national bank’s 2014 dividend...

Title: Equity Research Headline: Identifying High Yield Opportunities – 2011 Outlook

The NBF Daily Bulletin January 26, 2014 Industry Comment

Equity Research

National Bank’s 2014 Dividend All-Stars

Industry Ratings: See Appendix

(NBF Economics & Strategy Group)

National Bank analysts collectively cover 330+ TSX-listed equities, of which roughly half offer investors income in the form of dividends or distributions. To help navigate this universe we assembled a portfolio that contains 34 of NBF’s favourite yield ideas, the basket spanning a variety of industries, sizes and liquidity, but sharing three investment criteria:

1. Dividend/distribution yield greater than ~3.5%; 2. Extremely low risk of the current payout proving unsustainable; and 3. Positive analyst bias regarding the prospects for share/unit price.

Takeaways NBF’s 2013 Dividend All-Stars portfolio introduced Jan. 23, 2013 returned income of 5.9%

and realized an average price return of 12.5% (until Dec. 31, 2013), this 18.4% total return ahead of the S&P/TSX Composite’s 9.3% for the same period (2.8% income + 6.5% price return for the index).

This is the second year of meaningful outperformance since NBF’s Dividend All-Stars portfolio was introduced. In 2012 the basket returned income of 6% and realized an average price return of 6.8%, this 12.8% total return ahead of the S&P/TSX Composite’s 3.1% for the same period (2.8% income + 0.3% price for the index).

27 of the 38 names highlighted as 2013 All-Stars (71%) outpaced the market. In 2012 80% of the All-Stars outperformed (28/33 equities).

12 All-Stars increased dividends in 2013, an impressive 32% of the basket (AltaGas +6.3%, BMO +2.7%, Bonterra Energy +11.5%, Cathedral Energy Services +10.0%, Canadian Energy Services +18.2%, Dundee Industrial REIT +3.7%, EnerCare +3.6%, First National +7.7%, Keyera +11.1%, Premium Brands +6.3%, Surge Energy +19.0%, Whitecap Resources +5.0% and Transcontinental paid an ~8% special). Colabor’s 67% dividend cut was the first from an All-Star since the portfolio was introduced. In 2012 15 All-Stars (45% of portfolio) increased distributions/dividends.

The average yield of an All-Star is elevated at 5.8%, but payout is easily funded for each, with most equities having the capacity to grow dividends/distributions over time.

For investors seeking stable, predictable, elevated income and exposure to high quality companies, the following basket reflects NBF’s favourite ideas for 2014.

Equity Ticker Share/Unit Px Divvy/Dist'n Yield AnalystAGF Management AGF.B $12.60 $1.08 8.6% KhanAmerican Hotel Income Properties HOT.UN $11.01 $0.90 8.2% JohnsonAltaGas ALA $40.52 $1.64 4.0% KennyARC Resources ARX $28.56 $1.20 4.2% PrestonArtis REIT AX.UN $15.00 $1.08 7.2% KornackBaytex Energy BTE $41.10 $2.64 6.4% PrestonCdn. Energy Services & Tech. CEU $21.56 $0.80 3.7% ColmanCanyon Services Group FRC $11.18 $0.60 5.4% ColmanCathedral Energy CET $4.53 $0.33 7.3% ColmanCrescent Point CPG $39.36 $2.76 7.0% PrestonCrombie REIT CRR.UN $13.09 $0.89 6.8% KornackEnercare ECI $9.85 $0.70 7.1% MersereauFirst National FN $23.19 $1.40 6.0% KhanGibson Energy GEI $26.96 $1.15 4.3% KennyGreat-West Lifeco GWO $31.63 $1.28 4.0% RoutledgeHealthLease Properties REIT HLP.UN $10.25 $0.85 8.3% KornackInnergex Renewable Energy INE $10.23 $0.58 5.7% MererInter Pipeline IPL $26.30 $1.32 5.0% KennyKeyera KEY $65.85 $2.46 3.7% KennyKP Tissue KPT $17.14 $0.72 4.2% AghazarianMilestone Apartments REIT MST.UN $9.67 $0.65 6.7% KornackMCAN Mortgage MKP $13.03 $1.12 8.6% KhanPembina Pipeline PPL $37.83 $1.70 4.5% KennyPremium Brands PBH $22.53 $1.25 5.5% AghazarianRoyal Bank of Canada RY $70.49 $3.00 4.3% RoutledgeSirius XM Canada XSR $9.11 $0.42 4.6% ShineTeck Resources TCK.B $26.61 $0.90 3.4% NagleTORC Oil & Gas TOG $10.23 $0.54 5.3% PayneTranscontinental TCL.A $13.80 $0.58 4.2% ShineVermilion Energy VET $62.40 $2.58 4.1% PrestonVicwest VIC $10.92 $0.60 5.5% WinslowWesternOne Equity WEQ.UN $7.64 $0.60 7.9% JohnsonWhitecap Resources WCP $11.96 $0.68 5.7% TaylorWPT Industrial REIT WIR.U $8.42 $0.70 8.3% JohnsonAverage 5.8%Source: NBF, Reuters

NBF DIVIDEND ALL-STARS 2014 PORTFOLIO

Trevor Johnson

Leon Aghazarian

Greg Colman

Patrick Kenny

Shubha Khan

Matt Kornack

Rupert Merer

Jeremy Mersereau

Shane Nagle

Dan Payne

Kyle Preston

Peter Routledge

Adam Shine

Matthew Taylor

Robert Winslow

oliveiva

DISCLOSURES_LINK

http://www.nbcn.ca/contactus/disclosures.html

2014 Outlook The primary objective of the NBF Dividend All-Star portfolio is to provide elevated income to

investors through high quality, diversified companies that our analysts’ view favourably. The 2014 portfolio’s average 5.8% yield is relatively high and compelling in the context of investment alternatives, but more importantly it is underpinned by stable and growing cash flows, healthy balance sheets and encouraging operating outlooks that provide confidence that the respective management teams will be increasing payout to investors over time, not decreasing. So far this is overwhelmingly the case, with 12 All-Stars increasing dividends in 2013 (AltaGas, BMO, Bonterra Energy, Cathedral Energy Services, Canadian Energy Services, Dundee Industrial REIT, EnerCare, First National, Keyera, Premium Brands, Surge Energy, Whitecap Resources), building upon the 15 that increased payout in 2012. We saw the first All-Star be forced to cut its payout in H1/13 (Colabor Group); however, we believe this is an exception to the rule and not anticipated from the current portfolio.

The All-Stars have performed well, posting a total return of 18.4% for 2013 (5.9% income + 12.5% price), outpacing the S&P/TSX Composite’s 9.3% (2.8% income and 6.5% price). Outperforming the index is not the primary objective of this portfolio – collecting recurring, growing income is – but its performance is not surprising given the robust investor appetite for yield that continues to drive demand and valuations for this asset class higher.

2013 Dividend All-Star Ticker% Px

ChangePeriod Yield

Total Return

% Px Change

Period Yield

Total Return

% Px Change

Period Yield

Total Return

AltaGas ALA 3.3% 2.5% 5.8% 13.8% 1.8% 15.6% 17.6% 4.3% 21.9%ARC Resources ARX 10.3% 2.5% 12.8% 12.3% 2.3% 14.6% 23.9% 5.0% 29.0%Artis REIT AX.UN -6.8% 3.4% -3.4% -0.3% 3.6% 3.3% -7.1% 6.8% -0.4%Baytex Energy BTE -5.9% 2.9% -3.1% -4.2% 3.0% -1.2% -9.9% 5.7% -4.2%Bonterra Energy BNE 8.3% 3.6% 11.9% 8.2% 3.4% 11.6% 17.2% 7.3% 24.5%Cdn Energy Srvcs & Tech. CEU 53.5% 2.8% 56.3% 28.7% 2.0% 30.7% 97.6% 5.9% 103.5%Chemtrade Logistics CHE.UN 4.3% 3.6% 8.0% 13.9% 3.5% 17.4% 18.8% 7.3% 26.1%Crescent Point CPG -1.0% 3.5% 2.5% 6.8% 3.6% 10.3% 5.7% 7.1% 12.7%Davis+Henderson DH 12.8% 2.9% 15.7% 21.2% 2.6% 23.8% 36.7% 5.9% 42.5%Enercare ECI 10.1% 3.9% 14.0% 4.9% 3.6% 8.6% 15.5% 7.9% 23.5%Exchange Income EIF -6.6% 3.0% -3.6% -12.8% 3.2% -9.6% -18.6% 6.1% -12.5%First National FN -5.8% 3.7% -2.1% 29.1% 4.0% 33.1% 21.7% 7.4% 29.2%Gibson Energy GEI 1.6% 2.3% 3.9% 12.9% 2.3% 15.2% 14.8% 4.6% 19.4%Innergex Renewable Energy INE -14.6% 2.8% -11.7% 21.3% 3.3% 24.6% 3.6% 5.7% 9.3%Keyera KEY 9.5% 2.1% 11.6% 14.2% 2.1% 16.3% 25.0% 4.5% 29.4%Morneau Shepell MSI 14.0% 3.1% 17.1% 6.6% 2.7% 9.3% 21.6% 6.2% 27.8%Premium Brands PBH 9.5% 3.5% 13.0% 18.9% 3.3% 22.2% 30.2% 7.1% 37.3%Vermilion Energy VET 6.7% 2.3% 9.0% 13.4% 2.2% 15.5% 20.9% 4.7% 25.6%WesternOne Equity WEQ -11.0% 3.4% -7.6% -3.6% 3.8% 0.3% -14.2% 6.8% -7.4%Whitecap Resources WCP 19.4% 3.2% 22.6% 13.4% 2.8% 16.1% 35.3% 6.5% 41.8%

Dropped Mid-YearBank of Nova Scotia BNS 0.2% 2.1% 2.3% 0.2% 2.1% 2.3%BCE Inc. BCE -3.5% 2.7% -0.9% -3.5% 2.7% -0.9%Cascades CAS 33.7% 1.8% 35.6% 33.7% 1.8% 35.6%Colabor Group GCL -47.6% 2.8% -44.8% -47.6% 2.8% -44.8%Dundee Industrial REIT DIR.UN -20.2% 3.0% -17.1% -20.2% 3.0% -17.1%Great-West Lifeco GWO 15.8% 2.4% 18.2% 15.8% 2.4% 18.2%Pure Industrial REIT AAR.UN -9.7% 3.0% -6.7% -9.7% 3.0% -6.7%Transcontinental TCL.A 3.9% 10.8% 14.8% 3.9% 10.8% 14.8%Twin Butte Energy TBE -36.3% 3.5% -32.8% -36.3% 3.5% -32.8%

Added Mid-YearAimia AIM 26.3% 2.2% 28.5% 26.3% 2.2% 28.5%American Hotel Income Properties HOT.UN -5.4% 4.0% -1.4% -5.4% 4.0% -1.4%Bank of Montreal BMO 8.1% 2.3% 10.3% 8.1% 2.3% 10.3%Cathedral Energy Services CET 4.9% 3.2% 8.2% 4.9% 3.2% 8.2%Cominar REIT CUF.UN -8.7% 3.6% -5.1% -8.7% 3.6% -5.1%Crombie REIT CRR.UN 1.0% 3.3% 4.3% 1.0% 3.3% 4.3%Sirius XM Canada XSR 39.4% 1.5% 40.9% 39.4% 1.5% 40.9%Surge Energy SGY 22.1% 2.7% 24.7% 22.1% 2.7% 24.7%Teck Resources TCK.B 13.3% 1.8% 15.1% 13.3% 1.8% 15.1%ALL-STAR AVERAGE 1.7% 3.2% 4.9% 11.0% 2.9% 13.9% 12.5% 5.9% 18.4%S&P/TSX COMPOSITE -1.0% 1.5% 0.5% 7.5% 1.4% 8.9% 6.5% 2.8% 9.3%Source: NBF, company reports, Reuters* From basket introduction January 23, 2013

H1/13 PERIOD RETURN* H2/13 PERIOD RETURN 2013 PERIOD RETURN *

In recent years dividend equities have outpaced the broader market, and there continues to be enthusiasm amongst investors for income; however, evidence increasingly suggests to us that upside for yield is less pronounced than what we have observed the last three to five years. Valuation multiples have generally appreciated meaningfully leaving often modest and selective upside, and dividend/distribution yields are down noticeably making the sector less enticing. That being said, we are still getting calls from new investors looking for exposure to income equities, funds flow and interest in this group is favorable given muted enthusiasm for Canada’s resource sector (amongst others), and we anticipate interest rates will stay range bound given competing economic pressures, so our ~15% 2014 targeted total return should be achievable.

