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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Citi analyst Prashant Rao published “Citi Canadian Oils: Survival Guide for Unprecedented Production Cuts” late Tuesday.

The primary conclusions …,

"Further capex cuts and deferrals through 2021E generally are required across the board; YE 2021 financial positions do not revert back to YE 2019 levels in our base cases, but all are well within covenant’s restrictions; Suspension of dividends, while not required, would be prudent across the group, with the possible exception of IMO, where a cut isn’t in our base case. CVE has already suspended its dividends, and we expect SU and HSE to follow soon.Despite relatively poorer positioning in the current environment for SAGD assets, both CVE and HSE entered the current crisis with sufficiently high cash balances and liquidity to cover capex needs and financing obligation through the next 2 years. HSE, in terms of leverage, could fare better than its large-cap peers by YE2021.”

“@SBarlow_ROB From C's survival guide for Canadian energy investors” – (research excerpt) Twitter

“Wednesday’s analyst upgrades and downgrades” - Globe Investor

“Oil prices rise as U.S. inventories build smaller than feared” – Report on Business


Also from Citi, strategist Hong Li’s latest report indicates that downward earnings forecasts are largely priced into stock prices. This helps explain recent equity market strength,

“An early look at consensus expectations for Q2’20 earnings growth shows an expected earnings decline of 34.1%, nearly double the expected contraction rate for Q1, led by a whopping 148% decline in earnings for the Energy sector. Overall, only Utilities are expected to see positive earnings growth in Q2…. Our model expects more negative surprises in the Energy, Materials, and Utilities sectors, and more positive surprises in the Consumer Staples, Technology, and Healthcare sectors… Thus far for 1Q’20 results, it does appear that much of the negativity related to earnings had already been priced in as stock returns following negative surprises have been mostly flat to slightly positive.”

“@SBarlow_ROB C: Bad earnings mostly priced into stocks already” – (research excerpt) Twitter


A research paper by Harvard professor Victoria Ivashina and hedge fund manager Mike Harmon highlights the sheer scale of central bank’s attempt to safeguard the global economy from a downward spiral of credit defaults,

“The problem is that the global corporate sector has been caught in the COVID-19 shock with unprecedented levels of financial leverage. This has emerged as a result of a decade-long environment of low interest rates and elevated risk-taking. According to S&P, global debt on non-financial corporations was $71 trillion at the end of 2018, up 15% from 2008 and representing 93% of global GDP. Of this, we estimate that almost $6 trillion sits on the balance sheets of companies that would be characterised as highly leveraged … even as credit quality has deteriorated, defaults have remained below long-term averages and many weaker firms were able to avoid restructuring their debt when they underperformed.2 These so-called ‘zombie firms’, which are overleveraged and in some cases insolvent, are significantly more vulnerable to a shock like the one we face today.”

“When a pandemic collides with a leveraged global economy: The perilous side of Main Street” – VoxEu


Derek Thompson from The Atlantic is one of the few writers I read no matter what the topic. His recent focus on restaurants is sobering,

“Restaurants had never been a larger part of America’s food budget. That’s why I’ve been looking so deeply into how the pandemic is affecting the restaurant business, because I think it’s the canary in the coal mine. Their response is going to anticipate and predict a lot of the way that the rest of the retail industry is going to respond … don’t know when they’re going to feel totally normal again. There’s going to be this weird purgatory where the restaurant experience is totally changed, where restaurants feel more awkward and more quiet and more empty and more cavernous than they used to. There will be antiseptic things around us. There will be hand sanitizers; there will be laminated menus that are constantly disinfected.’

“Will the Restaurants Come Back?” – The Atlantic


Diversion: I’m enjoying The Ringer’s “Rewatchables” podcast where they discuss popular movies from previous decades. “ ‘Ronin’ With Bill Simmons and Chris Ryan’ – The Ringer

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