Date

Most Recent

Ratings Review

Closing

Price

(Jul 27/17)

US $60.00

Case

Intrinsic

Value:

US$65.00

Base Case

US $75.00

Case

Quality

RatingAccounting

Cash

Flow

Balance

Sheet

Business

Operations

Corporate

GovernanceTotal

ARC Resources Ltd. ARX Buy 8/27/2015 5/5/2017 17.63 21.00 24.50 27.00 Better 3.0 2.5 3.5 3.0 3.0 15.0

Baytex Energy Corp. BTE Buy 2/4/2016 5/9/2017 3.53 8.00 10.50 15.00 Neutral 2.0 2.5 2.5 3.0 2.0 12.0

Bonavista Energy Corp. BNP Buy 3/1/2013 5/11/2017 3.09 8.50 9.00 10.00 Neutral 2.0 3.0 3.0 3.0 3.0 14.0

Canadian Natural Resources Ltd. CNQ Buy 2/4/2016 6/5/2017 38.65 52.50 59.00 71.50 Neutral 3.0 3.0 2.5 3.0 3.0 14.5

Cenovus Energy Inc. CVE Buy 4/3/2017 6/22/2017 10.89 14.00 21.00 33.00 Neutral 2.0 3.5 2.0 2.5 3.0 13.0

Crescent Point Energy Corp. CPG Buy 5/11/2012 5/2/2017 10.35 18.50 23.00 30.00 Better 2.5 3.0 3.5 3.0 3.0 15.0

Enerplus Corp. ERF Buy 5/18/2011 5/5/2017 11.54 14.50 18.50 24.50 Neutral 2.0 2.0 2.5 3.0 3.0 12.5

Husky Energy Inc. HSE Buy 2/4/2016 7/25/2017 14.66 14.00 21.50 32.50 Neutral 2.5 3.0 3.5 2.5 2.0 13.5

Peyto Exploration & Development Corp.PEY Buy 2/1/2017 5/11/2017 23.17 27.50 32.50 34.50 Neutral 2.0 2.5 2.5 3.0 2.0 12.0

Vermilion Energy Inc. VET Buy 8/27/2015 7/27/2017 42.31 54.50 60.50 68.50 Better 3.5 4.0 2.5 3.0 2.5 15.5

Encana Corp. ECA Sell 5/4/2016 7/25/2017 USD 10.29 USD 6.50 USD 9.00 USD 13.25 Neutral 2.5 2.5 3.0 2.0 3.0 13.0

Imperial Oil Ltd. IMO Sell 1/31/2014 2/28/2017 37.22 Neutral 3.0 2.5 2.5 2.5 2.5 13.0

PrairieSky Royalty Ltd. PSK Sell 5/3/2016 7/26/2017 31.13 20.50 26.00 34.50 Better 2.0 3.0 5.0 2.5 2.5 15.0

Suncor Energy Inc. SU Sell 12/22/2014 5/11/2017 39.77 Neutral 2.0 3.0 3.0 3.5 3.0 14.5

$60 Oil Case

$65 Oil - Base Case

$75 Oil Case

July 28, 2017

0.85 / 0.89


Commodity Case

3.00 / 3.75 0.81 / 0.85

2.60 / 3.35 0.79 / 0.83

2017 / 2020

50 / 60

65 / 75 3.50 / 4.00

WTI Oil Price USD/CAD Exchange Rate

2017 / 20202017 / 2020




HH Gas Price

55 / 65

Under Review

Under Reviewv

Jeffrey Craig

[email protected]

Craig

Craig

Craig

Craig

Craig

Craig

Craig

Craig

Craig

Craig

Craig

Craig

Craig

Craig

Portfolio Yield: 2.9%

COMPANY TICKER DATE ADDEDPRICE (C$)

27-Jul-2017

INTRINSIC

VALUE

ESTIMATE

CURRENT

YIELD

QUALITY

RATING

(out of 25)

Allied Properties REIT AP-U 24-May-17 $38.41 $45.00 4.0% 20.0

Canadian Utilities Ltd. CU 28-Jun-16 $41.46 $46.25 3.4% 17.0

Capital Power Corp. CPX 9-Apr-15 $24.79 $29.50 6.7% 12.5

Cenovus Energy Inc. CVE 7-Mar-16 $10.89 $21.00 1.8% 15.0

CGI Group Inc. GIB/A 22-Nov-16 $66.48 $71.00 0.0% 19.0

Enbridge Inc. ENB 5-Jul-17 $51.65 $66.00 4.7% 17.0

Granite REIT GRT-U 5-May-17 $50.02 $54.00 5.2% 13.0

Husky Energy Inc. HSE 11-Jan-17 $14.66 $21.50 0.0% 13.0

Loblaw Companies Ltd. L 9-Apr-15 $68.75 $85.00 1.6% 16.0

Manulife Financial Corp. MFC 27-May-13 $25.53 $27.00 3.2% 19.0

Maple Leaf Foods Inc. MFI 29-Oct-04 $34.14 $35.50 1.3% 17.5

Metro Inc. MRU 25-Nov-14 $42.30 $51.00 1.5% 19.0

Northland Power Inc. NPI 13-Mar-13 $23.29 $27.00 5.2% 16.5

Quebecor Inc. QBR/B 9-May-14 $44.28 $45.00 0.5% 16.5

Shaw Communications Inc. SJR/B 26-Aug-16 $27.75 $31.50 4.3% 15.0

Telus Corp. T 24-May-17 $45.47 $50.00 4.3% 18.0

The Jean Coutu Group Inc. PJC/A 24-Jun-15 $20.76 $24.00 2.5% 16.0

TransCanada Corp. TRP 16-Dec-15 $63.56 $67.50 3.9% 16.5

Waste Connections Inc. WCN 1-Jun-16 USD $64.42 USD $72.50 0.7% 17.0

Veritas Investment Research, 100 Wellington Street West, TD West Tower, Suite 3110, P.O. Box 80, Toronto, Ontario , M5K 1E7, 416-866-8783, www.veritascorp.com

Veritas Investment Research Corporation owns the copyright in this report. This report may not be reproduced in whole or in part without Veritas’ express prior written consent. Any such breach of this copyright is contrary to ss. 27(1), 34, 35 and 42 of the

Copyright Act, R.S.C. 1985, c. C-42 and will be liable for damages.

July-28-17

THE LIST T h e V - L i s t i s a c o n c en t r a t ed p o r t f o l i o o f 1 2 t o 2 5 c o m p an i es r e c o m me nd ed b y Ve r i t a s I n v es t m en t R e s e a r c h a s t h e b e s t i n v es t me n t o p p o r t u n i t i e s d r a w n f r o m o u r f i r m’ s

r e s e a r c h .

Ver i tas ' Model Por t fo l io

S t o c k s a r e s e l e c t e d b a s e d o n t h e i r p o t e n t i a l f o r l o n g - t e r m c a p i t a l a p p r e c i a t i o n , u s i n g b o t t o m - up f u n d a m e nt a l a n a l y s i s a n d a s t r i c t r e v i ew o f a c c o un t i ng a n d d i s c l o s u re

p r a c t i ces t o i d e n t i f y c o m p an i e s w i t h d e f e n s i b l e c o m pe t i t i ve a d v a nt a ge s a n d t h e a b i l i t y t o g e n e r a t e m e a n i n g fu l c a s h f l o w s .

A C C O U N T I N G W A T C H L I S T Compa ni es w i th acc ou n t i ng a nd d i s c l os u r e - r e la ted r i sk s

Veritas Investment Research Corporation ("Veritas") its directors, officers, employees and their immediate families are prohibited from trading any position in the securities profiled in a report thirty (30) days before and five (5) days after the publication

date where the report involves coverage initiation or a change of opinion. Veritas has not offered any consulting, financial advisory, investment banking or underwriting services to the companies mentioned. Veritas does not accept research fees

from the companies profiled herein. The information contained in this report has been obtained from sources believed reliable however the accuracy and/or completeness of the information is not guaranteed by Veritas, nor does Veritas assume

any responsibility or liability whatsoever. All opinions expressed are subject to change without notification. This report is for information purposes only and does not constitute and should in no way be construed as a solicitation to buy or sell any of the

securities mentioned herein. The contents of this research report do not, in any way, purport to include any manner of legal advice or opinion. The intention of this report is to provide a forthright discussion of business, accounting and financial report-

ing issues, as well as generally accepted accounting principles and the limits of their usefulness to investors. As such, please do not infer from this report that the accounting policies of any company mentioned herein are not allowed within the

broad range of generally accepted accounting principles, or that the policies employed by that company were not approved by its auditor(s). This report may not be reproduced in whole or in part without the express prior written consent of Veri-

tas. Veritas is a 100% employee owned firm. ©2017 Veritas Investment Research Corporation.

RISK AREAS

Company Ticker Analyst Date

Added

Organic

Growth

Earnings

Quality

Cash Flow

Sustainability

Liquidity /

Leverage /

Off-B/S

Concerns

Non-GAAP

Metrics

Cloud

Financial

Performance

Mgmt. Comp.

Structure

& Corp.

Governance

Disclosure Tax

Aimia Inc. TSX-AIM Wong 3-Sept-14

Amaya Inc. TSX-AYA Khmelnitsky 18-Oct-16

Badger Daylighting Ltd. TSX-BAD Khmelnitsky 15-May-17

Callidus Capital Corp. TSX-CBL Scilipoti 16-Apr-15

Cameco Corp. TSX-CCO

NYSE-CCJ Khmelnitsky 30-Apr-14

Constellation Software Inc. TSX-CSU Leung 26-Jan-16

Element Fleet Management TSX-EFN D’Souza 17-Jun-16

Home Capital Group Inc. TSX-HCG Levenstadt 17-Apr-17

MacDonald Dettwiler & Assoc. Ltd. TSX-MDA Khmelnitsky 3-Nov-11

Silver Wheaton Corp. TSX-SLW

NYSE-SLW Khmelnitsky 13-Oct-15

Valeant Pharmaceuticals Intl. Inc. TSX-VRX

NYSE-VRX Khmelnitsky 5-Jan-12

M A Y 1 5 , 2 0 1 7

Veritas Investment Research, 100 Wellington Street West, TD West Tower, Suite 3110, P.O. Box 80, Toronto, Ontario , M5K 1E7, 416-866-8783, www.veritascorp.com

Quality Scale

Torpedo Risky Neutral Better Best

5 10 15 20 25

Intrinsic Value Scale

-50% -25% 0 25% 50%

KATHLEEN WONG

kwong@veri tascorp.com

416-866-8783

W O R K I N G B A C K W A R D S F R O M 2 0 2 0 : W H Y A I M I A M A Y F A I L

We consider what Aimia might be worth by working backwards from 2020 assuming ‘business-as-usual’ between now and

then (i.e. Aimia’s Aeroplan mile issuance matches mile redemptions). Based on this case, we estimate Aimia’s Americas

Coalition is likely to face a net liability overhang of more than $1.2 billion in 2020 from its prior Aeroplan business.

To settle this negative Americas liability as it comes due, we believe Aimia will need to take three key actions: 1) Sell its

interest in PLM (Club Premier) for $500 million; 2) Monetize its international Coalitions segment for $250 million; and 3)

Devalue its legacy Aeroplan miles by 25% to save $480 million.

Updated July 6, 2017

Current Price C$1.53

Intrinsic Value C$0.90

Current Dividend Yield 0%

SELL

AIMIA INC.

TSX-AIM

QUALITY RATING

Accounting & Disclosure 2/5

Management provides disclosure on mile issuance, re-

demptions, selling prices/costs to value Aeroplan’s current

business and future liabilities, but not as detailed disclosure

on the other segments. We are looking for greater clarity

when the company revamps operating structures in 2016.

Adjusted Cash Flows 1/5

Normalized FCF in 2016 was mainly supported by a reduc-

tion in operating expense and capital expenditure. On

May 11, 2017, Air Canada announced it does not plan to

renew the CPSA agreement with Aeroplan when it expires

in June 2020. This is likely to lead to significant increase in

redemptions between now and June 2020, and reduced

FCF significantly.

The Balance Sheet 2/5

Aimia has a reserve of $435 million (held in cash and invest-

ments), which represents only 19% of its Future Redemption

Cost Liabilities ($2,206 million) at the end of Q1– 2017 com-

pared to the historical average of around 30%.

Business Operations 2/5

The enhanced Aeroplan Canada program has yet to drive

strong regular miles issuance (excluding bonus miles) to

offset the higher redemption cost going forward. Aimia has

focused on extracting cost efficiencies and it expects to

realize $70 million annual operating expense savings in 2015

and 2016. It is also simplifying its businesses by divesting non-

core assets.

Corporate Governance 3/5

Six out of seven members on Aimia’s Board of Directors are

independent.

INTRINSIC VALUE

Given that Aimia has to navigate a very difficult restructuring and

we cannot rule out the need for creditor protection, we do not

advise an investment in the company at this time. Our updated

intrinsic value of $0.90 per share reflects a risked 80/20 weighting

between our restructuring case of $1.10 per share (at an 80%

weighting) and potential outcomes that erase common equity

(20%). We remain sellers of this name.

FY end December

(C$ Millions, except as noted) 2015 2016

Aeroplan Miles Issuance Growth (2.9%) 1.8%

Aeroplan Mile Redemption Growth 0.8% 0.8%

Burn/Earn Ratio 87% 86%

Selling Price/Aeroplan Mile (cents) 1.353 1.357

Redemption Cost/Aeroplan Mile (cents) 1.048 1.016

Aeroplan Normalized Margin Spread 23% 25%

Aimia’s Normalized FCF (Aeroplan

Canada + Other Businesses) $166 $206

Aimia’s Normalized FCF per Share $1.02 $1.35

Dividends per Common Share $0.75 $0.79

Dividend Payout Ratio (Preferred and Com-

mon Dividends) 84% 67%

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

HOWARD LEUNG

hleung@veri tascorp.com

416-866-8783

A H O L Y T R I N I T Y O F L O C A T I O N , Q U A L I T Y , A N D D E V E L O P M E N T

Allied is an office real estate company specializing in Class I office space, emphasizing the adaptive re-use of light industrial structures (i.e.

lofts). With almost 12 million square feet of gross leasable area, the REIT’s properties are concentrated in nine of Canada’s largest major

metropolitan areas, with substantial exposure to the Toronto office market. Allied’s focused strategy of increasing its footprint in the

Toronto Class I industrial market over the past five years has paid off, with unit prices increasing at over 7% CAGR. In our view, the REIT’s

experience in developing Class I office space gives it a unique advantage in Canada, which we expect to contribute top quartile growth

over the near term.

Updated June 27, 2017

Prior Close $39.90

Intrinsic Value $45.00

Current Yield 3.8%

BUY

ALLIED PROPERTIES REIT

TSX-AP.UN

QUALITY RATING


Allied now includes recoverable maintenance capex in its

AFFO metric. We view its accounting for the metric as gener-

ally clean.


Allied’s F16 adjusted AFFO payout ratio was 94%. This was the

first year that Allied suspended its DRIP, and even then the

REIT was still able to meet all of its cash payout obligations.


The REIT’s debt to gross book value is 37%, far below its maxi-

mum limit of 60%. The REIT’s interest coverage is 2.8x, which is

well above its limit of 1.65x.


Allied’s well-located, high quality properties have allowed it

to incrementally raise its rents to tenants. The vast majority of

the REIT’s leases are on a triple-net basis, which shield the

trust from sudden hikes in utilities or property taxes. Finally,

given rising property values in Allied’s key metropolitan mar-

kets, we believe Allied has greater ability to pass on any cost

inflation it incurs to tenants.


Annual incentive and long-term performance bonuses for

management are based on specific, quantifiable metrics.

The board is majority independent, although we note that

one trustee is also a partner at Allied’s principal law firm.

INTRINSIC VALUE

Our estimate of F17 AFFO is $1.71 per unit. For the following three

years, we estimate a 8% growth rate, leading to an estimate of

$2.17 of AFFO per unit by 2020. We then apply a terminal multiple

of 22.7x to the REIT’s 2020 AFFO earnings. Discounting the REIT’s

AFFO by its cost of equity of 6.9% brings our intrinsic value to $45

per unit.

Period Ending C$ Millions (except as noted)

F15 F16 Q1-F17

Unit price $31.57 $35.95 $36.09

Units outstanding 78.3 84.7 84.9

Market capitalization $2,473 $3,046 $3,064

Enterprise value (EV) $4,175 $5,058 $5,001

Reported Debt to Gross Book

Value 35.6% 36.6% 36.6%

Revenue $365 $390 $102

Veritas Adjusted AFFO $131 $130 $34

Veritas Adjusted AFFO Total Pay-

out Ratio (includes DRIP) 87% 94% 95%

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DAN FONG

dfong@veri tascorp.com

416-866-8783

G A I N I N G A L T I T U D E O N A E R O P L A N

With Aimia’s shares trading at an all-time low, we have been fielding calls asking if it makes sense for Air Canada to step in and buy Aimia

to save Aeroplan and its brand value. In our view, rather than making a quick bid, Air Canada is better served waiting for Aimia to clean

house by selling assets, restructuring debt and/or devaluing its offering, instead of acquiring Aimia and having to take these steps on its

own. While Air Canada setting up its own loyalty plan carries startup and execution risks, absorbing Aimia internalizes Aeroplan’s near-

term challenges and may be a more difficult branding exercise. For now, time is on Air Canada’s side: between now and 2020, Air

Canada is still the recipient of a net cash benefit from Aimia, and has almost three years to prepare for launching its own loyalty program

while watching the events at Aimia unfold. We highlight the risks associated with Air Canada’s ‘build or buy’ decision – in our view, the

risks associated with buying Aimia currently outweigh those of Air Canada building its own loyalty program.


Current Price: C$17.34

Intrinsic Value: C$16.25

Current Yield: N/A

SELL

AIR CANADA

TSX-AC

INTRINSIC VALUE

Our $16.25 per share IV is based a discounted FCFE model, which

reflects: declining yields due to competitive international pres-

sures; relatively stable load factors and fuel prices; potential val-

ue creation from a repatriated loyalty program; a 9.8% cost of

equity; and a 2.0% long-term growth rate.

CAD Millions (except as noted) F15 F16 TTM

Q1-F17

Share price (C$) $10.21 $13.67 $13.80


Adjusted enterprise value (EV) $9,200 $10,800 $10,500

Revenue $13,900 $14,700 $15,000

EBITDAR $2,500 $2,800 $2,650

Reported free cash flow (excl.

sale-leaseback transactions) $210 ($500) ($260)

Reported EPS $1.06 $3.16 $2.66

Adjusted EV-to-TTM EBITDAR 3.7x 3.9x 4.0x

QUALITY RATING


Disclosures are generally good, however, we would prefer to

see additional operating data on a regional route basis. AC

presents free cash flow net of sale-leaseback transactions

which, in our view, skews free cash flow.


Due to a massive fleet renewal program, AC has not gener-

ated significant free cash flow over the past few years. Be-

yond 2017, wide-body deliveries will taper off; however, the

narrow-body fleet renewal program will begin. Capex levels

are likely to remain high for the foreseeable future.


At 2.5x Adjusted Net Debt to TTM EBITDAR, leverage is rela-

tively high as compared to peers. However, after a success-

ful refinancing in 2016, near-term debt maturities are minimal

and the Company appears to have adequate liquidity.


AC has made significant progress in reducing costs and ra-

tionalizing capacity into its network. However, its internation-

al strategy is likely to come under pressure from increasing

trans-Atlantic and trans-Pacific competition. In addition,

Rouge is hitting its 50-aircraft operating limit which may con-

strain significant cost reduction efforts going forward.


Assuming AC’s proposed slate of directors is elected at its

upcoming AGM, 10 out of 11 directors will independent (four

of which were appointed within the last four years). Howev-

er, we would prefer to see more direct airline expertise at the

board level.

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DIMIRTY KHMELNITSKY

dkhmelni tsky@veri tascorp.com

416-866-8783

CONCERNS REMAIN Poker revenue, which still accounts for 69% of total revenues, continued to stagnate, while Casino and Sportsbook showed

signs of moderating growth. Our SELL recommendation remains unchanged due to: 1) our concerns related to Poker

growth; 2) pressure on future margins; 2) the company’s high net debt burden; and 3) non-IFRS metrics that, in our opinion,

do not reflect the economics of the business.

Updated May 12, 2017



Current Yield 0%

SELL AMAYA INC. TSX-AYA

QUALITY RATING


Amaya uses aggressive non-IFRS metrics that overstate the eco-

nomics of the business. We estimate that the exclusion of materi-

al recurring costs, that are integral to AYA’s strategy, boosted

Q1-F17 Adjusted EBITDA by at least 12%. We also note Amaya’s

history of: 1) writing off large blocks of capitalized costs; 2) re-

stating prior results on classification errors; 3) issuing revenue

guarantees that avoid EBITDA; and 4) reclassifying assets as

‘held-for-sale’ that helped meet EBITDA guidance.

Cash Flow Sustainability 2/5

We believe Amaya’s growth initiatives related to Casino and

Sportsbook verticals could be constrained as majority of the

company’s 2017 cash flow generation will be used to pay the

remaining portion of the deferred consideration to the former

owners of PokerStars. Further, we expect a decline in AYA’s fu-

ture profitability due to higher marketing costs and gaming du-

ties.

Balance Sheet 0/5

Amaya is highly levered at ~4.0x F17 Adjusted EBITDA.


The high debt leaves limited room for investment in Casino and

Sports. Meanwhile, declining play volumes and liquidity for Poker

means that Amaya may have to rely increasingly on price in-

creases and reductions in rake-back to maintain revenues. We

also see increased risks to growth in Casino/Spots verticals as

certain cross selling levers and opportunities seem to be dimin-

ishing.


Needs improvement due to weaknesses in financial reporting

and inadequate management's performance evaluation met-

rics. The insider trading charges against the former CEO and the

investigation into potential bribery payments do not add to our

comfort level with AYA’s governance.

INTRINSIC VALUE

Based on our DCF model, we increase our intrinsic value from

C$18.70 to C$19.00 solely on the back of the change in CAD/

USD exchange rate (we value AYA in USD given that this is the

company’s reporting currency and then translate the result

into CAD).

Period Ending

US$ Millions (except as noted) F15 F16

Share price C$17.43 C$21.09

Shares outstanding (thousands) 133,239 145,682

Market capitalization $2,326 $3,072

Enterprise value (EV) $5,851 $6,483

Revenue $1,072 $1,156

Reported Adj EBITDA $459 $524

Reported const. currency

revenue growth 15% 12%

Est. EV-to-EBITDA (NTM) 10.5x 8.7x

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

B A L A N C E S H E E T S U P P O R T G R O W T H I N T O 2 0 1 8A 2016 ~$700 million divestment of its light oil assets refreshed the balance sheet and lays the foundation for a Montney-heavy $750

million capex budget. Net debt is currently 0.7x our 2017 funds flow with management stating it is comfortable allowing this ratio to trend

back to its historical range of 1.0x to 1.5x, which will likely involve drawing down cash to fund capex. ARC’s decades of Montney drilling

inventory and options at its liquids-weighted Pembina property generate a unique value proposition for long-term growth. BUY

Updated May 5, 2017



Current Yield 3.4%

BUY

ARC RESOURCES LTD.TSX-ARX

QUALITY RATING


ARC recorded a $62 million reversal of previous impairments

in 2016 based on the assets fair value less costs of disposal

based on preliminary bids from prospective buyers. This

represents a stark contrast to 2015, when the company

recorded an impairment of $469.6 million, primarily driven

by reduced assumptions about future commodity prices.

Adjusted Cash Flows 2.5/5

ARC has laid out a large 2017 capex budget of $750 million

that is weighted to the second half of the year. We see

shortfalls in 2017 and 2018 under our base cases of AECO

$2.80 and $3.35 but that is easily supported by ~$672 million

of cash on the balance sheet.

The Balance Sheet 3.5/5

At Q1-F17, ARC had ~$1.0 billion in debt and $642 million in

cash and cash equivalents. Debt to TTM EBITDA was 0.5x

compared to a maximum covenant of 3.25x.


With the disposition of 7,500 boe/d of production in

November 2016 ARC’s 2017 midpoint guidance of 121,500

boe/d, ~2% growth over 2016. To achieve y-o-y production

growth in 2017 the capex budget has increased to $750

million, compared with initial guidance of $550 million and

$450 million in 2016.


ARC's chairman Mac Van Wielingen announced he will be

stepping down as chair on December 31, 2015, after almost

20 years at ARC. The chairman role will be taken up by

current board member Hal Kvisle, most recently of Trans-

Canada and Talisman. We do not expect any radical

change of strategy.

Cash Flow and Dividends 2017 2016 2015

Reported CFO* 191.5 630.7 689.0

Capital expenditures (245.0) (455.6) (547.9)

Available cash (shortfall) (53.5) 175.1 141.1

Dividends declared (69.9) 175.3 410.5

% of CFO* -37% 28% 60%

% of available cash 131% 100% 291%

* CFO is cash from operations after working capital, cash interest and asset retirement

expenditures a Financial statement data are based on IFRS.

Company Profile 2017 2016 2015

Price 19.00 20.29 16.70

Shares (millions incl. exch.) 353.4 353.2 347.1

Market cap. ($ millions) 6,715 7,166 5,797

Revenue ($ millions) 283 975 1,071

CFPS 0.54 1.79 1.99

Price to YTD CFPS 8.8x 11.4x 8.4x

ROE (annualized) 16.1% 5.9% (8.3%)

Dividends per share -0.20 0.50 1.20

Production (boe/d) 115,129 118,671 114,167

CFO* per boe 18.23 14.56 16.53

Net debt to EV 5% 5% 14%

Net debt to CFO* 0.47x 0.56x 1.37x

INTRINSIC VALUE

Commodity Case WTI Oil Price

2017 / 2021

HH Gas Price

2017 / 2021

USD/CAD XR

2017 / 2021

Intrinsic

Value

$62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 21.00

$67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 24.50

$77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 27.00

Our base case values ARC at $24.50 per share, reflecting a return to

US$67 oil and US$3.75 gas through 2020.

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

HOWARD LEUNG


416-866-8783

A G E D O F F I C E E X P O S U R E D R I V E S U N S U S T A I N A B L E P A Y O U T SIn recent years, Artis has pursued U.S. property acquisitions and development in an effort to diversify its holdings, while rationalizing its

Canadian properties and working to improve its balance sheet. In our view, however, the overall positioning of Artis portfolio remains

challenging, given relatively high exposure to older office properties that feature topline pressures and with lower occupancy rates. In

addition, another consequence of having older buildings is that tenants generally demand more concessions for moving in. We doubt

that Artis can change this positioning much in the short term. After our adjustments for actual maintenance capex and leasing costs, we

estimate that Artis’ F16 AFFO payout ratio was a whopping 141%.


Prior Close $13.31


Current Yield 8.1%

SELL

ARTIS REITTSX-AX.UN

QUALITY RATING


We remain concerned with Artis’ disclosure of its AFFO metric.

Artis discloses capital expenditure and leasing reserves that are

far below the amounts actually incurred. This has the effect of

overstating AFFO, in our view.


Artis had a cash payout ratio of 141% in 2016. Now that the REIT

has suspended its DRIP, we expect its cash payout ratios to

tighten. Of our universe of fifteen REITs, Artis remains the most

likely REIT to have its distribution cut, in our view.


Artis remains highly leveraged, at 48.8% of gross book value. Its

interest coverage ratio is also quite high, beyond 3x EBITDA. With

25% of maturities due in 2017, we remain concerned that the

REIT will have to sell assets to pay back some of its debt.


In general, we find that the age of properties has a strong neg-

ative correlation with occupancy rates, especially in the hyper-

competitive Alberta office market. Tenants are shying away

from older buildings, which Artis appears to have in far greater

proportion relative to other competitors.


Goals for executive compensation are not based on quantifia-

ble metrics. One of the board members is a retired partner of

Artis’ current law firm. Another board member has a beneficial

ownership in a firm that has business dealings with Artis.

INTRINSIC VALUE


years, we estimate a negative 6% growth rate, leading to an estimate

of $0.49 of AFFO per unit by 2020. We then apply a terminal multiple

of 19.6x to the REIT’s 2020 AFFO earnings. Discounting the REIT’s AFFO

by its cost of equity brings our intrinsic value to $9.00 per unit.


F15 F16 Q1-F17

Unit price $12.80 $12.70 $13.23

Units outstanding 139 150 151




Value 51.4% 49.8% 48.8%

Revenue $365 $390 $140


Veritas Adjusted AFFO Payout

Ratio (includes DRIP) 118% 174% 129%

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DARRYL MCCOUBREY

dmccoubrey@veri tascorp.com

416-866-8783

T H E D I S A P P E A R I N G D I S C O U N TACO.X increased its payout ratio by 82% between F11 and F16, compared to a 35% payout ratio increase at its principal

subsidiary, CU. Had ACO.X and CU raised payout ratios at a similar clip, ACO.X’s dividend growth profile would be lower

than CU’s over the past five years. While boosting payout ratios is unsustainable, it has underpinned a marked reduction

of the holding company discount we historically noted at ACO.X.

Updated April 27, 2017



Current Yield 2.6%

BUY

ATCO LTD.TSX-ACO.X

QUALITY RATING

Accounting & Disclosure 3.5/5

Better disclosure of financial results in its Energy seg-

ment and a more detailed look at expenditures en-

hances the relative transparency of ACO.X’s finan-

cial results compared to its Canadian peers.