Table of Contents All pricing as at January 23, 2014 AGF Management Limited (AGF.B) 4

American Hotel Income Properties (HOT.UN) 5

AltaGas Ltd. (ALA) 6

ARC Resources Ltd. (ARX) 7

Artis REIT (AX.UN) 8

Baytex Energy Corp. (BTE) 9

Canadian Energy Services & Tech. (CEU) 10

Canyon Services Group Inc. (FRC) 11

Cathedral Energy Services Ltd. (CET) 12

Crescent Point Energy Corp. (CPG) 13

Crombie REIT (CRR.UN) 14

EnerCare Inc. (ECI) 15

First National Financial Corp. (FN) 16

Gibson Energy Inc. (GEI) 17

Great-West Lifeco Inc. (GWO) 18

HealthLease Properties REIT (HLP.UN) 19

Innergex Renewable Energy Inc. (INE) 20

Inter Pipeline Ltd. (IPL) 21

Keyera Corp. (KEY) 22

KP Tissue Inc. (KPT) 23

Milestone Apartments REIT (MST.UN) 24

MCAN Mortgage Corporation (MKP) 25

Pembina Pipeline Corp. (PPL) 26

Premium Brands Holdings Corp. (PBH) 27

Royal Bank of Canada (RY) 28

Sirius XM Canada Holdings Inc. (XSR) 29

Teck Resources Ltd. (TCK.B) 30

TORC Oil & Gas Ltd.(TOG) 31

Transcontinental Inc. (TCL.A) 32

Vermilion Energy Inc. (VET) 33

Vicwest Inc. (VIC) 34

WesternOne Inc. (wEQ) 35

Whitecap Resources Inc. - Action List (WCP) 36

WPT Industrial REIT (WIR.U) 37 APPENDIX: Target Price, Recommendations and Industry Risk Ratings 38

Title: AGF Management Limited - AGF/B (T) Cdn$13.13 Price: Cdn$13.13 StockRating: Outperform TargetPrice: Cdn$15.00 Headline: Getting Paid to Wait for a Turnaround

Department Theme Piece Diversified Financials

AGF Management Limited

AGF/B (T) Cdn$13.13 Stock Rating: Outperform

Target: Cdn$15.00

Risk Rating: Above Average

NBF Dividend All-Star

Getting Paid to Wait for a Turnaround

Est. Total Return 22.5%

HIGHLIGHTS Stock Data:

52-week Low-High $9.81 - $14.78

Shares Outstanding (millions) 87.2

Market Capitalization (millions) $1,145

Year-End 11/30 2012A 2013E 2014E 2015E

Core EPS $0.63 $0.58 $0.72 $0.93

Y/Y Growth (38.8%) (7.2%) 23.8% 29.3%

Price / Earnings 20.9x 22.5x 18.2x 14.1x

Revenues $510 $485 $488 $501

Operating Expenses $321 $313 $314 $315

Income Taxes $31 $46 $22 $29

Core Net Income $59 $52 $61 $79

EBITDA $189 $172 $174 $187

Free Cash Flow per share $1.00 $1.22 $1.28 $1.40

Book Value per share $11.84 $11.13 $10.91 $10.92

Financial Data:

Book Value per share $11.23

Price/Book Value 1.17x

Net Debt/(Cash) per share $0.58

Dividend Information:

Quarterly Dividend per share (declared) $0.27

Payout Ratio (L4Q) 91.3%

Dividend Yield 8.2%

Industry Rating: Market Weight (NBF Economics & Strategy Group)

One of Canada’s largest non-bank investment managersAGF ranks among the largest non-bank investment management companies in Canada. The company has over $35 billion in assets under management, made up of retail, institutional, sub-advisory and high net worth AUM.

Net redemptions less of a drag on earnings Although AGF still contends with net redemptions of its funds, operating fundamentals have improved. Successful product launches, a better tone to global equity markets, and incremental improvements in fund performance have caused net redemptions to moderate over the course of 2013, particularly in the retail (mutual fund) business.

Poised to benefit from rotation into equities, stronger U.S. AGF has above-average operating leverage to improving equity markets. With ~60% of assets under management in equity funds, AGF is the most exposed wealth manager within the peer group to global equity markets. With over 50% of AUM invested in U.S./international equities, AGF also stands to benefit from the recent strengthening of the U.S. dollar.

Concerns about dividend payout have faded In spite of weak operating fundamentals relative to peers, we believe AGF will earn its dividend over the next two years. Moreover, the company has significant cash reserves to support the dividend should the need arise.

Investors paid to wait for a re-rating of the shares The attractive 8.2% yield and prospects for expansion in the valuation multiple on the back of improved operating fundamentals suggest a favourable risk/reward profile.

Stock PerformanceCompany Profile: AGF Management Limited is a Canadian-based investment solutions firm. AGF Investments provides investment management services to investors through their advisor, institutional and private counsel businesses. The investment management business has over $35 billion in assets under management, made up of retail, institutional and sub-advisory and high net worth AUM.

Shubha Khan - (416) 869- 6425 [email protected] Associate: Victor Cheung, CFA - (416) 869-8042 [email protected]

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Title: American Hotel Income Properties - HOT.UN (T) Cdn$11.12 Price: Cdn$11.12 StockRating: Outperform TargetPrice: Cdn$13.00 Headline: Compelling Growth & Yield Combination

Department Theme Piece Real Estate

American Hotel Income Properties

HOT.UN (T) Cdn$11.12 Stock Rating: Outperform

Target: Cdn$13.00

Risk Rating: Average


Compelling Mix of Yield & Growth

Est. Total Return 25%


Cash Yield 8.1%

Implied Price Return 16.9%

52-week High-Low $11.75-$9.78

Bloomberg/Reuters: HOT-U CN / HOT.UN-T

Forecasts:

FYE Dec. 31 2012e 2013e 2014e

Occupancy 84.0% 84.1% 84.9%

Avg. Daily Room Rate $51.9 $56.0 $58.0

Revenue (US$mln) $50.4 $50.9 $86.9

EBITDA (US$mln) $11.1 $13.0 $23.9

FFO/unit (US$) $0.80 $0.82 $1.28

AFFO/unit (US$) $0.77 $0.76 $1.17

Distribution/unit $0.00 $0.77 $0.90

FFO Payout Ratio 0% 94% 70%

AFFO Payout Ratio 0% 101% 77%

EV/EBITDA 21.4x 15.7x 11.1x

P/FFO 13.8x 13.6x 8.7x

P/AFFO 14.4x 14.6x 9.5x

Financial Data (proforma YE 2013):

Units Outstanding (mln) 14.4

Market Capitalization (mln) $159.8

Cash (US$ mln) $19.4

Total Debt (US$ mln) $97.5

Net Debt to Capitalization 33%

NAV per unit ~$12.50


Largest U.S. railway lodging operator American Hotel Income Properties (AHIP) operates a portfolio of 37 predominately full-service hotels (26 diners), totaling more than 3,100 rooms, ~85% strategically located at or near rail hubs. AHIP’s primary customers are large railway companies whose employees are required by unions to have mandatory downtime between shifts. This feature provides steady occupancy and better revenue visibility than most hotels peers.

Guaranteed occupancy & strong customer relationships AHIP’s largest and most important customer is Union Pacific providing an estimated 60%+ of top line. This concentration is mitigated however by the length of the relationship (23 years) as well as the consistency (96%+ of contracts renewed). AHIP’s rail contracts contain minimum occupancy guarantees and take-or-pay provisions, and the railways are now approaching AHIP to construct dedicated facilities at key hubs where the economics support it. The recent Pittsburgh portfolio acquisition is similarly high occupancy (75%+).

Growth trajectory set to persist AHIP’s initiatives include: 1) partnering with railways to develop greenfield Oak Tree hotels/diners backstopped by contracted revenues (~10 estimated through 2015); 2) targeting non-railroad hotel guests (who tend to generate higher ADR & margins) by way of improved signage, marketing and online presence; and 3) acquiring non-rail portfolios in high occupancy areas (interstates, hospitals, universities) and the two remaining dedicated rail portfolios when vendors elect to sell. Moreover U.S. hotel fundamentals are solid (RevPAR tracking +5-7%)

Yield protected by conservative balance sheet & payout AHIP’s 8%+ distribution compelling in the context of its ~40% D/GBV, ~77% 2014e AFFO payout and favourable outlook.

Stock Performance (Source: Thompson) Company Profile: AHIP is a portfolio of 37 hotels and 3,100+ rooms, located in 19 U.S. States largely under the “Oak Tree Inn” banner. The properties are strategically located at or near rail hubs, with ~65% of rooms occupied by four railroads (Union Pacific, BNSF, CSX, CP).

Trevor Johnson, CFA, MBA - (416) 869-8511 [email protected] Associates: Keegan McCormick - (416) 507-8108 [email protected] Endri Leno - (416) 869-8047 [email protected] Chris O’Neill - (416) 869-6517 [email protected]

Title: AltaGas Ltd. - ALA (T) Cdn$41.15 Price: Cdn$41.15 StockRating: Outperform TargetPrice: Cdn$48.00 Headline: NBF Dividend All-Star

Department Theme Piece Pipelines, Utilities & Energy Infrastructure

AltaGas Ltd.

ALA (T) Cdn$41.15

Stock Rating: Outperform

Target: Cdn$48.00



Double-digit dividend upside + LNG exposure



52-week High-Low (Canada) $41.55 - $34.35

Bloomberg/Reuters: Canada ALA.TO

(Year-End December 31) 2013e 2014e 2015e

AFFO/share - basic $3.15 $3.48 $4.05

AFFO/share - f.d. $3.06 $3.38 $3.94

P / AFFO 13.3x 12.2x 10.4x

EPS - f.d. $1.69 $2.18 $2.78

Earnings Payout 84% 73% 66%

D/EBITDA 6.9x 6.4x 5.8x

EV/Free-EBITDA 18.1x 15.6x 13.6x

Dividends $1.49 $1.64 $1.89

Dividend Yield 3.6% 4.0% 4.6%


Financial Data:

Shares Outstanding (mln) 118.9

Book Value per Share $17.13

Market Capitalization ($mln) $4 894

Price/Book Ratio 2.4x

Net Debt ($mln) $3 847

Net Debt/Enterprise Value 44%

Debt/15 Distr CF 8.1x

Total Return 20.8%

Industry Rating: Overweight (NBF Economics & Strategy Group)

Midstream diversificationAltaGas business segments consists of Gas (natural gas gathering and processing, NGL extraction and fractionation, transmission, storage and natural gas marketing), Power (power generation) and Utilities (regulated natural gas distribution). Overall, the Gas business serves producers in the Western Canadian Sedimentary Basin and processes more than 2 bcf/d of gas; the Power business includes an aggregate of ~1,400 MW of generating capacity (including NW B.C. projects); the Utilities business serves Alberta, British Columbia, Nova Scotia, Alaska and Michigan.

Exposure to LNG activity ALA continues to trade at a discount to the high-payout group with a 2015e P/AFFO multiple of 10.4x (group avg.: ~12x) despite a relatively low AFFO payout ratio of 47% (group avg.: 70%). As such, expect multiple expansion upon commissioning of the $725 mln Forrest Kerr project (mid-2014) coupled with a significant increase to the dividend (~15%). Elsewhere, the company has identified ~$2.5 bln in base business growth opportunities through 2018 – driving double-digit EBITDA growth per year. Furthermore, the company is pursuing ~$2-5 bln of LNG (liquefied natural gas) and LPG (propane) export opportunities off the west coast of Canada to Asia. Based on an after-tax IRR of 9.0%, we ascribe ~$11.50/sh of unrisked upside associated with ALA’s LPG and LNG export opportunities – representing ~25% upside to our current target of $48.00/sh.

