Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
RBC Capital Markets analyst Robert Kwan sees ‘multiple tailwinds’ in the yield-heavy energy infrastructure sector,
“we note a positive relative setup for Canadian Midstream given the elevated Western Canadian rig count versus the U.S. land rig count … Our primary thesis for Canadian Midstream has been leverage to growing natural gas and natural gas liquids (NGL) production in the Western Canada Sedimentary Basin (WCSB) … Our positive outlook for Renewables remains unchanged as we believe the combination of strong demand for renewable energy even at materially higher contract prices (driven by higher interest rates, project costs and return on capital) will lead to many opportunities for developers to create value. However, higher interest rate and inflation expectations have weakened investor sentiment … Innergex Renewable (INE): We have increased our Q1/24 EBITDA estimates to $171 million (up from $161 million) to reflect our expectation for above-average hydro resources … Northland Power (NPI): We have increased our Q1/24 EBITDA estimate to $406 million (up from $391 million) to reflect our expectation for above-average offshore wind resources in Q1/24 … TC Energy (TRP): We have increased our Q1/24 EPS estimate to $1.15 (up from $1.08) to primarily reflect the impact of higher throughput across its Canadian and U.S. natural gas pipeline systems”
Mr. Kwan has “outperform” ratings on TC Energy (7.8 per cent yield), Pembina Pipeline (5.5), Enbridge (7.4), Altagas (3.9), Keyera (5.6), Brookfield Infrastructure (5.9) and Gibson Energy (7.2).
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Scotiabank analyst Orest Wowkodaw identifies copper miner takeover candidates,
“We highlight the current 8% P/NAVPS multiples for our combined Cu producer coverage … We note that the large and mid-cap coppers are currently trading at relatively similar average P/NAVPS of 1.42x, with the large caps trading at a slightly higher average of 1.48x. However, we would expect higher take-out multiples for pure-play Cu miners relative to the Anglo offer of ~1.42x [from BHP Group]. TECK.B-T and GMEXICO-N are the only two large cap miners trading below the group average. Our top Cu M&A target picks for this cycle include CS-T and HBM-T. While valuation is an obstacle, FCX-N, IVN-T, and LUN-T are also potential targets in our view. Although TECK.B-T has very attractive Cu assets (QB2 and a deep portfolio of undeveloped projects), we believe Canadian regulatory concerns are likely to overhang potential near-term interest”
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BofA Securities investment strategist Michael Hartnett is concerned about U.S. government spending, among other things,
“If you spent $100 every second of every day it would take you 1966 years to equal the $6.2 trillion the US government has spent the past 12 months; fiscal excess = no landing = inflation = secular bear in bonds = ABB “Anything But Bonds” bull… stocks & crypto ripped Q4, commodities & crypto ripped Q1, in Q2 turn of US$ to rip as investors hedge Fed hike risk & US govt needs US$ strength to counter inflation … short bonds until yields hit 2sd “oversold” levels… 5.2% on 2-year, 5.1% on 10-year & 5.2% on 30-year Treasury … top 10 US stocks = record 34% of S&P 500 market cap (”Magnificent 7″ = 30%), top 10 global stocks = record 23% of MSCI ACWI [All Country World Index] (2841 constituents); narrow mega-cap “growth” leadership intact until real 10-year yields of 2½-3% and/or higher yields combine with higher credit spreads to threaten recession … “Why save?” 2020s era of big government intervention (pandemic = “stimulus checks”, war = “energy rebates”, bank run = “deposits insured”, unaffordable housing = “student debt forgiveness”… largest deficits ever outside recession); fiscal excess… Main Street says “why save?”… US personal savings rate low 3.6%, consumer continues to spend, nominal GDP growth up stunning 42% since COVID… government bonds just four years into secular bear market (after 40-year secular bull).”
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Diversion: “School athletic director arrested for framing principal using AI voice synthesis” – Ars Technica
Scott Barlow