Base FFO of approximately $700 to $750 million per

year is expected, with growth prospects primarily

tied to a core rate base growth rate of 5% (excluding

Fort McMurray Tx).


Measured use of leverage and healthy discretionary

cash flow suggests no equity issuances are need to

fund ACO.X’s $5.3 billion capital spending plan.


Divesting natural gas extraction assets accelerated

the de-risking process occurring at CU and ACO.X as

the proportion of regulated assets grows.

Corporate Governance 3.5/5

ACO.X increased its payout ratio by 82% between

F11 and F16, which is a likely driver behind a shrinking

holding company discount on CU holdings (CU in-

creased its ratio by 35% over the same period.)

INTRINSIC VALUE

We employ a net asset value approach, using a 10% hold-

ing company discount, to arrive at our $52.00 per share

value estimate.

Period Ending

(Amounts in C$) Q1-F16 F16 F15

Price (ACO.X) $51.71 $44.66 $35.50

Shares (millions) 114.7 114.7 115.0

Market capitalization (millions) $5,931 $5,120 $4,104

Net debt (millions) $15,818 $16,136 $13,552

Enterprise value (millions) $21,601 $21,393 $17,656

Adjusted EBITDA (TTM, millions) $1,936 $1,858 $2,040

Adjusted EPS (TTM) $3.10 $3.13 $2.55

EV/EBITDA (TTM) 11.2x 11.5x 8.7x

P/E (TTM) 16.7x 14.3x 13.9x

Net debt-to-EBITDA 8.2x 8.7x 6.6x

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DIMIRTY KHMELNITSKY


416-866-8783

BRINGING DAYLIGHT TO BADGER Between F11 and F14, Badger Daylighting (‘BAD’) established a record of highly profitable growth, but since F14 the company’s topline

has stagnated as its petroleum-industry revenues dropped off, following the global decline in oil prices. The recent slowdown has not

scaled back management’s ambitions, however, as the company anticipates that its U.S. revenues will double over the next five years,

while its Canadian segment grows at 10% to 15% p.a. Nonetheless, we see a number of headwinds facing BAD including: 1) increased

competition; 2) low truck utilization and falling RPT; 3) looming requirement to invest in trucks; 4) potential margin erosion; and 5)

accounting concerns and low cash conversion rates. We initiate coverage on BAD with a SELL recommendation and an intrinsic value of

$20.50.


Current Price $26.33


Current Yield 1.3%

SELL BADGER DAYLIGHTING TSX-BAD

QUALITY RATING


We believe BAD’s maintenance capex has been understat-

ed materially. BAD’s actual truck retirements do not match

management’s own assessment of hydrovacs’ economic

life (10 years) or those of industry experts (~11 years). In ad-

dition, BAD’s revenue per truck (RPT) would have been 11%-

31% lower in F10-F16, had the company accounted for fran-

chisee revenue on a net basis. Approx. 40% of Badger’s

Adjusted EBITDA converts into normalized/sustainable FCF.


We expect ~$330 million of total capex over next five years

on the back of increased investments in replacement and

growth trucks, which will be a major drag on future cash

flows

Balance Sheet 4/5

BAD is relatively unlevered, with a net debt/NTM EBITDA of 0.36x.


Based on discussions with BAD’s management and industry

participants, we note that competition for hydrovac ser-

vices from both small and sizable operators has increased.

Industry-wide, there has been an oversupply of trucks in the

market since 2014, with hydrovacs available from at least

20 manufacturers in North America, as well as on an ad hoc

basis from rental companies. Meanwhile, many end cus-

tomers are purchasing their own trucks. Consequently, we

believe that the advantages conveyed by BAD’s national

presence, in-house manufacturing, and large fleet have

diminished.


Management’s compensation is linked to EBITDA and RPT,

whereas we would like to see more focus on free cash flow.

INTRINSIC VALUEOur $20.50 per share intrinsic value is based on a DCF model,

which reflects: 1) petroleum growth at 3% CAGR, with non-

petroleum revenues plodding higher at 12% CAGR; 2) gradual

decline in Adjusted EBITDA margin from 26% in F16 to 22% in F21; 3)

a discount rate of 9.0%; and 4) a 2.0% long-term growth rate.

Period Ending

C$ Millions (except as noted) F15 LTM Q1-17

Share price $24.42 $26.33

Shares outstanding (thousands) 37,101 37,101

Market capitalization $906 $977

Enterprise value (EV) $1,000 $1,018

Revenue $405 $418

Reported Adj EBITDA $108 $105

Reported revenue growth (4%) 3%

Est. EV-to-EBITDA (NTM) 9.1x 8.8x

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

W E A K R E S U L T S I N K E Y B U S I N E S S E S C O N C E R N I N GBMO kicked off Q2 earnings season with very mixed results. Most concerning in our view was the bank’s lackluster performance in its U.S. P&C

Banking segment; a business which has performed well following last year’s acquisition of Transportation Finance and which we believe is key

to BMO’s long term earnings growth. Also concerning was a challenging quarter in the Canadian P&C Banking business where elevated

expenses led to negative operating leverage for the first time in almost two years.

June 22, 2017

Current Price C$92.48/US$69.46


Current Yield 3.9%

SELL

BANK OF MONTREALTSX-BMO; NYSE-BMO

QUALITY RATING


The noise emanating from the bank’s credit recoveries

related to the Marshall & Ilsley acquisition in 2011 has

diminished.

Capital 4/5

The CET 1 ratio, which ended the quarter at 11.3%, was up

marginally from 11.1% in Q1.

Credit 4/5

BMO’s loan loss provisions, which totaled $259mm in Q2 (a

loss ratio of 28 bps) were up relative to both last quarter’s

$173mm (a loss ratio of 19 bps) and the $201mm reported in

the prior year period (a loss ratio of 23 bps). Driving the

increase was the U.S. commercial portfolio, which saw credit

deterioration in several sectors, and Capital Markets, which

reported PCL’s of $46mm after recording a $4mm recovery

last quarter. Losses in Canadian P&C Banking on the other

hand were not materially higher in Q2.


Results were very mixed among BMO’s business lines. P&C

Banking was weak YoY on both sides of the border,

particularly in the U.S. (down 10%), with growth in Canada a

very minimal 1%. In Canada, results were impacted largely by

elevated operating expense growth of 5%, which more than

offset revenue growth of 3% and led to negative operating

leverage of 1.6%. And in the U.S., operating leverage in the

quarter was positive at 0.8% as a 2% decline in expenses

offset a modest revenue decline. Earnings in Capital Markets

improved by a solid 11% from last year, but were down 14%

sequentially from a very strong Q1, while Wealth earnings

were up materially versus a very weak quarter last year.


No items noted.

INTRINSIC VALUEOur intrinsic value estimate of $90.00 is calculated by applying a

multiple of 11.5x on our F2018 EPS estimate of $8.16 and a multiple

of 1.35x on our BV per share estimate of $64.15 at the end of F2017,

and taking the average of the two.

FY end Oct. 31 C$ F14 F15 F16

Common equity tier 1 ratio

(BIII) 10.1% 10.7% 10.1%

Closing Share Price $81.73 $76.04 $85.36

EPS (adjusted) $6.25 $6.82 $7.52

P/E 13.1x 11.1x 11.4x

BV/share $48.18 $56.31 $59.56

P/BV 1.7x 1.4x 1.4x

Dividend yield 3.8% 4.3% 4.0%

Market capitalization (millions) 53,047 48,862 55,122

ROE (adjusted) 14.4% 13.3% 13.1%

Net interest margin (AEA) 1.57% 1.51% 1.59%

# shares outstanding (millions) 649 643 646

BUSINESS COMPOSITIONBMO’s retail/wholesale earnings mix is approximately 75%/25%.

Canadian P&C banking accounts for approximately 40% of

earnings, excluding the corporate segment, while U.S. P&C

banking accounts for approximately 20% of earnings.

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

G R O W T H I N C A N A D A S E T T O M O D E R A T EBNS posted strong overall results in Q2 that were ahead of our expectations, with particularly robust earnings growth reported in the bank’s

International business, which saw material margin expansion. The Capital Markets business also delivered strong results, while credit did not show

any meaningful deterioration. The one blight in our view, in what was otherwise a very good quarter, was relatively lackluster growth in the

Canadian Banking segment (excl. Wealth), which underperformed all but one of the bank’s Big Five peers in Q2.




Current Yield 3.8%

SELL

BANK OF NOVA SCOTIATSX-BNS; NYSE-BNS

QUALITY RATING


BNS recently started providing better disclosure on its

International Banking segment, showing results by region (Latin

America, Caribbean & Central America, and Asia). P&L data

are provided on a constant currency basis, allowing for analysis

of the underlying business without the impact of FX.

Capital 4/5

BNS continues to report a strong capital position, ending Q2

with a CET 1 capital ratio of 11.3%. Management noted that

more aggressive capital deployment is being considered, with

the most likely avenue related to growing in the bank’s

targeted markets within its International business. However, it

was also noted that any acquisition opportunities will be

carefully vetted for strategic fit.

Credit 4/5

Credit was certainly not an issue in the quarter, although loan

losses did increase from $202mm last year to $236mm this

quarter due to both loan growth and the bank’s shift into

higher-spread lending.


Among the segments, Canadian Banking (excl. Wealth) saw

modest growth of 3% YoY after adjusting for the

aforementioned real estate-related gains. That underperformed

most Canadian peers in Q2. Earnings growth was much

stronger for both Global Wealth Management and International

Banking, each of which reported robust YoY growth of 19%.

Capital Markets earnings increased by a material 60% from a

relatively weak comparable period last year on the back of

another strong quarter for trading revenue.


No items noted.

INTRINSIC VALUEOur intrinsic value estimate of $73.00 is calculated by applying a

multiple of 11.8x to our F2018 EPS estimate of $6.69 and a multiple

of 1.4x to our BV per share estimate of $47.63 at the end of F2017,

and taking the average of the two.

BUSINESS COMPOSITIONExcluding the “Other” segment, BNS’ retail/wholesale earnings mix is

approximately 75%/25%. International Banking accounts for ~30% of

earnings and has exposures to the Caribbean and Central America,

Mexico, Chile, Peru, Colombia, other parts of Latin America, and parts

of Asia. Canadian Banking (excl. Wealth) accounts for approximately

35% of earnings.

FY end Oct. 31 C$

F14 F15 F16

Common equity tier 1 ratio (BIII) 10.8% 10.3% 11.0%

Closing share price $69.02 $61.49 $72.08

EPS (adjusted, TTM) $5.48 $5.72 $5.96

P/E (TTM) 12.6x 10.8x 12.1x

BV/share $36.96 $40.80 $43.59

P/BV 1.9x 1.5x 1.7x



ROE (adjusted) 15.6% 14.9% 14.5%

Core Margin (AEA) 2.39% 2.39% 2.38%

# shares outstanding (millions) 1,217 1,203 1,208

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

E A G L E F O R D S A L E P O T E N T I A L L Y A D D S 3 0 % U P S I D EBaytex’ debt load continues to weigh heavily on its valuation, with leverage at 6.2x our projected 2017 funds flow (US$51 WTI). A potential

Eagle Ford sale (at $50,000 per flowing barrel) could erase all of Baytex’ $1.8 billion debt and add 30%+ upside. Eagle Ford remains

Baytex’ only attractive play at US$50 WTI, and a sale leaves Baytex with only Canadian heavy oil assets. Renegotiated bank covenants

and long dated debt (credit facility matures 2019 & next debt maturity is 2021) give management time to find the right sale. BUY

Updated May 9, 2017

Current Price C$4.48 / US$3.27


Current Yield 0%

BUY

BAYTEX ENERGY CORP.TSX-BTE; NYSE-BTE

QUALITY RATING


In 2016, Baytex recorded an impairment charge of

$432 million, including $230 million in Peace River and

$167 million in U.S. E&E assets. This write-down is the

result of a change in future pricing assumptions and

shrinking 2P reserves as the result of a lack of drilling.


We expect Baytex to generate funds from opera-

tions of ~$1.40 per share in 2017 at US$54 WTI oil and

US$3.30 NYMEX gas, rising to ~$1.60 per share in 2018

at US$60 oil and US$3.00 gas.


Baytex will remain onside its relaxed debt covenants

next year. The Senior Debt covenant was amended

to 5.0x for 2016 as of December 2015 and stood at

0.7x for the 12 month ending March 2017.


Baytex had a lot of issues during the downturn forc-

ing it to reduce spending on its most productive, Ea-

gle Ford assets. Times are changing and spending is

back across the companies light oil plays. In addition

management recently communicated its intension

to return to drilling at its Canadian heavy oil assets.


In December 2016 Baytex announced that Ed La-

Fehr, President will succeed CEO James Bowzer in

May 2017. Mr Bowzer was known for an ill-timed deci-

sion to acquire Eagle Ford acreage in mid-2014. The

internal promotion means we don’t expect much to

change.


Reported CFO* 80.7 247.4 549.4



Dividends declared 0.0 0.0 154.0

% of CFO* 0% 0% 28%



Price 4.54 6.56 4.48


Market cap. ($ millions) 1,062 1,531 943

Revenue ($ millions) 203 602 888

CFPS 0.34 1.06 2.61


ROE (annualized) 2.0% (21.6%) (61.3%)

Dividends per share 0.00 0.00 0.73

Production (boe/d) 69,298 69,509 84,648

CFO* per boe 12.77 9.75 17.78



INTRINSIC VALUE


2017 / 2020

HH Gas Price

2017 / 2020

USD/CAD XR

2017 / 2020

Intrinsic

Value

$62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 8.00

$67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 10.50

$77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 15.00

Our base case values Baytex at $10.50 per share, reflecting a return to

US$67 oil and US$3.75 gas through 2020.

* CFO is cash from operations after working capital, cash interest and asset retirement expenditures .

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DESMOND LAU

dlau@veri tascorp.com

416-866-8783

M O R E F I B R E N E E D E D T O I M P R O V E W I R E L I N E H E A L T H

BCE closed the MTS acquisition with updates to EBITDA and FCF guidance that were in line with our expectations. Revised

synergy estimates of $100m will be heavily relied upon to support the wireline segment, which is under pressure from

Rogers’ ubiquitous Gigabit Internet offering. Post MTS acquisition closing, we estimate BCE trades at 8.3x F18E EBITDA, a

slight premium to Rogers at 8.2x and Telus’ 7.8x. Until the Company improves its wireline operations, we don’t see a reason

for multiple expansion relative to peers. We see more upside with our Top Buys (QBR.B, CCA, SJR.B, T), and are

downgrading BCE to a SELL with an intrinsic value estimate of $60.




Current Yield 4.8%

SELL

BCE INC.TSX-BCE; NYSE-BCE

QUALITY RATING


Both the accounting policies and the supplementary disclo-

sures are reasonable.


Following the close of the MTS acquisition, we estimated the

FCFE accretion per share to be less than 1%. Therefore, we

do not expect BCE to announce a dividend increase.


F17 net debt to EBITDA of 2.9x is above the company’s

1.75x-2.25x target and excess free cash flow will be dedi-

cated to reducing debt.


BCE’s wireless ARPU increased 4.2% YOY along with 36k net

adds. Wireline results lagged with EBITDA growth weakly

positive at 0.1%. Though Internet and IPTV provided net

adds of 14.9k and 22.4k, both saw a drop in YoY growth of

–24% and –53%, respectively. Greater fibre expansion will be

needed to breathe new life into the wireline segment.


Good.

INTRINSIC VALUE

We are maintaining our SELL rating and $60 intrinsic value esti-

mate.

YTD Mar 31, 2017

C$ Millions F15 F16 F17

Revenue (TTM) 21,183 21,544 21,500

EPS (TTM) $2.82 $3.17 $3.29

EBITDA (TTM) 8,375 8,620 8,839

Price (reporting date) $53.19 $58.83 $62.70


P/E (TTM) 18.9x 18.6x 19.1x

FCFE yield (TTM) 6.1% 6.2% 6.0%


Market capitalization 44,781 51,123 54,906

Enterprise value 68,984 75,057 82,463

Net debt: TTM reported EBITDA 2.9x 2.8x 3.1x

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DESMOND LAU


416-866-8783

B E H I N D G A A P A N D N O N - G A A P R E V E N U E D I V E R G E N C EFollowing BlackBerry’s decision to stop manufacturing hardware, investor eyes have all been on software revenues,

looking for market scale and sustained growth. In this light, Q1-F18 was particularly puzzling given that non-GAAP Enterprise

Software revenue declined 4.7% but GAAP Enterprise Software rose by 12.2%. Although neither the financials nor our

discussions with management provided definitive answers over GAAP/non-GAAP revenue, we believe understanding the

limits of Blackberry’s GAAP and non-GAAP revenue disclosures will be key to tracking the company’s performance going

forward.


Current Price C$13.35/ US$10.23

Intrinsic Value US$11.50

BUY

BLACKBERRY LIMITEDTSX-BB; NASDAQ-BBRY

QUALITY RATING


GAAP and non-GAAP Revenue growth is clouded by

the impact of deferred revenue originating from the

Good Acquisition and the associated impact of cus-

tomer conversions from perpetual to recurring ar-

rangements.


Following the favourable Qualcomm arbitration de-

cision BlackBerry generated positive FCF of $860m

however, without the one-time bump, FCF would

have been ($91m).


BlackBerry continues to improve its balance sheet

health, with the Qualcomm arbitration decision

providing a boost to net cash which now sits at

$1.4b.


Management now expects software growth of 10%-

15% for F18 which, based on the most recent quar-

ter’s results appears achievable.


CEO John Chen appears to be hiring the right peo-

ple with the right experience to return BlackBerry to

its enterprise roots.

INTRINSIC VALUE

We are maintaining our BUY recommendation with a re-

vised $11.50 intrinsic value estimate.

Year-ended May 31, 2017

US$ Millions F16 F17 F18

Revenue 3,027 1,902 1,144

Diluted EPS -$0.10 -$1.28 $1.23

Share Price (reporting date) $8.81 $7.00 $10.23

P/BV 1.3x 1.4x 2.0x

Market Capitalization 4,669 3,675 5,437

Net cash 2,066 1,282 1,696

Enterprise Value 2,603 2,393 4,035

Shares O/S (M) 530 525 531.5

Net Income 68 -670 671

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

HOWARD LEUNG


416-866-8783

A L B E R T A H O U S I N G F A I L S T O P A S S ‘ G O ’Boardwalk is Canada’s second largest multi-family residential REIT by suite count, with over 33,773 suites owned. The REIT is

geographically concentrated in Alberta, which generates approximately two-thirds of its NOI. While we consider

Boardwalk to be conservatively financed, we expect continued topline pressures as weak economic conditions in Alberta

keep a lid on rent increases and occupancy rates trend lower. In our view, the REIT’s high-rent, high-expense approach

may suffer in the current environment which continues to see significant condo and new rental completions coming to

market.


Prior Close $49.32


Current Yield 4.6%

SELL

BOARDWALK REITTSX-BEI.UN

QUALITY RATING


Boardwalk uses a reserve to account for its maintenance

capex in the calculation of AFFO, which in our view, under-

states maintenance requirements.


Adjusting AFFO for actual capex, Boardwalk’s payout ratios

are near or over 100%. In Q1-F17, because of extremely poor

results, we estimate that Boardwalk’s payout ratio was 253%.


Boardwalk’s capital management is generally safe because

of its low leverage ratio and its non-acquisitive operating

strategy.


Boardwalk has significant exposure to Alberta which is expe-

riencing high unemployment levels. This has significantly

hampered Boardwalk’s operating performance. For exam-

ple, its Q1-F17 FFO fell over 33% from the prior year quarter

because of worsening Alberta conditions. Management

thinks that Alberta has bottomed out, however.


Executive performance goals are a mix between qualitative

and quantitative targets. Nonetheless, because 2016 was a

challenging year, executives were not rewarded through

profit sharing. The CEO also takes no salary or bonus.

INTRINSIC VALUE


years, we estimate a negative 1.4% annual growth rate, leading

to an estimate of $1.95 of AFFO per unit by 2020. We then apply

a terminal multiple of 21.3x to the REIT’s 2020 AFFO earnings. Dis-

counting the REIT’s AFFO by its cost of equity of 6.9% brings our

intrinsic value to $39 per unit.


F15 F16 Q1 F17

Unit price $47.45 $48.65 $47.17

Units outstanding 51,322 50,739 50,759



Net Debt to Gross Book Value 39% 42% 42%

Revenue $476 $439 $105




Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DAN FONG


416-866-8783

W I L L T R U M P E N T E R T H E F L I G H T P A T H ?Boeing has petitioned the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC) to initiate

investigations to determine: 1) if CSeries sales to Delta have violated U.S. anti-dumping rules, and 2) if government cash infusions to

Bombardier constitute countervailable subsidies under U.S. law. Investors should note that Boeing is using the same ‘Made in America’

trade mechanism that the U.S. lumber coalition successfully used against the Canadian softwood industry. A DOC investigation would

add considerable uncertainty to any CSeries sales campaigns in the U.S., and the prospect of tariffs will change the aircraft’s operating

economics. As a result, prospective U.S. buyers are likely to defer their purchase decisions or forgo the CSeries altogether. In our view,

Boeing’s trade complaint likely exacerbates the CSeries’ already slow sales momentum, and Bombardier’s outlook remains challenging.


Current Price: C$2.14


Current Yield: N/A

SELL

BOMBARDIER INC.TSX-BBD.B

INTRINSIC VALUE

Our $2.00 per share IV is based on our outlook for the Company’s

prospects beyond 2020 (non-CSeries segments) and 2022

(CSeries only).

USD Millions (except as noted) F15 F16 TTM

Q1-F17

Share price (C$) $1.34 $2.16 $2.04



Revenue $18,200 $16,300 $16,000

Reported EBITDA $600 $460 $450

Reported free cash flow ($1,800) ($1,100) ($950)

Reported adjusted EPS $0.08 ($0.08) ($0.06)

EV-to-EBITDA 14.1x 23.4x 24.7x

QUALITY RATING


We would prefer to see additional detail on cash usage

and profitability of key products (i.e., CSeries, Global 7000).


Management expects negative cash flows until 2018 and

$1+ billion of FCF by 2020. However, the CSeries continues

to be weighed down by heavy discounting, business jet

orders appear stalled, and restructuring at the transporta-

tion segment signals potential end market weakness. We

cannot rule out negative cash flows beyond manage-

ment’s forecast period.


Bombardier’s deal with CDPQ and the Québec govern-

ment, as well as its recent debt refinancing, have eased

near-term liquidity concerns. However, the Company re-

mains heavily leveraged and faces $5.2 billion in debt ma-

turities between 2021 and 2023. Should Bombardier fail to

execute on management’s turnaround plan, liquidity pres-

sures may resurface.


Orders for the CSeries continue to stagnate with the firm

order book running out in 2021; the existing business jet fran-

chise is experiencing soft demand; the new Global 7000

currently only has two years of backlog (after six years of

marketing; and the transportation segment is undergoing a

significant restructuring.


Alain Bellemare has done an admirable job in assembling a

new executive team; however, in our view, Bombardier’s

history of poor governance outweighs the benefits of re-

shuffling to date.

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

U N D E R A P P R E C I A T E D G R O W T H & S U S T A I N A B I L I T YBonavista has reshaped its holdings through acquisitions and divestitures while strategically focusing on its best opportunities (65% of 2017

capex is directed at the Deep Basin) and allowing other volumes to fall off. Bonavista is returning to growth with guidance of 9% increase

in production in both 2017 & 2018, and is one of the few producers who can fund a growth capex budget within cash flow, at current strip

pricing. BNP trades at 2.5x our 2017 FFO estimates, a doubling of the share price would still leave the company at a discount to peers. BUY.




Current Yield 1.2%

BUY

BONAVISTA ENERGY CORP.TSX-BNP

QUALITY RATING


In 2015, Bonavista recorded impairments of $812MM related

to its Central, South Central and Southern Alberta CGUs

driven by a decline in forward commodity price assump-

tions. BNP recorded no impairments for the year ending

2016. Bonavista continues to move interest paid out of op-

erating cash flows into financing cash flows, which is al-

lowed under IFRS, but misleading, in our view.


Bonavista plans to ramp up spending in 2017 to return to

production growth with expected higher commodity prices.

We see cash flow from ops of $1.15-$1.25 per share and

capex of $1.10-$1.20 per share based on the midpoint of

management guidance.


A Debt-to-EBITDA covenant limits Senior Debt to 3.5 times

EBITDA, excluding unrealized gains on financial instruments

but including realized hedging. At US$51 WTI (our low case)

we forecast Bonavista’s ending Debt/EBITDA at 3.1x well

under the maximum ratio.


A Q4 2016 asset swap increases Bonavista’s exposure to

liquids rich gas and increases the total gas weighting to a

record 72% of total production. Bonavista remains a highly

productive operator and we expect it to continue to focus

on its highest productivity Glauconite and Deep Basin plays.

In our view, low on-stream costs provide more than enough

stability to weather the current downturn.


With insider ownership of 10%, management's interests re-

main well aligned with shareholders.


Reported CFO* 76.7 260.8 406.3




% of CFO* 3% 5% 19%

% of available cash N/A 13% 83%

*CFO is cash from operations after working capital, cash interest and asset retirement

expenditures

Company Profile 2017 Q1 2016 2015

Price 3.46 3.86 1.82


Market cap. ($ millions) 866 980 398


CFPS 0.31 1.03 1.86


ROE (annualized) 22.0% -6.2% -38.5%


Production (boe/d) 70,281 68,550 79,288

CFO* per boe 11.96 10.42 14.04



INTRINSIC VALUE


2017 / 2021

HH Gas Price

2017 / 2021

USD/CAD XR

2017 / 2021

Intrinsic

Value

$62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 8.50

$67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 9.00

$77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 10.00

Our base case values Bonavista at $9.00 per share, reflecting a return

to US$67 oil and US$3.75 gas through 2021.

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

NASIBA AKHMEDOVA

nakhmedova@veri tascorp.com

416-866-8783

S T A Y I N G O N T H E S I D E L I N E SAs evidenced by its lofty valuation, Brookfield Renewable Energy Partners, LP (“BEP”) appeals to long-term, income-focused investors, as

its ~90%-weighted hydroelectric portfolio inherently carries less business and refinancing risk than peers. Our near-term concerns

surrounding increasing merchant exposure, a history of underperforming long-term average generation (“LTA”) and foreign currency

headwinds prompt us to maintain a SELL recommendation and $25.50 per unit value estimate.

Updated May 5, 2017



Current Yield 6.1%

SELL BROOKFIELD RENEWABLE ENERGY

PARTNERS L.P. TSX-BEP.UN; NYSE-BEP

QUALITY RATING


BEP’s adjusted FFO per unit is a misleading metric for inves-

tors attempting to monitor levered FCF, since it excludes

development costs, understates the sponsor’s equity claim

and replaces actual sustaining capital expenditures with a

smoothed amount.


If it achieves LTA, BEP’s normalized FFO per unit would have

been $1.83 in F16 — enough to cover the new $1.87 distri-

bution per unit. Longer-term, assuming the status quo on FX

and power prices, achieving a 5-9% annual distribution

CAGR will be a challenge.


BEP’s balance is highly levered and its equity is richly val-

ued. Accordingly, we believe BEP has a greater amount of

equity value at risk should interest rates rise compared to

names like NPI and CPX.


Management will need to execute on its development

plans to unlock equity value upside from the current unit

price. In our view, the market has yet to fully account for a

sustained low power price environment.


No significant issues noted.

INTRINSIC VALUE

We value BEP at US$25.50 per unit.

FY end Dec. 31

US$ Millions Q1-F17 F16 F15

Capacity (MW) 10,621 10,731 7,284

Electrical output (TTM GWh) 35,526 34,071 23,332

Price per unit $29.84 $29.71 $26.18

Units outstanding 299.2 299.1 275.6


Net debt $16,276 $16,771 $10,152

Enterprise value $25,200 $25,656 $17,367

Revenue (TTM) $2,455 $2,452 $1,628

EBITDA (TTM) $1,420 $1,487 $1,177

FFO per unit (TTM) $1.38 $1.45 $1.69


P/FFO (TTM) 21.63x 20.5x 15.5x

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

SAM LA BELL

s label l@veri tascorp.com

416-866-8783

L I M I T E D V I E W T O T H E U P S I D E

Although CAE generates solid free cash and is improving its leverage position, we continue to look for material, sustained

improvements to the company’s margin and return on capital employed metrics as drivers of upside to CAE’s share price.

Since the Oxford acquisition in early F13, however, these metrics have remained largely stagnant. At this time, we fail to

see a catalyst for material upside, and given our intrinsic value estimate of $13.00, we recommend investors sell CAE.



Intrinsic Value: Under Review

Current Yield 2.0%

SELL

CAE INC.TSX-CAE / NYSE-CAE

QUALITY RATING


Over time, CAE has reduced the extent of certain

key disclosures, hampering the ability of investors to

analyze the performance of the underlying Civil and

Defence businesses.


CAE generates solid free cash flow. We have ques-

tions over the breakdown between growth and

maintenance capex in the company’s reported free

cash flow metric.


CAE has reduced its net debt position over each of

the last several quarters and is in compliance with all

financial covenants.


CAE is a market leader or key player in its main lines

of business. However, we believe increasing compe-

tition and macros concerns will leave CAE’s margins

and returns on capital with little to no room for ex-

pansion.


Over the last three years, metrics for determining

short-term incentives for executives have changed

multiple times. Target thresholds have been reduced

and criteria have been altered.

INTRINSIC VALUE

UNDER REVIEW.