Double-digit dividend growth on the horizon Overall, we forecast a 2015e AFFO payout ratio of 47%, remaining well below the high payout group average of 70%. Going forward, we forecast a 15% dividend increase commencing Q3 2014 (coinciding with the commissioning of Forrest Kerr), as well as another 15% dividend increase commencing Q3 2015.

Stock Performance Company Profile: AltaGas Ltd.’s business consists of NGL extraction and terminalling (E&T); natural gas field gathering and processing (FG&P); power generation, utility distribution assets and energy management services. The company’s assets are located predominantly throughout Alberta and NE British Columbia.

Patrick Kenny, CFA – 403-290-5451 [email protected] Associate: Michael Nguyen – 403-290-5447 [email protected]

Source: Bloomberg

AltaGas Ltd.

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Title: ARC Resources Ltd. - ARX (T) Cdn$23.71 Price: Cdn$23.71 StockRating: Outperform TargetPrice: Cdn$26.00 Headline: NBF Dividend All-Star

Department Theme Piece Oil & Gas Exploration and Production

ARC Resources Ltd.

ARX (T) Cdn$28.50

Stock Rating: Sector Perform

Target: Cdn$32.00



Diversified Asset Base and Capital Discipline Support Dividend Sustainability


HIGHLIGHTS Stock Data - Q4a 2013:

52-week High-Low (Cdn$) $23.19 - $29.95

Dividend Yield 4.2%


Market Cap. (mln) $8,945.2

Net Debt (mln) $968.4

Enterprise Value (mln) $9,913.6

Production 2013e 2014e 2015e

Oil & NGL's (bbls/d) 37,597 42,560 45,980

Nat. Gas (mmcf/d) 349.6 416.6 450.1

Boe/d (6:1) 95,865 112,000 121,000

% Nat. Gas 61% 62% 62%

Pricing 2013e 2014e 2015e

WTI (US$/bbl) $98.00 $96.25 $88.73

Brent (US$/bbl) $108.75 $109.00 $102.86

AECO (Cdn$/mcf) $3.20 $3.75 $3.76

Estimates 2013e 2014e 2015e

CFPS $2.70 $3.25 $3.32

EPS $0.93 $1.08 $1.04

DPS $1.20 $1.20 $1.20

Cash Flow (mln) $840.5 $1,028.5 $1,064.2

Capex (mln) $860.0 $915.0 $925.0

Net Debt (mln) $882.1 $1,071.6 $1,210.9

D/CF 1.0 x 1.0 x 1.1 x

Basic Payout (%) 44% 37% 36%

Total Payout (%) 147% 126% 123%

Total Payout (%) - net of DRIP 133% 114% 112%

NAV ($/sh) $16.60

CNAV ($/sh) $26.95

Valuation 2013e 2014e 2015e

EV/DACF 10.5 x 9.4 x 9.3 x

EV/BOE/D $96,321 $90,564 $86,038

EV/boe P+P $12.64

P/CNAV 1.1x

Source: Company reports, NBF estimates

Note: Debt figures include convertible debentures

All figures in Cdn$ unless otherwise noted Industry Rating (Oil & Gas Exploration and Production): Overweight (NBF Economics & Strategy Group)

Diversified Asset Base Provides Growth and Flexibility ARC Resources has a large diversified asset base of legacy light oil properties that generate free cash flow to fund growth from its extensive Montney natural gas/NGL properties. This diversification provides the flexibility to shift capital between projects from year-to-year depending on commodity prices and project returns. In 2014, ARC is focused on developing its oil/liquids opportunities at Ante Creek, Tower and Pembina.

Montney Remains ARC’s Foundation for Future Growth With approximately 625 net sections of undeveloped land, ARC’s Montney in northeast B.C. and northwest Alberta is at the heart of its growth strategy. Coinciding with the completion of its 60 mmcf/d Parkland/Tower facility at the end of 2013, ARC is poised to deliver record annual production of 110 – 114 mboe/d in 2014, setting the stage for continued production growth in 2015 to over 120 mboe/d as it initiates commercial development of its West Montney properties (Sunrise/Sunset).

Capital Efficiency and Growth Supports Dividend Model ARC continues to see capital efficiency improvements with the conversion to pad drilling on its Montney plays. We currently forecast a 2014 net payout ratio of 114%, a D/CF ratio of 1.0x with ~75% of its $1.0 billion bank line unutilized.

Sector Perform Rating with a $32.00 Target Price We continue to view ARX as one of the better quality names in the Intermediate Yield space; however, we currently rate ARC as Sector Perform due to its premium valuation. We have a 12-month target price of $32.00, which is based on a 1.2x multiple to our CNAV estimate of $26.95.

Stock Performance Company Profile: ARC Resources is a gas-weighted Intermediate Yield E&P pursuing a growth and income business model. The company has an extensive land position with exposure to several key resource plays, including the Montney, Cardium and Swan Hills plays. The Montney is ARC’s main growth asset with over 10 Tcf of Discovered Gas Initially in Place (DGIIP) measured on a portion of its land base and has a clearly defined growth strategy in place. Kyle Preston, CFA, CMA - (403) 290-5102 [email protected] Associates: Amy Chang, CFA - (403) 290-5627 [email protected] Marc D. Corbeil, CFA - (403) 441-0955 [email protected]

Source: Bloomberg

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Title: Artis REIT - AX.UN (T) Cdn $xx Price: Cdn $xx TargetPrice: Cdn $18.00 Headline: A Good Choice for Extra Yield


Artis REIT

AX.UN (T) Cdn $15.20 Stock Rating: Outperform

Target: Cdn $17.75

Risk Rating: Below Average


U.S. & W. Canada Focus Driving SPNOI – Improving Leverage & Payout Ratios



52-week Low $13.4552-week High $17.03Bloomberg/ThomsonOne: AX-U / AX.un

(Year-End Dec. 31) 10A 11A 12A 13E 14E

FFO1 $1.03 $1.20 $1.30 $1.41 $1.49

AFFO1 $0.85 $1.01 $1.11 $1.21 $1.29% change N/A 18.6% 10.6% 8.5% 7.0%Current MultiplesP / FFO 14.8x 12.6x 11.7x 10.8x 10.2xP / AFFO 17.9x 15.1x 13.6x 12.6x 11.8xTarget MultiplesT/ FFO 17.3x 14.7x 13.6x 12.6x 11.9xT / AFFO 20.9x 17.6x 15.9x 14.7x 13.7xDistribution $1.08 $1.08 $1.08 $1.08 $1.08AFFO Payout 127% 107% 97% 89% 84%Tax Deferral 100% 100% 100% 100% 100%

Financial Data: Units Outstanding (mln) - Diluted for Options 128.2 Market Capitalization (mln) 1 948$ Net debt (mln) 2 357$ Enterprise Value (mln) 4 457$ Debt / Total Assets (excl' convertible debt) 45%Debt / Total Assets (incl' convertible debt) 49%Net Asset Value (NAV) / Cap Rate $16.60 / 6.55%Debt / Market Value of Assets (excl' convertible debt, using NAV) 43%Debt / Market Value of Assets (incl' convertible debt, using NAV) 47%Premium to NAV (Current) -8.4%Current Distribution (annualized) $1.08Current Distribution yield (annualized) 7.1%Major Unitholders (mln) (as per Thomson One, 22-Jan-14) Units %

BlackRock Asset Management Canada Limited 5.0 3.9%Sentry Investments 3.7 2.9%

Mackenzie Financial Corporation 2.2 1.7%Source: NBF, company reports, Thomson One, Bloomberg 1) Excl. Lease Termination Fees


Accretive External Growth in H1/13 Continues to Impact Results: Artis had a relatively active year in 2013, purchasing over $527 million of properties. Of this, approximately 40% of the properties acquired were in the United States. With the U.S. economy expected to grow at a faster rate than that of Canada, the recent acquisitions will likely drive the REIT’s NOI growth and USD appreciation should have a positive impact on NAV.

More Conservative Structure, Improving Credit Metrics: Artis continues to implement a strategy of terming out mortgages as well as some of its variable rate debt. After entering into interest rate swaps, its un-hedged floating debt amount decreased from 13.5% in Q2/13 to 10.0% in Q3/13. The REIT’s more conservative balance sheet and greater cash flow retention have led to an improvement in credit metrics.

Good Name for Extra Yield: The REIT now yields 7.1% which is well above the average ~6% yield on REITs with market caps over $1 billion. A declining payout ratio helps with Artis’ financial flexibility and supports future distribution increases.

Quality Assets in Strong Locations: The REIT’s portfolio is concentrated in Western Canada and the United States providing investors with access to growth markets, which has resulted in solid SPNOI performance in 2013.

Trading at Discount Valuation: Current pricing reflects an ~8% discount to our $16.60 NAV and an 11.8x 2014E AFFO, which is at the low end of its peers.

Stock Performance Company Profile: Artis REIT is a diversified REIT with a geographic focus on Western Canada and the US. Artis completed its initial public offering in February 2004, reorganized into a REIT in December 2004 and has since embarked on a significant acquisition program. Currently, Artis owns 232 properties with approximately 24.8 million square feet of GLA. Matt Kornack - (416) 507-8104 [email protected] Associate: Dawoon Chung - (416) 507-8102 [email protected]

Source: Bloomberg

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Title: Baytex Energy Corp. - BTE (T/NYSE) Cdn$44.46 Price: Cdn$44.46 StockRating: Outperform TargetPrice: Cdn$52.00 Headline: NBF Dividend All-Star


Baytex Energy Corp.

BTE (T/NYSE) Cdn$41.74


Target: Cdn$51.00



Heavy Oil Producer With A History of Dividend Growth



52-week High-Low (Cdn$) $36.37 - $47.60

Dividend Yield 6.3%






Oil & NGL's (bbls/d) 50,247 55,273 58,532

Nat. Gas (mmcf/d) 41.1 40.4 38.8

Boe/d (6:1) 57,100 62,000 65,000

% Nat. Gas 12% 11% 10%


WTI (US$/bbl) $98.00 $96.25 $88.73

Brent (US$/bbl) $108.75 $109.00 $102.86

AECO (Cdn$/mcf) $3.20 $3.75 $3.76


CFPS $4.69 $5.11 $4.43

EPS $1.23 $1.28 $0.95

DPS $2.64 $2.64 $2.64

Cash Flow (mln) $586 $647 $572

Capex (mln) $550 $485 $525

Net Debt (mln) $779 $907 $1,150

D/CF 1.3 x 1.4 x 2.0 x

Basic Payout (%) 56% 51% 59%

Total Payout (%) 150% 126% 151%


NAV ($/sh) $25.50

CNAV ($/sh) $46.04


EV/DACF 9.4 x 8.9 x 10.4 x

EV/BOE/D $104,739 $100,297 $100,856

EV/boe P+P $19.68

P/CNAVPS 0.9x



All figures in Cdn$ unless otherwise noted

Industry Rating (Oil & Gas Exploration and Production): Overweight (NBF Economics & Strategy Group)

Growth In Heavy Oil Supports Dividend Growth StrategyBaytex is currently producing ~60,000 boe/d, and has grown production by approximately 50% over the past five years largely through organic means. The company has a deep inventory of high quality heavy oil assets which we believe will support this growth for many years to come. Although the dividend was not increased in the last few years due to volatile heavy oil pricing, we expect long-term dividend growth to resume as heavy oil prices stabilize.

Peace River Heavy Oil Is The Prime Growth Driver Baytex’s main growth driver is its Peace River heavy oil assets (most notable being Seal) in northern Alberta where the company is producing ~26,000 bbl/d from primary and thermal development. Seal is one of the lowest cost and highest return oil plays in North America, and Baytex expects to drive ongoing growth through continued primary (cold) and thermal development at Cliffdale (CSS) and Cold Lake (SAGD).

