Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
TD Cowen analyst Mario Mendonca previewed earnings for the Canadian banks,
“On December 20, 2022, we downgraded the Big Banks to MARKET WEIGHT from Overweight, citing a fair to modestly attractive valuation, moderating balance-sheet growth through deposit run-off and softer loan growth, and the uncertainty regarding the timing and severity of the next credit cycle. This quarter, we expect the focus to remain on weak sequential NIM [net interest margin] performance, soft balance-sheet growth, credit concerns, and capital constraints … We expect Q3/23E EPS to be down 6 per cent year-over-year (down 12 per cent in Q2/23). Weaker EPS growth reflects 5 per cent y/y (1 per cent in Q2/23) PTPP [pre-tax, pre-provision] growth, offset by much higher PCLs [provisions for credit losses] versus a low level of credit losses in Q3/22. We expect Q3/23E PTPP earnings to be up 5 per cent y/y, reflecting good, but moderating NII growth, and weak CMRR [committed monthly recurring revenue]. ... We believe that valuations overall are reasonable, but not attractive. Reflecting negative revisions to EPS (past and potentially future), uncertainty regarding the timing and severity of the next credit cycle, and moderating PTPP growth, we expect the Big Banks to trade below the 10 times P/E range (2024E) in the near term” .
Mr. Mendonca has a buy rating on Royal Bank of Canada and Bank of Montreal.
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BMO senior economist Robert Kavcic published an effective chart detailing price to trough movements in major Canadian housing markets,
“With Canadian housing activity largely balancing out in July, let’s step back and take a look at where a number of select markets stand now that they’ve been through a correction and subsequent partial rebound. The bars on the accompanying chart show peak-totrough price declines, which for most markets was February 2022 through February 2023. For example, Toronto prices fell 17 per cent peak-to-trough, but are now down a lesser 9 per cent from the February 2022 high (the black dot)—a pretty middle-of-the road performance. Markets in Southern Ontario, but outside the GTA, remain in the deepest holes relative to last year’s peak, but they’ve been coming back in recent months. Calgary is arguably the strongest market in Canada. Prices there continue to run at a double-digit annualized pace, and are now 5 per cent higher than the early-2022 high. In other words, while most of the rest of the country struggled through a correction, Calgary had a brief hiccup and then just powered ahead”
Housing market damage report – (excerpt, chart) Twitter
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Citi’s research department has developed a global focus list of high conviction analyst ideas,
“Our selection process starts bottom-up where our analysts have a high conviction, differentiated stock recommendations to generate alpha. We identify catalysts that will trigger outperformance and chose liquid names in which investors in which investor can build positions. Our Focus List is the combination of regional picks from US, Europe, Pan Asia, and LatAm”
The U.S picks are Prologis Inc., Targa Resources Corp., American International Group, Tradeweb Markets, Meta Platforms Inc., Bruker Corp., Fortinet Inc., Quanta Services, Ultragenyx Pharmaceutical, Criteo SA, Liberty SiriusXM, Walmart Inc. and T-Mobil U.S. European ideas on the list that might interest Canadian investors include Novo Nordisk A/S, Vestas, AstraZeneca PLC and Heineken.
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Diversion: “China snubs Canada on its list of approved travel spots, setting back tourism’s post-COVID recovery” – CBC
Scott Barlow