Year ended March 31

C$ Millions (except as noted) F13 F14 F15

Share price (C$) $9.93 $14.55 $14.78

Shares outstanding (millions) 260.0 263.8 266.9




Revenue $2,035 $2,078 $2,246

Operating Income $234 $289 $333

Adjusted EPS $0.53 $0.72 $0.76

Reported ROCE 10.2% 11.4% 10.4%

29



Market Capitalization (million) $805

CALLIDUS CAPITAL CORP.TSX-CBL

G R A V I T Y

Concerns related to the credit quality of Callidus’ loan book and uncertainty regarding the Catalyst loan loss guarantee

combine to create uncertainty for investors attempting to value Callidus. A single large borrower impairment could signifi-

cantly impact earnings and book value.

Risk Areas

Earnings quality — Due to the priority of payments structure related to interest income and the subjectivity related to

potential loan impairments, we believe there is an increased risk to economic earnings.

Disclosure — Limitations in disclosure related to loan valuation and the loan loss guarantee present a risk to investors

analyzing potential credit risk.

Updates Since Last Report

No updates.

DIMITRY KHMELNITSKY


416-866-8783



Market Capitalization (million) C$5,770/US$4,330

CAMECO CORP.TSX-CCO; NYSE-CCJ

T A X M A N K N O C K I N G H A R D E R

The Canada Revenue Agency (CRA) is pursuing Cameco for its use of an offshore tax haven, exposing the company to

approximately $2 billion in back taxes, transfer pricing and interest and installment penalties through the 2016 tax year. In

addition, the US Internal Revenue Service (IRS) has reassessed CCO for approx. US$130 million for 2009-2012 tax years. Our

analysis of the Canadian tax code, court documents, and legal precedents suggests that the CRA’s case has a high likeli-

hood of prevailing in court. Should the CRA prevail, Cameco’s tax rate could rise to the full Canadian statutory tax rate of

26% in the future. The CRA is disputing both the structure and the transfer price established by Cameco. Consequently,

the CRA needs to win on only one claim to prevail, while Cameco needs to win on both to defend itself successfully.

R I S K A R E A S

Tax — Based on our analysis, there seems to be little business substance to CCO’s off-shore marketing structure given

that all the key functions and risks are borne by the Canadian entity, while most profits accumulate off-shore. In addi-

tion, while Cameco’s transfer pricing methodology requires a very high degree of comparability to market transac-

tions, there seems to be significant differences between CCO’s intercompany arrangement and market transactions.

We also note that the CRA’s position seems consistent with past legal precedents. Furthermore, the recent reassess-

ment by the US Internal Revenue Service has further bolstered the case against CCO.

Earnings Quality — Despite the extremely material exposure, CCO has recorded a cumulative charge of only $58M as

of the end of 2016: “where an argument could be made that, based on our methodology, our transfer price may

have fallen outside of an appropriate range of pricing in uranium contracts for the period from 2003 through 2016”.

Cash Flow Sustainability — CCO expects that the tax court trial will stretch until H2-2017, with a decision expected six

to eighteen months thereafter. Thus, we may not get a decision until 2018. Meanwhile, CCO will be required to make

installment payments to the CRA, equaling 50% of the reassessed back taxes and penalties. Thus far the company

has remitted/secured through letters of credit $684 million worth of back taxes and interest and transfer pricing penal-

ties. In 2017-2018, CCO expects to make additional cash payments/provide letters of credit for approx. $100 million

All else equal, CCO’s cash tax rate will rise materially post 2017 regardless of the court case outcome, given the reset

of the existing intercompany contracts between the Canadian parent and Cameco’s Swiss subsidiary.

U P D A T E S S I N C E L A S T R E P O R T

None. The issue is expected to be resolved sometime in 2018.

Quality Scale


5 10 15 20 25

Intrinsic Value Scale -50% -25% 0 25% 50%

KATHLEEN WONG


416-866-8783

N E X T S E V E R A L Y E A R S O F G R O W T H P R I C E D I N

On May 24, we conducted a price check of light weight down jackets on both Canada Goose and Moncler’s websites in Canada, U.S,

and Europe. We noticed Canada Goose used a different pricing strategy for light weight jackets compared to winter down jackets in

Europe, and the strategy had contributed to strong spring sales in Q4-F2017. As we have indicated in our initiating coverage report dated

March 27, 2017, we are concerned about Canada Goose’s pricing strategy for winter down jackets in Europe and we believe it wi ll be

difficult for Canada Goose to compete with Moncler outside of North America.




Current Yield: N/A

SELL CANADA GOOSE HOLDINGS INC. TSX, NYSE-GOOS

QUALITY RATING


Canada Goose’ previous private company status and cur-

rent emerging growth company status gives Goose certain

exemptions such as no requirement of auditor attestation

over internal controls and reduced executive compensa-

tions disclosure. Goose has identified material weaknesses in

internal controls over financial reporting which they intend

to remediate. Compared to Moncler, Canada Goose

should provide retail metrics such as same store sales growth

and selling square footage.


We expect Canada Goose to generate free cash flow at a

CAGR of 29% in the next five years. This should support debt

reduction and internally financing growth capex.


Following the IPO, Canada Goose has a Net Debt to EBITDA

of 1.5x. FCF generation should allow to deleverage from

1.5x in 2016 (F2017) to 0.3x by 2019 (F2020).


Goose expanded into the retail channel and increased its

retail sales mix from 3.7% in 2014 to 23.3% in 2016, and its

GPM improved from 40.92% in 2014 to 51.68% in 2016. Going

forward, we believe it will be more difficult for Goose to repli-

cate the success of Moncler given the slower growth in the

market and Goose unique pricing that put its merchandise

in direct competition with Moncler in U.S. and Europe.


The CEO and Bain Capital have three seats on the Board.

Out of the five directors, there are only two independent

directors. Canada Goose’s BOD is stacked with its owners.

Bain Capital owns 68% voting power and DTR LLC (an indi-

rect entity controlled by the CEO) owns 29% of voting pow-

er, while the public has ~2% of voting power.

INTRINSIC VALUE

We estimate Canada Goose is worth C$22.00 using a DCF model assuming

4% terminal growth rate and a 8.5% discount rate. If we assume GOOS can

more than doubled its sales by 2022 to $1,195 million from $404 million in

2016, earn a 24.15% EBITDA margin and trade at Moncler’s 13x EBITDA

multiple, we estimate Canada Goose would with an implied present value

of ~$22.00 per share.

(C$ Millions, except as noted) F2017 F2018E F2019E

E-Commerce Sites 4 9 12

Retail Stores 2 5 8

Wholesale Mix 72% 66% 60%

Retail Mix 29% 34% 40%

Sales $404 $474 $566

GPM 53.00% 54.79% 56.78%

EBITDA $75.2 $91.4 $115.0

EBITDA Margin 18.63% 19.30% 20.33$

Average Stock Price $20.95 $30.36 $30.33

Market Cap $2,264 $3,339 $3,339

Enterprise Value $2,407 $3,471 $3,471

EV/EBITDA 32x 38x 30x

S/O (mlns.) 109.3 110 110

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

A L A C K L U S T E R Q 2 R E S U L TWhile CM comfortably beat our earnings estimate in Q2, we view the results as lower quality than what the bank has reported in recent

quarters. Much of CM’s growth this quarter was driven by a sizable decline in loan losses, which we believe can quickly revert to more normal

levels, while earnings in Retail & Business Banking were up a relatively modest 4% despite outsized double-digit growth in both residential

mortgages and business lending. Earnings growth in Capital Markets was aided by lower credit losses as CM underperformed peers on

revenue growth.




Current Yield 4.8%

BUY

CANADIAN IMPERIAL BANK OF COMMERCE

TSX-CM; NYSE-CM

QUALITY RATING


Management’s disclosure on the distribution of LTV’s within its

uninsured Canadian residential mortgage book helped to

address concerns surrounding CM’s rapid growth in that

portfolio. While we are still concerned about a potential

downturn in the Canadian housing market, CM’s current LTV

distribution clearly shows a substantial buffer.

Capital 4/5

CM’s CET 1 capital ratio strengthened further to 12.2% ahead of

the closing of the PrivateBancorp transaction, which is

expected to occur in June (during Q3-F17). Management

continues to guide to a CET 1 ratio of at least 10.0% following

the close of the acquisition, although that appears a bit light in

our view (we expect the CET 1 ratio to be closer to the 10.5%

range).

Credit 4/5

Loan loss provisions totaled $179mm in the quarter, equating to

a loss ratio of 0.22%. That compared favorably to both last

quarter’s loss ratio of 26 bps and the 44 bps reported in the prior

year, which was driven by losses in the commercial book

related to the oil and gas sector (this quarter had a $6mm

recovery in the O&G portfolio). There was little noise in other

credit-related indicators.


CM’s businesses reported YoY growth across the board,

although results varied. Retail & Business Banking was up a

decent 4.0%, although that figure underperformed two of the

three other banks that have reported Q2 results. Wealth

Management on the other hand reported much stronger

earnings growth of 36%, while Capital Markets saw a 12% jump,

largely on the back of much better credit performance.


No items noted.

INTRINSIC VALUE

Our intrinsic value estimate for CM is $121.00, which we calculate

by applying a multiple of 11.5x to our F2018 EPS estimate of $11.01

and a multiple of 1.7x to our BV per share estimate of $67.93 at

the end of F2017, and taking the average of the two.

BUSINESS COMPOSITIONCurrently, CM’s adjusted retail/wholesale earnings mix is

approximately 75%/25%, excluding the Corporate segment. CM

expects the earnings contribution from the U.S. to be north of 10%

following the acquisition of PrivateBancorp.

FY end Oct. 31

C$ F14 F15 F16



EPS (adjusted, TTM) $7.87 $8.89 $10.22

P/E (TTM) 11.5x 11.3x 9.8x

BV/share $44.30 $51.25 $56.59

P/BV 2.3x 2.0x 1.8x



ROE (adjusted) 20.9% 19.9% 19.0%


# shares outstanding (millions) 397 397 397

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

C N R L ’ S B A T T L E S H I P B U I L T F O R U S $ 5 0 + W T I

CNRL surpasses the 1 million barrel per day mark with a 60% acquisition of the ‘AOSP’ (255,000 bbl/d SCO project capacity) for ~$9.5

billion. The deal finds a home for its rising free cash flow per share as the result of Horizon phase 3 coming online in Q4-2018 and we see

synergies from shared resources with Horizon make the deal highly accretive. While investors are worried about heavy oil at low prices,

CNRL’s efficient operations can generate material free cash flow (after dividends) if WTI remains range bound at US$50 to US$55. BUY.




Current Yield 2.9%

BUY CANADIAN NATURAL RESOURCES LTD.

TSX-CNQ; NYSE-CNQ

QUALITY RATING


CNRL currently has over $7.79 B of project costs at Horizon

and Kirby that are not subject to depletion or depreciation.

So far in 2016, pre-tax interest of $128 MM or $0.11 per share

has been capitalized to property plant and equipment

versus $120 MM or $0.11 per share in 2014.


Even at US$55 WTI in 2017, our base, we expect CNRL’s cash

flow of ~$7.9 billion and free cash flow of ~$3.5 billion or

~$3.15 per share. In 2018 FCF climbs to $5.8 billion ($5.20 per

share) under our base case of US$60 WTI.


Recent acquisition of AOSP was financed with a ~$4 billion

equity raise, $3 billion term loan and $6 billion bridge financ-

ing. With CNRL’s massive free cash flow generation this

bridge financing will be paid down quickly, so investors

need not worry about the current debt load if WTI stays

above US$45.


CNRL’s acquisition of AOSP and ramp up its Phase 3 of Hori-

zon, the company will move from being an ~800 thousand

barrel of oil equivalent per day (boe/d) producer with an

21% oil sands weighting and 68% liquids weighting overall,

to a 1.15+ million boe/d producer with a ~35% oil sands

weighting (72% liquids weighting overall).


CNRL got out in front of the public fallout from the Primrose

leaks, keeping management's credibility intact. The current

downturn presents an even bigger challenge that CNRL’s

team has done a good job of navigating.


Reported CFO* 1,671.0 3,452.0 5,632.0

Capital expenditures (768.0) (4,333.0) (4,704.0)

Available cash (shortfall) 903.0 (881.0) 928.0

Dividends declared 306.0 1,035.0 1,006.0

% of CFO* 18% 30% 18%

% of available cash 34% N/A 108%

*CFO is cash from operations after working capital and asset retirement expenditures


Price 43.54 40.50 30.22

Shares (millions incl. exch.) 1,112.9 1,111.0 1,094.7


Revenue ($ millions) 3,642 10,523 12,363

CFPS 1.50 3.11 5.14


ROE (annualized) 3.7% (0.8%) (2.3%)


Production (000's boe/d) 907 860 790

CFO* per boe 20.19 11.00 19.54



INTRINSIC VALUE


2017 / 2021

HH Gas Price

2017 / 2021

USD/CAD XR

2017 / 2021

Intrinsic

Value

$62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 52.50

$67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 59.00

$77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 71.50

Our base case values Canadian Natural at $59.00 per share, reflecting

a return to US$67 oil and US$3.75 gas through 2020.

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

HOWARD LEUNG


416-866-8783

L E A S E E X P I R I E S A N D O F F I C E E X P O S U R E S A D D T O P R E S S U R E

CREIT is one of Canada’s largest and oldest diversified REITs, with industrial, residential and retail properties spread across

Canada. In general, CREIT’s strategies have resulted in relatively high occupancy rates in its Retail, Industrial, and Office

segments, however we note that 39% of CREIT’s leasable area is either vacant or expiring over the next three years. We

currently view CREIT’s 5.1% F16 AFFO yield as unattractive, given a relatively slow growth profile, recent increases in

leverage and the REIT’s ~38% same-asset NOI exposure to Alberta, where we expect rollovers to produce topline pressure.


Prior Close $47.14


Current Yield 4.0%

SELL

CANADIAN REIT (‘CREIT’)TSX-REF.UN

QUALITY RATING


No issues noted. CREIT’s AFFO calculation is among the

cleanest in the sector.


AFFO payouts are always well below 100%. We see some

headwinds from Alberta affecting CREIT’s future results; that

said, we do not see the current payout as at risk. We none-

theless see negative AFFO growth going forward.


CREIT’s leverage tends to be below 40% debt to gross book

value. We don’t see issues in this regard for CREIT.


CREIT’s operating lease terms are shorter than most competi-

tors in all its subsectors. While shorter lease terms can be ad-

vantageous in a tight rental market as leases resign at higher

rates, the turnover can deadly in a bear market as tenants

use vacancies as leverage to extract incentives or favorable

rental terms.


Performance measures are based on quantifiable metrics

and specific qualitative goals. The board is mostly independ-

ent.

INTRINSIC VALUE


years, we estimate a negative 0.7% annual growth rate, leading

to an estimate of $2.48 of AFFO per unit by 2020. We then apply

a terminal multiple of 17.7x to the REIT’s 2020 AFFO earnings. Dis-

counting the REIT’s AFFO by its cost of equity of 7.7% brings our

intrinsic value to $42 per unit.


F15 F16 Q1 F17

Unit price $42.06 $46.30 $48.48





Value 37.7% 38.6% 38.6%

Revenue $394 $403 $117




Quality Scale


5 10 15 20 25


KATHLEEN WONG


416-866-8783

P O O R W E A T H E R C A N ’ T D E N T Q 1 R E S U L T S

Despite the abnormal weather patterns that led to soft same store sales growth at Canadian Tire and FGL Sport, Q1-2017 consolidated

EBITDA (excluding other income) increased $40 million or 16.3% to $284 million, beating consensus of $264 million. The strong results were

due to management’s continued focus on optimizing assortments, improving sales mix and product cost. Management indicated on the

conference call that Canadian Tire exited the quarter with clean inventory.

We expect CT REIT to refinance the intercompany debt over time with third parties and this should allow Canadian Tire to use this cash for

dividend increases, share buybacks and acquisitions. Canadian Tire will also benefit from the vend-in of retained real estate into CT REIT

over time.




Current Yield 1.4%

BUY

CANADIAN TIRE CORP.TSX-CTC.a

QUALITY RATING


Canadian Tire presents its financial statements with three reporting

segments - Retail, Financial Services and CT REIT. Although EBITDA for

each division within the Retail segment is not available, select key

metrics of each division are disclosed.


Between 1999 and 2010, Canadian Tire focused on renewing its

store concepts and building a stronger supply chain infrastructure.

As a result, Canadian Tire spent 88% of its operating cash flow on

capital expenditures. The efforts have paid off as Canadian Tire

generated total free cash flow exceeding $2 billion from 2011 to

2014, more than quadrupling the free cash flow it generated in the

previous 10 years. Canadian Tire achieved most of its five-year finan-

cial aspirations by 2014, and we expect the company to achieve its

aspirations set out for 2015 to 2017.


IFRS requires the consolidation of off-balance sheet securitized re-

ceivables, leading to an increase in net debt-to-EBITDA from 2.5x to

4.0x+. However, if we examine leverage at Retail and Financial

Services segments separately, debt levels appear manageable.


The acquisition of FGL Sports increased Canadian Tire’s retail sales

by 20%, making it the biggest sporting goods retailer in Canada,

with a 35% market share. The company has a successful integration

track record with FGL Sports and Mark’s.


Canadian Tire is structured to give the Billes founding family and the

Dealers control through dual-class share structure. Public float is

made up of Class A Non-Voting Shares. While common shares make

up just 4.7% of total shares outstanding, they represent 100% of the

voting rights. The common shares are mainly held by the Billes family

(~61% voting interest), C.T.C. Dealer Holdings Limited (~20% voting

interest) and deferred profit-sharing plan (~12% voting interest). 11

out of 16 (69%) Board of Directors are independent, with three elect-

ed by Class A shareholders.

INTRINSIC VALUE

We value Canadian Tire using a sum-of-parts approach and in-

crease our intrinsic value to $170.00 (up from $165.00), which con-

sists of:

$105.00 for the Retail segment (including CTR, Mark’s, FGL

Sports and petroleum);

$28.00 for the 80% interest in Financial Services segment; and

$37.00 for the 85.1% interest in CT REIT.

FY end December (C$ Millions, except as noted)

2016 2017E 2018E

Retail 11,453 11,945 12,255

Consolidated Revenue 12,681 13,205 13,548

Retail EBITDA 959 972 993

Retail EBITDA Margin 8.24% 8.14% 8.10%

Financial Services EBITDA 374 395 416

Consolidated EBITDA 1,562 1,648 1,706

Consolidated EBITDA Margin 12.32% 12.48% 12.59%

Share Price $135.6 $159.35 $159.35


EV 14,340 15,660 15,086

EV/EBITDA 9.2x 9.5x 8.8x

FD Shares Outstanding (mlns.) 70.7 67.1 63.7

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DARRYL MCCOUBREY


416-866-8783

R A T E B A S E G R O W T H D E L I V E R S I N - L I N E Q U A R T E RCU remains our top pick on account of its discount valuation and impressive organic rate base growth rate of 5% through

F20. While lower achieved distribution ROEs in Alberta is a legitimate concern under second-phase PBR, a higher generic

ROE, continued rate base growth, the efficiency carryover mechanism and a lower efficiency factor largely offset risk.




Current Yield 3.7%

BUY

CANADIAN UTILITIES LTD.TSX-CU

QUALITY RATING


Better disclosure of financial results in its Energy seg-

ment and a more detailed look at expenditures en-

hances the relative transparency of CU’s financial

results compared to its Canadian peers.


Base FFO of approximately $700 to $750 million per

year is expected, with growth prospects primarily tied

to the 5% core annual growth rate expected in its

regulated businesses (excluding Fort McMurray Tx.


Measured use of leverage and healthy discretionary

cash flow suggests no equity issuances are need to

fund CU’s $5 billion capital spending plan.


Divesting natural gas extraction assets has accelerat-

ed the de-risking process occurring at CU and ACO.X

as the proportion of regulated assets grows.


The merits of a relatively low payout ratio are evi-

denced during challenging business conditions for a

utility with a higher business risk profile.

INTRINSIC VALUE

We apply a discount, 1.4x multiple to CU’s F17E rate base to ar-

rive at a $46.25 per share equity value estimate.

Period Ending


Share price $38.96 $36.19 $32.00

Shares (millions) 269.4 268.1 266.9




Adjusted EBITDA (TTM, millions) $1,820 $1,716 $1,947

Adjusted EPS (TTM) $2.26 $2.20 $1.81

EV / EBITDA (TTM) 11.8x 12.5x 9.4x

P/E (TTM) 17.2x 16.5x 17.7x

Net debt-to-EBITDA (TTM) 6.1x 6.8x 5.0x

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

A M I X E D Q 2 R E S U L TWhile credit losses appear to have peaked for CWB, rapidly decelerating loan growth remains an issue for the bank with weakness evident across

various parts of the loan portfolio. With the sequential margin boost likely to fully reverse in Q3 (according to management), and the bank reporting

yet another quarter of negative operating leverage in Q2 (the 9th in the last 11 quarters), we expect minimal EPS growth for CWB through F2018

and a subdued ROE of roughly 10%. In light of the recent sell-off in CWB’s share price we see limited downside for the stock from its current level,

although an upside scenario, in our view, would require more robust loan growth, better expense control, and clarity on where NIMs will settle.




Current Yield 3.4%

SELL

CANADIAN WESTERN BANK TSX-CWB

QUALITY RATING


Management expects results in F2017 to fall below the bank’s

medium-term targets due to continued pressure on net interest

margins, elevated loan losses, and rising operating expenses.

Capital 4/5

CWB’s capital position remains strong with the CET 1 capital

ratio ending the quarter at 9.6%. We note that the bank’s

transition for to an AIRB methodology is still a long way off

(approximately 3 years). However, upon conversion we expect

CWB’s CET 1 ratio to be at the high end among the publicly-

traded Canadian banks.

Credit 3/5

Loan loss provisions totaled $13.2 million in the quarter, down

12% sequentially and well below last year’s peak level. CWB’s

loss ratio was 25 bps in Q2, towards the low end of

management’s guided range of 25 bps to 35 bps for F2017. We

expect the bank’s loss ratio to gradually decline from 26 bps in

F2017 to 22 bps in F2018, assuming continued stability in the

energy market.


The bank’s net interest margin improved 8 bps sequentially to

2.55% in the quarter. That was certainly a surprise in our view

given the recent disruption in the broker deposit channel, which

accounts for 34% of CWB’s total deposit base. Management

attributed the margin increase partly to a more favorable

funding mix (i.e. a higher proportion of lower-cost branch-raised

deposits), while margins also benefited from the bank holding

less liquidity as almost half of the lower-yielding securities

portfolio of $2.1 billion was sold during the quarter. The impact

of that sale added roughly 2 bps to CWB’s NIM in Q2 according

to management (we agree with the 2 bps based on our own

calculations using the bank’s disclosed yield in the securities

portfolio for F2016).


No items noted.

INTRINSIC VALUEOur intrinsic value of $25.00 is calculated by applying a multiple of

10.0x to our F2018 EPS estimate of $2.49 and a multiple of 1.0x to our

BV per share estimate of $25.00 at the end of F2017, and taking the

average of the two.

BUSINESS COMPOSITIONRoughly 90% of total revenue is net interest income, while more than

80% of the bank’s loan portfolio is business lending. Geographic

exposure is concentrated in Western Canada with Alberta and BC

accounting for ~70% of CWB’s total loans.

FY end Oct. 31 C$

F14 F15 F16

Common Equity Tier 1 capital

ratio 8.0% 8.5% 9.2%


EPS (adjusted, TTM) $2.59 $2.63 $2.26

P/E (TTM) 14.6x 9.6x 11.3x

BV/share $19.52 $22.18 $23.58

P/BV 1.9x 1.1x 1.1x



ROE (adjusted) 14.2% 12.7% 9.9%

Provision for credit losses (bps) 0.15% 0.17% 0.38%

Net interest margin (ATA) 2.59% 2.56% 2.43%

# shares outstanding

(thousands) 80,369 80,526 88,103

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DARRYL MCCOUBREY


416-866-8783

B R A C E D F O R U N C E R T A I N T YRecent acquisitions, cost management, and risk management (i.e. hedging exposure to Alberta wholesale power prices)

galvanizes CPX’s plan to deliver 7% dividend hikes in F17 and F18. In our view, the market is taking an overly pessimistic

view of Alberta electricity market reform, as capacity-based, all-in prices support material value upside.

Updated May 2, 2017



Current Yield 6.3%

BUY

CAPITAL POWER CORP.TSX-CPX

QUALITY RATING


CPX’s disclosures are essentially on par with TA, although

forecasting the impact of its portfolio optimization group is

challenging.


Using our base case projection of power prices in Alberta,

CPX’s EBITDA will decline by $100 million post-PPA expiries in

F20. However, given the robust FCF yield currently implied

at its share price, the market has already fully-accounted

for the decline


CPX’s leverage and debt service ratios remain elevated.

However, compared to TA, CPX’s financial risk profile is low,

with an FFO-to-Debt ratio near 20%.


Like TA, CPX is facing significant headwinds due to low

power prices and increasing environmental charges. How-

ever, CPX is better hedged against market and legislative

risk.


CPX is taking a measured approach to new gas develop-

ment in Alberta, awaiting greater clarity on market reform.

We think a wait-and-see approach is appropriate, given

the capital cost associated with G4 and G5.

INTRINSIC VALUE

Taking the Decatur acquisition into account, our value estimate

of CPX increases to $29.50 per share (from $28.50 previously).

Period Ending


Share price $26.06 $17.77 $23.23





Adjusted EBITDA (millions) $543 $482 $520

Adjusted FCF per share (TTM) $3.09 $3.37 $3.11


P/ACFFO (TTM) 8.4x 5.3x 7.5x

Average AB power price per MWh $22 $33 $18

Payout ratio (TTM) 50% 41% 50%


Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

P L A Y I N G T H E L O N G G A M E W I T H F C C LCEO departure, elevated debt levels, required asset divestments and share sales by ConocoPhillips are more than enough to explain recent

pressure on Cenovus’ share price, however, we think investors have become overly fearful. Cenovus’ structurally low sustaining capital costs

(~$7.20 per barrel in 2018 declining to $5 per barrel by 2021) contributes to generating significant free cash flows next year. This is not a company

at risk of going under. In 2018 (at US$55 WTI) Cenovus clears $1.44 per share in free cash after sustaining capital, even at a required yield of 8% on

this cash, Cenovus would be worth $18.00 per share – potentially a double from today’s share price.


Current Price C$9.14/ US$6.87


Current Yield 2.2%

BUY

CENOVUS ENERGY INC.TSX-CVE; NYSE-CVE

QUALITY RATING


Foster Creek's non-fuel operating costs dropped 24% year

over year in 2015, to $8.51. Some of this decline was due to

capitalizing expenditures for some of the project's infill drill-

ing program, which were previously expensed. This is based

on the judgement that these activities enhanced future

production capability, thereby qualifying for capitalization.


We expect Cenovus to generate cash flow of $2.30 to $2.40

per share in 2018 at US$55 WTI. Cash flow can cover a divi-

dend of $0.20 per share and capex of $1.60-$1.80 per

share. Cenovus can use the cash surplus of $0.40 per share

to reduce its leveraged balance sheet.


FCCL purchase was financed with a transaction Cenovus

issued a $3 billion bought deal, issued 218 million shares to

Conoco and $7 billion in debt that will be paid down with

~$4.5 billion in asset sales currently being marketed. Net

debt to 2017 funds flow of 3.1x (US$51 WTI) is elevated but

manageable given the company’s free cash flow.

Business Operations 2.5/5

Given that Cenovus was the operator we don’t expect

much to change at FCCL post transaction. Management

recently disclosed that it plans to reactivate Christina Lake

phase G in 2017 and an additional phase at Foster Creek in

2018.


It remains to be seen whether Cenovus' decision to defer

work and cut all non-essential staff and contractors in 2015

will have a lasting effect on the company's corporate cul-

ture.

Cash Flow and Distributions 2017 Q1 2016 2015

Reported CFO* 328.0 861.0 1,474.0


Available cash (shortfall) 15.0 (173.0) (240.0)


% of CFO* 13% 19% 55%

% of available cash 273% N/A N/A

* CFO is cash from operations after working capital and asset retirement expenditures

Company profile 2017 Q1 2016 2015

Price 15.05 17.78 17.50




CFPS 0.39 1.03 1.77


ROE (annualized) 7.2% (4.4%) 5.2%



CFO* per boe 12.17 8.69 14.40



INTRINSIC VALUE


2017 / 2021

HH Gas Price

2017 / 2021

USD/CAD XR

2017 / 2021

Intrinsic

Value

$62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 14.00

$67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 21.00

$77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 33.00

Our base case values Cenovus at $21.00 per share, reflecting a return to

US$67 WTI oil and US$3.75 NYMEX gas through 2021.

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

HOWARD LEUNG


416-866-8783

C G I W A L K S T H E W A L K W I T H I T S D I G I T A L R E V E N U E S

Management aims on becoming the one-stop shop for their clients in offering a full-service of systems integration and consulting (‘SI&C’),

outsourcing, and Intellectual Property (‘IP’) solutions. We see progress on all fronts, especially digital IP revenues, which management

continues to pursue from organic and inorganic sources. CGI is not only talking the talk when it comes to digital revenues, but also

walking the walk in executing its IP strategy. In light of these promising results that highlight CGI’s growth, we maintain our BUY

recommendation and C$71.00 price target.