Strong Balance Sheet and Hedging Support Dividend Baytex has funded most of its growth internally and is well positioned to fund its dividend and capex in 2014. The company is well protected against volatile heavy differentials with 23% of its 2014 heavy oil volumes hedged at a 20% differential to WTI. For 2014, we are forecasting average production of 62,000 boe/d, which represents annual growth of 9%. Based on our forecasts, we project a 2014 net payout of 112% and a D/CF of 1.4x with only 43% of its bank line drawn.

Outperform Rating with a $51.00 Target We currently rate Baytex as Outperform and have a 12-month target price of $51.00 which is based on a 1.1x multiple to our CNAV estimate of $46.04.

Stock Performance Company Profile: Baytex Energy is a heavy oil-weighted Intermediate Yield E&P pursuing a growth and income business model. The majority of its assets are heavy oil; however, the company also has exposure to several light oil resource plays, including the Viking in western Saskatchewan and the Bakken/Three Forks play in North Dakota. The Seal heavy oil resource play in northern Alberta is its prize asset and offers the most growth potential, especially as the company accelerates the thermal (cyclic steam) development.

Kyle Preston, CFA, CMA - (403) 290-5102 [email protected] Associates: Amy Chang, CFA - (403) 290-5627 [email protected] Marc D. Corbeil, CFA - (403) 441-0955 [email protected]

Source: Bloomberg

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Title: Canadian Energy Services & Tech. - CEU (T) Cdn$13.35 Price: Cdn$13.35 StockRating: Outperform TargetPrice: Cdn$14.25 Headline: Low CapX, High-Growth Oilfield Services Provider with a

Department Theme Piece Oil and Gas Services

Canadian Energy Services & Tech.

CEU (T) Cdn$22.72


Target: Cdn$24.00



Best-in-Class Fluids Provider Set for ~40% EBITDA Growth in 2014


HIGHLIGHTS Shares Outstanding (mln) 66.5 Market Capitalization (mln) $1 511.9Net Debt (mln)1 $284.1Enterprise Value (mln) $1 796.1Dividend Yield 3%

52-week High-Low* $23.24 - $10.75Average Weekly Volume 931 631 Net Tangible Book Value per Share -$0.16

*split adjusted

Estimates 2013E 2014E 2015E

Revenue (mln) 648.3$ 829.9$ 973.9$ EBITDA (mln) 107.5$ 147.2$ 189.5$ CFPS 1.33$ 1.76$ 2.20$ DPS 0.70$ 0.80$ 0.87$ EPS 0.56$ 0.89$ 1.29$

Valuation 2013E 2014E 2015E

P/E (x) 40.7x 25.5x 17.6xEV/EBITDA (x) 16.9x 12.3x 9.5xTarget EV/EBITDA 17.6x 12.9x 10.0x


Core Canadian drilling mud business … CEU controls approximately a third of the market for Canadian drilling fluids on ~31% of active drilling rigs. The fluids have also been increasing in complexity with the further proliferation of unconventional development taking day rates up to ~$6,350 in 2013 from ~$5,350 in 2012.

… with a game-changing production fluids acquisition … With the JACAM acquisition last March, CEU now has a substantial production fluid business, helping to decouple CEU from the highly volatile drilling cycle. JACAM provides CEU with considerable room for expansion (new facility ~20-25% utilized) as well as vertical integration and cross selling with the legacy drilling mud business.

…drive top-tier growth expectations in 2014/5e. These attributes have already proved effective with new product H2S Scavenger going from zero to ~10-15% of production fluid revenues in under a year. We expect JACAM to be the driver of substantial growth for CEU. We model consolidated EBITDA of $147.2 mln in 2014 (37% growth y/y) and $189.5 mln in 2015 (29% growth y/y).

Premium valuation for “must own” name. The “new” CEU has seen a re-rating in valuation, currently trading at 12.5x forward consensus EV/EBITDA, versus a post-2008 average of 7.6x, which we argue is less relevant now given the production fluid focus and growth prospects. CEU has raised the dividend five times since the start of 2011 and though currently only yielding 3% we expect dividend growth to continue. Outperform.

Stock Performance Company Profile: Canadian Energy Services & Technology (“CEU”) is a corporation with the core business of design, delivery, and servicing of proprietary drilling fluid systems for SAGD, other bitumen extraction methods, horizontal, medium, deep, and directional oil and natural gas drilling applications. Primary operations are in the WCSB, and expansion into the USA is now underway.

Greg Colman - (416) 869-6775 [email protected] Sean Wetmore, CA - (416) 869-6763 [email protected]

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Source: Thomson ONE, NBF

http://www.nbcn.ca/repositories/equities/nbfresearch/pdf/6af6f743803a9ff5f43114c633600e51.pdf?_requestid=19317

Title: Canadian Energy Services & Tech. - CEU (T) Cdn$13.35 Price: Cdn$13.35 StockRating: Outperform TargetPrice: Cdn$14.25 Headline: Low CapX, High-Growth Oilfield Services Provider with a


Canyon Services Group Inc.

FRC (T) Cdn$11.56


Target: Cdn$15.00



All-Canadian Fracer Poised for Margin Expansion


HIGHLIGHTS Shares Outstanding (mln) 62.2 Market Capitalization (mln) $719.0Net Debt (mln) -$22.7Enterprise Value (mln) $696.3Dividend Yield 5.2%

52-week High-Low $12.85 - $9.66Average Weekly VolumeNet Tangible Book Value per Share $5.04


Revenue (mln) 297.1$ 409.3$ 572.8$ EBITDA (mln) 36.5$ 87.6$ 164.8$ CFPS 0.47$ 1.14$ 2.06$ DPS 0.60$ 0.60$ 0.60$ EPS (0.02)$ 0.51$ 1.33$


P/E nm 22.8x 8.7xEV/EBITDA 19.7x 8.5x 4.3xTarget EV/EBITDA 25.6x 10.9x 5.6x

All amounts in Cdn$ unless otherwise noted.

1 083 990


100% Canadian exposure … FRC has all of its assets in Canada, a favourable characteristic in the pressure pumping space given the recent overbuild and current estimated oversupply (~20%) conditions still prevailing in the United States.

… crystal clean balance sheet and ready for growth … Canyon sits in the enviable position of carrying net cash on the balance sheet. Management has taken this approach to offset some of the cyclicality inherent in the oilfield services sector and has been actively staffing up during this down draft to ready the company for the next leg of growth.

…with an expectation for rising demand and margin expansion on the horizon. We remain bullish on the medium-to-longer term dynamics for pressure pumping in the WCSB due to HHP supply flat-to-down and demand catalysts ahead (pre-LNG completion activity, debottlenecking takeaway constraints). Given the Canadian exposure and the ability/capacity to meet rising demand we feel FRC is ideally positioned to take advantage of a changing supply-demand balance in the basin.

FRC remains our top pick pressure pumper, yielding a rock solid 5%; Outperform FRC remains our top pick fracer and we see the $0.60/sh dividend (currently yielding 5%) as rock solid. Our $15.00 target represents 5.6x our 2015e EV/EBITDA, a year in which we expect margins to expand meaningfully from current trough levels.

Stock Performance Company Profile: Canyon Services Group Inc (“FRC” or “Canyon”) operates a fleet of hydraulic fracturing spreads in Western Canada. Their proprietary Grand Canyon process utilizes advances in lightweight proppant technology to provide customers with specialized fracturing services. The recent addition of 100k HHP pumping capacity takes total HHP to 125k and positions FRC as a solid participant in the quickly growing stimulation services sub-sector.

Greg Colman - (416) 869-6775 [email protected] Sean Wetmore, CA, CFA - (416) 869-6763 [email protected]

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http://www.nbcn.ca/repositories/equities/nbfresearch/pdf/bf06075edf07bf3951cf835e811acb8f.pdf?_requestid=23614

Title: Cathedral Energy Services Ltd. - CET (T) Cdn$5.60 Price: Cdn$5.60 StockRating: Outperform TargetPrice: Cdn$8.00 Headline: Possibility of Tax Reassessment Increases


Cathedral Energy Services Ltd.

CET (T) Cdn$4.72 Stock Rating: Outperform

Target: Cdn$5.25



Deep Value Directional Driller with Conservative Payout Ratio


HIGHLIGHTS Shares Outstanding (mm) 36.1 Market Capitalization (mm) $167.7Net Debt (mm)1 $44.5Enterprise Value (mm) $212.3Dividend Yield 7.1%

52-week High-Low $6.17 - $3.74Average Weekly VolumeNet Tangible Book Value per Share $3.65


Revenue (mm) 223.5$ 253.0$ 281.5$ EBITDA (mm) 29.9$ 36.3$ 46.3$ CFPS 0.64$ 0.88$ 1.11$ DPS 0.31$ 0.34$ 0.37$ EPS 0.25$ 0.21$ 0.39$


P/E (x) 18.4x 22.5x 11.8xEV/EBITDA (x) 7.2x 6.1x 4.9xTarget EV/EBITDA 7.9x 6.6x 5.4x

All amounts in Cdn$ unless otherwise noted.

509 902

1: Includes proceeds of expected $22 mln sale-and-leaseback


Leading provider of directional drilling and pressure testing in Canada and the United States. CET is one of two leading independent providers of directional drilling equipment in Canada, each with ~10%-15% market share. CET also has a U.S. directional division, which has grown its operating days by ~30% in 2013 (y/y) despite flat industry conditions. Additionally, the company provides pressure testing services for high rate gas and gas/liquid wells on both sides of the border.

Generating substantial free cash flow. CET pays a $0.33/yr dividend, with a total cost to the company of $11.9 mln. This compares favourably with our estimated 2014 FCF of $19.2 mln ($31.9 mln funds from operations less $12.7 mln in maintenance capital), suggesting the potential for a dividend increase on the horizon.

We look for an operational rebound on the horizon. CET stumbled in 2013 with some unfavourable customer exposure, Canadian underperformance and shuffling of top management. Though we believe 2014 may be a transitional year, we think the bottom has likely occurred and utilization & profitability will start trending up to historical levels, building on strong U.S. growth and refocused effort in the WCSB.

Deep-value pick; maintain Outperform and $5.25 target. Our preference for CET is driven largely by what we see as an overly discounted valuation, trading at 4.3x 2014e EV/EBITDA and 1.3x p/NTBV versus its closest peer PHX at 6.7x and 3.1x, respectively. Our $5.25 target is driven by 5.4x our 2015 EBITDA, in line with its 5.3x post-2008 average on forward consensus estimates. Outperform

Stock Performance Company Profile: CET provides measurement-while-drilling services and related equipment rentals in Canada and the U.S. while also providing production testing equipment in both regions. We estimate the company holds approximately 15% of the Canadian directional market.

Greg Colman - (416) 869-6775 [email protected] Sean Wetmore, CA, CFA - (416) 869-6763 [email protected]

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Title: Crescent Point Energy Corp. - CPG (T) Cdn$38.64 Price: Cdn$38.64 StockRating: Outperform TargetPrice: Cdn$48.00 Headline: NBF Dividend All-Star


Crescent Point Energy Corp.

CPG (T) Cdn$39.83


Target: Cdn$50.00



Defensive Oil Exposure With Significant Drilling Inventory Supports Dividend



52-week High-Low (Cdn$) $34.53 - $41.60

Dividend Yield 6.9%



Net Debt (mln) $2,077.0



Oil & NGL's (bbls/d) 108,466 116,025 125,223

Nat. Gas (mmcf/d) 63.8 68.9 73.7

Boe/d (6:1) 119,100 127,500 137,500

% Nat. Gas 9% 9% 9%


WTI (US$/bbl) $98.00 $96.25 $88.73

Brent (US$/bbl) $108.75 $109.00 $102.86

AECO (Cdn$/mcf) $3.20 $3.75 $3.76


CFPS $5.22 $5.53 $5.34

EPS $0.60 $1.01 $0.99

DPS $2.76 $2.76 $2.76

Cash Flow (mln) $2,023 $2,204 $2,171

Capex (mln) $1,700 $1,750 $1,800

Net Debt (mln) $2,213 $2,634 $3,122

D/CF 1.1 x 1.2 x 1.4 x

Basic Payout (%) 53% 50% 52%

Total Payout (%) 137% 129% 135%


NAV ($/sh) $29.50

CNAV ($/sh) $45.39


EV/DACF 8.3 x 8.1 x 8.5 x

EV/BOE/D $146,265 $146,033 $141,238

EV/boe P+P $25.53

P/CNAVPS 0.9x




Tight Oil Experts With Significant Room To Grow Production surpassed 120,000+ boe/d (~90% oil) at the end of 2013, and has more room to grow from the ongoing development of its 6,600+ low risk drilling locations in the Bakken, Shaunavon and Uinta basin. We also expect this inventory and resource potential will grow over time as the company continues to leverage ongoing technology improvements across its portfolio.

