Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
RBC Capital Markets REIT analyst Pammi Bir reduced estimates for his coverage universe,
“In this Q2 2022 preview, we took the opportunity to update our earnings and NAV forecasts to reflect a higher interest rate environment and slower anticipated economic traction. Our price targets declined by an average of 9%, mirroring the declines in our NAVPU [net asset value per unit] estimates, while our FFOPU [funds from operations per unit] estimates slipped a modest 1% annually. Admittedly, the combination of rising rates, a decelerating economy, rising replacement costs, and slower deal flow has clouded the picture on underlying asset values … Initial Q2/22 data from Altus points to modest cap rate expansion across most property types, with larger upticks in office vs. slight compression in industrial. Still, as bid-ask spreads widen and transaction volumes slow, price discovery will likely take more time to surface. Nonetheless, in light of higher borrowing costs and reduced macro visibility, we raised our NAV cap rates by an average of +28 bps (see Exhibit 1), with the smallest revisions in industrial (average +18 bps) and the largest in office and diversifieds (+35 bps). In select instances, we also reduced our forecast NOI [ net operating income]”
“RBC REIT ratings, targets” – (table) Twitter
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Morgan Stanley oil analyst Martijn Rats has cut his oil price forecasts
“Over the last year we have argued that oil supply would be tight-enough-for-long-enough that some demand erosion needed to take place. In June, prices reached levels that achieved just that, and demand appears to be softening in response. As a result, we lower our near-term price forecasts … Prices reached levels that are hard to absorb: Add to this tightness in the refining system and this explains why diesel and gasoline prices reached ~$187 and ~$180/bbl respectively in June. In response to the commodity-induced inflation surge, central banks are now hiking rates in-sync. Of the 38 central banks globally, 29 (or 77%) have hiked rates in the last 6 months. That percentage is at a 40-year high, making this the most-synchronized cycle of rate hikes since the early 1980s … This combination of factors continues to drive rapid downgrades to GDP expectations in all main regions. Our oil demand forecasts were not stretched, but equally, they were not designed for the breadth of rate hikes and magnitude of GDP slowdown that now appears to be unfolding. With actual oil demand data also starting to come in softer than expected, we lower our 2022e growth estimate from 2.2 to 2.0 mb/d, and our 2023e estimate from 2.7 to 1.8 mb/d”
Mr. Rats has reduced his fourth quarter WTI forecast by US$20 to US$107.50 and his second quarter of 2023 estimate from US$107.50 to US$97.50.
“MS cuts oil price forecast” – (research excerpt) Twitter
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BMO chief economist Doug Porter found evidence that supply chain issues are easing quickly,
“Supplier delivery delays reported by manufacturers in a variety of U.S. regions are suddenly falling fast. After reaching extreme levels in the middle of 2021, and then staying high right into early this year, these delays have tumbled. The Philly Fed found in its survey that such delays had gone from extremely high as recently as May to below average by July. The Dallas Fed survey echoed the overall trend among Texas manufacturers (albeit a tad less extreme on both ends). Not surprisingly, the drop reflects a sharp pullback in new orders to below average in both jurisdictions. We have long contended that the root cause of the supply chain snarls was a tidal wave of demand that swamped existing supply. And the fastest way to correct such snarls was thus a dampening of demand. Looks like step 1 has been achieved.”
“BMO finds evidence that supply chain pressures are easing, thanks to weaker demand” – (research excerpt) Twitter
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Diversion: “Chess robot breaks 7-year-old opponent’s finger at Moscow tournament” – CBC
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Scott Barlow