Updated May 4, 2017

Prior Close C$65.55


Current Yield 0.0%

BUY

CGI GROUP INC.TSX-GIB.A, NYSE-GIB

QUALITY RATING


We have no major concerns with CGI’s accounting; however,

we believe the company’s Adjusted EBIT metric (used for credit

agreement purposes) can be skewed by changing capitaliza-

tion and depreciation/amortization policies. Recently, CGI’s

Adj. EBIT margin expansion is driven primarily by a correspond-

ing decrease in amortization expense.


CGI generates sustainable cash flows from its pipeline of con-

tracts. Working capital draws have been larger than usual (as a

% of revenues); however, we expect this to normalize as Logica

effects are rolled off. As CGI broadens its proprietary software

and solutions business, we expect this “capital-light” business to

reduce working capital needs.

Balance Sheet 4/5

CGI is relatively unlevered and does not have significant debt

maturity payments which require more cash flows than it cur-

rently generates.


CGI has a stable network of enterprise clients which deliver

predictable returns. We also believe that digitization of corpora-

tions and government institutions is a major trend which CGI

can continue to capture in the near future, especially with its

ambitious IP30 growth plan. The company’s proximity-focused

operations allow it to avoid the wrath of governments taking

action against globalization.


CGI trades on a dual class structure, and the majority of the

company’s votes are in Class B shares which are largely held by

the co-founder.

INTRINSIC VALUE

CGI has a $21 million backlog, which after deducting operating ex-

penses, required capex, and net debt, is only worth ~$600 million or

~$2 per share. As a result, rather than looking ‘backwards’ at back-

log, we recommend looking forward at CGI’s future bookings. Our

conservative case assumes CGI grows its bookings and topline reve-

nues at inflation (2.5% p.a.) while continuing to convert ~12% of its

revenues to free cash flow. Under these assumptions, we estimate

CGI is worth ~C$71 per share, including ~$2 per share in backlog, net

of debt. Our intrinsic value does not add any value from CGI’s shift

to digital revenues.

TTM Period Ending C $ Millions (except as noted)

F15 F16 Q2-F17

Share price $48.35 $62.49 $65.55

Shares outstanding; includes

Class B (millions) 307.3 304.8 296.78



Revenue $10,287 $10,683 $10,650

Constant Currency Revenue

Growth Rate -4.0% 0.2% 3.1%

Adj. EBITDA $1,892 $1,959 $1,958

Free Cash Flow Margin Excl.

Working Cap Changes 12.0% 11.6% 11.5%

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

KATHLEEN WONG


416-866-8783

I M P R O V I N G A N C I L L A R Y O C C U P A N C YChoice REIT derives 91% of annual base rent from Loblaw, subjecting it to higher economic dependence risk than most retail commercial

REITs. However, in our opinion, the diversification risk is mitigated by the underlying financial strength of Loblaw as a retailer in food in the

consumer staples sector. Moreover, the weighted average term to maturity on Loblaw leases is 12.3 years, at the longer end of the range

of eight to 12 years for peers.

AFFO growth potential is supported by: i) contractual rent escalations of 0.3% a year in 2014-2018, followed by 1.5% a year from 2019

onwards, ii) new and renewed ancillary leases at higher rent rates, and iii) AFFO accretion from the vend-in of Loblaw’s remaining owned

real estate as well as the REIT’s own development program.




Current Yield 4.7%

BUY

CHOICE PROPERTIES REITTSX-CHP.un

QUALITY RATING


The level of disclosure in the financial reports is in line with the

reporting of the other publicly traded REITs in Canada.


Although there is debt refinancing risk in light of a rising interest

rate environment, we expect the negative impact of debt refi-

nancing will be mitigated by: i) contractual rent escalations of

0.3% per year between 2014 and 2018 followed by 1.5% per

year from 2019 onwards; and ii) AFFO accretion from the vend-

in of the majority of Loblaw’s remaining owned retail space

over the next 10 years.


Choice REIT has a strong balance sheet with debt (including

Class C LP units) to total assets was 44.5% at the end of Q4-2015,

lower than the maximum limit of 65% under the Declaration of

Trust. The debt service coverage ratio was 3.6x, much higher

than the minimum requirement of 1.5x. 100% of the Choice

REIT’s portfolio is unencumbered. Both DBRS and S&P have as-

signed a BBB (investment grade) credit rating to the Choice

REIT.


The Choice REIT has relatively lower leasing risk given Loblaw’s

weighted average remaining lease term of 12.3 years

(accounts for approximately 89% of GLA), which is longer than

its peers at eight to 12 years. Overall occupancy rate was 98.6%

at the end of 2015, improved from 98.1% one year earlier.


Loblaw holds an 83.0% effective interest in the REIT, George

Weston Limited holds 5.6% and the public owns 11.4%. Seven

out of nine members (78%) on the company’s Board of Trustees

are independent.

INTRINSIC VALUE

We value Choice REIT at 16.5x 2017E AFFO multiple to derive a

$14.70intrinsic value, which implies a 5.6% cap rate.


2015 2016E 2017E

Square Footage (millions) 41.6 42.9 44.0

Property Revenue 743 779 815

Net Operating Income (NOI) 551 578 604

NOI Margin 74.1% 74.1% 74.1%

EBITDA 529 558 580

AFFO per Unit $0.78 $0.82 $0.89

Distribution per Unit $0.65 $0.67 $0.67

Payout Ratio 84% 83% 75%

Unit Price $11.29 $14.32 $14.32

Price/AFFO Multiple 14.5x 17.5x 16.1x

Distribution Yield 5.8% 4.7% 4.7%

WA Units Outstanding (millions) 403 408 409

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DESMOND LAU


416-866-8783

M A K I N G A C A I S S E F O R M O R E U . S . C A B L E

The market has not been kind to Cogeco’s shares following acquisition announcements, with a 17% decline after the

Cabovisao deal, a 15% drop post Atlantic Broadband (ABB) purchase, and a 5% slide on the day the company acquired

Peer 1 Networks. Cogeco’s acquisition of MetroCast marks a major departure, as it was the first time in more than 10 years

that the company announced a significant acquisition (US$1.4B) and the stock subsequently rose 2.9%. We think that the

positive reaction is warranted, as it builds upon sustainable growth and a proven existing blueprint in the US.




Current Yield 2.1%

BUY COGECO COMMUNICATIONS TSX-CCA

QUALITY RATING


The Company continues to capitalize reconnect costs. Oth-

erwise, management is conservative in its accounting.


The $1.72 annual dividend equates to about 22% of F17 free

cash flows and provides plenty of room for future growth.


Management has stated its intention to maintain leverage

within historical bounds (~4.0x) with TTM leverage at 2.9x,

CCA is comfortably within this range.


Bell’s plan to expand IPTV from a 45% overlap to 70% in Co-

geco’s territory over the next few year is a key risk. TiVo ap-

pears to be helping with subscriber losses, but we have yet

to see a return of pricing power. Data centres should be

completely divested in our opinion.


Cogeco’s executive compensation policy has two major

shortcomings: 1) does not directly discourage dilutive ac-

quisitions and 2) management definition of Economic Val-

ue creation is more than double that of actual shareholder

value creation.

INTRINSIC VALUE

We are maintaining our BUY and updating our intrinsic value esti-

mate to $85.00 per share.

YTD February 28, 2017


Revenue (TTM) 1,978 2,129 2,191

EBITDA (TTM) 891 973 990

Share price (reporting date) $71.01 $64.92 $74.10


FCFE yield 7.2% 8.3% 10.5%

Dividend Yield 2.0% 2.4% 2.3%

Market cap 2,891 2,795 2,716


Net debt: TTM EBITDA 3.2x 2.9x 2.7x

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

HOWARD LEUNG


416-866-8783

F A D I N G S T A R P O W E RWhen we examine Constellation Software’s (“Constellation or “CSU”) operations, we find a base business at risk of contracting and an

acquisition strategy that suggests a push towards lower quality deals that generate reduced EBITDA. To date, these problems have been

largely masked by new deals and limited disclosures on post-acquisition performance. We recommend selling shares.


Prior Close C$631.00


Current Yield 0.8%

SELL CONSTELLATION SOFTWARE INC. TSX-CSU

QUALITY RATING


Constellation has steadily reduced its acquisition-related disclo-

sures since its IPO, making it much harder to assess the perfor-

mance of purchased businesses. We also question the inclusion

of minority interest in the company’s reported Adjusted EBITA

metric, which we estimate inflated this non-GAAP metric by 6%

for 2015 and 5% in Q3 2016 YTD.

Cash Flow Sustainability 4.5/5

CSU’s cash flow sustainability appears strong, given the com-

pany’s history of internally financing most of its acquisitions and

maintaining its dividend. The company’s operating cash flow

has generally tracked its adjusted earnings.

Balance Sheet 4/5

Constellation is relatively unlevered, with a net debt/TTM EBITDA

of 0.11x. However, we have some concerns over their presenta-

tion of minority interest as a liability.


We see challenges ahead as Constellation’s multiple contracts

relative to targets and competition increases for larger deals.

Normalized organic growth rates were also meagre in the past

few quarters, although there was a rebound in the latest quar-

ter. Some operating group CEOs have agreed that CSU’s long-

term growth on existing business should be similar to the GDP

growth rate of the underlying economies it serves, meaning

slow growth. We continue to be concerned with macroeco-

nomic headwinds in the developed world, where Constellation

largely operates. CSU also relies heavily on developed world

government spending, which we are worried about a slow-

down in.


The president is no longer taking any salary or any incentive

compensation and a large part of his wealth is now tied to his

position in Constellation shares. We note, however, that the

percentage of independent directors fell from 83% in 2012 to

63% in 2015, as two of the company’s top executives were

added to the board. That being said, the ISS supported Con-

stellation’s current slate of directors.

INTRINSIC VALUEGiving management the benefit of the doubt, we model in a 2% or-

ganic growth rate, which yields a base business value of C$420 per

share. As a result, at the company’s current price of ~C$630 per share,

investors are paying ~C$210 per share for future acquisitions. We cal-

culate instead the present value of the company’s acquisition runway

at C$100 per share, given that deal volumes, eventual profitability, and

the spread Constellation can earn over what it pays for targets are all

showing signs of strain. This gives Constellation a combined value of

C$520 per share.

Period Ending

US $ Millions (except as noted) F14 F15 F16

Share price C$345.44 C$576.88 C$610.12


Market capitalization C$7,320 C$12,225 C$12,935


Revenue $1,669 $1,838 $2,125

Reported Adjusted EBITA $348 $446 $530

Reported Organic Growth

(Constant Currency Basis) 4% 3% 2%

EV-to-Forward EBITDA 13.4x 16.7x 15.7x

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

B A L A N C I N G G R O W T H A N D C A S H F L O W S A T U S $ 5 0 W T ICPG remains capable of fully funding a growth budget at US$50 WTI, with dividend obligations requiring a higher price to be covered

from cash flows. We see the company’s $1.45 billion capex budget as set to drive 3% year-over-year volume growth, with capex and

dividends fully funded at ~US$54 per barrel WTI. In 2018, the story remains largely the same – stable payout ratios at US$50+, with options

to fund more aggressive growth if oil returns to US$60 WTI.

Updated May 2, 2017



Current Yield 2.7%

BUY CRESCENT POINT ENERGY CORP.TSX-CPG; NYSE-CPG

QUALITY RATING


In its year-end 2016 financial statements CPG took an im-

pairment of $533.1 on its Shaunavon, Williston Basin and

Torquay properties in Saskatchewan. This write down was,

largely the result of the decrease in forecast benchmark

commodity prices as 2017-2019 forecasted average Ed-

monton light oil benchmark declined by 8%


Our 2017 base case of US$55 WTI will generate netbacks of

~$31 boe and cash flows of $1.7 billion which will cover

capex of $1.45 billion and the monthly dividend of $196

million.


As of Q1 2017 Senior debt to EBITDA stood at 2.4x and senior

debt to capital was 0.31, both of which were well under

CPG’s maximum ratio under its covenants of 3.5x and 0.55

respectively. We see 2017 Senior debt to EBITDA of 2.3x un-

der our US$55 WTI base case


CPG has steadily accumulated some of the lowest cost,

highest return drilling acreage in North America. These high

quality assets have allowed Crescent Point to improve its

capital discipline during the current oil-price shakeout.


Management's recent efforts have focused on shoring up

volumes and averaging down decline rates, using acquisi-

tions, drilling inventories, unitization and waterflooding to

create a more stable company.

Cash Flow and Dividends 2015 2016 2017 Q1

Reported CFO* 1,956.9 1,524.3 416.2

Capital expenditures (1,605.2) (1,173.4) (542.7)

Available cash (shortfall) 351.7 350.9 (126.5)

Dividends declared 1,020.4 260.3 (49.4)

% of CFO* 52% 17% -12%



expenditures

Company Profile 2015 2016 2017 Q1

Price 16.12 18.25 14.37



Revenue ($ millions) 2,364 2,185 693

CFPS 3.88 2.81 0.76


ROE (annualized) (9.1%) (9.4%) 4.7%

Dividends per share 1.94 0.48 -0.09

Production (boe/d) 163,631 167,764 173,329

CFO* per boe 32.77 24.89 26.31



INTRINSIC VALUE


2017 / 2020

HH Gas Price

2017 / 2020

USD/CAD XR

2017 / 2020

Intrinsic

Value

$62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 18.50

$67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 23.00

$77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 30.00

Our base case values Crescent Point at $23.00 per share, reflecting a

return to US$67 WTI oil and US$3.75 NYMEX gas through 2020.

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

HOWARD LEUNG


416-866-8783

C H A R T I N G A ‘ S A F E W A Y ’ T O H I G H E R R E T U R N S

Since 2011, Crombie’s relatively strong AFFO growth per square foot has been overshadowed by unit dilution and

Sobeys/Safeway’s operational challenges. We view Crombie’s income from these key tenants as largely protected,

however, because of triple-net leases (the tenant pays all operating costs, capex and taxes) and minimum lease

payments that amount to a weighted average lease term of over 15 years. We expect a turnaround over the next three

years as Crombie intensifies the use of its existing properties, drives growth and is more selective in issuing equity.


Prior Close $14.36


Current Yield 6.2%

BUY

CROMBIE REITTSX-CRR.UN

QUALITY RATING


Crombie makes one adjustment to AFFO which, in our view,

overstates the metric (amortization of effective swap agree-

ments). Crombie also uses a reserve for maintenance

capex and leasing, although we note that the reserve does

trend to what is spent over the long-run.


Veritas adjusted AFFO payouts have been consistently be-

low 100%, and lately have been closer to the low 90%

range. Although we would like to see the ratio lower still, this

level of payout is sustainable, in our view.


Crombie’s balance sheet is relatively levered, but manage-

ment has prudently kept debt at around half of gross book

value.


Going forward, Crombie plans to focus more on buying and

developing non-Empire properties, which may offer less

rental stability than Sobeys/Safeway anchored malls, but

potentially better revenue yields. In addition, Crombie has

ambitious plans to redevelop some properties to include

apartments above existing urban stores. We see the strate-

gy delivering on management’s target of 2% annual NOI

growth, driven largely by topline improvements.


Although it has Empire employees, the board is majority

independent. Management’s incentive compensation is

driven by specific quantitative and qualitative objectives.

INTRINSIC VALUE


years, we estimate a 7% annual growth rate, leading to an esti-

mate of $1.21 of AFFO per unit by 2020. We then apply a terminal

multiple of 13.4x to the REIT’s 2020 AFFO earnings. Discounting the

REIT’s AFFO by its cost of equity of 8.1% brings our intrinsic value

to $17 per unit.


F15 F16 Q1 F17

Unit price $12.80 $13.58 $13.93





Value 52.5% 50.3% 50.1%

Revenue $370 $400 $101




Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

KATHLEEN WONG


416-866-8783

G R O W T H I N A F F O F U E L E D B Y A C C R E T I V E A C Q U I S I T I O N SCT REIT derives 96.7% of annualized base minimum rent from Canadian Tire Corp. (“CTC”), subjecting it to higher economic dependence

risk than most retail commercial REITs. However, in our opinion, the risk of lack of diversification is mitigated by the underlying financial

strength of CTC as a retailer. An added benefit of the partnership with CTC is the lower leasing risk, as the leases with CTC have weighted

average term of 13.6 years, among the longest in the industry. If long-term interest rates increase going forward, the negative impact of

debt refinancing in 2016 should be mitigated by contractual weighted average rent escalations of 1.5% per year that began in 2015 and

AFFO accretion from vend-in of CTC’s remaining 3.7 million sq. ft. of available real estate, representing a 17% potential growth from the

GLA base of 21.512 million sq. ft. as at December 31, 2015. Therefore, we expect continued AFFO and distribution growth going forward,

as driven by accretive acquisitions and development projects

Updated August 5, 2016



Current Yield 4.4%

BUY

CT REITTSX-CRT.un

QUALITY RATING


Disclosure in the financial reports appears to be in line with

other publicly traded REITs in Canada.


With 13% of indebtedness maturing in 2016 and 2017, CT

REIT faces low debt refinancing risk. We expect the nega-

tive impact of debt refinancing in case of a rising interest

rate environment will be mitigated by: i) contractual rent

escalations of 1.5% per year that kicked in on January 1,

2015; and ii) AFFO accretion from continued vend-in of

Canadian Tire’s retained real estate (estimated to be about

3.7 million sq. ft.).


The debt-to-asset ratio of CT REIT is 48.2% at the end of Q4-

2015, which is higher than its peers at 41% to 46%. The inter-

est coverage ratio of CT REIT is at 3.23x, which is higher than

its peers at an average 2.4x. 100% of CT REIT’s portfolio is

unencumbered. Both DBRS and S&P have assigned a BBB

(investment grade) credit rating to CT REIT.


CT REIT enjoys a 99.9% occupancy rate and has relatively

less leasing risk given Canadian Tire’s weighted average

remaining lease term is 13.6 years, which is longer than its

peers at eight to 12 years. Moreover, only 2.7% of CT REIT’s

leased space by base rent revenue is scheduled to mature

between 2016 and 2020, significantly less than peers.


Canadian Tire holds an 83.8% effective interest in the REIT

while the public owns 16.2%. Four out of seven members

(57%) on the company’s Board of Trustees are independ-

ent.

INTRINSIC VALUE

We value CT REIT at 17.0x 2017E AFFO multiple, which implies a

5.5% cap rate. We increase the intrinsic value to $15.80 (up from

$15.00) to account for the newly announced investment activi-

ties.


2015 2016E 2017E

Square Footage (millions) 21.5 22.1 22.1

Property Revenue 378 400 408

Net Operating Income (NOI) 291 308 314

NOI Margin 77.0% 77.1% 77.1%

EBITDA 282 298 304

AFFO per Unit $0.81 $0.88 $0.93

Distribution per Unit $0.66 $0.68 $0.74

Payout Ratio 82% 77% 80%

Unit Price $12.78 $14.23 $14.23

Price/AFFO Multiple 15.8x 16.1x 15.3x

Distribution Yield 5.2% 4.8% 5.2%

Units Outstanding (millions) 187.6 191.8 193.1

Quality Scale


5 10 15 20 25


S T R O N G Q U A R T E R D R I V E N B Y G R O W T H I N N E W S T O R E S A N D B A S K E T S

Dollarama’s strong Q1-F18 results were driven by 13 new net stores (compared to eight last year) and average basket size growing 6.1%. Traffic declined by

1.4% due to tough comps from last year and with Walmart Canada also reporting sequential negative traffic comp of 0.7%. TTM FCF grew by 13.9% to $414

million largely due to the capex related to the construction of the new Montreal warehouse which was incurred in the same quarter last year.

Our analysis of MINISO, which is a Chinese value-priced variety retailer that recently announced aggressive plans to open 30 to 50 stores in the next 12 months

and 500 stores long term, suggests its distinctly different from Dollarama in many ways. We believe MINISO is targeting a distinctly different target market and

will more likely take share from the likes of MUJI rather than Dollarama.




Current Yield 0.4%

BUY

DOLLARAMA INC.TSX-DOL

QUALITY RATING


Dollarama’s disclosures are on par with those of other Canadi-

an retailers. Dollarama only disclosed % of sales from products

above $1.25 price and not the units, make it difficult to estimate

the impact of varying price points and inflation on SSSG.


We expect Dollarama to continue generating strong free cash

flow of $400 million and above starting in F2018.


Dollarama generated $352 million in FCF or $2.92 per share in

F17 and we expect FCF rising to $400 million ($3.43 per share)

and $499 million ($4.24 per share) in FY18 and FY19, respectively.

The company currently has a net debt/EBITDA of 1.9x


Dollarama has more than doubled its store network over the

past nine years, while rival dollar stores have seen their market

share shrink. Dollarama is Canada’s largest dollar chain and

unparalleled at providing its consumers with disposable-type

value merchandise. DOL’s multiple price point strategy has

allowed the company to broaden offerings, and its disciplined

sourcing strategy has helped gross margins remain stable in

times of cost inflation and negative FX movement.


Dollarama has nine directors, including six independent direc-

tors. Insiders own about 5% with ~4% owned by Larry Rossy, the

Chairman.

INTRINSIC VALUE

Our DCF valuation model is based on the following:

1) Sales-per-store CAGR of 3.4% through F2026 (SSSG of 4-5%),

2) S&A and rent expense increase by 1.0% and 1.5% p.a., respectively,

3) GPMs to remain at 43.7%, near their long-term average

4) Add 605 stores, we project EBITDA will reach $1.66 billion in F26,

5) Cost of equity of 7.9% and terminal FCF growth of 3.0% implying an

intrinsic value of $130 per share today.

FY end January

(C$ Millions, except as noted) F2017 F2018E F2019E

Sales per avg. Store Growth 4.4% 3.4% 3.4%

New Stores Openings 70 70 70

Avg. Store Count 1,063 1,130 1,200

Revenue 2,963 3,258 3578

Gross Profit Margin 1,329 1,422 1,562

EBITDA 703 749 832

EBITDA Margin 23.7% 22.9% 23.3%

Rent Margin 5.7% 5.6% 5.5%

SG&A Margin 15.5% 15.1% 14.8%

EV 14,159 16,534 16,534


Shares Outstanding (millions) 115.1 113.6 113.6

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

NIGEL D’SOUZA

ndsouza@veri tascorp.com

416-866-8783

R E N O V A T I N G E C N ’ S B O O KOn June 8th, ECN Capital announced an agreement to acquire Service Finance Holdings (‘SFC’) for $410 million in cash

along with a deferred purchase price earn-out plan for SFC’s founders. Based on our analysis, ECN’s redeployment of

capital into SFC generates a premium to book value. This increase is partly offset by a lower valuation for ECN’s other

business lines based on our updated 2018 EPS expectations. We are maintaining our SELL recommendation and increasing

our intrinsic valuation to $3.70 per share. SELL




Current Yield 1.0%

SELL

ECN CAPITAL CORP. TSX-ECN

QUALITY RATING


For Q1-F17, ECN Capital reported a pro-forma tangible

book value of $4.65 per share. This book value includes eq-

uity freed up from the sale of U.S. C&V assets. Lease ac-

counting risk is also lowered by a higher mix of operating

leases from Rail assets.


Adjusted Operating Income (AOI) yields on assets in contin-

uing operations decreased to 2.0% in Q1-F17 from 2.7% in

Q4-F16. We expect AOI yields to stabilize as the company

seeks targets for capital redeployment.


ECN’s undeployed capital stands at $200 million after the

purchase of SFC for $410 million in cash. ECN can free more

capital for redeployment into higher yielding assets by sell-

ing its remaining business verticals. The timing or likelihood of

a sale remains speculative.


We expect ECN’s remaining verticals in Rail, Aviation and

Canadian C&V to generate mid-single digit ROEs. While

management has guided to double-digit ROEs in 2018 for

SFC, execution is largely dependent on achieving signifi-

cant origination volume growth and margin expansion.


Share-based compensation was ~13.7% of ECN Capital’s

Adjusted Operating Income from continuing operations in

Q1-F17. While management plans to reduce compensation

going-forward, we continue to wait for share-based comp.

to fall below 5% of ECN Capital’s Adjusted Operating In-

come.

INTRINSIC VALUE

We value ECN’s invested equity based on management’s ex-

pected ROE for SFC along with ECN’s remaining undeployed

capital and equity invested in existing assets. After applying our

qualitative discount for share-based comp. and excluded ex-

penses, we arrive at an intrinsic value of $3.70 per share.

FY end Dec. 31

C$ Millions Q3-F16 Q4-16 Q1-17

Price 3.05 3.54 3.79

Shares outstanding, millions 390.6 390.6 394.8


Average Earning Assets 5,723 5,779 4,170

Tangible Book Value Per Share 4.36 4.42 4.65

Revenue incl. other fees 98 103 75

Adjusted Operating Income (AOI) 31 33 26

EPS (adjusted) 0.07 0.06 0.05

Forward P/E multiple (adjusted) 9.2x 12.0x 25.3x

Price to Tangible Book multiple 0.7x 0.8x 0.8x

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

NIGEL D’SOUZA

ndsouza@veri tascorp.com

416-866-8783

L O S T I N T R A N S I T I O NOn May 10th, Element Fleet reported adjusted EPS of $0.24 per share which was largely in line with consensus expectations.

However, we note that earning assets continue to decline and caution that EFN faces several headwinds including

funding pressures, lumpy transaction-fee revenues and soft industry unit sales. We maintain our SELL recommendation and

have reduced our intrinsic value to $9.25 per share based on our lowered forecast for average earning assets in

2017.




Current Yield 3.2%

SELL

ELEMENT FLEET MANAGEMENTTSX-EFN

QUALITY RATING


We note that to properly assess the impact of finance lease

accounting, investors need far greater disclosure on sever-

al metrics. Additionally, stock-based comp., integration

costs and losses from EFN’s JV investment are all excluded

from adjusted operating income. Also, EFN does not dis-

close fee revenue generated from fleet management ser-

vices.


Element Fleet’s Adjusted Operating Income (‘AOI’) yield

increased from 3.41% in Q4-F16 to 3.65% in Q1-F17. The in-

clusion of JV losses in Q1-F17 would reduce EFN’s AOI yield

to 3.35% for the quarter.


Total earning assets declined to $13.7 billion in Q1-F17 from

$14.0 billion in Q4-F16. A softening U.S. commercial fleet

market is a headwind for asset growth; commercial unit

sales are down 5.3% YTD.


Softening U.S. commercial fleet sales makes us cautious on

asset growth. Higher FMS revenue from a successful transi-

tion to a ’capital-light’ services model is limited in the near-

term as a competitive platform requires a multiyear

buildout. In our view, a decline in EPS is the most likely out-

come for 2017.


Share-based compensation remains high, ~7% of Q1-F17

AOI, and should factor into investors’ valuations. A recent

spotlight on Element Fleet’s JV with 3rd parties raised sever-

al questions on potential risk exposure and losses.

INTRINSIC VALUE

Based on our expectations of weak Average Earning Asset

growth and a multiyear buildout of meaningful third-party FMS

revenue, we forecast a low double-digit ROE in 2017 and deter-

mine an intrinsic value of $9.25 per share for Element Fleet Man-

agement.

FY end Dec. 31

C$ Millions Q3-16 Q4-16 Q1-17

Price 11.25 13.06 12.35

Diluted shares outstanding, millions 390.6 392.7 392.4


Average Earning Assets 14,131 14,056 13,479

Tangible Book Value Per Share 3.21 3.27 3.31

Revenue incl. other fees 319 324 323

Adjusted Operating Income (AOI) 127 120 123

Adjusted EPS (diluted) 0.25 0.23 0.23

Forward P/E multiple (adjusted) 11.4x 13.8x 12.7x

Price to Tangible Book multiple 3.5x 4.0x 3.7x

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DARRYL MCCOUBREY


416-866-8783

EMERA ENERGY WEIGHS ON OUTLOOKEMA now trades near our $45.00 per share value estimate, as higher interest rates, stagnating foreign exchange translation

gains, lower trading profits, and deteriorating power prices weigh on its equity value. We believe investors can do better

elsewhere, and thereby maintain a SELL recommendation. Specifically, we believe Canadian regulated peers Canadian

Utilities Ltd. and Hydro One Ltd. are better value plays.

Updated February 14, 2017



Current Yield 4.5%

SELL

EMERA INC.TSX-EMA

QUALITY RATING


EMA’s level of disclosure is on par with its Canadian

peers.


A stronger U.S. dollar and Muskrat Falls-associated

transmission investments support robust FCF growth

to F19. However, the sustainability of EMA’s FCF

growth could be undermined by lower capacity

pricing in F20 and beyond.


EMA will increase leverage significantly if the TECO

acquisition is approved, but its largely regulated busi-

ness mix facilities access to liquidity should other op-

portunities arise.


Limited organic growth in its base regulated utilities is

offset by favourable conditions at EMA’s U.S. power

assets and robust transmission growth projects.


Based on our review of the Maritime Link hearings

and the most-recent FAM audit, we believe relations

with the UARB have improved.

INTRINSIC VALUE

We value Emera at $45.00 per share.

FY end Dec. 31

(Amounts in C$ Millions) F14 F15 F16

Price $38.64 $43.23 $45.39

Shares (millions) 144 147 210


Net debt $5.172 $4,444 $18,100


Adjusted EBITDA (TTM) $947 $1,031 $1,744

Adjusted EPS (TTM) $2.23 $2.26 $2.77


P/E (TTM) 19.2x 19.1x 16.4x


Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

KATHLEEN WONG


416-866-8783

P R O J E C T S U N R I S E L O O K S T O T A M E S G & A

Sobeys announced a three-year transformation initiative called “Project Sunrise” on May 4th. The project

includes several initiatives with the goal of realizing $500 million in annualized savings by the end of F2020. In

this report, we evaluate Project Sunrise and assess whether the $500 million of expected savings are

reasonable, with a focus on the specific sources of savings. We also discuss a potential discount strategy for

Sobeys outside of Ontario.