Attractive Entry Point With Above-Average Yield Crescent Point offers an attractive dividend yield of ~7%, and trades at a reasonable valuation of 8.1x 2014 EV/DACF, which we note is below its historical average of 9.5x. In addition, given the positive performance improvements seen over the last year, the company expects a positive technical revision to its year-end reserves as well as some incremental waterflood recognition, which could be a catalyst for the stock.

Defensive Balance Sheet And Hedging Supports Dividend Crescent Point diligently hedges its production by employing a rolling hedging strategy that spans over three years. Approximately 47% of its 2014 oil production is hedged at a floor of $87.83/bbl and 21% of its 2015 oil production hedged at a floor of $84.44/bbl. The company also has about ~75,000 bbl/d of rail capacity to help manage volatile crude differentials. For 2014, we estimate a net payout ratio of 115% and a D/CF of 1.2x with 46% of its $2.1 billion bank line drawn.

Outperform Rating With a $50.00 Target Price We currently rate Crescent Point as Outperform and have a 12-month target price of $50.00 which is based on a 1.1x multiple to our CNAV estimate of $45.39.

Stock Performance Company Profile: Crescent Point is an Intermediate Yield E&P company and a leader in tight oil development and has a dominant position in the Saskatchewan Bakken and Shaunavon oil plays, and has recently moved into new tight oil plays in Alberta, North Dakota and Utah. With over 7,700 drilling locations identified on its established resource plays, Crescent Point has years worth of low-risk drilling opportunities and is also evaluating the waterflood potential on several of its tight oil plays. Kyle Preston, CFA, CMA - (403) 290-5102 [email protected] Associates: Amy Chang, CFA - (403) 290-5627 [email protected] Marc D. Corbeil, CFA - (403) 441-0955 [email protected]

Source: Bloomberg

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Crombie REIT

CRR.UN (T) Cdn$13.35 Stock Rating: Outperform

Target: Cdn$16.50



Defensive Name with Internal Growth Opportunities and Intensification Potential


HIGHLIGHTS Stock Data (Pro Forma Safeway Transaction):

52-week Low $12.52

52-week High $15.83

Bloomberg/Reuters: CRR-U / CRR.un(Year-End Dec. 31) 10A 11A 12A 13E 14E

FFO 1.01$ $1.04 $1.06 $1.09 $1.13

AFFO $0.80 $0.83 $0.85 $0.91 $0.98

% change (AFFO) 4.0% 2.9% 6.3% 8.1%

Current Multiples

P / FFO 13.2x 12.8x 12.6x 12.3x 11.8x

P / AFFO 16.8x 16.1x 15.7x 14.7x 13.6x

Target Multiples

Target / FFO 16.3x 15.8x 15.6x 15.1x 14.6x

Target / AFFO 20.7x 19.9x 19.4x 18.2x 16.9x

Distribution $0.89 $0.89 $0.89 $0.89 $0.89

AFFO Payout 112% 108% 104% 98% 91%

Tax Deferral 65% 62% 67% 67% 67%

Units Outstanding (mln) 122.9

Market Capitalization (mln) $1 641

Net debt (including convertible debt, mln) $2 076

Enterprise Value (mln) $3 717

Debt / GBV (current/maximum permitted) 51% / 65%

Debt / GBV (including conv., current / maximum) 57% / 65%

Net Asset Value (NAV) / Cap rate $15.45 / 6.20%

Debt / Market Value of Assets (using NAV, excl' converts) 46%

Debt / Market Value of Assets (using NAV, incl' converts) 51%

Premium to NAV (Current) -13.6%

Current Distribution (annualized) $0.89

Current Distribution yield (annualized) 6.7%

Major Unitholders(mln)(as per ThomsonOne & SEDI) Units %

Empire Company Limited 51.2 41.6%

CI Investments Inc. 4.1 3.3%

Goodman & Company, Investment Counsel 2.2 1.8%

Black Rock Asset Management 2.2 1.8%

Sources: NBF, Thomson One, OSC Bulletin


Attractive Yield: Crombie offers an attractive yield of 6.7% vs. 5.5% for its large-cap retail comparables (REI.un, FCR & CWT.un). Adjusting for differences in payout ratios, the REIT’s AFFO yield still trades at an attractive 110 bps premium to this same peer group.

Defensive Structure & Portfolio: CRR has one of the longest weighted average terms to maturity on leases in the Canadian public retail REIT universe at 10.4 years vs. an average of 7.8 years for its peers. Likewise, its weighted average debt maturity is 7.5 years vs. 5.4 years for the comps. The REIT’s portfolio of defensive grocery and drug store anchored retail plazas jives well with its conservative structure.

Upside Potential on Low Occupancy: While Crombie’s core portfolio offers less organic growth through rent steps, its lower occupancy of 92.2% vs. the peer group at ~96% is a potential catalyst for medium-term NOI improvement.

Relationship with Empire: The REIT has an exclusive relationship with the development arm of Empire, which provides CRR with a pipeline of newly constructed and existing retail centres. The key is that the REIT will get access to this new, highly sought after real estate without having to take on the development risk and related short-term dilution.

Transformational Canada Safeway Transaction: 2013 was a transformative year for Crombie; not only did the Canada Safeway transaction enhance its geographic diversification in fast growing Western Canada, but also captured significant development/intensification opportunities in the region in the near to medium term while increasing the REIT’s float and resulting in an investment grade credit rating.

Stock Performance Company Profile: Crombie REIT was formed in March 2006 when Empire Company Limited transferred 44 of its commercial properties into the REIT. Crombie’s portfolio consists primarily of defensive grocery-anchored retail plus a small office and mixed-use component. In total the REIT currently has 250 properties (17.6 million sq. ft.), located in nine provinces. Sobeys is the REIT’s largest tenant.

Matt Kornack - (416) 507-8104 [email protected] Associate: Dawoon Chung - (416) 507-8102 [email protected]

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Title: Enercare Inc. - ECI (T) Cdn$9.96 Price: Cdn$9.96 StockRating: Outperform TargetPrice: Cdn$12.00 Headline: NBF Dividend All-Star

Department Theme Piece Consumer Services

EnerCare Inc.

ECI (T) Cdn$9.99


Target: Cdn$12.00



Growth of dividends sustainable over longer-term horizon




Bloomberg/Reuters: Canada ECI CN / ECI.TO

(Year-End Dec. 31) 2012a 2013e 2014e

Revenue (mln) $256.1 $298.3 $318.0

EBITDA (mln) $145.3 $152.8 $156.4

adj. EBITDA (mln) $162.5 $166.4 $170.4

EPS (fd) ($0.06) $0.16 $0.30

AFFO ($mln) $61.6 $56.4 $64.9

AFFO/sh $1.05 $0.96 $1.10

Dividends $0.67 $0.69 $0.70


Payout Ratio 63% 71% 62%

Price/AFFO 9.5x 10.4x 9.1x

EV/adj. EBITDA 6.7x 6.6x 6.4x

Financial Data:

Shares Outstanding1 (mln FD) 59.1

Book Value per Share1$1.28

Market Capitalization (mln) $579Price/Book Ratio 7.6x

Net Debt1 (mln) $521.4

Net Debt/Book Capital 66%

Net Debt/ Adj.EBITDA 3.1x

1 As at Sept. 30, 2013


Water heater business is the main cash-generating engine EnerCare’s main business line is its water heater rental operation, which was spun out of Enbridge and went public in 2002. ECI is responsible for the securitization of the water heaters (WH), while partner Direct Energy (DE – the largest competitive retailer of energy and related services in North America) is responsible for servicing and customer origination. As part of the agreement, ECI receives 65% of the revenues and DE receives the remainder on most of its assets. Today, it has about 1.2 million customers mostly located in Ontario which provide most of its steady cash flows.

Sub-metering business has built in growth In the past few years ECI has branched out into the sub-metering business where commodities used by apartment or condo dwellers (electricity, water, heat) are metered at the unit level with ECI effectively taking an admin fee. The added cash flows from this business line should help grow the dividend potential in coming years. There are currently 161K contracted customers, with 78K billing; so there is growth already built into this segment regardless of further additions.

Attrition continues its downward trend, dividends going upAttrition levels have decreased this past year with the help of the expiry of regulatory rules in early 2012. We believe this trend should continue as customers are better informed. With this, we believe dividend growth should continue in small increments over the coming few years – we model a 30% increase over the long term.

Valuation: $12.00 target and Outperform rating Our valuation is based on: a 6.9x EV/EBITDA multiple on 2014 estimates, a DCF and DDM analysis using a 10% discount rate.

Stock Performance Company Profile: EnerCare (formerly known as Consumers’ Waterheater Income Fund) is a corporation focused on the securitizing and renting of water heaters (~1.2 million) and sub-meters (~161K contracted - these are mostly electrical sub-meters in multi-unit residential buildings).

Jeremy Mersereau P. Eng, CFA - 416-869-6768 [email protected] Associate: Mark Vernest, CFA - (416) 869-7476 [email protected]

Title: First National Financial Corp. - FN (T) Cdn$23.30 Price: Cdn$23.30 StockRating: Sector Perform TargetPrice: Cdn$23.00 Headline: Yield Adequately Compensates for Housing Market Risks


First National Financial Corp.

FN (T) Cdn$23.30 Stock Rating: Sector Perform

Target: Cdn$23.00



Yield Adequately Compensates for Housing Market Risks



52-week Low-High $15.15 - $23.90


Market Capitalization (millions) $1,397

Year-End 12/31 2012A 2013E 2014E 2015E

Core EPS $1.68 $2.19 $2.34 $2.54

Y/Y Growth 27.6% 30.5% 6.7% 8.4%


Revenue $381.9 $442.4 $421.2 $444.9

Expenses $231.1 $219.6 $223.8 $231.4

Net Income $105.7 $159.9 $140.4 $152.3

Less: Non-Core Income ($4.8) ($26.7) $0.0 $0.0

Core Net Income $100.8 $133.2 $140.4 $152.3

Book Value Per Share $4.47 $5.76 $6.61 $7.55

Financial Data: (Quarter-End 09/30/2013)



Distribution/Dividend Information:

Dividend/Share (Quarterly) $0.35

Payout Ratio (L4Q) 67.7%

Yield 6.0%


One of Canada’s largest non-bank mortgage companiesFirst National Financial Corporation ranks as one of Canada’s largest originators, underwriters and servicers of residential mortgages. The company originated over $14 billion of mortgages in the 12 months to September 2013, and currently services a portfolio of $74 billion in mortgages.

Impact of housing slowdown could be dampened We believe that FN will see muted pressure on originations relative to the industry because the company stands to gain market share at the expense of capital-constrained regulated lenders (FN is not regulated by OSFI). Moreover, regulated lenders now face stricter underwriting guidelines from OSFI (i.e., B-20) and, in many instances, have been scaling back service to the broker channel (e.g., CIBC). We also believe that recent moves by the CMHC to curtail mortgage securitization volumes will benefit FN relative to the banks.

Housing concerns do not put dividend at risk Despite mounting concerns about burgeoning household credit levels in Canada and the possibility of a sharp correction in home prices, we believe FN has an adequate cushion to maintain its dividend. For one, the company earns a steady stream of fee income from mortgages under administration. In addition, pressure on originations will be muted by market share gains. Finally, FN has little need to retain earnings.

Yield adequately compensates for housing market risks Housing market concerns have weighed on valuation for all mortgage-related stocks. However, we believe the 6.0% yield adequately compensates for housing market risks.

Stock PerformanceCompany Profile: First National Financial Corporation is an originator, underwriter and servicer of mainly prime single-family and multi-unit residential mortgages, as well as commercial mortgages. First National is Canada’s largest non-bank originator and underwriter of mortgages with over $65 billion in mortgages under administration.


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Title: Gibson Energy Inc. - GEI (T) Cdn$27.14 Price: Cdn$27.14 StockRating: Outperform TargetPrice: Cdn$32.00 Headline: NBF Dividend All-Star


Gibson Energy Inc.

GEI (T) Cdn$27.14


Target: Cdn$32.00



Crude oil midstream with attractive dividend upside


HIGHLIGHTS

Stock Data:


Bloomberg/Reuters: Canada GEI CT / GEI TO


AFFO/sh - basic $1.96 $1.97 $2.26

AFFO/sh - f.d. $1.96 $1.97 $2.26

P/AFFO 13.9x 13.8x 12.0x



Dividends(1)$1.09 $1.15 $1.22

Dividend Yield(2) 4.0% 4.2% 4.5%


Financial Data:


Book Value per Unit $11.06



Net Debt ($mln) $761


Debt/15 AFFO 3.0x

Total Return 22.2%


Attractive crude oil midstream exposure Gibson owns and operates an integrated platform of midstream assets engaged in the transportation, storage, blending, refining, marketing and distribution of crude oil, natural gas liquids (NGLs) and refined fuels. Revenues are derived ~60% fee-for-service (crude, products storage and transportation and environmental services), ~25% margin-based (propane distribution, refined fuels and blending), ~10% cost-of-service (crude / products storage) and ~5% commodity-based (marketing). The company operates in core crude oil producing / emerging regions across North America including the Western Canadian Sedimentary Basin, Bakken, Niobrara, Granite Wash, Eagleford, Tuscaloosa Marine and the Gulf of Mexico.

Further dividend growth on the horizon Overall, we forecast a 2015e AFFO payout ratio of 54%, remaining well below the high payout group avg. of 70%. Going forward, we are calling for 6% dividend increase to $1.17/share annually beginning Q2 2014e and a further 6% increase to $1.24/share annually beginning Q2 2015e.

Boosting capex by ~30% while reducing future risk profile Overall, GEI continues to target a minimum hurdle rate of 17.5% return on capital employed (EBIT / invested capital) for organic projects. Meanwhile, GEI recently announced a $410 million capital program for 2014 and $250+ million capital program for 2015, ~70% weighted towards Terminals & Pipelines – i.e., increasing the company’s proportion of fee-for-service / cost-of-service cash flows.

Valuation Our $32.00 target is based on a risk-adjusted dividend yield of 3.75% applied to our 2015e dividend of $1.22/sh, a 11.5x multiple of our 2015e Free-EBITDA of $409 mln, and our DCF valuation of $32.50. We rate Gibson an Outperform.

Stock Performance Company Profile: Gibson Energy Inc. is an integrated North American midstream company with assets focused on crude oil and refined products. The company’s asset base includes: crude oil terminals; pipelines & storage infrastructure; petroleum and refined product transportation; propane distribution & NGL (Natural Gas Liquids) marketing; downstream refineries & processing and crude oil marketing; and environmental services.


Gibson Energy Inc.

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Title: Great-West Lifeco Inc. - GWO (T) Cdn$25.00 Price: Cdn$25.00 StockRating: Outperform TargetPrice: Cdn$27.00 Headline: Title

Department Theme Piece Insurance

Great-West Lifeco Inc.

GWO (T) Cdn$32.50 Stock Rating: Outperform

Target: Cdn$35.00



Strength of Business Model Powers Return of Capital


HIGHLIGHTS

Stock Data:

52-week Low-High $25.45 - $33.56

Shares Outstanding EOP (mln) 1,000

Market Capitalization ($mln) $32,481

Quarterly Dividend Per Share $0.31

Dividend Yield 3.8%

Price-to-Book 2.3x

S&P/TSX Composite Weighting 0.55%

(Year-End 12/31) 2012A 2013E 2014E 2015E

EPS (Excl. Trust Unit Conv.) $1.90 $2.22 $2.58 $2.82

Y/Y Growth (5%) 17% 16% 9%

Core EPS $1.61 $1.87 $2.13 $2.29

Y/Y Growth (10%) 16% 14% 7%

Dividend / Share $1.23 $1.23 $1.28 $1.34

F/D Avg. Shares 950 974 1,000 999

Book Value / Share 12.64$ 14.71$ 16.05$ 17.52$

Price / Book 2.57x 2.21x 2.02x 1.86x

Price / Core Earnings 20.1x 17.4x 15.3x 14.2x

Net Income to Common 1,806 2,164 2,578 2,817

Core Earn. from Ops.

Canada 997 1,237 1,396 1,496

United States 473 439 494 537

Europe 635 767 927 986

Corporate (38) (45) (33) (34)

Core Earn. (pre-tax) 2,067 2,398 2,785 2,986

Taxes (379) (465) (529) (567)

Putnam (after-tax) (40) (49) (44) (17)

Irish Life Group (after-tax) - 67 37 -

NCI and Pref. Dividends (115) (126) (116) (118)

Core Earn. (after-tax) 1,533 1,824 2,133 2,284


GWO has the highest dividend yield among its peer group at 3.8%. The average of its three life insurance peers is 2.7%.

GWO’s financial flexibility on the rise. Like other Canadian life insurers, GWO has benefited from the capital relief brought on by rising equity markets and higher long-term interest rates. Coupled with the redemption of debt and earnings retention, we anticipate GWO’s financial leverage ratio to drop to 29% at the end of f2014 from 32% in Q3 f2013. This should give GWO the flexibility to consider a number of options including dividend increases and share repurchases. That said, management may also be weighing an acquisition to bolster its U.S. platform.

The stability of GWO’s earnings stream will support its dividend, in our view. GWO is one of our top picks in the financial services sector because of the growth potential within its business model and its lower gearing to market variables than peers. We foresee the insurer’s common dividend payout ratio falling to 51% next quarter, in the middle of its estimated target payout ratio range. Given our expectation that GWO’s leverage and payout ratio will trend lower in the coming quarters, we anticipate GWO will increase its annual dividend per share by 4% and 6% in f2014 and f2015, respectively.

Forward outlook for key operating segments is robust. GWO’s Canada segment continues to perform well, and we think this growth is sustainable. By virtue of GWO’s market presence in Canada, we think 10% annual earnings growth from this segment is quite feasible.

Similarly, GWO’s Europe segment has been transformed by the acquisition of the Irish Life Group (ILG). Assuming steady business volume growth at ILG and the realization of cost synergies, we estimate the unit will contribute Cdn$250 million by f2015. This underpins our anticipated annual earnings growth for the Europe segment of 18% in f2014.

We rate GWO Outperform with a price target of $35. This implies a P/B multiple one year from today of 2.23x.

Stock Performance

Company Profile: GWO is a Canadian financial services holding company that is headquartered in Winnipeg, Manitoba. It is the second largest Canadian lifeco by market capitalization and provides life insurance, wealth management, and reinsurance products to clients in the United States, Canada, and Europe. Power Financial Corporation – a Canadian financial services holding company – owns the majority of GWO, which, in turn, is majority-owned by the holding company, Power Corporation. Peter Routledge - (416) 869-7442 [email protected]

Associate: Parham Fini - (416) 869-6515 [email protected]



HealthLease Properties REIT

HLP.UN (T) Cdn$10.15 Stock Rating: Outperform

Target: Cdn$12.00



Continuing to Prove Out Business Plan, Expansion Driving FFO/Unit Growth



52-week Low $9.38

52-week High $11.73Bloomberg/Reuters: HLP-U / HLP.un

(Year-End Dec. 31) 10A1 11A1 12A2 13E 14E

FFO per Unit $0.73 $0.76 $0.84 $1.03 $1.13

AFFO per Unit $0.71 $0.74 $0.77 $0.89 $1.02

Cash AFFO per Unit $0.71 $0.74 $0.81 $0.93 $1.05

Current Multiples

P / FFO 13.9x 13.4x 12.1x 9.9x 9.0x

P / AFFO 14.4x 13.8x 13.2x 11.4x 10.0x

Target Multiples

P / FFO 16.5x 15.9x 14.3x 11.7x 10.6x

P / AFFO 17.0x 16.3x 15.7x 13.5x 11.8x

Distribution - - $0.85 $0.85 $0.85

AFFO Payout - - 111% 95% 84%

Cash AFFO Payout - - 106% 91% 81%

Tax Deferral (2012 Estimate) - - 67% 67% 67%

Financial Data:

Basic Units Outstanding (PF) 29.5

Market Capitalization $300

Net Debt $365

Enterprise Value $664

Debt / Total Assets (Incl. Convertible Debentures) 49%

Debt / Total Assets (Excl. Convertible Debentures) 57%

Net Asset Value ("NAV") / Cap Rate $10.00 / 7.70%

Premium to NAV 1.5%

Debt / Market Value (Using NAV) 54%

Current Distribution (Annualized) $0.85

Current Distribution Yield (Annualized) 8.4%

Major Unitholders (mln) Units %

Mainstreet Property Group 2.9 9.8%

TD Asset Management Inc. 1.9 6.6%Aston Hill Asset Management 1.1 3.6%

Sources: Company Prospectus & Reports, Thomson One

1 Reflects annual results and assumes WA units outstanding of 14.5 mn

2 Normalized NBF 2012 estimates - reflecting annualized results and WA units outstanding of 14.5 mn


Seniors Housing Exposure Minus the Operating Risk: Triple net leases with tenant operators not only remove lease-up risk, but they also substantially remove operational risk and property maintenance responsibilities. Management’s previous experience operating nursing facilities enhances tenant selection and the REIT’s ability to monitor performance.

High-Yield and Lower Risk Structure: HealthLease offers an 8.4% yield with minimal operating risk, a conservative 81% payout ratio and leverage levels at 57% of asset value. In addition, the average lease term is 11.0 years and the REIT has no material debt maturities until 2016.

Modern Facilities a Competitive Advantage: The REIT continues to expand its portfolio and is focused on “next generation” development assets capable of attracting a better quality payor base, increasing margins for its partners / tenants on the operations side. The portfolio contains SNF/AL properties with rent escalations on long-term leases.

Development Has Potential to Provide Significant Growth Kicker: With the recent announcement of HealthLease’s participation in Mainstreet’s development fund and the prospect of internal development activity in the medium term, HealthLease can drive significant accretion to NAV and AFFO as development projects provide 10% cash on cash yields vs. acquisition cap rates of 8%.

Attractive Valuation: HealthLease trades at a 10.0x 2014 AFFO multiple and a 1.5% premium to NAV (unadjusted for recent currency gains). The REIT isn’t currently being rewarded for FX movements.

Stock Performance Company Profile: HealthLease Properties REIT owns seniors housing and care properties which are leased back to established tenant - operators. The REIT owns real estate located in the Midwestern, Mid-Atlantic and South Eastern United States and Western Canada. HealthLease’s portfolio consists of 44 seniors housing and care properties with 4,344 beds/suites located in the states of Ohio, Indiana, Illinois, North Carolina, Pennsylvania, Virginia and the provinces of BC and Alberta. Matt Kornack - (416) 507-8104 [email protected] Associate: Dawoon Chung - (416) 507-8102 [email protected]

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Title: Innergex Renewable Energy Inc. - INE (T) Cdn$9.53 Price: Cdn$9.53 StockRating: Outperform TargetPrice: Cdn$11.25 Headline: Recent dip creates attractive entry point

Department Theme Piece Independent Power Producers & Energy Traders

Innergex Renewable Energy Inc.