Current Yield 2%

BUY

EMPIRE COMPANY LTD.TSX-EMP.a

QUALITY RATING


Disclosures are lacking, as is with the typical Canadian retailer.

Empire only has two reporting segments: food retailing versus

investments and other operations (i.e. real estate), making it

difficult to assess results of the more significant food retailing

segment, especially Canada Safeway’s performance.


We expect Sobeys to achieve $500 million savings by the end of

F2020: $300 million savings from centralized procurement and

new pricing strategy; and $200 million from headcount reduc-

tion to eliminate duplication.


The issuance of debt to finance the Canada Safeway acquisi-

tion and the decline in EBITDA during the past two years in-

creased Empire’s lease-adjusted net debt-to-EBITDAR ratio from

2.0x to 3.0x in F2017. We expect Sobeys to realize savings from

Project Sunrise which should reduce its lease-adjusted debt-to-

EBITDAR ratio to 2.0x by F2019.


Sobeys has been plagued by a lack of discount format pres-

ence in regions most affected by the oil industry slowdown and

ineffective promotional strategies. Our grocery proprietary sur-

veys in Ontario during the past year showed that Sobeys has

reduced its regular prices and reliance on promotions. Together

with centralized procurement, we expect it will improve its gross

profit margin going forward.


Nine out of 14 Board of Directors members are independent

directors (64%). Out of the 271.7m common shares in total,

173.5m are non-voting Class A shares and the remaining 98.1m

are Class B voting common shares. The Sobeys family owns

33.4% of the shares outstanding while holding 100% of the vot-

ing rights.

INTRINSIC VALUE

We have derived a new $23.50 intrinsic value (up from

$21.00) for Empire using a F2020 net asset value model

and discounting the value to F2018 (year ending April 30,

2018); and a discounted cash flow model based on 10%

discount rate and 1.5% terminal growth rate. Empire re-

mains a BUY.

FY end April

(C$ Millions, except as noted) F2017E F2018E F2019E

Revenue 24,581 25,353 26,147

Gross Profit 5,935 6,215 6,553

Gross Profit Margin 24.15% 24.51% 25.06%

Food Retailing EBITDA 829 1,000 1,276

Food Retailing EBITDA Margin 3.37% 3.94% 4.88%

Other EBITDA 72 72 72

Total EBITDA 901 1,072 1,348

Total EBITDA Margin 3.67% 4.23% 5.15%

Share Price $22.06 $22.06 $22.06


EV 7,455 7,161 6,676


Shares Outstanding (millions) 271 271 271

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DARRYL MCCOUBREY


416-866-8783

D E F E N D I N G I T S T U R F Although the near-term focus is on closing the Spectra acquisition, as execution will materially de-risk and expand growth prospects (with

the promise of a 5% dividend top-up), financial prospects for Enbridge Inc.’s legacy Liquids business will be tied to upcoming export

pipeline development. While we remain concerned about ENB’s legacy, liquids-weighted growth platform, its appealing 7% free cash

flow yield and Spectra-driven risk mitigation make it an appealing option. We maintain BUY recommendation.




Current Yield 4.7%

BUY

ENBRIDGE INC.TSX-ENB

QUALITY RATING


ENB’s ACFFO definition understates the equity value of non-

controlling interests by only deducting cash distributions. A

better metric would deduct the NCI equity stake in overall

ACFFO.


On a pro-forma basis, ENB now anticipates double-digit

ACFFO growth through F24, with the extended outlook

based on increasing confidence in investment opportunities

at Spectra.


As its secured growth projects enter service, ENB expects its

debt-to-EBITDA to decline to 4.3x by F19, which is well below

its 5.0x target, providing ample debt capacity to go along-

side $14 to $18 billing of cumulative FCF over the next five

years.


We continue to believe legacy ENB will struggle to meet its

ACFFO outlook to F19 due to the deferral of Sandpiper and

the delay of L3R. Nonetheless, ENB’s can still achieve 8%+

average annual ACFFO growth; an impressive attribute,

underpinning our positive investment thesis.


ENB’s diversification strategy seems sound against a back-

drop of oil pipeline development headaches.

INTRINSIC VALUE

We maintain $66 per share value estimate.

For the Period Ended

(Amounts in C$) F16 F15 F14

Share price $56.50 $46.00 $59.74

Shares 943.2 867.8 852.0


Net debt $54,806 $51,306 $45,408


Adjusted EBITDA (TTM) $6,902 $6,180 $4,986

Available FFO per share (TTM) $5.90 $3.72 $3.02


P/ ACFFO 14.4x 12.4x 19.8x


Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

M I N D T H E S H O R T F A L L SEncana continues to steer investors towards impressive production growth in it is ‘core four’ assets, led by its Permian properties, as they

update guidance for these assets to 25-30% growth in volumes in 2017, Q4 to Q4, up from 20% growth previously. We note that Encana’s

these core plays have barely grown 1% from Q2-F16 to Q2-F17, pro-forma for the sale of Gordandale. Growth, however, is not enough to

bridge the shortfalls, as under the scenario of $50 WTI, we see Encana running cash shortfalls of $460 million in 2018. SELL.




Current Yield 0.6%

SELL

ENCANA CORP.TSX-ECA; NYSE-ECA

QUALITY RATING


Under U.S. GAAP, reserves are tested for impairment based

on trailing-twelve-month pricing. So for this year, WTI pricing

reset to US$50.28 by end of year triggering impairments of

US$6.5B. With trailing prices set to fall further in 2016 we ex-

pect another US$1.5-$2.5B in impairments to Encana's $4.0B

in proved property assets by year end. Encana's US$5.5B in

unproved properties are likely to fare better given more

lenient rules for impairment.


Encana will burn ~$0.9 billion through 2018 as cash flow

from operations of $1.3 billion in 2017 and ~$1.5 billion in

2018 will be outpaced by the capex required to complete

the Permian assets and current dividends.


Encana finished Q2-F17 with US$4.2B of debt US$0.4B of

cash, and US$3.0B of undrawn credit on facilities open

through 2020. A recent $1.2 billion bought deal (Sept 2016)

will replenish company coffers but will be put right back to

work with aggressive spending plans in 2017, 2018.


Encana has accepted volume declines in all plays outside

of its core four in Duvernay, Eagle Ford, Montney and Permi-

an Basin. With its late 2016 share offering, however, it will

still be able to grow production in 2017, even if drilling re-

turns are challenging below US$55 WTI.


Encana's CEO compensation structure is multi-layered but

well aligned with shareholder interests. While on the sur-

face, Mr. Suttles' total compensation was ~ $30MM in 2013

2014 and 2015 combined, close to three quarters was in

share-linked awards with delayed vesting. This comp car-

ries a much lower value if share prices remain at current

levels.

Cash Flow and Dividends Q2 2017

(6 mos.) 2016 2015

Reported CFO* 324.0 426.0 1,681.0

Capital expenditures (814.0) (779.0) (2,232.0)

Available cash (shortfall) (490.0) (353.0) (551.0)


% of CFO* 9% 9% 13%

% of available cash N/A N/A N/A

* CFO is cash from operations after working capital and asset retirement expenditures.

Company Profile

(amounts in $US)

Q2 2017

(6 mos.) 2016 2015

USD Price 9.80 12.43 5.09




CFPS 0.33 0.44 1.98


ROE (annualized) 23.4% -10.7% -65.2%


Production (000’s mcfe/d) 1,901 2,179 2,435

CFO* per boe 5.65 3.21 11.35



INTRINSIC VALUE


2017 / 2021

HH Gas Price

2017 / 2021

USD/CAD

2017 / 2021

Intrinsic

Value

$62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 6.50

$67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 9.00

$77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 13.25

Our base case values Encana at US$9.00 per share, reflecting a return to


Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

G R O W T H W I T H I N C A S H F L O W SLong run volume guidance of 10% growth per year through 2019 remains enticing, with liquids growing by 20% per year. Enerplus can

comfortably manage any cash deficits given its $800 million bank credit facility, which is essentially undrawn. With 11% growth expected

for 2018, we see small shortfalls as an acceptable cost. In our view, Enerplus’ sustainability is a key competitive advantage in both the

downturn and once prices recover. Enerplus also benefits from hedged AECO basis differentials, which averaged US$0.56 per thousand

cubic feet in Q1-F17, s considerably better than the AECO-NYMEX spread of US$1.10 per mcf for the same period . BUY

Updated May 5, 2017



Current Yield 1.0%

BUY

ENERPLUS CORP.TSX-ERF; NYSE-ERF

QUALITY RATING


With more than 50% of its balance-sheet assets in the U.S.

and greater than 50% U.S. ownership, Enerplus switched its

reporting to U.S. GAAP in 2014 to maintain its U.S. listing. U.S.

full-cost tests Enerplus' book value at trailing, rather than

forecast pricing, which explains $256MM in YTD impairments

as of Q3-F16. A loophole in the debt-to-cap covenant al-

lows Enerplus to add back a $1.1B adjustment taken on

conversion to U.S. GAAP.


At US$51 WTI in 2017 Enerplus can generate netbacks of

~$14.50/boe ($9.80/boe for 2016) thanks to improved liquids

weighting and decreased op costs. This will translate to

cash flow of $1.50/share in 2017 and rising to $2.20/share in

2018 under US$55 WTI.


At the end of 2017 Q1, Enerplus had net debt of $740MM

with nothing drawn on its credit facility. Enerplus has a com-

fortable leverage position as we see Net Debt to EBITDA of

1.5X in 2017 under our low case of US$51 WTI.


Enerplus has communicated plans to focus spend - 73% - on

its highly productive Bakken assets, including facilities invest-

ments for future growth. Look for Canadian waterflood as-

sets to continue to receive little capex as they are effec-

tively in run-off.


With improving capital efficiencies, particularly on its U.S.

plays, Enerplus appears to be well on its way to reducing

costs and generating higher drilling returns, which is the

product of management's improved focus.


Reported CFO* 127.9 312.3 465.3




% of CFO* 6% 11% 28%

% of available cash 97% 35% N/A


expenditures


Price 10.71 12.74 4.75


Market cap. ($ millions) 2,593 3,064 981

Revenue ($ millions) 285 693 1,027

CFPS 0.53 1.30 2.25


ROE (annualized) 5.1% (29.5%) (97.6%)


Production (boe/d) 84,937 93,125 106,524

CFO* per boe 16.51 9.19 11.97



INTRINSIC VALUE


2017 / 2021

HH Gas Price

2017 / 2021

USD/CAD XR

2017 / 2021

Intrinsic

Value

$62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 14.50

$67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 18.50

$77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 24.50

Our base case values Enerplus at $18.00 per share, reflecting a return to


Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DARRYL MCCOUBREY


416-866-8783

A P P R O A C H I N G F A I R V A L U EFTS trades near our value estimate and we don’t think highlighted development opportunities are large enough to move

the needle on meaningful equity value accretion. That said, FTS still offers a relatively low risk income-option with

attainable annual dividend growth of 6% and trades slightly below our value estimate. As such, we maintain a BUY

recommendation.

Updated May 4, 2017



Current Yield 3.6%

BUY

FORTIS INC.TSX-FTS

QUALITY RATING


Fortis provides a summary of key regulatory develop-

ments, which enhances investor awareness of ex-

pected trends in allowed returns and rate base

growth. If it would state mid-year rate base in mil-

lions, as opposed to billions, the disclosure would be

even more useful to investors.


A relatively certain organic rate base growth trajec-

tory and low near-term regulatory risk safeguards FTS’

FCF profile and dividend growth guidance.


In the current climate, diversified, mostly-regulated

businesses have access to considerable amounts of

low-cost capital. However, the ITC transaction

geared FTS materially, suggesting acquisitions will be

muted for some time.


Following the sale of real estate and power assets,

FTS is now essentially a pure-play regulated utility,

suggesting its risk profile is lower than that of its clos-

est Canadian peers, CU and EMA.



INTRINSIC VALUE

We value FTS at $45.00 per share based on a sum-of-parts,

net asset value approach.

FY end Dec. 31

(Amounts in C$ Millions) Q1-F17 F16 F15

Price $44.07 $41.46 $37.41



Net debt (incl. preferred

shares) $27,499 $26,105 $13,371


EBITDA (TTM) $2,131 $1,841 $1,807

Adjusted EPS (TTM) $2.35 $2.33 $1.96


Price-to-earnings ratio (TTM) 18.8x 17.8x 19.1x


Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

KATHLEEN WONG


416-866-8783

V A L U A T I O N R I S E S W I T H L O B L A W

George Weston generated 93% of its EBITDA from Loblaw and the remaining 7% from Weston Foods, so a large majority of George

Weston’s value comes from its ownership interest in Loblaw. We value George Weston using a NAV model, which consists of its 46.86%

interest in Loblaw, 5.6% interest in Choice Properties REIT and the bakery segment (Weston Foods). A $1.00 change in Loblaw’s intrinsic

value would change George Weston’s NAV by about $1.

Excluding the current value of Loblaw shares within George Weston`s stock price, we estimate that Weston Foods trades at only 6.5x 2018E

EBITDA, which represents a significant discount compared to other bakery companies at 8.5x to 14x. In 2015.




Current Yield 1.5%

BUY

GEORGE WESTON LTD.TSX-WN

QUALITY RATING


New accounting standards forced the disclosure of cost of

inventory, thus allowing us to calculate gross profit margins. We

would like to see more detailed sales and EBITDA breakdown at

the different segments within Weston Foods.


Between 2006 and 2011, Loblaw has been beefing up its invest-

ment in stores and infrastructure. Under-spending in the past

resulted in peak IT spending in 2012, which represented 1.8% of

sales. Going forward, we expect IT spending to gradually de-

cline in the next few years as Loblaw is at the end of its SAP

implementation period. For 2016, Weston Foods announced

plans for $300 million capital expenditures to invest in significant

additional capacity in high-growth product categories and

replace older equipment, both of which would decrease FCF in

2016 but should support higher growth and efficiencies in the

next few years.


We believe that George Weston’s management will continue

to assess strategic options for the deployment of its $1.6 billion

cash. We find it comforting that management is looking at stra-

tegic and valuation criteria in its vetting efforts, and seeking to

acquire synergistic businesses at reasonable prices.


George Weston generates 93% of EBITDA from Loblaw and the

remaining 7% from the higher-margin Weston Foods, which

consists of a fresh & frozen bakery business in Canada, a frozen

baking operation in the U.S. and a biscuit, cookie, cone and

wafer business in the U.S.


Wittington Investments Ltd. owns 63% of George Weston Lim-

ited, which in turn owns 46% of Loblaw Companies Ltd. George

Weston’s Board of Directors consists of seven independent di-

rectors out of 11 members.

INTRINSIC VALUE

We estimate a $150.00 undiscounted NAV for George Weston, which

consists of $125.00 for the 46% interest in Loblaw, $3.00 for the 5.6%

interest in Choice Properties REIT, and $22.00 for Weston Foods. We

apply a 10% holding company discount to derive a $135.00 NAV esti-

mate for George Weston.


2015 2016 2017E

Weston Foods Revenue 2,144 2,268 2,313


Weston Foods EBITDA 285 296 302

Consolidated Adjusted EBITDA 3,478 3,931 4,240

Weston Foods EBITDA margin 13.29% 13.05% 13.05%

Consolidated EBITDA margin 7.42% 8.19% 8.56%

Share Price $104.83 $110.50 $124.30



Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

HOWARD LEUNG


416-866-8783

D E - R I S K E D M A G N A E X P O S U R E L E A V E S G R A N I T E U N D E R V A L U E DGranite REIT specializes in the industrial subsector, benefitting from a key tenant relationship with Magna. In 2016, Granite

completed lease renewals and extensions for 28 properties, 15 of which were tenanted by Magna, including seven SPPs.

Having addressed its key tenant risk, we currently view Granite as overly discounted. Granite has a favorable operating

structure (triple-net leases) that resulted in one of the highest property operating margins in our universe, at 96.6%. Also, the

REIT has conservative leverage, a low payout ratio, and a disciplined growth strategy. We expect these trends to continue.


Prior Close C$51.97/US$39.64


Current Yield 5.0%

BUY

GRANITE REITTSX-GRT.UN, NYSE-GRP.UN

QUALITY RATING


No accounting issues noted. The REIT has not reported AFFO

in the past as there was no set standard for the metric. But

now that REALPAC has put out a standardized guideline for

AFFO, the trust will begin reporting the metric in its Q1 2017

results.


By our estimates, Granite’s AFFO payout would have been

76%, which is on the low-end and is very conservative in our

view.


Granite is known for being very conservative with its capital

(some would say it is too conservative). Its leverage ratio,

which is debt divided by fair value of properties, is 25%.


Granite has a concentrated single-tenant relationship with

Magna, one of the world’s largest auto parts suppliers. 78%

of Granite’s annualized lease payments come from Magna.

However, Granite is starting to move away from relying on

Magna as its sole source of tenancy.

We also note that Granite does not have exposure to

Magna in Mexico anymore, mitigating potential fallout from

NAFTA renegotiations.


Performance goals are based on quantifiable metrics. With

the exception of the CEO, the board is independent. Three

activists have recently won board seats and we expect

them to drive Granite’s acquisition strategy.

INTRINSIC VALUE


years, we estimate a 3.5% annual growth rate, leading to an

estimate of $3.70 of AFFO per unit by 2020. We then apply a ter-

minal multiple of 15.5x to the REIT’s 2020 AFFO earnings. Discount-

ing the REIT’s AFFO by its cost of equity of 8.0% brings our intrinsic

value to $54 per unit.


F15 F16 Q1 F17

Unit price C$37.96 C$44.83 C$46.52

Units outstanding (‘000s) 47,017 47,123 47,144



Reported Debt to FV of Proper-

ties 23% 25% 24%

Revenue $216 $223 $55


Veritas Adj. AFFO Payout Ratio

(includes DRIP if applicable) 73% 76% 79%

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

D I M I N I S H I N G E A R N I N G S P O W E RAfter surviving a run on its funding, just barely, there is no question that HCG’s earnings power has been permanently impaired. The extent

of that impairment remains unclear. However, looking beyond recent events and taking into account current and potential changes to

the residential mortgage market (both regulatory and Ontario-specific), we conclude that HCG will not regain anything close to its

previous form.




SELL

HOME CAPITAL GROUP INC.TSX-HCG

QUALITY RATING


Recent news around related-party transactions was

concerning given that the company did not disclose that

information previously.

Capital 3.5/5

HCG has a strong capital position with the CET 1 ratio

currently sitting at 16.34%; that is well above regulatory

minimums.

Credit 4/5

Credit losses are currently running at very low levels with

HCG’s loss ratio a 24 bps in the most recent quarter. While

we expect that to gravitate higher in the quarters ahead,

loan losses will not become a major issues unless

unemployment levels increase materially in Ontario, which

represents HCG’s key geographic footprint.


HCG is very likely to report margin erosion in the coming

quarters given the material increase in its funding costs as its

GIC rates remain comfortably above industry peers. Running

a sensitivity analysis on HCG’s earnings power under different

assumptions for net interest margin and loan growth in the

company’s core single-family residential mortgage book

gives us a very wide range of possibilities. Under what we

believe is a realistic scenario where margins are down 20 bps

going forward with a core mortgage portfolio of $12 billion at

the end of 2017 (vs. $12.6 billion as of Q1 2017), we estimate

that HCG’s EPS in 2019 would be approximately $2.16. A

more extreme scenario with 60 bps of margin compression

and a much smaller core mortgage portfolio of $10 billion (at

the end of 2017) would suggest an EPS run-rate of closer to

$1.18.


Issues around income falsification that surfaced in 2015 are

cause for concern and suggest that underwriting standards

may not be as conservative as previously believed.

INTRINSIC VALUEWe value HCG at $12.50 by applying a multiple of 0.6x to the

company’s estimated book value per share of $21.29 at the end of

Q2-2017.

FY end Oct. 31 C$ 2014 2015 2016


(BIII) 18.30% 18.31% 16.55%


EPS (TTM, adjusted) $4.11 $4.10 $3.95

P/E (TTM) 11.7x 6.6x 7.9x

BV/share $20.67 $23.17 $25.12

P/BV 2.3x 1.2x 1.2x



ROE (adjusted) 22.1% 18.8% 16.4%


# shares outstanding (millions) 70.1 67.0 64.4

BUSINESS COMPOSITIONHome Capital Group is among Canada’s largest alternative

lenders focused predominately on the residential mortgage market

within Ontario, which accounts for almost 90% of the company’s

core Traditional portfolio.

Quality Scale


5 10 15 20 25

Intrinsic Value

-50% -25% 0 25% 50%

KATHLEEN WONG


416-866-8783

D I S A P P O I N T I N G Q 1 - 2 0 1 7 ; D I V I D E N D S S L A S H E D ; 2 , 0 0 0 J O B S A X E D ; H E A D O F H B C

E U R O P E A N D R E A L E S T A T E R E P L A C E D HBC reported disappointing Q1-2017 with negative FCF of C$752 million. TTM EBITDAR margin declined to 8.85%, the lowest level since its

IPO in November 2012 despite the acquisition of the higher-margin Saks and Kaufhof businesses. Management slashed annual dividend

by 75% to $0.05 per share to preserve cash. We attribute the disappointing HBC performance during the past few years to management’s

focus on acquisitions and expansion rather than improving the existing operations




Current Yield 0.6%

SELL

HUDSON’S BAY COMPANYTSX-HBC

QUALITY RATING


HBC changed the accounting disclosure in Q1-2014 by grouping

SSSG of the Bay and L&T together, but combined sales from L&T and

Saks when reporting revenue. The lack of detailed and consistent

disclosure creates challenges for analyzing performance of the

various banners within the retail segment.


HBC’s free cash flow was negative $345 million, similar to the level as

in 2015. We expect negative $400m FCF in 2017 due to capex from

the pursuit of digital innovations, renovation of Saks Fifth Avenue

store, planned opening of Saks Fifth and OFF 5TH stores and expan-

sion into Netherlands.


We believe that HBC is fast approaching the 4.5x Debt to EBITDA

limit specified by the covenant disclosed in its U.S. Term Loan Credit

Agreement, dated September 30, 2015. S&P Global Ratings down-

graded HBC’s credit rating from B+ to B on May 8, 2017. There is a

significant risk of breaching its covenants should retail conditions

worsen


Canadian department stores have been losing market share to U.S.

and foreign specialty retailers. Poor performance at HBC’s legacy

business has been masked by stronger results from Saks (acquired in

2013), but Saks’ performance is also lagging peers, and recent slow-

down in tourist spending is hurting Saks’ full-line sales. Kaufhof has

seen tepid growth despite owning the dominant market share

among German multi-brand retailers. In relation to the Kaufhof deal,

management indicated opportunities for increased e-Commerce

presence, expansion of Saks and The Bay into Europe and $30m-

$50m acquisition synergies (around 1% of target company’s sales).


The Board of Directors is comprised of 11 directors, six of whom are

independent (55%).

INTRINSIC VALUE

We value HBC by assigning market value to its owned real estate

(~C$23 per share) and deducting market rent from the retail opera-

tions. We value HBC’s retail business 4.0x EBITDAR multiple, which is

at a discount to the peers’ average of 5.2x. We capitalize HBC’s

total rent expense at 6x to derive the adjusted net debt. After de-

ducting capitalized rent from the value of the retail business, we

arrive at a negative value of ~C$16 per share for the retail opera-

tion. Therefore, our intrinsic value of HBC remains at C$7.00.

FY end January

(C$ Millions, except as noted)

2015A

(Jan.

30/16)

2016A

(Jan.

31/17)

2017E

(Jan.

31/18)

Sales Canada 2,957 3,283 3,358

Sales U.S. 6,336 6,349 6,909

Sales Europe 1,869 4,823 5,118

Total Sales 11,162 14,455 15,385

EBITDAR 1,200 1,353 1,488

EBITDAR Margins 10.75% 9.36% 9.61%

Third Party Rent Expense 343 490 524

Rent Paid to Joint Ventures 190 448 449

Capital Expenditures (before

landlord incentives) 610 1,085 1,075

Market Price $23.84 $15.76 $8.61

Shares Outstanding (mlns.) 182 182.3 182.3



Net Debt/EBITDA

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

F R E E C A S H L E A V E S H U S K Y A H E A D O F T H E P A C KAfter sustaining capital requirements of ~$2.3 billion in 2018 (our estimate), we expect the company to generate $1+ billion in free cash

flow at US$50 WTI, representing a free cash flow yield of 7.4% at today’s share price. Even factoring in an additional $900 million in growth

capital, we still see Husky eking out a cash surplus of $150 million next year at US$50 WTI. While the proverbial ‘popular kids’ Suncor and

Imperial continue to draw more attention, we prefer Husky’s discounted value and ability to navigate stagnant oil prices. BUY.




Current Yield 0%

BUY

HUSKY ENERGY INC.TSX-HSE

QUALITY RATING


Husky's Indonesian operations have run into IFRS 11 report-

ing restrictions requiring equity accounting. The partners

have rights to the net assets of a business arrangement (a

'joint venture'), which requires equity accounting, rather

than direct rights and obligations on the assets themselves

(a 'joint operation'), which would allow proportionate con-

solidation.


At US$51 WTI (our low case) 2017 operating cash flow per

share of $3.10-$3.20 per share and free cash flow per share

of ~$0.20. These cash flows and free cash flows increase in

2018 to ~$3.75 and ~$0.50 with US$55 WTI (our low case).


Husky ended Q2-F17 with $5.9B of debt and $2.5 billion in

cash for a net debt position of $3.4 billion and $4.0B of un-

used credit on its borrowing facilities. Husky’s current net

debt is 1.1xt its funds flow at US$51 WTI in 2017, which is best

among its integrated peers.


Husky is diversifying away from its traditional Atlantic and

Western Canadian base with the startup of Liwan and Sun-

rise. Mid and Downstream EBITDA remains an outsized con-

tributor to overall operating income.


Husky is a creature of Li Ka-Shing who controls, directly and

indirectly, a 70.74% interest. His control and influence were

never more evident than with the April 25, 2016 $1.7 billion

sale of midstream assets to two entities controlled by Li Ka-

Shing.

Cash Flow and Distributions Q2 2017

(6 Mos.) 2016 2015

Reported CFO* 1,434.0 1,971.0 3,760.0


Available cash (shortfall) 470.0 266.0 755.0

Dividends declared 0.0 0.0 1,181.0

% of CFO* 0% 0% 31%


*CFO is cash from operations after working capital and asset retirement expenditures.

Company profile Q2 2017

(6 Mos.) 2016 2015

Price 15.01 16.29 14.05




CFPS 1.43 1.96 3.74


ROE (annualized) -0.3% 5.4% -20.7%



CFO* per boe 48.10 16.81 29.80



INTRINSIC VALUE


2017 / 2021

HH Gas Price

2017 / 2021

USD/CAD

2017 / 2021

Intrinsic

Value

$62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 14.00

$67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 21.50

$77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 32.50

Our base case values Husky at $21.50 per share, reflecting a return to


Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DARRYL MCCOUBREY


416-866-8783

F O U R R E A S O N S T O B U Y H Y D R O O N E ’ S O F F E R I N GWe believe the $23.25 per share offer price is an attractive entry point for H investors. Our view is that there is potential for

material capital upside because of higher achieved ROE and robust liquidity. H’s under-levered balance sheet can be

geared to reduce equity funding of prospective capital spending or to strategically diversify operations into another,

higher growth jurisdiction via acquisition. We maintain BUY recommendation.

Updated May 9, 2017



Current Yield 3.7%

BUY

HYDRO ONE LTD.TSX-H

QUALITY RATING


Hydro One’s financial reporting is on par with its

peers, but its regulatory statements are easier for in-

vestors to navigate since it only files with one agency

(the OEB).


Higher expected returns under PBR combined with

higher organic rate base growth support 5% average

AFFO growth through F21.


H has best in class leverage and debt-service met-

rics, which will eventually allow it to follow the foot-

steps of EMA and FTS with large-scale, layer-financed

acquisitions—an avenue which could prove value

accretive at H’s current valuation.


Although H’s regulatory environment is favourable

compared to its peers, investors might have to wait

until 2018 to see the potential organic benefits of

cost-cutting.



INTRINSIC VALUE

We value H at $26.50 per share.

FY end Dec. 31

(Amounts in C$ Millions) Q1-F17 F16 F15

Price $24.21 $23.58 $22.29



Net debt (incl. preferred

shares) $14,440 $14,454 $11,546


EBITDA (TTM) $2,020 $2,056 $1,812

Adjusted EPS (TTM) $1.14 $1.21 $1.16


Price-to-earnings ratio (TTM) 21.2x 19.5x 19.2x


Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

HOWARD LEUNG


416-866-8783

N O F L O O R T O I M A X ’ F A L L I N G P E R - S C R E E N A V E R A G E S

We continue to believe that IMAX’s story of operating leverage no longer reflects reality and the company also faces new

risks in China, both from outside competitors and from within. Furthermore, moviegoers are becoming more picky—even in

China. The result is IMAX posting one of its weakest Per-Screen Averages (PSAs) ever, leading to a continued downward

spiral in revenue and operating profits. IMAX can tout its growing network of theatres and restructuring plans, but if per-

screen economics decline in response, the company’s growth turns negative. We remain sellers of shares.