INE (T) Cdn$10.28 Stock Rating: Outperform

(Unchanged)

Target: Cdn$10.75 (Unchanged)



Contracted power developer with dividend upside

(Unchanged)




Bloomberg/Reuters: Canada INE CN / INE.TO

2012a 2013e 2014e

Revenue (mln) 180.9$ 207.9$ 239.7$

Net Capacity (MW) 576 617 672

EBITDA ($mln - consld.) 137.6$ 162.7$ 185.2$

Constr in process ($mln) 99.7$ 208.0$ 305.5$

adj. EBITDA ($mln) 127.8$ 152.4$ 171.0$

EV/EBITDA adj 14.5x 13.1x 11.8x

AFFO /sh 0.53$ 0.70$ 0.67$

Dividend /sh 0.58$ 0.58$ 0.58$

Yield (%) 5.6% 5.6% 5.6%

Financial Data:

Market Capitalization (mln) 976$

Total Debt1 (mln) 1 529$

Cash and reserves1 (mln) 95.7$

Shares Outstanding1 (basic mln) 94.9 Shares Outstanding1 (FD mln) 94.9

Source: Thomson Financial and NBF estimates1 Sept 30, 2013

(Year-End Dec 31)

Industry Rating: Underweight (NBF Economics & Strategy Group)

Stable, secure power production business model INE’s business model is more stable than most utilities; it has long-term off-take contracts with government entities for its production and does not face demand pressures. Its weighted average contract duration is close to 20 years; we believe that this is the longest in the industry and that only about 21 MW see expiry in the next five years (< 5% of net MW).

Rebounds off 52-week low; removed from Action List Following some selling pressure in mid-2013 from rising rates, INE shares have rebounded roughly 23% off 52-week low. With the sharp rebound in the share price, we removed INE from the ‘NBF Action List’. During the time INE was on the Action List, the shares traded up 16% (18% total return) compared with -2% (-1% total return) for its peer average.

Fixed interest rates on > 95% of its borrowings We estimate that < 20% of borrowings mature in the next five years. New projects could see higher rates, but likely not higher than when contracts were first negotiated.

Added cash flows makes 2014 div increase possible With 55 MW (net) of growth and contribution from the Magpie acquisition, we see 2014E payout at 87%, but up from 83% in 2013E after a strong performance YTD. With this, INE could have the flexibility to increase its dividend next year.

Valuation: $10.75 target, Outperform With five projects under development/ construction, we believe that AFFO/sh should grow by >70% from 2012 to 2016E. Our target is derived using a 9% DCF and corresponds to an EV/EBITDA multiple of 11.9x 2015E, consistent with peer multiples for FY1. Though the sector could face headwinds with rising rate, we believe INE’s growth profile positions it well for stability with possible upside.

Stock Performance Company Profile: Innergex is one of Canada’s largest Independent Power Producers with a pure-play focus on renewable power. The company operates 10163 MW of renewable projects (33) with power purchase agreements (PPA) with an average remaining life of close to 20 years, of which it owns 672 MW. It has wind, hydro and solar assets and operates in Quebec, Ontario, B.C. and Idaho. Innergex also has 171 MW (net 135 MW) of new projects with PPAs with construction planned over the next four years and has a pipeline of more than 2.8 GW of future opportunities. Rupert M. Merer, P.Eng CFA - (416) 869-8008 [email protected]

Associates:

Jeremy Mersereau, P.Eng CFA - (416) 869-6768 [email protected]

Mark Vernest, CFA - (416) 869-7476 [email protected]

Source: Reuters

Title: Inter Pipeline Ltd. - IPL (T) Cdn$26.37 Price: Cdn$26.37 StockRating: Outperform TargetPrice: Cdn$31.00 Headline: NBF Dividend All-Star


Inter Pipeline Ltd.

IPL (T) Cdn$26.37


Target: Cdn$31.00



Top-tier track record + cost-of-service oil sands exposure




Bloomberg/Reuters: Canada IPL CT / IPL.TO


AFFO/share - f.d. $1.52 $1.70 $2.20

P/AFFO 17.4x 15.5x 12.0x



Dividend $1.17 $1.32 $1.45



Financial Data:







Debt/14 AFFO 9.5x

Total Return 22.7%


Low risk crude oil infrastructure Revenues from IPL’s conventional gathering systems are generated through volume-based shipping tolls. Meanwhile, its oil sands assets generate revenue through long-term ship or pay commitments – i.e., cost-of-service agreement providing for recovery of operating costs, depreciation, taxes, financing costs and a return on equity, with no commodity price exposure. Meanwhile, IPL’s NGL extraction business earns revenues largely through long-term fixed-fee and take-or-pay contracts, with partial upside exposure to the frac spread through a profit share arrangement on the propane-plus volumes produced from the Cochrane plant. Lastly, IPL’s storage assets (~19 mmbbls) in Europe earn revenues under a combination of cost-of-service capacity and fee-for-service agreements.

Highly accretive bolt-on oil sands projects IPL is pursing a $2.9 bln integrated oil sands expansion underpinned by 20-year transportation services contracts for Cenovus and ConocoPhillips. Since securing commercial support for the integrated oil sands expansion in Q1 2013, IPL has bolted on four additional oil sands projects. Overall, the $2.9 bln of capital is expected to generate ~$400 mln of annual EBITDA upon full commissioning (through mid-2017), representing an implied capital deployment multiple of 7.2x - roughly half IPL's 2015e trading multiple of ~14x.

Top-tier dividend track record In late 2013, IPL announced a 13% dividend increase to $1.29/sh annually, marking the company’s 11th and single largest increase – representing a five-year CAGR of 9%. For 2015, we forecast an AFFO payout ratio of 69% (group avg.: 70%). That said, we are calling for a 10% dividend increase to $1.42/sh annually beginning in Q4 2014 and another 10% dividend increase to $1.56/sh annually beginning in Q4 2015.

Stock Performance Company Profile: Inter Pipeline Limited has four lines of business. The pipeline business has both conventional and oil sands assets. In July 2004; Inter Pipeline acquired three natural gas processing plants from Williams Canada Inc. for $715 million that now make up its NGL extraction business, and in October 2005, Inter Pipeline completed its acquisition of Simon Storage Limited, a petroleum and petrochemical storage business in the United Kingdom for £120 million British Pounds or $250 million. . Patrick Kenny, CFA – 403-290-5451 [email protected] Associate: Michael Nguyen – 403-290-5447 [email protected]

Inter Pipeline Ltd.

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Title: Keyera Corp. - KEY (T) Cdn$66.15 Price: Cdn$66.15 StockRating: Outperform TargetPrice: Cdn$73.00 Headline: NBF Dividend All-Star


Keyera Corp.

KEY (T) Cdn$66.15


Target: Cdn$73.00



Top-tier track record + fee-based oil sands / liquids-rich exposure




Bloomberg/Reuters: Canada KEY CT / KEY.TO


AFFO/share - basic $3.74 $4.25 $4.81

AFFO/share - f.d. $3.73 $4.25 $4.81

P/AFFO 17.7x 15.6x 13.8x



Dividends $2.24 $2.46 $2.71



Financial Data:







Debt/15 AFFO 3.3x

Total Return 14.2%


Liquids-rich InfrastructureKeyera operates an integrated network of liquids-rich gas processing facilities and natural gas liquids (NGLs) infrastructure largely within the Deep Basin / Foothills region of the Western Canadian Sedimentary Basin. Overall, Keyera’s cash flows are largely derived from stable fee-for-service operations (~70%; gas processing, NGL transportation and storage services), with margin-based activities rounding out the remaining ~30% of cash flows (NGL and refined fuel marketing). Since inception in 2003, Keyera has delivered ~11% annual AFFO per share growth while providing investors with a total return of 1,327%, well above the S&P TSX Composite Index of 164%.

Exposure to booming oil sands / liquids-rich activity Despite AECO natural gas prices hovering around ~$3.75/mcf, liquids-rich zones fetch >$4.00/mcf equivalent – supporting producer drilling activity surrounding Keyera’s plants (i.e., 95% of Keyera’s throughput is liquids-rich). Meanwhile, with WTI crude prices exceeding US$90/bbl, producers continue to develop large-scale oil sands projects. With a healthy balance sheet (2015e D/EBITDA of 2.6x vs. group average: 3.7x), we estimate Keyera has >$500 million of organic growth opportunities related to oil sands service offerings – representing ~$2.75/share of unrisked upside to our valuation.

Top-tier dividend track record In late 2013, Keyera announced an 11% dividend increase to $2.40/share annually (from $2.16/share), marking the company’s 11th dividend increase since going public in 2003 (8% CAGR). For 2015e, we forecast an AFFO payout ratio of 56% (High Payout avg.: 70%), setting the stage for a 10% dividend increase to $2.64/share effective Q4 2014 and another 10% increase to $2.90/share effective Q4 2015.

Stock Performance Company Profile: Keyera Corp. operates in the Midstream sector and has three lines of business: Natural gas gathering and processing; natural gas liquids (NGL) gathering, processing and storage; and NGL marketing and crude oil midstream. .


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Title: Premium Brands Holdings Corp. - PBH (T) Cdn$17.32 Price: Cdn$17.32 StockRating: Outperform TargetPrice: Cdn$19.50 Headline: NBF Dividend All-Star

Department Theme Piece Consumer Staples

KP Tissue Inc.

KPT (T) $17.08


Target: $21.00



A sustainable dividend, Canadian leadership and U.S. expansion are nothing to sneeze at



52-w eek High-Low (Canada) $19.44 - $16.20

Bloomberg/Reuters: Canada KPT CN / KPT


Market Capitalization (mln)(Cdn $) $150

KPLP's Financials (KPT has a 16.7% stake in KPLP):

(Year-End Dec 31) 2011a 2012a 2013e 2014e

Revenue (mln) $892.6 $922.9 $979.1 $1 143.4

EBITDA (mln) $81.9 $111.3 $119.3 $157.4

EBITDA Margin 9.2% 12.1% 12.2% 13.8%

Earnings per unit $0.56 $0.91 $1.00 $1.31

EV/EBITDA* 14.2x 10.4x 9.7x 7.4x

*Using current EV

Financial Data: As at Sept. 29, 2013

Total net debt (mln) $261.2

Total net debt / EBITDA (LTM) 2.4x

Dividend per share (annualized) $0.72

Dividend Yield 4.2%


Canadian leader with well-recognized brands KP Tissue provides investors with exposure to a Canadian tissue leader through its 16.7% limited partnership interest in Kruger Products L.P. (KPLP). With well-recognized brands (e.g., Scotties, Cashmere and SpongeTowels) and long-standing relationships with major retailers, KPLP has the largest market share in bathroom (35%) and facial tissue (33%), as well as being #2 in paper towels (24%) in Canada.

New machine in the U.S. to be a major EBITDA contributor In 2013, a new through-air-dried (TAD) tissue machine started in Memphis, TN with the goal of penetrating the higher end of the U.S. private label category. The TAD project is progressing according to plan and is expected to be a meaningful contributor to revenue and EBITDA growth going forward. Following a first positive contribution in Q3/13 ($1.7 million), the TAD project is still expected to provide “low single-digit” EBITDA for f2013. The target is $60 million in incremental EBITDA by 2017. We note that competition is fierce with other producers also increasing capacity.

Sustainable high-yield profile KP has a relatively stable growth profile due to the non-discretionary nature of products sold and is a reliable free cash flow generator. Those are good characteristics to possess for a high-yield model. Furthermore, the recent end of investments related to the TAD project start-up provides an additional cushion and helps take our expected payout below 50% in 2014. As such, the $0.72/share dividend (4.2% yield) looks safe.

KPT is rated Outperform with a $21.00 target Our $21.00 target implies 8x EV/EBITDA on our 2014 estimates, a discount to a peer group trading at ~9x 2014 estimates.

Stock Performance Company Profile: KP Tissue Inc. is a public entity holding a 16.7% minority limited partnership interest in Kruger Products L.P. (KPLP). KPLP is a producer, distributor, marketer and seller of bathroom tissue, facial tissue, paper towels and napkins for the consumer (household) and away-from-home (industrial and commercial) markets in North America. KPLP is the leader in the Canadian consumer market and is increasing its U.S. manufacturing capacity.