Prior Close US$21.85


Current Yield 0.0%

SELL

IMAX CORP.NYSE-IMAX

QUALITY RATING


We have no major concerns with IMAX’s U.S. GAAP ac-

counting; however, we believe the company’s Adjusted

EBITDA metric (used for credit agreement purposes) over-

states the economics of its business because it excludes

stock-based compensation, and production and DMR costs.


Due to IMAX’s royalty-based business model, cash flow

largely tracks performance of its theatres, and is therefore

subject to box office volatility. Its high-performing theatres

generate a strong royalty stream, with minimal ongoing

costs. However, recent box office challenges have started

to take a toll on IMAX’s cash flows.


IMAX is in a net cash position. However, IMAX has significant

off-balance sheet commitments in funding equipment for its

joint ventures, which they have not quantified but we esti-

mate at over US$200 million.


IMAX is a valuable brand for a niche market. But we believe

its economic moat is shrinking due to rapidly increasing

competition. To make it even worse, IMAX’ cinematic mar-

ket is structurally getting weaker. Also, a number of other

threats are also on the horizon. Studios are negotiating with

cinema chains to allow consumers to stream movies three

weeks after their theatrical release, which could impact

IMAX through lower attendance.


No major risks identified. However, shareholders have, on an

advisory basis, rejected the company’s say-on-pay plan for

the second year in a row.

INTRINSIC VALUE

Our intrinsic value estimate of US$19.00 reflects continued deteri-

oration of per-screen economics in 2017 due to China saturation

and lagging JV screen performance. Based on IMAX’s recent

rollout schedule, we now expect the company to deliver ~90

new JRSAs per year over the next five years, with slightly lower

EBITDA margins in China than under our prior estimates. There-

fore, we sequentially lower IMAX’ PSAs from US$950,000 in 2017 to

US$850,000 by 2022, resulting in a per-share price of US$19.00. All

valuation scenarios are DCF-based and utilize a 9% WACC.

Period Ending US $ Millions (except as noted)

F15 F16 Q2-F17

TTM

Share price $35.54 $31.40 $22.00




Revenue $374 $377 $350

Reported EBITDA $141 $122 $109


Box Office Per Screen Average

(‘PSA’)

$1.15 million

$1.00 million

$0.85 million

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

SAM LA BELL

s label l@veri tascorp.com

416-866-8783

K E A R L ’ S U N P L A N N E D D O W N T I M E S H O W S C H A L L E N G E SKearl’s bitumen production declined by 17% in Q4 F16 to 120,000 barrels per day over the prior year quarter. Management offered that both

planned and ‘unplanned’ maintenance activities played a role and investors should continue to be cautious due to the unplanned portion. With

no segmented disclosure investors have little to go on to judge the profitability of one of IMO’s most significant projects. The sale of retail assets

represented a temporary cash flow boost and the remaining operations cash generating potential is more than reflected in the share price. SELL.




Current Yield 1.3%

SELL

IMPERIAL OIL LTD.TSX-IMO; NYSE-IMO

QUALITY RATING


The Canadian Securities Administrators allow cross listed

Canadian issuers to report under U.S. GAAP without

reconciliation to IFRS. Imperial has elected this option using

successful efforts (SE) accounting. U.S. SE impairments

begin by comparing undiscounted cash flows to book

value which, for long life assets like oil sands, is a cakewalk.


At US$55 WTI, we would expect Imperial to generate a free

cash flow surplus of $1.3-$1.5B in 2017 for an implied FCF

yield of 3% to 4% . With only high-cost growth options, we

do not see this yield as enough, on its own, to warrant an

investment.


Much of the debt needed to finance Kearl Lake is drawn

on an existing ExxonMobil credit facility. The Exxon facility

had $4.47 B of its $7.75 B capacity drawn at the end of Q4

2016. Imperial's variable interest rate on this facility in 2016

averaged just 1.0%. It is worth noting that the loan can be

called with 370 days notice.


With extremely limited segmented reporting, it is impossible

to track the performance of Imperial's Kearl project other

than through volumes and blend sale prices. Kearl's is likely

disappointing, however. Imperial's upstream production

and manufacturing expenses were $26 per barrel prior to

Kearl's startup in 2012. They have averaged over $28 per

barrel in 2016.


ExxonMobil's dominant position in Imperial Oil (close to 70%

ownership) raises the possibility of an opportunistic buyout

such as the one used by Royal Dutch Shell to take out its

Canadian sub in 2006. For this reason, we suggest a 10%

minority shareholder discount.


Reported CFO* 3,292.0 4,405.0 2,015.0

Capital expenditures (8,020.0) (5,654.0) (1,073.0)

Available cash (shortfall) (4,728.0) (1,249.0) 942.0


% of CFO* 13% 10% 24%

% of available cash N/A N/A 52%

* CFO is cash from operations after working capital and asset retirement expenditure


Price 50.05 45.08 46.71




CFPS 5.20 2.56 2.38


ROE (annualized) 18.0% 4.9% 9.1%



CFO* per boe 38.93 16.02 14.30



INTRINSIC VALUE


2017 / 2020

HH Gas Price

2017 / 2020

USD/CAD XR

2017 / 2020

Intrinsic

Value

$60 Oil Case 50 / 60 2.60 / 3.35 0.79 / 0.83 32.00

$65 Oil - Base Case 55 / 65 3.00 / 3.75 0.81 / 0.85 38.00

$75 Oil Case 65 / 75 3.50 / 4.00 0.85 / 0.89 54.50

Our base case values Imperial Oil at $38.00 per share, reflecting US$65 oil

and US$3.75 gas in 2020.

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DAN FONG


416-866-8783

S K Y J A C K , E U R O P E A N D A S I A L I F T Q 1 R E S U L T S

Linamar reported a strong quarter with year-over-year: revenue, EBIT and earnings growth, of 9.1%, 11.7% and 14.8%, respectively.

Although the company’s North American automotive revenues were a weak spot – declining 5.3% from the same quarter a year ago –

European and Asian auto operations, as well as a remarkably strong Skyjack quarter, more than offset the shortfall. We remain

concerned by auto cycle risks and the potential threat of U.S. protectionism. Until these risks materialize, however, Linamar continues its

record of executing on its business plan, as evidenced by: 1) an increasing pace of automotive program launch activity; and 2) a

growing backlog in both its Powertrain and Skyjack segments.



Intrinsic Value: $61.00

Current Yield 0.8%

SELL

LINAMAR CORPORATIONTSX-LNR

QUALITY RATING


Disclosures are reasonable; however, we would prefer to

see additional detail with respect to geographic profitabil-

ity on a divisional-by-division basis.


We expect capital spending to increase as LNR invests in

new program launches and U.S. protectionist policies po-

tential trigger reorganization costs. However, the Compa-

ny’s growing backlog, management’s consistent focus on

efficiency and LNR’s positioning relative to industry trends

should still translate into meaningful cash flow generation.


Although funding of the Montupet acquisition with debt will

lead to elevated levels of debt, we believe LNR’s ability to

generate cash flow will allow it to comfortably service its

obligations while reducing leverage over time.


LNR’s acquisition of Montupet is highly strategic and pro-

vides: regional scale, a portfolio of high value-added prod-

ucts and increased penetration into Europe. Combined

with the Company’s JV with light metal specialist Georg

Fischer, LNR is well positioned to benefit from OEM trends in

powertrain development and vehicle mass reduction.


Half of the board is not independent and related to LNR’s

founding family. Two of the three independent directors

have served for over 13 years. The board is comprised of

an even number of directors, which could result in the ina-

bility to resolve matters requiring a majority vote.

INTRINSIC VALUE

Our intrinsic value of $61 per share is based on a discounted cash

flow analysis that considers: a scenario of declining NA vehicle

production; elevated capital spending requirements over the

long-term to reflect reinvestment risks tied to the likely migration

of auto production back to the United States; and slightly strong-

er than forecast near-term outlook for Skyjack.

$ Millions F15 F16 TTM

Q1-F17

Share price (End of period) $74.73 $57.69 $60.49


Revenue– Powertrain/Driveline $4,300 $5,100 $5,200

Reported EBIT- Powertrain/Driveline $440 $550 $550

Revenue– Industrial $850 $865 $950

Reported EBIT– Industrial $155 $145 $165


Net debt $210 $1,030 $1,060


EV-to-TTM EBITDA 5.9x 4.6x 4.7x

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

KATHLEEN WONG


416-866-8783

L O B L A W D E L I V E R S O N P R I C I N G S T R A T E G Y A N D E X P E N S E C O N T R O L

Loblaw’s Q1-2017 adjusted EBITDA increased 4.3% to $864 million, better than consensus of $843 million. Loblaw

targeted price investment in Q1-2017 continued to drive strong traffic which offset the negative impact of food

price deflation. This was the third consecutive quarter that Loblaw demonstrated success with this strategy. April

2017 should be the last month we experienced food price deflation and the Canadian grocers should have easier

comparison from May 2017 onwards and we expect Loblaw to generate positive SSSG in the next few quarter.

Loblaw has become more promotional during our grocery price surveys in January and April 2017. Going forward,

we expect Loblaw continues to experience a slight GPM decline but the retail GPM should remain stable in the

26% range. Loblaw demonstrated strong expense control during the past several quarters and this had helped to

more than offset the GPM decline.

Updated May 5, 2017



Current Yield 1.4%

BUY

LOBLAW COMPANIES LTD.TSX-L

QUALITY RATING


Loblaw began reporting the sales and profitability of its retail

segment and financial services segment beginning in Q1-2011.

We are looking for more detailed disclosure on the perfor-

mance of Shoppers Drug Mart versus legacy food retail.


Free cash flow should improve as IT spending gradually declines

to less than 1% of sales by 2016. Loblaw will also benefit from the

higher-margin Shoppers Drug Mart business and related opera-

tional synergies.


The acquisition of Shoppers increased lease adjusted net-debt-

to-EBITDAR ratio from 1.3x to 3.1x, which is still within the lever-

age ratio range of DBRS’ BBB credit rating. The company has

since paid down $1.9m, and has employed free cash flow to-

wards dividend increases and share buybacks.


Grocery is a mature industry and the acquisition of Shoppers

Drug Mart will help Loblaw to benefit from the aging de-

mographics and the strong growth of generic drugs. Loblaw

should realize benefits from SAP system implementation in areas

of improved store inventory management during 2016.


Loblaw’s Board of Directors consists of a majority of independ-

ent directors, with 10 out of 13 considered independent (77%).

Unlike the majority of Canadian retailers, Loblaw does not have

a typical dual class voting structure. The issuance of shares to

finance the acquisition of Shoppers reduced George Weston’s

interest in Loblaw from 62.8% to 46.0% in late 2013.

INTRINSIC VALUE

We have incorporated the better-than-expected Q1 results in our

model and derived a new NAV of $85.00 (up from $80.00). Our $85.00

intrinsic value of Loblaw consists of $72.00 from Retail, $2.00 from Fi-

nancial Services and $11.00 from the 82.7% interest in Choice Proper-

ties REIT. Loblaw remains a BUY


2016 2017E 2018E


Consolidated EBITDA (Adj.) 3,852 3,938 4,030

Consolidated EBITDA Margin 8.30% 8.23% 8.14%

Loblaw Food Retail Adj EBITDA 2,125 2,181 2,250

Loblaw Food Retail EBITDA Margin 6.41% 6.39% 6.36%

Shoppers Drug Mart EBITDA 1,506 1,530 1,542

Shoppers Drug Mart EBITDA Margin 12.33% 12.08% 11.83%

Share Price $71.05 77.56 77.56


EV $39,162 $41,053 $39,813



DIMITRY KHMELNITSKY


416-866-8783



Market Capitalization (million) $2,540

MACDONALD DETTWILER & ASSOCIATES LTD.

TSX-MDA

MIND THE GAAPS

In our opinion, MDA’s reported Operating EBITDA and Operating earnings metrics materially overstate the underlying eco-

nomic value creation of the company because management excludes essential and recurring costs. We are also con-

cerned with the large gap between MDA’s free cash flow and Operating Earnings. Although we note the improvement in

earnings to free cash flow conversion rate in 2016, due to securitization of long term orbital receivables, we would like to

see more evidence of a sustained improvement in free cash flow. We will further update our analysis when MDA is ex-

pected to file business acquisition report related to the recently announced acquisition of DigitalGlobe, Inc.

Risk Areas

Earnings quality — The gap between Operating Earnings and free cash flow has narrowed in F16 due to the securitiza-

tion of approximately $160 million in long term Orbital Receivables. Thus, earnings to cash conversion rate has in-

creased from 12% in 2015 to 79% in 2016. We note, however, that Operating Earnings has exceeded MDA’s free cash

flow by ~80% over the eight years ending 2016 (we cannot assess cash conversion over a longer period because

MD&A has sold a key segment in 2011). Based on our analysis, the wide disconnect is primarily driven by investments

in working capital, the exclusion of cash-settled stock-based compensation costs and the capitalization of material

internal development costs. In addition, we estimate that approximately 6% of 2016 revenue is comprised of receiva-

bles that are subject to restructuring (i.e. it seems that certain end customers are having trouble financing their satellite

orders on a timely basis.)

Non-GAAP metrics — The exclusion of material and recurring cash stock-based compensation costs and the excess of

internal costs’ capitalization over amortization, inflate reported Operating EBITDA and Operating earnings.

Management Compensation — Management is compensated, in part, based on Operating earnings per share, which

in our opinion overstate MDA’s true economic performance. We would like to see more focus on cash flow genera-

tion.

Updates since last report — No updates.

Quality Scale


5 10 15 20 25


KATHLEEN WONG


416-866-8783

Q 1 W E A T H E R H I T S M A C Y ’ S B U T F R E E C A S H E X C E E D S

Although Macy’s Q1-2017 key metrics were worse than Nordstrom and Kohl’s, Macy’s generated FCF of US$57 million, which was up from

a negative US$220 million in the same quarter last year. To put this into perspective, Nordstrom and Kohl’s Q1-2017 FCF had declined from

last year to a negative US$64 million and negative US$170 million, respectively. Note that the first quarter is typically the weakest quarter

for all apparel retailers and Q1-2017 was exacerbated by the unseasonably warm weather in February 2017. We expect Macy’s to

generate ~US$1.1 billion FCF in 2017. The FCF can be used to pay down US$309 million in debt and US$469 million in dividends, with the

remaining ~ US$330 million available for further debt reduction.


Current Price US$23.01


Current Yield 6.6%

BUY

MACY’S INC.NYSE-M

QUALITY RATING


Macy’s disclosure is in line with the disclose at other depart-

ment stores in the U.S. It also disclosed the calculation of its

credit ratios.


Despite the tough retail environment, Macy’s generated

US$889 million free cash flow in 2016 (year ended Jan 28,

2017) and it was about the same as in the previous year.


We use Moody’s method of capitalizing Macy’s rental ex-

pense at 8.1x to calculate Macy’s Adjusted Debt to

EBITDAR, which reached 3.4x in 2016. Due to deteriorating

EBITDAR performance in 2015 and 2016, the adjusted total

debt to EBITDAR ratio has gradually increased from 2.5x in

2014 to 3.4x in 2016.


Due to poor holiday sales, 2016 Adjusted EBITDA (excluding

gain on sale of real estate and stock based compensation

expense) declined 15% to US$2,686 million. Adjusted EBITDA

margins declined by 127bps to 10.42% in 2016.


The Board of Directors is comprised of 12 directors, all of whom are

independent. Macy’s also has a very diverse group of Directors.

INTRINSIC VALUE

We now value Macy’s based on its fundamentals without taking

into account the real estate value. We have incorporated Ma-

cy’s worse than expected Q1-2017 results in our model and up-

dated our forecast assumptions. We have derived a US$29.00

intrinsic value for Macy’s by valuing the retail operation at 5.8x

2017E EBITDAR and deducting adjusted net debt. Our discounted

cash flow model of Macy’s also generated a US$29.00 intrinsic

value based on a 10.5% discount rate and 0% terminal growth

rate.

FY end January

(C$ Millions, except as noted)

2015

(Jan.

30/16)

2016

(Jan.

28/17)

2017

(Jan.

31/18)

Same Store Sales Growth (2.5%) (2.9%) (3.0%)

Sales psf $187 n/a n/a

Net Sales $27,079 $25,778 $24,739

Gross Profit Margin 39.08% 39.40% 38.80%

Adj. EBITDAR (excluding gain

on sale and stock based

comp) $3,486 $3,021 $3,009

EBITDAR Margin 12.87% 11.72% 12.16%

EBITDA $3,165 $2,686 $2,670

EBITDA Margin 11.69% 10.42% 10.79%

Average Stock Price $57.34 $37.35 $23.01

Market Cap $19,094 $11,608 $7,161

Enterprise Value $25,622 $17,182 $12,093


Weighted Average Shares

outstanding (mlns.) 333 311 311

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DAN FONG


416-866-8783

N O R T H A M E R I C A N S T R E N G T H I S A D O U B L E D E D G E D S W O R D

Magna posted a strong first quarter with revenues of $9.4 billion (+5% YOY) and adjusted EPS of $1.53 (+25% YOY). Although Magna

reduced its 2017 North American (NA) revenue guidance by ~1%, the company’s outlook for European revenues increased by almost 6%

– as a result, 2017 revenues are expected to be ~1.5% higher than originally forecast. Magna’s Q1 performance was largely attributable

to the company’s NA operations, which benefited from increased GM production volumes as the OEM builds vehicle inventories in

preparation for a 10-week shutdown in Q3. We note, however, that GM’s sales have shown signs of weakness in April, which could build

into a larger problem as inventories rise. Given our medium-term outlook for lower NA production volumes and the potential risks posed

by U.S. protectionism, we continue to suggest investors approach NA auto stocks with a wide margin of safety.



Intrinsic Value: US$44.00

Current Yield 2.4%

SELL

MAGNA INTERNATIONAL INC.TSX-MG / NYSE-MGA

QUALITY RATING


Magna does not disclose detailed information on capital-

ized R&D or costs associated with tooling and engineering

contracts. The Company also provides little detail on its

equity-accounted investments, which are material contrib-

utors to earnings.


Magna has historically generated strong cash flows, allow-

ing the Company to comfortably fund capex, acquisitions,

and returns of capital to shareholders. However, with

growth in NA vehicle sales set to slow down and U.S. pro-

tectionist policies potentially triggering reorganization costs,

Magna’s FCF may come under pressure.


Despite taking on debt to fund the Getrag acquisition,

Magna maintains a strong balance sheet with a conserva-

tive leverage ratio of 0.7x debt to LTM EBITDA.


Magna’s operations are heavily impacted by the cyclical

nature of NA auto sales. Although Magna has been suc-

cessful in growing NA margins and CPV, the Company is

very much tied to the success of domestic automakers. In

addition, the increasing significance of Magna’s complete

vehicle assembly business is margin dilutive.


Short- and long-term incentive plan goals are clearly dis-

closed and are aligned with the interests of outside inves-

tors. The majority of Directors are independent and began

serving on the Board in the post-Stronach era.

INTRINSIC VALUE

Our intrinsic value estimate of $44 per share considers a scenario

of declining NA vehicle production from the current record levels

and stable reinvestment rates over the short-term. In our terminal

year, we assume higher capital spending to reflect risks tied to

U.S. protectionist policies that are likely to trigger reorganization

costs as OEMs eventually shift production back to the United

States. Our reinvestment rate assumptions imply: a long-term

growth rate of ~2%, a long-term FCF yield of ~6%, and a terminal

multiple of 5.25x EV to EBITDA.

Period Ending

US$ Millions (except as noted) F15 F16

TTM

Q1-F17

NA production (millions) 17.5 17.8 17.8

European production (millions) 21.0 21.4 21.5

Price per share (split-adjusted) $40.56 $43.40 $43.16

Dividend per share

(annualized, split-adjusted) $0.88 $1.00 $1.12



Revenue $32,100 $36,500 $36,900

EBITDA $3,200 $3,800 $4,000

EV / TTM EBITDA 5.1x 5.0x 4.8x

Net Debt / TTM EBITDA NM 0.6x 0.7x

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

S T E A D Y A S S H E G O E SMFC reported core EPS of $0.53 in Q1, which met the Street’s expectations. Core ROE improved meaningfully from 9.3% last year to 11.1%, while

MFC’s quarterly dividend was left unchanged at $0.205/share. The company’s business in Asia continues to flourish largely on the back of improved

distribution, while the U.S. business rebounded due to record gross flows within wealth and favorable policyholder experience. Our thesis on MFC

has not changed coming out of the quarter; we continue to expect gradual improvement in both core earnings and ROE, as the benefits of strong

sales and higher interest rates make their way into results. Both our BUY recommendation and intrinsic value estimate of $27.00 remain unchanged.




Current Yield 3.4%

BUY

MANULIFE FINANCIAL CORP. TSX-MFC NYSE-MFC

QUALITY RATING


MFC met its ROE target of 13% in Q1 2017 with a 13.7% result.

Accounting charges did weigh on earnings as a flattening

yield curve led to modest gains in Japan on the valuation of our

policy liabilities.

Capital 4/5

The company’s capital position remained strong with MLI’s

MCCSR ratio ending the quarter at 233%, unchanged from the

prior year.


MFC’s direct exposure to oil & gas as part of its Alternative

Long-Duration Assets portfolio is $2.1 billion (0.7% of total

invested assets) in Q1. Other O&G exposure include $14.4 billion

(8%) of fixed income exposure per MFC’s disclosure in Q1-F17.


Earnings growth relative to the prior year period was particularly

strong in the U.S. and Asia at 37% and 14%, respectively. The U.S.

business benefitted from many factors such as favorable

policyholder experience, including changes to claim

assumptions in the long-term care business, and higher fee

income in wealth and asset management (WAM). Asia’s

growth of 14% (on a constant currency basis) was driven by

robust new business volumes as well as further progress on

expanding MFC’s distribution capabilities in the region.


No issues noted.

INTRINSIC VALUE

Our intrinsic value of $27.00 incorporates a multiple of 1.3x on our

F2017 BV/share estimate of $21.06.

BUSINESS COMPOSITIONExcluding Corporate and Other, 38% of MFC’s Q1 F2017 core

earnings was generated in Asia, 29% in Canada, and 47% in U.S.

FY end Dec. 31 C$

F14 F15 F16

Share price (at end of period) 22.18 20.74 23.91

Book value / share 16.42 19.51 19.37

P:BV 1.4x 1.1x 1.19x

MCCSR (of Canadian subsidiary) 248% 223% 230%

Core ROE 9.8% 9.2% 12.9%


Reported core EPS (TTM) 1.48 1.68 1.96

Core P:E 15.0x 12.3x 10.6x

Market capitalization ($B) 41.3 40.9 47.2

# of shares O/S ($M) 1,864 1,971 1,975

AUM ($B) 691 857 894

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

M A P L E L E A F A N G L E S F O R G R O W T HMaple Leaf Foods produced the fifth consecutive quarter of double digit EBITDA margins (10.8% in Q1-F17), there is now plenty of

evidence that the company can run its modernized plant network at an attractive scale. While management’s latest five-

year target of 14% to 16% Adj. EBITDA margins is likely to face many challenges, Maple Leaf may yet surprise investors with

gains from product development and branding efforts, escaping its current positioning in relatively mature protein

markets. We remain buyers of this name.

Updated May 4, 2017



Current Yield 1.3%

BUY

MAPLE LEAF FOODS INC.TSX-MFI

QUALITY RATING


The bulk of Maple Leaf’s ‘provisions’ account has now be-

come current ($14.0 MM of $26.1 MM at the end of Q3).

Provisions primarily relate to severance and site closing

costs tied to Maple Leaf’s plant restructuring.


We expect Maple Leaf to generate about $234 MM of free

cash flows in 2017, after $110 MM of sustaining capital with

a similar level (+/- $10 MM) likely in 2018 and $259 MM of

free cash in 2018.


At the end of Q1, Maple Leaf had ~$2.83 per share in net

positive working capital on its books, after debt, provisions

and other liabilities. This included $1.08 per share in cash.


In our view, primary margins (sales less inventory costs)

should normalize near 24% of sales in 2017, with SG&A and

non-inventory costs reduced to ~$448 million net of D&A,

just over 13% of sales.


The modernization of Maple Leaf’s supply chain leaves

management with no more excuses. Continued operation-

al execution is a crucial test of Mr. McCain’s leadership and

so far results have been good.

INTRINSIC VALUE

Our updated valuation of $35.50 a share incorporates 11.6%

EBITDA margins in 2018, with $3.5 billion in sales and a 10.3 times

Enterprise Value to EBITDA multiple.

FY end Dec. 31

C$ Millions F15 F16

LTM,

Q1-F17

Price 23.76 27.65 29.11

Shares outstanding, millions 135.0 136.3 132.7

Market capitalization 3,207.6 3,670 3,862

Debt (cash) net of working capital

and selected long-term liabilities (456.1) (558.5) (375.3)

Enterprise value 2,751.5 3,210.2 3,486.7

Revenue* 3,292.9 3,331.8 3,346.1

EBITDA (adjusted) 219.8 343.4 349.9

EPS (adjusted) 0.58 0.93 0.99

P/E multiple (TTM adjusted) 41.0x 29.7x 29.4x

EV / Adj. EBITDA (TTM) 12.5x 9.3x 10.0x

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DAN FONG


416-866-8783

M A R G I N S E X P A N D B U T F R E E C A S H L A G G I N G

Martinrea continues to post steady margin growth with adjusted EBITDA margins 9.1% for the trailing-twelve-months ending Q1-F17 – an 80

basis point improvement from Q1-F16. Although we expect margins to continue improving, we remain concerned that the company’s

operational improvements to date have not shown signs of translating into meaningful free cash flow generation – since the beginning of

its margin expansion trend in Q3-F14, Martinrea has generated cumulative free cash flow of just $64 million, as compared to revenues of

$11 billion. Looking ahead, based on contract roll-offs and GM’s updated Equinox terms, we expect Martinrea’s margin expansion to

accelerate. However, the company’s historically high reinvestment rate may continue to constrain cash flow growth, with auto cycle risks

and the potential threat of U.S. protectionism also weighing on cash flow and valuation.

Updated May 2, 2017



Current Yield 1.1%

SELL

MARTINREA INTERNATIONAL INC.TSX-MRE

QUALITY RATING


MRE’s depreciation method differs from peers in that it uses

‘life-of-program’ depreciation as opposed to ‘units-of-

production’. As a result, higher amounts are amortized dur-

ing production ramp-up, and lower amounts when produc-

tion reaches maturity.


Since the start of 2013, Martinrea has generated cumulative

free cash flow of negative $2.7 million, which we attribute to

a high reinvestment rate. U.S. protectionist policies that

potentially trigger reorganization costs are likely to hamper

the Company’s ability to generate meaningful cash flow.


Based on our estimates, Martinrea is likely to reduce its lever-

age to 1.7x net debt to TTM EBITDA by the end of 2017, close

to its target of 1.5x. However, we estimate that debt as a

percentage of enterprise value will remain elevated at 46%,

which is significantly higher than its Canadian peers.


Operational improvements and the run-off of less profitable

contracts should allow for continued margin expansion.

However, given the Company’s acquisition strategy and

historically weak free cash flow profile, we remain con-

cerned about the possibility of future M&A activity, which

could negatively impact cash flow and leverage.


A majority of directors are independent and have been

elected within the past three years. The chairman is a

founder, full-time employee and integral part of manage-

ment, which may impact independence. The board is

comprised of an even number, which could result in the

inability to resolve matters requiring a majority board vote.

INTRINSIC VALUE

Our intrinsic value of $8.75 per share considers a scenario of: 1)

accelerated margin improvement; 2) declining NA vehicle pro-

duction; and, 3) elevated capital spending requirements over

the long-term to reflect reinvestment risks tied to the likely migra-

tion of auto production back to the United States.

C$ millions F15 F16 TTM

Q1-F17

Share price $10.51 $8.59 $10.32

Shares outstanding (millions) 86 86 86

Revenue $3,900 $4,000 $3,900

Adjusted EBIT (as reported) $180 $200 $200

Adjusted EBITDA (as reported) $320 $350 $355

Market capitalization $910 $740 $890

Net debt $690 $660 $635


EV-to-TTM adjusted EBITDA 5.0x 4.0x 4.3x

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

KATHLEEN WONG


416-866-8783

M E R C H A N D I S I N G A N D P R O M O T I O N A L S T R A T E G I E S P A Y I N G O F F

Q2-F2017 SSSG of +0.3% was impressive despite a tough comparison of +5% in the same quarter last year and a

deflationary environment. Metro’s Q2 results were in line with the observations from our January 2017 grocery price survey

in Ontario. Metro has a track record of using an effective promotional strategy to drive positive SSSG. Despite the

aggressive promotions, Metro had the right merchandise mix that drove gross profit margin improvement in Q2-F2017.

In this report, we show the detail results of our Apr 2017 grocery price survey in Ontario. We believe Metro’s effective

discounting strategy should bode well in a deflationary environment.




Current Yield 1.4%

BUY

METRO INC.TSX-MRU

QUALITY RATING


Metro no longer provides any metrics for the core grocery

retailing segment versus the higher-margin Premiere Mois-

son and Marche Adonis businesses. Similar to peers, there is

also a lack of disclosure on results by banner and/or region.


Metro’s return on equity was more than 14.5% over the last

20 years. Management has been using more than 50% of its

annual free cash flow to buy back stock in the last few

years. Metro’s latest dividend increase (in January 2017)

was the 23td consecutive year of dividend growth.


Lease-adjusted net debt/EBITDAR as of Q2-F2017 sat at 2.3x,

showing consistent improvement since F2005 (3.5x) when

Metro acquired A&P Canada. Further, Metro holds about

$2 billion worth of Alimentation Couche-Tard shares that

may be liquidated if needed.


After the acquisition of A&P Canada in 2005, Metro consoli-

dated its five banners in Ontario into the Metro brand and

simplified its operating structure. Following the success of

the revamped merchandising program at Food Basics

stores since 2013, Metro rolled out a similar program for its

Super C banner. A consistent focus on improving fresh offer-

ings and effective promotional programs have helped Met-

ro improve store traffic and tonnage.


Metro’s Board of Directors consists of a majority of inde-

pendent directors, with 12 out of 13 independent.

INTRINSIC VALUE

We have incorporated the better-than-expected Q2-F2017 results

in our model and increased our intrinsic value to $51.00 (up from

$48.00). Excluding the value of the Couche-Tard shareholding,

this implies that we value Metro’s grocery operations at about

11x F2018E EBITDA. The much higher EBITDA margins at Metro

justifies the premium valuation over its peers.

FY end September (C$ Millions, except as noted)

F2016 F2017E F2018E

Fully-Diluted EPS $2.39 $2.50 $2.65

Revenue 12,788 13,168 13,552

EBITDA (excluding equity-accounted

earnings from Couche-Tard)931 975 1,007

EBITDA Margin 7.28% 7.50% 7.48%

Share Price $41.80 $45.18 $45.18

Price/Earnings 16.6x 17.3x 16.4x

Price/Book 3.3x 3.5x 3.2x


EV 10.994 10,180 10,786



Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

S T I L L L A G G I N G O N E X P E N S E C O N T R O LNA’s better than expected EPS in Q2 was driven by strong top line growth, which we expect will moderate, and unsustainably low credit losses.

While cost control certainly featured within the bank’s P&C Banking business, NA’s growth in operating expenses at the consol idated level was

the highest among the large banks in Q2 for the second consecutive quarter and so we continue to see a higher relative level of execution risk

on efficiency initiatives.




Current Yield 4.3%

SELL

NATIONAL BANK OF CANADA TSX-NA

QUALITY RATING


Management recently introduced a fourth reporting segment

known as ‘U.S. Specialty Finance and International’, which

includes the results of Credigy, ABA Bank in Cambodia, as well

as activities in other emerging markets. This new disclosure

provides more transparency into performance.

Capital 3.5/5

The bank’s CET 1 capital ratio jumped by 20 bps sequentially to

10.8% at the end of Q2 and was up meaningfully from last

year’s 9.8%. Management announced an NCIB for up to 6

million shares (slightly less than 2% of outstanding shares) but

noted that buybacks would only be an option above a CET 1

capital ratio of 10.75%.

Credit 4/5

Credit was a tailwind for NA in Q2 with the all-bank loan loss

ratio declining to a very low 18 bps. Not surprisingly, in our view,

the bank reversed $40mm of the $250mm sectoral provision

that was incurred last year on the oil & gas portfolio, although

there was an offsetting $40mm increase in the collective

allowance (for non-impaired loans) due to growth in the loan

book.


Adjusted earnings were up sharply across each of NA’s three

business segments with P&C Banking posting strong sequential

growth. Wealth Management and Financial Markets were up

materially relative to the prior year, although both saw earnings

decline modestly from last quarter. The U.S. Specialty Finance &

International segment, NA’s smallest segment which was

introduced last quarter, reported a sizable earnings jump of

almost 80% YoY.


No items noted.

INTRINSIC VALUEOur intrinsic value estimate for NA is $53.00, which we calculate by

applying a multiple of 11.0x on our F2018 EPS estimate of $5.40 and a

multiple of 1.5x on our BV per share estimate of $30.72 at the end of

F2017, and taking the average of the two.

BUSINESS COMPOSITIONNA’s retail/wholesale earnings mix is approximately 60%/40% on an

adjusted basis, excluding the Other segment. Canadian P&C banking

contributes 43% of earnings. Essentially all of its exposure is in Canada

with significant concentration in the province of Quebec.

FY end Oct. 31 C$

F14 F15 F16



EPS (adjusted, TTM) $4.48 $4.70 $4.34

P/E (TTM) 11.8x 9.2x 11.0x

BV/share $25.76 $28.26 $28.52

P/BV 2.0x 1.5x 1.7x



ROE (adjusted) 18.6% 17.6% 15.5%


# shares outstanding

(thousands) 329,297 337,236 338,053

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

NASIBA AKHMEDOVA


416-866-8783

R E - C O N T R A C T I N G R I S K R I S E SIn Q1-F17, Northland Power Inc. (“NPI”) delivered strong results, with adjusted EBITDA increasing by 91% over the same period last year,

primarily driven by Gemini pre-completion revenues and overall stronger performance of the fleet, including results from Grand Bend and

Iroquois Falls. Overall, we continue to believe NPI is an appealing investment, and maintain a BUY recommendation with a value estimate

of $27 per share (which includes a $1.00 per share takeout premium).




Current Yield 4.6%

BUY

NORTHLAND POWER INC.TSX-NPI

QUALITY RATING


Compared to BEP.UN, NPI’s FCF disclosure is conservative,

since it accounts for debt repayments on active wind

farms.


Although, lower cash flow from Kingston and robust devel-

opment plans do not leave much room for a dividend in-

crease in F17, our analysis shows that once the European

wind farms commence operations, NPI should have suffi-

cient free cash flow to increase the dividend by 8%, to $1.17

per share.


The decline in cash flow from Kingston will negatively im-

pact Northland’s corporate level credit metrics. However,

since Northland employs project level financing under-

pinned by long-term sales agreements/subsidies, it should

have ample access to debt capital.


Gemini windfarm achieved full completion ahead of

schedule and under its total budget. In addition, Nordsee

One continues to progress as planned, with 14 turbines in-

stalled to date.


No issues noted.

INTRINSIC VALUE

We value NPI at $27.00 per share.

FY end Dec. 31

C$ Millions Q1-F17 F16 F15

Share price $24.56 $23.30 $18.66

Shares o/s (millions) 184.4 186.6 169.6


Long-term investments $50.4 $50.3 $0.0

Net debt and preferred shares $6,099 $6,017 $5,923


Revenue (TTM) $1,284.9 $1,099.0 $728.1

Free cash flow (TTM) $239.0 $242.3 $182.2

Avg. units o/s (TTM, millions) 173.1 172.9 183.7

Cash flow per share (TTM) $1.3 $1.3 $1.1

Price-to-free cash flow (TTM) 18.9x 17.9x 17.4x

Payout ratio (TTM) 83% 83% 101%

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

G R O W T H T H R O U G H F 1 9 D R I V E S S H A R E H O L D E R V A L U EPeyto is positioned to achieve production growth of 12% CAGR for 2017-2019 and fund capex from internally generated FFO at C$3.00

per Gigajoule. Peyto will run a cash shortfall of ~$370 million over the next three years as the result of its annual $200+ million dividend and

can fund this with its $685 million in undrawn bank credit facilities. Peyto’s ability to have consistently lower costs is due to its foresight into

drilling but deferring completion of wells when service costs are high. BUY




Current Yield 5.0%

BUY PEYTO EXPLORATION & DEVELOPMENT CORP.

TSX-PEY

QUALITY RATING


Non-IFRS funds flow leaves out the cash costs associated

with performance compensation, inflating the metric.

Payments totaled $19.2 million in 2014, $23.4 million in 2015

and $25.8 in 2016.


At US$51 WTI and $2.90 AECO in 2017 – our low case - we

expect Peyto to generate cash flow of $3.80 to $4.00 per

share and balanced funds flow and capex. This is not

enough to cover its $215MM+ dividend payment. We are

confident management has the liquidity required to sustain

the shortfall and continue robust growth plans.


As at March 31, 2017 net debt remains unchanged at $1.1B

while available capacity on its credit facility is increased to

$6852MM, this facility remains open until December 2019.

Projected 2017 net debt to funds flow of 1.8x.


We see Peyto's assets producing significant volume growth

through 2018, on the order of a low-to-mid double digit

percentage CAGR, which leads the Canadian E&P sector.


We are not fans of Peyto's reserve-based bonus, which pays

management 4% of any increase in proved producing

reserve value.

Cash Flow and Dividends 2017 Q1 2016 2015

Reported CFO* 121.1 508.6 530.2


Available cash (shortfall) (32.7) 39.3 (63.6)


% of CFO* 45% 42% 39%

% of available cash N/A >500% N/A


Price 27.35 33.21 24.87




CFPS 0.74 3.09 3.34




Production (boe/d) 101,093 96,975 85,674

CFO* per boe 13.13 14.37 16.96



INTRINSIC VALUE


2017 / 2021

HH Gas Price

2017 / 2021

USD/CAD XR

2017 / 2021

Intrinsic

Value

$62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 27.50

$67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 32.50

$77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 34.50

Our valuation for Peyto under our base price deck is $32.50 per

share, which assumes a return to US$67 WTI oil and US$3.75 NYMEX

gas in 2021.

* CFO is cash from operations after working capital, cash interest expense and asset

retirement expenditures

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

P A Y I N G A H I G H P R I C E F O R A L O W Y I E L DPSK faces an additional key challenge on top of the inherent volatility in commodity pricing in the oil and gas business, It does not fully

control its own destiny with respect to drilling and must lower royalty rates or upfront lease bonuses to drive additional activity and

volumes during periods of poorer pricing. Without a quick recovery to US$55+ per barrel WTI and Cdn $2.75+ per mcf for AECO natural gas

organic volume growth and drilling on PSK lands will remain challenged. PSK will generate funds flow of $1.15 per share in 2018 under a

US$50 WTI scenario, assuming an FFO multiple of 25.0x we see PSK valued at $29.50, downside of 4%. SELL.




Current Yield 2.4%

SELL

PRAIRIESKY ROYALTY LTD.TSX-PSK

QUALITY RATING


We highlight that IFRS accounting allows immediate recog-

nition of non-monetary assets received in lieu of lease bo-

nuses. In Q2 2017 this allowed PSK to book a future royalty

stream as one-time lease bonus revenue, affecting income,

cash flows and asset reporting.


At our low case of US$51 WTI in 2017 we estimate CFPS of

$1.15-$1.20 which easily covers the dividend obligation of

$0.75, a payout ratio of 62%. If we see US$54 WTI a dividend

hike could be on the table


As of the end of Q2 2017, PrairieSky had no debt and $97

million of cash.


PrairieSky's royalty rate has remained flat from Q1 F16 to Q2

F17 despite improving commodity prices reinforcing our

concerns surrounding sliding scale and operating leverage.

A recent Gross Overriding Royalty (‘GORR’) on Pengrowth’s

Lindbergh production was at a fixed 4% compounds this

issue.


With a relatively unique business model, evaluating man-

agement's performance other than through share returns is

challenging. As a result, PrairieSky's compensation arrange-

ments are skewed towards total returns and benchmarked

against a peer group that mixes royalty companies and

dividend-paying oil and gas names.


(6 mos.) 2016 2015

Reported CFO* 70.3 204.6 168.1

Capital expenditures** 0.0 0.0 0.0

Available cash (shortfall) 70.3 204.6 168.1

Dividends declared (42.1) 186.7 206.5

% of CFO* -60% 91% 123%

% of available cash N/A 91% 123%

Company Profile Q2 2017

(6 mos.) 2016 2015

Recent price 30.66 30.27 21.92




CFPS 0.30 0.90 0.73




Production (boe/d) 25,706 23,308 17,225

CFO* per boe 14.99 32.07 26.74


Net debt to CFO* 0.0 0.0 0.0

INTRINSIC VALUE


2017 / 2021

HH Gas Price

2017 / 2021

USD/CAD

2017 / 2021

Intrinsic

Value

$62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 20.50

$67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 26.00

$77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 34.50

Our base case values PrairieSky at $26.00 per share, assuming a return

to US$67 WTI oil and US$3.75 NYMEX gas through 2021.

* CFO is cash from operations after working capital. We have added EBITDA from the

Encana's development properties at a 25% effective tax rate

**Net of lease bonus payments

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DESMOND LAU


416-866-8783

P O S I T I V E O U T L O O K D E S P I T E N E T N E U T R A L E R AWith the recent CRTC ruling on net neutrality banning the use of data cap exemptions on content, a key differentiating

tool in Videotron’s arsenal was decommissioned. Despite the setback, we have reason to believe wireless will continue to

deliver results. Staying the strategic course has served Quebecor’s shareholders well, and continues to yield solid

performance, led by steady gains in wireless subs of 27k all while ARPU drove higher to $52.49. On the cable front, internet

sub growth improved 3.2% over the prior year with the addition of 15k customers. Declines in TV subs remained stable at -

2.4%, well above peers (Rogers and Shaw) while ARPU remained flat at $49.73. Finally, a debt refinancing helped reduce

the cost of debt by more than 200bps on $625 million of principal.




Current Yield 0.5%

BUY

QUEBECOR INC.TSX-QBR.b

QUALITY RATING


Disclosures are improving, with management providing

wireless EBITDA figures for FY16, allowing for greater clarity

over performance.


Improving wireless profitability, continued cable EBITDA

growth and the completion of LTE capex in 2016 will help

increase free cash flow over time.


Net debt: EBITDA sits at 3.3x after Quebecor increased its

QMI stake from 75% to 81%.


Wireless continues to drive growth, with 27k net additions,

and ARPU increasing 5.8% to $52.49. Video net losses of 10k

were manageable and Internet adds of 15k were better

than the 10k a year ago.


The rights of Class B shareholders are limited due to a com-

bination of a dual class share structure and the Caisse’s

ownership (includes veto rights for dividend increases, ac-

quisitions and the right to force an IPO of QMI by 2019).

INTRINSIC VALUE

We are maintaining our BUY rating and updating our intrinsic val-

ue estimate to $45.

YTD Mar 31, 2017


Revenue (TTM) $4,027 $3,929 $4,038

EBITDA (TTM) $1,458 $1,456 $1,505


EV/EBITDA (TTM) - proportionate 8.1x 8.3x 7.7x




QMI Net debt: TTM EBITDA 3.2x 3.5x 3.3x

Wireless subscribers (thousands) 662 796 921

Wireless ARPU $46.03 $49.61 $52.49

Quality Scale


5 10 15 20 25

Intrinsic Value

-50% -25% 0 25% 50%

KATHLEEN WONG


416-866-8783

F O C U S O N N E W R E S T A U R A N T S A N D E X P E N S E C O N T R O L

Restaurant Brands adjusted EBITDA increased by 8.7% to US$443.3 million in Q1-2017 despite very soft same store sales

growth at (0.1%). This was mainly due to strong restaurant openings at Tim Hortons and Burger King offsetting the soft

comps. Our saturation analysis using Canada Post Forward Sortation Area continues to expect 250 Tim Hortons Restaurants

to be opened in Canada in 2017 and 2018 to reach 4,050. We have previously identified the top 30 countries where Burger

King has actively been expanding and we expect Burger King to open about 550 restaurants per year internationally.

Quarterly dividend is increased by $0.01 to $0.19 per share.

Updated April 27,2017



Current Yield 1.3%

BUY

RESTAURANT BRANDS INTL.TSX, NYSE-QSR

QUALITY RATING


Restaurant Brands’ disclosures are on par with those of other

Canadian and U.S. quick-service restaurants, although geo-

graphic disclosure has been reduced since the acquisition of

Tims.

Free Cash Flows 4/5

We expect Restaurant Brands to generate $7 billion in free cash

flow between 2017 and 2021, or approximately $1.4 billion a

year. This should support debt reduction and dividend

increases going forward.


QSR’s strong free cash flow should allow moderate deleverag-

ing over the next few years, with Adjusted Net Debt to EBITDA

improving from 6.9x at the end of 2015 to 3.4x by 2020.


We estimate that a standard Tim Hortons restaurant in Canada

with $2.0 million in annual unit volume generates an annual

cash profit of ~$305K which represents a 62% return on the fran-

chise’s initial setup costs, much higher than that of U.S. McDon-

ald’s and Dunkin’ Donuts locations, at 10% and 25%, respective-

ly. In our view, strong economics support Tims’ continued Cana-

dian expansion. We estimate Tims has room to add 400 or more

new Canadian locations by 2018 to reach a total of 4,050 res-

taurants, in line with management’s estimate of 4,100. We be-

lieve Burger King could add as many as 2,900 restaurants out-

side of North America by 2020.


Restaurant Brands has 11 directors, including nine independent

directors. 3G Funds owns 42.7% voting power and National In-

demnity Company (a wholly-owned subsidiary of Berkshire

Hathaway owns 11.6% voting power, and Pershing Square

Funds owns 7.4% voting power.

INTRINSIC VALUE

We derive an intrinsic value of US$60.00 using a DCF model and a

NAV model. Our intrinsic value generates a competitive 5% free cash

flow yield on our 2017 forecasts. Restaurant Brands remains a BUY.

FY end December

(US$ Millions, except as noted) 2016 2017E 2018E

Burger King System Sales $18,209 $19,404 $20,626

Burger King EBITDA $816 $868 $920

Burger King EBITDA as % of

Revenue 71.3% 71.0% 71.6%

Tim Hortons System Sales $6,405 $6,949 $7,180

Tim Hortons EBITDA $1,072 $1,164 $1,198

Tim Hortons EBITDA as % of

Revenue 35.7% 36.1% 36.1%

Total EBITDA $1,888 $2,032 $2,118

Share Price $40.00 $56.66 $56.66

Market Capitalization $18,779 $26,630 $26,630

Enterprise Value (EV) $30,906 $38,559 $38,332



Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DESMOND LAU


416-866-8783

G E T T I N G B A C K O N T H E G R O W T H T R A I N

Q1-17 was a transitional quarter for Rogers just prior to the arrival of new CEO Joe Natale, but it reaffirmed a continued turnaround in both

the wireless and cable divisions. Postpaid net adds of 60k handily beat Street estimates of 28k and were accompanied by 7 bps churn

reduction, while 8k cable sub additions compared favourably to a loss of 20k a year ago. We expect Natale to try to close the 30 bps

wireless churn gap with Telus. Given Gigabit Internet availability throughout Rogers’ entire footprint, and the upcoming adoption of

Comcast’s X1 platform next year, we expect further improvements on the cable side. With more room to grow its dividend and

operational momentum in wireless and cable, we are not concerned about the premium valuation and believe that it is warranted.




Current Yield 3.1%

BUY

ROGERS COMMUNICATIONS INC.TSX-RCI.B; NYSE-RCI

QUALITY RATING


Accounting is consistent with peers, but disclosures of reten-

tion expense, retention volumes and cost of acquisition are

lacking.


At the $1.92 dividend, Rogers is paying less than 60% of F17

free cash flows.


Rogers’ net debt to F16 EBITDA ratio is approximately 3.0,

above the Company’s 2.0x to 2.5x target ratio.


Wireless ARPU trends should improve over the longer-term,

as roaming plans and simplified pricing effects are worked

through the base, as well as a $5 price hike. Gigabit Internet

is bringing back Internet subscribers while the upcoming

launch of Comcast’s X1 platform is expected to bring much

needed relief to the TV business.


Good.

INTRINSIC VALUE

We are maintaining our BUY recommendation and $63 intrinsic

value estimate.

YTD March 31, 2017


Revenue (TTM) $13,005 $13,484 $13,795

EPS (TTM) $2.72 $2.88 $2.98

EBITDA (TTM) $4,982 $5,009 $5,157

Price (reporting date) $41.86 $50.20 $61.42


P/E (TTM) 15.4x 17.4x 20.6x

FCFE yield 7.0% 6.3% 5.8%





Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

C O N T I N U E D E X E C U T I O N I N C A N A D I A N B A N K I N G W I L L B E K E YRY’s strong results in the quarter were once again powered by the Canadian Banking business, which has outperformed most peers that have thus

far reported Q2 results. With expense control set to play a more prominent role in maintaining growth in the Canadian lending business, we believe

that RY’s superior ability to execute will stand out relative to peers over the next couple of years. Other key businesses also performed well in the

quarter including Capital Markets, which continues to grow both domestically and outside of Canada, and Wealth Management, where RY’s

dominant market position in Canada is nicely complemented by the City National franchise in the U.S.




Current Yield 3.7%

BUY

ROYAL BANK OF CANADA TSX-RY; NYSE-RY

QUALITY RATING


No items noted.

Capital 4/5

Buybacks adversely impacted RY’s CET 1 ratio, which declined

from 11.0% last quarter to 10.6% at the end of Q2. Management

continues to view a 10.5% CET 1 ratio as its minimum target and

does not expect that a G-SIB designation, should it materialize,

would be additive to its current capital requirements (i.e.

management suggest that the G-SIB would potentially replace

the existing D-SIB classification that is mandated by OSFI).

Credit 4/5

RY reported total loan loss provisions of $302mm in the quarter.

That represented a loss ratio of 23 bps, which was little changed

sequentially but well below the 36 bps reported in the same

quarter of last year. Results in Q2 benefited from lower PCLs in

Capital Markets, partly offset by slightly higher PCLs in

commercial lending. Oil & Gas-related losses were $32mm in

Q2, a reversal from last quarter’s $39mm of recoveries, but still

comfortably below losses of $115mm recorded in Q2 of last

year.


With the exception of Insurance and the very small P&C

Banking business outside of Canada, RY’s various business lines

generally performed well in the quarter. Most importantly,

Canadian Banking saw strong growth of 6.0% YoY as the

business has clearly rebounded the last two quarters after

several quarters of relative underperformance. Capital Markets

showed robust growth of 15% relative to the prior year period,

while the Wealth business saw a 9% jump in adjusted earnings.


No items noted.

INTRINSIC VALUE

Our intrinsic value estimate for RY is $96.00, which we calculate by

applying a multiple of 12.3x on our F2018 EPS estimate of $8.03

and a multiple of 1.95x on our BV per share estimate of $47.37 at

the end of F2017, and taking the average of the two.

BUSINESS COMPOSITIONRY’s retail/wholesale earnings mix is approximately 78%/22%.

Canadian P&C contributes ~50% to overall earnings. Nearly two-

thirds of revenue were earned in Canada, while the U.S. and

other International contribute ~20% and ~17% of total revenue,

respectively.

FY end Oct. 31 C$

F14 F15 F16


(BIII) 9.9% 10.6% 10.8%


EPS (adjusted, TTM) $6.22 $6.76 $6.80

P/E (TTM) 12.9x 11.1x 12.3x

BV/share $33.69 $39.51 $43.32

P/BV 2.4x 1.9x 1.9x



ROE (adjusted) 19.7% 18.7% 16.3%

Net interest margin 1.56% 1.40% 1.41%


Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DESMOND LAU


416-866-8783

S U B G R O W T H I N T H E G R E E NShaw added ~13k TV subs this quarter, marking the first time in five years that the Company has generated positive TV

growth. The customer improvement has been much faster than anticipated, especially when compared to Comcast’s

trajectory (X1 launched 4 years before growing TV subs). Shaw’s pro-forma leverage ratio of 1.9x is now lowest amongst

peers, but we are not expecting dividend increases until at least 2019, given the $350m in incremental wireless capex to

be spent in F18. Nevertheless, a more complete handset offering, better network coverage and the ability to bundle a

rebranded wireless product are positive catalysts to come.




Current Yield 3.9%

BUY

SHAW COMMUNICATIONS INC.TSX-SJR.b; NYSE-SJR

QUALITY RATING


Good aside from revenue smoothing of 2-year promo plans

and capitalization of equipment subsidies, compared to

expensing by peers.


Dividend increases will be on hold for a few years, as Shaw

builds out its LTE network. The company also loses about

$260M in FCF from the media sale, but is comfortable with a

high payout ratio (100% with DRIP).


Following the sale of ViaWest for $2.3b, Shaw’s pro-forma

net debt-to-EBITDA decreased to 1.9x, which is the lowest in

the industry.


With BlueSky TV and Gigabit internet rolled out to its entire

footprint, investments are now bearing fruit, yielding strong

Consumer segment sub growth. Further investment to im-

prove the LTE network is expected to enhance Wireless

performance down the line.


The Shaw family continues to effectively control the com-

pany through ownership of 79% of the multiple voting

shares.

INTRINSIC VALUE

We are maintaining our BUY and increasing our intrinsic value

estimate to $31.50.

YTD May 31, 2017


Revenue (TTM) ex. media 4,329 4,670 5,234

EPS (TTM) 1.62 2.76 1.06

EBITDA ex. media 1,996 2,090 2,178

Share price (at reporting) $27.83 $24.86 $30.14


FCFE Yield (TTM) 5.8% 4.2% 4.0%

P/E (TTM) 17.2x 9.0x 28.4x

Market cap 13,122 12,017 14,870




Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

A C H A L L E N G I N G F I R S T Q U A R T E RSLF reported underlying EPS of $0.93 in Q1, coming in well below consensus of $0.99. Underlying ROE was relatively weak at 11.5%, remaining below

management’s targeted range of 12% to 14% for the second consecutive quarter. While the shorter-term outlook for earnings growth is now less

certain, in our view, we continue to expect gradual progression for SLF moving forward as the company benefits from its expanded distribution in

Asia, while some of the adverse policyholder experience that impacted all of the company’s businesses in the U.S. abates in the coming quarters. Our BUY recommendation for SLF is unchanged, although we are reducing our intrinsic value estimate to $50.00.




Current Yield 3.6%

BUY

SUN LIFE FINANCIAL INC. TSX-SLF; NYSE-SLF

QUALITY RATING


Management disclosed that a 10 bps reduction in the ultimate

reinvestment rate (URR) would lead to a $75MM hit to SLF’s earnings.

That figure is in-line with the impact noted by SLF as at Q4 2016.

Capital 4/5

The company’s capital position remains strong with the MCCSR ratio

ending Q1 at 229% (and a more robust 249% for the holding

company which holds liquid assets of $1.1 billion), while the quarterly

dividend was increased by 4% to $0.435/share.


We do not see any issues with the company’s holdings of debt and

equity securities. At the end of Q1 2017, 97% of SLF’s $4.3 billion

exposure to the energy sector within its corporate debt securities

portfolio was investment grade. The comparable figure was 99% for

its $2.4 billion exposure to real estate, while for the total book of debt

securities it was 98%.


Results improved in most of SLF’s business lines in Q1 2017. Underlying

earnings in Asia were particularly strong (up16%), driven by robust

sales across all regions resulting from the company’s expanded

distribution. Earnings in Canada increased a more modest 5% YoY

due largely to favorable policyholder experience, which was

somewhat offset by expense growth in the wealth business tied to

growth initiatives.

MFS reported a 12% jump in underlying earnings although results

were flat if we exclude the favorable impact of fair value

adjustments on share-based compensation. The U.S. was clearly the

laggard in the quarter as earnings declined by almost 30% with

weakness reported in each of the three businesses within that

segment.



INTRINSIC VALUEOur intrinsic value is $50.00, based on our F2017 BV/share estimate of $34.16

and a 1.45x target multiple.

BUSINESS COMPOSITIONSLF’s underlying earnings in Q1 2017 did not move materially from prior

quarters. The split was among SLF Canada (40%), SLF Asset Management

(32%; the majority of which is U.S.-based MFS), SLF U.S. (13%), and SLF Asia

(14%).

FY end Dec. 31 C$

2014 2015 2016

Share price (at end of period) 41.92 43.15 51.55

Book value / share 26.87 31.02 32.10

P:BV 1.56x 1.4x 1.6x

MCCSR (of Canadian subsidi-

ary) 217% 240% 226%

Underlying ROE 11.6% 12.8% 12.2%


Reported Underlying EPS (TTM) 2.96 3.76 3.80

Underlying P:E 14.2x 11.5x 13.6x

Market capitalization ($B) 25.7 26.4 31.1

# of shares O/S ($M) 613 612 614

AUM ($B) 734 891 903

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

S H A R E H O L D E R Y I E L D B E I N G S T R E T C H E DSuncor is maintaining a laser focus on shareholder yield given a lack of growth opportunities post 2017, after the completion of Fort Hills

We believe a focus on shareholder yield should be balanced by capital discipline and, at US$50 WTI, our analysis shows that Suncor

cannot finance both an announced $2 billion NCIB as well as its $2.1 billion annual dividend. We continue to view the decision to sell

shares at $35 (June 2016) and repurchase (over the next 12 months) at $40+ as a signal that options are running out. We remain sellers of

Suncor, as names like Canadian Natural Resources Ltd. provide a similar dividend yield, while also offering organic production growth

May 1, 2017



Current Yield 3.1%

SELL

SUNCOR ENERGY INC.TSX-SU; NYSE-SU

QUALITY RATING


IFRS requires the capitalization of financing costs tied to

major projects under construction, which was optional un-

der Canadian GAAP. Suncor’s interest capitalization per

share has increased as a result, to $0.26 in 2013, $0.29 in

2014, and $0.31 per share for 2015.


At US$55 WTI in 2017 we forecast funds from operations of

$8.8 billion and free cash of $3.3 billion covering the ~$2.2

billion dividend obligation. 2018 will see >40% declines in

capex as management indicates no growth post Fort Hills.


At the end of Q1 2017, Suncor's net debt was $13.2 billion

including $3.5 billion in cash and 1.9x trailing twelve month

cash flows. Suncor is putting its balance sheet to work, an-

nouncing a $2 billion NCIB to be completed within 12

months and retiring $1.7 billion of outstanding debt.


Suncor expects Fort Hills and Hebron to commence produc-

tion on schedule in late 2017, increasing volumes by more

than 100,000 barrels per day. Oil sands will need to shoul-

der the load between now and then.


Suncor's new CEO, Steven Williams, has promised that he

will not pursue 'growth at any cost'. While the Voyageur

upgrader was cancelled (a positive), Fort Hills continues to

move forward despite marginal economics. Control of Syn-

crude means exposure to the project’s historical poor relia-

bility


Reported CFO* 1,628.0 5,680.0 8,936.0

Capital expenditures (1,380.0) (6,582.0) (6,961.0)

Available cash (shortfall) 248.0 (902.0) 1,975.0

Dividends declared 634.0 1,877.0 1,490.0

% of CFO* 39% 33% 17%

% of available cash 256% N/A 75%

* CFO is cash from operations after working capital and asset retirement expenditures

INTRINSIC VALUE


2017 / 2021

HH Gas Price

2017 / 2021

USD/CAD XR

2017 / 2021

Intrinsic

Value

$62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 30.50

$67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 38.50

$77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 54.00

Our base case values Suncor at $38.50 per share, reflecting a return to


9 Company profile 2017 Q1 2016 2015

Price 40.83 43.90 35.72




CFPS 0.98 3.41 4.76


ROE (annualized) 12.0% 1.1% (4.9%)



CFO* per boe 24.61 21.07 32.64



Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DESMOND LAU


416-866-8783

T E L U S S O O N T O H A R V E S T W H I L E B C E N E E D S T O G R O W

Since 2010, Telus has deployed its resources aggressively, with consistent 10% annual dividend increases as well as

investments to build out fibre directly to customer households. Telus’ fibre-to-the-home investments will cover a

considerable portion of its footprint by the end of the year, with the company expected to return to free cash flow growth

in 2018. Yet its shares now trade at a meaningful discount to large-cap peers. With Telus approaching a position to harvest

those investments, we are upgrading our recommendation on Telus to a BUY with a $50 intrinsic value estimate.


Current Price C$45.21 / US$ 33.23


Current Yield 4.2%

BUY

TELUS CORP.TSX-T; NYSE-TU

QUALITY RATING


Accounting and disclosures are reasonable.


We estimate that Telus will pay out about 105% of F17E and

96% of F18E free cash flow, respectively.


The net debt-EBITDA ratio of 3.0x sits outside of the 2.0-2.5x

target and will limit the extent of share buybacks that can

be done in the future (management is targeting $250M per

year through 2019).


Wireline subscriber were slightly slower than a year ago,

with 7k TV adds vs 11k in Q1-16. Wireless ARPU grew 3.9%,

while churn was down 4bps.


Good.

INTRINSIC VALUE

We are upgrading our recommendation to a BUY with a $50 in-

trinsic value estimate.

YTD Mar 31, 2017


Revenue (TTM) 12,135 12,582 12,889

EPS (TTM) $2.39 $2.25 $2.16

EBITDA (TTM) 4,274 4,264 4,350



P/E (TTM) 17.9x 17.6x 20.9x

FCFE yield (TTM) 4.0% 3.9% 0.9%





Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

KATHLEEN WONG


416-866-8783

Q 1 - F 2 0 1 8 I N L I N E ; B I L L 8 1 S T I L L A N O V E R H A N G

Jean Coutu’s Q1-F2018 Pro Doc was very soft due to the removal of cap on professional allowances (“PAs”) of generic drugs. However,

the Pro Doc softness was partly offset by the strong results from the franchising segment.

We have reduced our F2018E and F2019E Pro Doc EBITDA based on the higher-than-expected PAs that Pro Doc is paying. On April 12,

2017, the Quebec government announced that it will modify the regulation to restore the 15% cap on PAs. We expect the 15% cap to be

reinstated beginning in Q2-F2019 (i.e. June 2018). We continue to expect the elevated SG&A expense level to roll off when all shipments

will be made from the Varennes distribution centre beginning in October 2017.




Current Yield 2.3%

BUY

THE JEAN COUTU GROUP (PJC) INC.TSX-PJC.a

QUALITY RATING


Disclosures are on par with those of other Canadian retailers

across the board. Jean Coutu reports Pro Doc as a separate

segment.


Cash flows are positive and stable, and should grow at a

steady pace. Free cash flow increased from $119m in F2016 to

$187m in F2017 largely due to investment in a new, larger distri-

bution centre in the previous year.


Jean Coutu has a strong balance sheet with no debt and

$179m in cash at the end of Q4-F17. Book value of Jean

Coutu’s land and buildings was about $422 million at the end of

F2017 and management has previously indicated that the mar-

ket value of its owned real estate is more than $500 million be-

fore considering the new DC (~$190m investment in total), in-

cluding $30 million worth of surplus real estate. Therefore, Jean

Coutu has access to capital by either crystallizing the value of

its real estate or levering up its balance sheet.


Jean Coutu is the number one pharmacy player in Quebec

and benefits from aging demographics. Pro Doc (generic drug

manufacturer acquired by Jean Coutu in 2007) is the key profit

driver and will help to mitigate the negative impact of recent

drug reforms. Pro Doc’s EBITDA margin is 25%+ even after lower

generic drug prices from competitive tendering, much higher

than the 6.50% regulated mark-up for prescription wholesaling.


The Jean Coutu family controls about 93% of the votes with 57%

of outstanding equity through owning 100% of Class B shares

having 10 votes per share. Should the Jean Coutu family cease

to be the beneficial owner of at least 50% of the outstanding

votes, the Class B shares will revert back to one vote per share.

Ten out of 15 directors (67%) are independent.

INTRINSIC VALUE

We have derived a new $24.00 intrinsic value (down from $25.00) for

Jean Coutu using a net asset value model. Our lower intrinsic value

reflects the higher-than-expected PAs that Pro Doc will have to pay in

the next few quarters before the Quebec government reinstates the

15% cap on PAs. Note that our intrinsic value has also included an

estimated negative impact of Bill 81.

FY end February

(C$ Millions, except as noted) F2017

(2016)

F2018E

(2017E)

F2019E

(2018E)

Fully-Diluted EPS $1.08 $0.87 $1.16

Retail Sales 4,474 4,505 4,614

Revenue 2,978 2,921 3,008

Franchising EBITDA 240 240 256

Pro Doc EBITDA 71 14 63

Total EBITDA 311 254 320

EBITDA Margin 10.45% 8.78% 10.72%

Share Price $20.05 $20.10 $20.10

P/E 18.5x 17.3x 14.7x




Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

A S O L I D Q U A R T E R D R I V E N B Y U . S . G R O W T H & B E T T E R C R E D I T

P E R F O R M A N C ETD reported better than expected Q2 results with strong YoY earnings growth across all of its businesses. The U.S. Retail segment continued

to improve on the back of elevated top-line growth, while Canadian P&C Banking surprised with a much better quarter driven by both

lower loan loss provisions and a stronger net interest margin. Credit performance at the all-bank level improved, with no signs of

deterioration on either side of the border.




Current Yield 3.7%

BUY

TORONTO DOMINION BANKTSX-TD; NYSE-TD

QUALITY RATING


TD recently changed its presentation of the U.S. Retail segment

related to how it accounts for results from the acquired

Nordstrom and Target portfolios. Full amounts for revenues, PCLs,

and expenses had previously been included in the U.S. Retail

segment, whereas under the new presentation, only TD’s

proportionate share is recorded in the U.S. Retail segment, while

the partners’ share is recorded in Corporate.

Capital 4/5

TD’s CET 1 capital ratio, which ended the quarter at 10.8%, was

down 10 bps from last quarter as share repurchases (15 million in

the quarter) and an increase in risk-weighted assets offset strong

internal capital generation.

Credit 4/5

Loan loss provisions at the consolidated level totaled $500mm in

the quarter, declining meaningfully versus both last quarter’s

$633mm, and the $584mm reported in the same quarter of last

year. Lower losses were primarily driven by the U.S. commercial

portfolio. Other credit metrics were also favorable for TD in Q2 as

gross impaired loans declined 3% sequentially and 8% YoY to $3.3

billion, while new formations of $1.2 billion in the quarter were 10%

lower than in Q1 and 21% below the prior year period.


All of TD’s business lines reported strong YoY growth in adjusted

earnings. U.S. Retail was particularly strong, improving by more

than 18%, while Wholesale Banking was up 13%. Most surprising

was the 7% earnings growth in Canadian P&C Banking, which

had been underperforming peers in recent quarters. The U.S.

Retail business continues to perform well with earnings of

US$636mm in the quarter improving by a very robust 18% relative

to the prior year period. Better credit performance helped

although the increase was driven predominately by strong top-

line growth of 10% (both net interest income and fee-based

revenue were up nicely).


No items noted.

INTRINSIC VALUE

Our intrinsic value estimate for TD is $71.00, which we calculate by

applying a multiple of 12.3x to our F2018 EPS estimate of $5.84 and

a multiple of 1.8x to our BV per share estimate of $38.75 at the end

of F2017, and taking the average of the two.

BUSINESS COMPOSITION

TD’s retail/wholesale earnings mix is 90%/10%. Geographically,

~60 of revenues are from Canada and 35% are from the U.S.

Canadian P&C banking accounts for ~45% of adjusted earnings,

excluding the Corporate segment.

FY end Oct. 31 C$

F14 F15 F16


(BIII) 9.4% 9.9% 10.4%


EPS (adjusted, TTM) $4.30 $4.60 $4.87

P/E (TTM) 12.9x 11.7x 12.5x

BV/share $28.45 $33.81 $36.71

P/BV 1.9x 1.6x 1.7x



ROE (adjusted) 15.9% 14.7% 13.9%



Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DARRYL MCCOUBREY


416-866-8783

B A L A N C I N G G R O W T H & L E V E R A G E

TA’s financial profile has improved drastically alongside supportive Alberta regulatory reform, with coal compensation payments

complimenting asset sales as it continues to de-lever its balance sheet. As at Q1-F17, TA’s FFO-to-average debt ratio increased to 18.2%,

a marked 300 bps improvement compared to Q4-F15. We maintain our $8.00 per share value estimate and BUY recommendation.

Updated May 9, 2017

Current Price $7.26


Current Yield 2.3%

BUY TRANSALTA CORP. TSX-TA

QUALITY RATING


TA’s disclosure is more granular than the average utility in

our coverage universe, but essentially in line with its closest

peer, Capital Power Corp.


PPA expires and environmental legislation will materially

reduce TA’s EBITDA in F21, but debt reduction initiatives,

and divestiture options make its leverage manageable.


TA’s balance sheet is a work-in-progress, serving as a head-

wind to a standalone plant development and acquisitions.

TA might do well to divest of its underappreciated TA Co-

gen investment to reduce leverage.


Aside from macro elements (i.e. interest rates), the key risk

to TA’s value proposition at the current price is a sustained

low gas price environment, which could prompt new gas

plant development and greater market share loss.


The Popular transaction might prove costly to TA, as it ne-

gates any inherent fuel hedging in its Alberta portfolio-an

important consideration given the relatively high CO2 costs

on the horizon for coal plants.

INTRINSIC VALUE

We value TA at $8.00 per share.

Period Ending


Share price $7.80 $4.91 $7.43



Net debt (book value, millions) $6,975 $7,158 $6,847


Adjusted EBITDA (TTM) $1,034 $945 $1,039

Adjusted FCF per share (TTM) $1.38 $1.13 $1.34


P/ACFFO (TTM) 5.7x 4.3x 4.4x

Average AB price per MWh $17 $33 $17

Adjusted FFO-to-debt 18.2% 15.2% 17.6%


Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

NASIBA AKHMEDOVA


416-866-8783

A L L S E T F O R D R O P D O W N S

TransAlta Renewables Inc. (“RNW”) offers a contracted, largely-renewable asset base at a reasonable 9.7x multiple of F18E

EBITDA, , while paying a sustainable 5.7% dividend yield that is expected to grow upon commissioning of the South

Hedland gas plant later this year. As such, we maintain a BUY recommendation and $15.50 per share value estimate.

Updated May 8, 2017



Current Yield 5.7%

BUY TRANSALTA RENEWABLES INC. TSX-RNW

QUALITY RATING


We are increasing our rating by one point, as RNW’s ac-

counting and disclosure includes actual output vs. expecta-

tions by fuel source. We see it as a positive development as

RNW’s financial performance is more dependent on renew-

able output.


RNW’s cash flow is relatively low risk, given output is entirely

contracted. Accordingly, the primary risk revolves around

the output from renewable assets.


Our balance sheet rating focuses on the risk of leverage,

which is relatively low at RNW. In fact, we’d characterize

RNW as under-levered, especially following the Australian

asset drop-down.


In addition to site development and expansion options

stemming from Alberta’s CLP, RNW is well-positioned to

acquire additional assets from TA via prospective drop

downs.


We’re concerned that a conflict of interests might prevent

RNW from employing more debt to enhance shareholder

returns.

INTRINSIC VALUE

A reasonable comparative valuation prompt us to rate RNW a

BUY, with $15.50 per share value estimate.

Period Ending


Share price $15.30 $10.37 $14.34



Free cash flow per share (TTM) $1.10 $1.08 $1.10

Dividend per share (Current) $0.88 $0.81 $0.88

Payout ratio 80% 75% 80%

Electricity output—wind (GWh) 3,040 2,911 3,097

Electricity output—hydro (GWh) 430 351 444

Adjusted EBITDA (TTM) $404 $261 $407


Adjusted FFO per share (TTM) $1.27 $1.22 $1.27

Net debt-to-EV 31% 36% 34%

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DARRYL MCCOUBREY


416-866-8783

F I N I S H I N G S T R O N G : T R P D E L I V E R S S O L I D Q 4 R E S U L T S &

A P R O M I S I N G O U T L O O K We continue to rate TransCanada a BUY because of its unique combination of income and value attributes. Our $67.50 per share value

estimate implies a 7.5% F20E FCF yield, which is underpinned by a portfolio of low-to-medium risk growth projects.




Current Yield 4.0%

BUY TRANSCANADA CORP. TSX-TRP; NYSE - TRP

QUALITY RATING


Compared to its most similar peer, Enbridge Inc., we find

TRP’s disclosure to be slightly better, since it offers a more

granular look (i.e. EBITDA and earnings vs. only adjusted

earnings at ENB) into the assets that make up its reporting

segments.


With its major capital projects commencing operations in

the coming years, we expect TRP’s operating cash flow to

increase markedly, granting it significant capacity to fund

future growth projects and to increase the dividend.


Like most other regulated Canadian businesses, TRP is bene-

fiting from the current low interest rate environment, with

ample access to debt capital. The unexpected equity

issuance in November will improve leverage metrics.


Results from TRP’s Alberta power assets has declined along-

side spot power prices, but with a mostly gas-fired genera-

tion fleet, we believe TRP is relatively well positioned to ride

out new climate change initiatives.



INTRINSIC VALUE

Our value estimate is now $67.50 per share.

For the Period Ended

(Amounts in C$) F16 F15 F14

Share price $60.54 $45.19 $57.10





Adjusted EBITDA (TTM) $6,647 $5,908 $5,521

Adjusted EPS (TTM) $2.78 $2.50 $2.42


P/E (TTM) 21.8x 18.1x 23.6x


Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

L E V E R A G E T O U . S . H O M E P R I C E S

Tricon’s investments in land development and single-family rental homes provide a leveraged approach for Canadian

investors seeking exposure to U.S. home price appreciation. Supply and demand fundamentals in the U.S. market have

remained constrained since the 2008/2009 financial crises and are likely to continue to see steady appreciation in the near

term. Additionally, based on our review of the company’s financial statements and disclosures, we think investor concerns

regarding Tricon’s accounting are somewhat overdone as we find current disclosure reasonable.


Prior Close $11.03


Current Yield 2.4%

BUY

TRICON CAPITAL GROUP INC.TSX-TCN

QUALITY RATING


Tricon’s financial statements reflect the holding company’s

finances. The company has improved disclosure on certain

of its investment subsidiaries so that investors can get a more

direct read of the underlying operations, but more could be

done.

Cash Flows 3/5

To date the company has not produced significant cash

flows to shareholders as the company has been focused on

investing in growing the individual verticals.

Balance Sheet 4/5

Tricon has a sound balance sheet at the holding company

level with the majority of outstanding debt being convertible.

At the investment company level, the land development

business does not have any debt associated with it while the

single-family rental business has raised debt via securitization

structures we believe to be sound.


Tricon’s businesses are operated as investment companies

and Tricon has been focused on growth. The relatively

simple commodity type nature of the investments made in

housing provide some comfort to investors


In our opinion management has been active in improving

disclosure in response to investor inquiry and has recently

improved its incentive compensation structure related to

stock options to be more shareholder friendly.

INTRINSIC VALUE

Our NAV valuation approach for the individual investment

verticals yields an intrinsic value of C$12.80 which takes into

consideration recent strength of the Canadian dollar.


F15 F16 Q1 F17

Share price $9.06 $9.46 $10.92

Shares outstanding 112.0M 112.8M 113.0M

Market capitalization $1,015.1 $1,066.7 $1,234.3

Enterprise value (EV) $1,129.5 $1,288.3 $1,295.9

Debt to shareholders’ equity 10.5% 23.1% 7.7%

Revenue (in USD) $102.1 $111.4 $27.9

Net income (in USD) $58.5 $59.8 $7.8

Total assets (in USD) $826.5 $972.7 $1,183.5

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DIMIRTY KHMELNITSKY


416-866-8783

N O S I G N S O F A T U R N A R O U N DOn February 28, 2017, VRX reported its Q4-F16 results and provided F17 guidance. The company issued lower than expected

F17 Adjusted EBITDA guidance. While admitting that near term prospects are not rosy, management nonetheless unveiled

ambitious revenue growth forecasts through 2020. However, based on our review, we remain skeptical they can achieve these

targets. Therefore, we maintain our SELL recommendation and reduce our intrinsic value from US$10.00 to US$9.00.




Current Yield 0.00%

SELL VALEANT PHARMACEUTICALS INTL., INC.

TSX-VRX; NYSE-VRX

QUALITY RATING


As a result of the SEC’s questioning in 2016, VRX will no long-

er report its Adjusted EPS and will modify its Adjusted EBITDA

metric. However, we note that Adjusted EBITDA will contin-

ue to exclude material and recurring restructuring, litigation

and share based compensation costs. Given the criminal

investigation and lack of any evidence from VRX that con-

tradicts the allegation of Philidor-related irregularities sug-

gests that investors should factor in a material legal reserve.


VRX may lose approximately 22% of its 2017 Adjusted EBITDA

to generic competition through 2018. The ongoing reim-

bursement and pricing pressure have substantially reduced

VRX’s cash flow and growth profile. In addition, potential

challenges from tax authorities could lower VRX’s cash flow

by approx. 20%.

Balance Sheet 0/5

VRX’s Net Debt to Adjusted F17 EBITDA is approximately

8.1x, compared to the average of 2x for the peer group.


The business is much weaker than management has let on

due to the following: 1) The growth at B&L, Salix, Derm and

Neuro segments is rapidly deteriorating and calls into ques-

tion past cost synergies; 2) underperforming Walgreen’s

deal and continued backlash from payors hurts profitability;

3) the financial fall out from ongoing investigations may

amount to $5 billion.


We worry that resolving VRX’s internal control weaknesses

will be challenging, given the deep rooted culture that was

in place since 2008. Management’s compensation tied to

rise in share price reinforces emphasis on short term gains

at the expense of long-term value.

INTRINSIC VALUE

Given the uncertainties facing the company, we caution

that valuation remains a stab in the dark. We maintain our

SELL recommendation and reduce our intrinsic value esti-

mate from US$10.00 to US$9.00 per share.

Period Ending

US $ Millions (except as noted) F14 F15 F16

Share price $144.45 $101.65 $13.76




Revenue TTM $8,263 $10,390 $9,674

Reported Adj EBITDA (TTM) $4,112 $4,781 $4,305

Reported Organic Growth 13% 10% (6%)

EV-to-EBITDA (TTM) 14.3x 10.3x 8.1x

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

C A N A D I A N A R M B O L S T E R S L O N G - R U N G R O W T HManagement reinforced that Canada is set to take a more prominent role in Vermilion’s long run growth plans, with $20 million in

Canadian capex pulled forward to 2017, increasing total spending to $315 million, versus original guidance of $295 million. We also see

that leverage can continue to improve from 2.1x Debt/FFO in 2017 to 1.9x at the end of 2019 with flat US$50 WTI (assuming a 30% DRIP

participation rate). We are fans of Vermilion’s strategy of small ‘bolt-on’ acquisitions that are set to unlock value over time. BUY




Current Yield 6.2%

BUY

TSX-VET; NYSE-VET

QUALITY RATING


A key feature of accounting under IFRS is the treatment of

the Australian Petroleum Resource Rent Tax, which moves

from being a periodic royalty expense under C-GAAP to

conventional tax treatment on the income statement and

balance sheet.


We expect Vermilion to generate ~$5.20 per share in cash

flow next year at US$51 WTI oil and US$3.00 NYMEX gas, ris-

ing to ~$5.80 per share in 2018 at US$55 WTI and US$2.75

natural gas.


In March 2017 VET issued US$300 million aggregate principal

amount of 8 year senior unsecured notes which will be used

to repay debt outstanding on its bank facility. In addition

the facility was reduced by $600 million to $1.4 billion. At

Q2-F17 net debt was $1.25 billion, and we expect net debt

to remain at or below 1.7x EBITDA in 2017, assuming US$51

WTI, well under the company's 4.0x Debt-to-EBITDA cove-

nant.


Despite having relatively far flung assets, Vermilion's steady

track record across its operating segments lends credibility

to the company's diversified strategy. Vermilion has guided

to 10% production growth in 2017 and 9% growth in 2018


We are wary of strategy creep given the company's many

jurisdictions, which makes management's decision to enter

the Hungary and Croatia worth keeping tabs on.


(6 mos.) 2016 2015

Reported CFO* 301.6 509.5 444.4




% of CFO* 49% 59% 64%

% of available cash 100% 112% N/A

Company Profile Q2 2017

(6 mos.) 2016 2015

Price 41.49 50.51 37.61


Market cap. ($ millions) 5,000.1 5,844.0 4,167.9


CFPS 2.50 4.40 4.01


ROE (annualized) 11.5% -9.3% -11.2%


Production (boe/d) 65,896 63,523 54,922

CFO* per boe 25.01 21.92 22.17



INTRINSIC VALUE


2017 / 2021

HH Gas Price

2017 / 2021

USD/CAD XR

2017 / 2021

Intrinsic

Value

$62 Oil Case 51 / 62 3.05 / 3.50 0.75 / 0.80 54.50

$67 Oil - Base Case 54 / 67 3.31 / 3.75 0.76 / 0.81 60.50

$77 Oil Case 57 / 77 3.50 / 4.00 0.77 / 0.85 68.50

Our intrinsic value for Vermilion is $60.50 per share at long-run prices of

US$67 for WTI oil and US$3.75 for NYMEX gas.

* CFO is cash from operations after working capital, cash interest expense and asset

retirement expenditures

VERMILION ENERGY INC.

Quality Scale


5 10 15 20 25


-50% -25% 0 25% 50%

DARRYL MCCOUBREY


416-866-8783

A S H O P P I N G S P R E E I S O N T H E H O R I Z O NWhile we don’t typically ascribe value to unannounced transactions, a strong indication of M&A activity combined with its history of

successful integration and improvement of acquired businesses warrants an exception for WCN. With significant capital available to

deploy (over $2 billion of discretionary cash generated by the end F18), we believe




Current Yield 0.7%

BUY

WASTE CONNECTIONS INC.NYSE-WCN

QUALITY RATING


The control deficiency reported in WCN’s 10K is immaterial,

and will not impact core EBITDA, EPS or free cash flow.

WCN’s peers. While we’d like more detail on operating

expense and SG&A, excluding a “core price” disclosure

that isn’t adjusted for rollbacks.


The BIN acquisition continues to pay dividends. Literally.

We believe WCN is capable of hiking its dividend by almost

20% in October, due to robust FCF generation.


WCN’s leverage is essentially at the midpoint of its peer

group. However, WCN’s track record of margin improve-

ment and FCF conversion suggest the organic business’

debt service capability is above average.


Operating conditions remain strong in the North American

waste management sector, with growing volume reducing

risk of price competition.


Integration is ahead of schedule, boosting our confidence

that WCN can generate additional value accretion

through prospective M&A.

INTRINSIC VALUE

Our $72.50 per share estimate is $2.50 per share higher on ac-

count of assumed prospective M&A value creation.

Period Ending

US$ Millions Q2-F17 F16 F15

Share price $64.42 $78.59 $56.32



Net debt $3,755 $3,819 $2,157


Revenue (TTM) $4,401 $3,376 $2,117

EBITDA (TTM) $1,374 $1,071 $711

Adjusted EPS (TTM) $2.27 $1.98 $1.98


EV-to-EBITDA (TTM) 15.1x 16.4x 12.7x

DIMITRY KHMELNITSKY


416-866-8783



Market Capitalization (million) C$12,980/US$9,700

WHEATON PRECIOUS METALSTSX-SLW; NYSE-SLW

THE TAX MAN COMETH

Based on our analysis of Silver Wheaton’s corporate structure, the Income Tax Act and recent legal precedents on transfer

pricing, we believe the CRA has a much stronger case against the company than management is letting on. We believe

that: 1) The case for incorporating in the Caymans based on geographic proximity or financial expertise is questionable;

2) Most of the company’s value-added functions appear to take place in Canada; and 3) Silver Wheaton’s peers do not

use offshore structures to the same extent.

Should Silver Wheaton lose to the CRA’s tax challenge, we estimate that back taxes, interest and transfer pricing penalties

through 2016 could amount to approximately $1 billion. In addition, the CRA challenge also threatens to reduce future

earnings and cash flow by the Canadian tax rate of about 26%. Ultimately, a ruling that invalidates Silver Wheaton’s Cay-

man arrangements also has the potential to reduce the company’s competitiveness when sourcing future deals.

Risk Areas

Tax — The Income Tax Act explicitly prevents transactions for the sole purpose of tax reduction. Our analysis reveals

that: Cayman employees appear to be limited to administrative functions; about half of the company’s total com-

pensation is paid to Canadian-based executives; and flight times and flight costs are generally worse from the Cay-

mans than from Silver Wheaton’s Canadian headquarters. Our analysis of two key recent legal precedents suggests

that SLW’s transfer pricing could be flawed because it failed to encompass all factors that an independent third

party would consider relevant. In addition, we find it telling that SLW’s peers make limited use of off-shore structures.

For example, Sandstorm Gold, run by Silver Wheaton’s former CFO, has not structured streams through its offshore

subsidiary since 2009, citing that the tax benefits do not outweigh the risks.

Earnings Quality — Despite the massive exposure, SLW did not record any provision for the reassessment.

Cash Flow Sustainability — All else equal, SLW’s tax rate may rise materially, threatening to reduce future earnings

and cash flow by the Canadian tax rate of about 26%. Meanwhile, the company has deposited a letter of credit for

C$202 million with the CRA representing approximately 50% of the reassessed amounts of tax, interest and penalties

for 2005-2010 tax years. We estimate that over the next four years SLW may need to deposit an additional US$230

million in letters of credit as security with the CRA related to potential back taxes for 2011-2016.

Updates Since Last Report

After reassessing the Company for 2005-2010 tax years, the CRA has expanded its audit to 2011-2013 tax years. The

dispute is currently being litigated in the tax court and the timing of the resolution remains uncertain. Based on past

precedents it may take as long as seven years to resolve.

Viewpoint July 28, 2017

Veritas Investment Research Corporation ("Veritas") its directors, officers, employees and their immediate families are prohibited from trading any position in the secu-

rities profiled in a report thirty (30) days before and five (5) days after the publication date where the report involves coverage initiation or a change of opinion. Veri-

tas has not offered any consulting, financial advisory, investment banking or underwriting services to the companies mentioned. Veritas does not accept research

fees from the companies profiled herein. The information contained in this report has been obtained from sources believed rel iable however the accuracy and/or

completeness of the information is not guaranteed by Veritas, nor does Veritas assume any responsibility or liability whatsoever. All opinions expressed are subject to

change without notification. This report is for information purposes only and does not constitute and should in no way be construed as a solicitation to buy or sell any

of the securities mentioned herein. The contents of this research report do not, in any way, purport to include any manner of legal advice or opinion. The intention of

this report is to provide a forthright discussion of business, accounting and financial reporting issues, as well as generally accepted accounting principles and the

limits of their usefulness to investors. As such, please do not infer from this report that the accounting policies of any company mentioned herein are not allowed

within the broad range of generally accepted accounting principles, or that the policies employed by that company were not approved by its auditor(s). This report

may not be reproduced in whole or in part without the express prior written consent of Veritas. Veritas is a 100% employee owned firm. ©2017 Veritas Investment

Research Corporation.

Veritas Investment Research Corporation owns the copyright in this report. This report may not be reproduced in whole or in part without Veritas’ express prior written

consent. Any such breach of this copyright is contrary to ss. 27(1), 34, 35 and 42 of the Copyright Act, R.S.C. 1985, c. C-42 and will be liable for damages.

TD West Tower

100 Wellington Street West

Suite 3110, PO Box 80

Toronto, Ontario, Canada

M5K 1E7

Tel: (416) 866-8783

www.veritascorp.com

new veritas investment research - - viewpoint · 2018. 8. 22. · cogeco cable inc. 47 ....

Documents