Leon Aghazarian, M.Sc. – (514) 879-2574 [email protected] Associate: Frederic Tremblay, M.Sc., CFA – (514) 412-0021 [email protected]

Source: www.bigcharts.com



Milestone Apartments REIT

MST.UN (T) Cdn$9.58 Stock Rating: Outperform

Target: Cdn $11.60



The U.S. Sun-Belt Continues to Shine for the Growth-Poised REIT



52-week Low $9.17

52-week High $10.60

Bloomberg/Reuters: MST-U / MST.un

(Year-End Dec. 31) 10A(1) 11A(1) 12A(1) 13E(2) 14E

FFO per Unit $0.49 $0.56 $0.76 $0.98 $1.05

AFFO per Unit $0.28 $0.36 $0.55 $0.75 $0.82

Growth (FFO per Unit) 15.4% 35.1% 28.5% 7.7%

Current Multiples

P / FFO - - - 9.8x 9.1x

P / AFFO - - - 12.7x 11.7x

Target Multiples

P / FFO - - - 11.9x 11.0x

P / AFFO - - - 15.4x 14.2x

Distribution - - - $0.65 $0.65

AFFO Payout - - - 86% 79%

Tax Deferral - - - 100% 100%

Financial Data:

Units Outstanding 49.7

Market Capitalization $476

Net Debt $725

Enterprise Value $1 202

Debt / Total Assets (Current - Incl. Converts) 57%

Debt / Total Assets (Current - Excl. Converts) 57%

Net Asset Value ("NAV") / Cap Rate $11.35 / 6.60%

Premium to NAV -15.6%

Debt / Market Value (Using NAV, Incl. Converts) 55%

Current Distribution (Annualized) $0.65

Current Distribution Yield (Annualized) 6.8%

Major Unitholders (mln) Units %

Retained Interest Holders (MileSouth & MST Investors) 26.9 54.0%

GCIC Ltd. 4.6 9.3%

Sentry Investments Inc. 3.0 6.1%

Sources: Company Prospectus & Reports, Thomson One - Note USD exchange of 1-to-1 assumed

1) Based on historical financial statements and units issued at the time of the IPO

2) Normalized for a full year of operations


Full Access to Growing U.S. Markets: Majority of the REIT’s properties are located in the Sunbelt region of the United States, where the recent post-crisis economic rebound has been the strongest. The region is supported by economic improvement on the back of robust energy industry, in-migration, lower homeownership rates and an increasing pool of echo boomers entering the rental age cohort, creating a favourable market for the landlords.

Sophisticated Platform Supporting Experienced Executive Management: The REIT’s management team brings to the table a combination of decades of experience investing in the U.S. sun-belt markets and a vertically integrated platform providing technologically enabled rent pricing, marketing and employee retention / productivity initiatives.

Attractive Yield vs. U.S. & Canadian Comps: Milestone offers investors an attractive 6.8% yield vs. its Canadian Multi-Res peers at 5.4% and U.S. “Sun-Belt” Multi-Res peers at 3.9%. Looking at AFFO yield, which adjusts for differences in payout ratios, Milestone offers a premium to its peers.

Currency Appreciation Not Being Realized in Trading Price: All of Milestone’s assets are located in the U.S. but the REIT has yet to see depreciation in the Canadian dollar funnel through in its trading – considerable NAV discount.

Valuation Discount: Milestone currently trades at an 11.7x 2014 AFFO multiple and an ~16% discount to NAV (excluding the impact of the USD appreciation). We would anticipate unit price appreciation given Milestone’s larger size, strong portfolio concentration in the growing Texas market and scalable local management platform.

Stock Performance Company Profile: Milestone Apartments REIT is a multi-family residential property owner focused on investing in garden-style properties in the Southern U.S. The REIT was created on January 17, 2013 and went public via an IPO on the TSX. Milestone currently owns 54 properties with 17,648 units – the REIT also manages an additional 17,450 units, which provide fee income in the near term and a longer-term acquisition pipeline. Matt Kornack - (416) 507-8104 [email protected] Associate: Dawoon Chung - (416) 507-8102 [email protected]

Source: Bloomberg

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Title: MCAN Mortgage Corporation - MKP (T) Cdn$13.10 Price: Cdn$13.10 StockRating: Outperform TargetPrice: Cdn$16.00 Headline: Healthy Returns in Mortgage Investments


MCAN Mortgage Corporation

MKP (T) Cdn$13.10 Stock Rating: Outperform

Target: Cdn$16.00



Healthy Returns in Mortgage Investments



52-week Low-High $11.35 - $15.25


Market Capitalization ($ millions) $268

Year-End 12/31 2012A 2013E 2014E 2015E

Core EPS $1.43 $1.54 $1.67 $1.48

Y/Y Growth 8.1% 7.8% 8.1% (11.5%)


Net Investment Income $25.2 $37.7 $46.8 $44.0

Operating Expenses $9.0 $10.5 $12.8 $13.8

Pre-Tax Income $16.2 $27.2 $34.1 $30.2

Income Tax Provision ($5.3) ($0.1) $4.5 $2.9

Net Income $21.5 $27.3 $29.6 $27.2

Adjustments $3.7 $2.7 $4.5 $2.9

Core Net Income $25.2 $29.9 $34.1 $30.2

Book Value Per Share $9.49 $10.08 $10.52 $10.85

Financial Data: (Quarter-End 09/30/2013)

Book Value per share $9.94



Dividends/Share (NTM) $1.12

Payout Ratio (NTM) 63.1%

Dividend Yield (NTM) 8.5%


One of Canada’s most attractive MIC MKP qualifies on an ongoing basis as a Mortgage Investment Corporation (MIC) under terms specified in the Income Tax Act of Canada. As such, all dividends paid to shareholders are fully tax deductible. Consequently, the company distributes substantially all of its earnings to shareholders.

Among the best-positioned MICs in Canada In our view, MKP is among the MICs best positioned to generate the highest risk-adjusted returns. Unlike other MICs, MKP can exploit its status as a deposit-taking institution to generate leveraged returns. We regard CDIC-insured deposits as a low-cost, stable and reliable source of funding.

Abundance of investment opportunities in Alt-A market MKP is increasingly investing in uninsured Alt-A residential mortgages, a segment in which there continues to be abundant lending opportunities, particularly since the introduction of stricter mortgage underwriting rules in 2012.

New-found strength in mortgage broker channel MKP's equity interest in MCAP Commercial, a leading non-bank originator of mortgages through the broker channel, has also begun to generate significant income, especially in view of recent market share gains at the expense of bank-owned competitors that have exited the channel.

Generating attractive risk-adjusted return We believe the projected dividend yield of 8.5% (vs. the average yield of ~8% for other publicly-traded MICs) is an attractive risk-adjusted return, particularly in view of MKP's low balance sheet risk relative to peers.

Stock PerformanceCompany Profile: MCAN Mortgage Corporation (MKP) qualifies on an ongoing basis as a Mortgage Investment Corporation (MIC), whereby all dividends paid to shareholders are fully tax deductible. Consequently, the company distributes substantially all of its earnings to shareholders. As a MIC, the company is able to invest in a wide variety of real estate-related loans, but primarily residential mortgages and residential construction loans. These investments are funded by term deposits eligible for CDIC insurance, as well as shareholders’ equity.


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Title: Pembina Pipeline Corp. - PPL / PBA (T/N) $38.03 / US$34.32 Price: $38.03 / StockRating: Outperform TargetPrice: Cdn$45.00 Headline: NBF Dividend All-Star


Pembina Pipeline Corp.

PPL / PBA (T/N) $38.03 / US$34.32


Target: Cdn$45.00



Crude oil and NGL midstream with attractive dividend upside




52-week High-Low (U.S.) $35.36 - $27.75

Bloomberg/Reuters: Canada PPL CT / PPL.TO

Bloomberg/Reuters: U.S. PBA CT / PBA


AFFO/share - f.d. $2.17 $2.37 $2.63

P/AFFO 17.5x 16.0x 14.5x



Dividends $1.64 $1.70 $1.81



Financial Data:







Debt/14 AFFO 5.1x

Total Return 22.9%


Crude oil & NGL midstream exposure with low risk profilePembina earns revenues from its conventional gathering system under toll rate contracts with various shippers. Meanwhile, the oil sands cost of service agreements allow for a fixed rate of return on invested capital, recovery of operating costs and are not exposed to fluctuations in commodity prices or pipeline utilization. Cash flows from Pembina’s Midstream assets stem from both fee-based contracts and margin-based opportunities. Lastly, revenue earned from its Gas Services business is largely based on fee-based contracts.

Highly accretive NGL pipeline growth To date, PPL has secured ~$2.8 bln of growth opportunities within its conventional crude oil, condensate and NGL pipelines network in northwest Alberta, driven by drilling success within the Montney, Duvernay and Deep Basin resource plays. Of note, the $2 bln Phase III expansion of its Peace and Northern Pipeline Systems, adding 320 mbpd (expandable to 500+ mbpd) by mid-2017 is expected to generate long-term annual EBITDA of ~$270-300 mln - representing an implied capital deployment multiple of ~7x (well below PPL's 2015e trading multiple of ~15x). On the gas processing front, PPL has secured ~$720 mln of liquids-rich gas processing opportunities. Elsewhere, for midstream opportunities, PPL has secured ~$880 mln of growth opportunities. Lastly, the company is exploring opportunities to develop a crude oil rail terminal at its recently acquired land in the Alberta Industrial Heartland.

Further dividend growth on the horizon For 2015, we forecast AFFO/sh growth of 11%, reflecting a 2015 AFFO payout ratio of 69% (group avg.: 70%). As such, we call for a 5% dividend increase to $1.76/sh annually for Q4 2014 and a 10% dividend increase to $1.94/sh annually beginning Q4 2015.

Stock Performance Company Profile: Pembina directly or indirectly owns interests in several oil and NGLs pipeline systems and a 50% interest in an ethylene storage facility. Pembina has four lines of business - conventional toll pipelines, oil sands pipelines, gas services and the midstream business. The conventional toll pipelines transport crude oil and NGLs volumes for a toll rate, while the oil sands pipelines earn a rate of return on capital invested.


Pembina Pipeline Corporation

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Title: Premium Brands Holdings Corp. - PBH (T) Cdn$17.32 Price: Cdn$17.32 StockRating: Outperform TargetPrice: Cdn$19.50 Headline: NBF Dividend All-Star

Department Theme Piece Food products

Premium Brands Holdings Corp.

PBH (T) $22.69

Stock Rating: Sector Perform

Target: $20.00



A tasty combo of sustainable dividend and top-line growth

Est. Total Return -6.3%


52-w eek High-Low (Canada) $23.31 - $17.05

Bloomberg/Reuters PBH CN / PBH.TO

Shares Outstanding (basic) (mln) 22.0

Market Capitalization ($mln) $498

(Year-End: Dec) 2011A 2012A 2013E 2014E

Revenues (mln) $788.9 $968.8 $1 078.5 $1 195.7

EBITDA (mln) $54.9 $68.3 $73.7 $88.3

EBITDA Margin 7.0% 7.0% 6.8% 7.4%

FDEPS $0.68 $0.73 $0.74 $1.52

P/E 33.5x 31.1x 30.9x 14.9x

EV/EBITDA* 15.0x 12.1x 11.2x 9.3x

*Based on current EV

Financial Data (Quarter-end 09/28/2013)

Net Debt including debentures (mln) $324

Net Debt excluding debentures (mln) $202

Net Debt including debentures / Equity 1.5x

Net Debt excluding debentures / Equity 1.0x

P/FCF (LTM) 10.6x

Dividend per share $1.25

Dividend yield 5.5%


Growing specialized food manufacturer and distributorThrough acquisitions, Premium Brands has built a diversified portfolio of recognized premium quality brands in specialized niche markets via two divisions: Retail and Foodservice. Its niche product offering provides attractive margins and partially shields it from larger competitors. In our opinion, the company provides an attractive combination of growth, both organic and acquisition-driven, and a sustainable high dividend yield.

5.5% yield supported by free cash flow In March 2013, PBH increased its dividend 6.3% to $1.25/share (5.5% yield) following the acquisition of Freybe Gourmet Foods as it was expected to reduce the payout ratio below PBH’s 50% target. The LTM dividend payout ratio is now 55% and we expect it to decline to ~50% in 2014 on the back of higher free cash flow. With senior funded debt to EBITDA of 2.0x (vs. management’s comfort level of 2.5-3.0x), there is no major squeeze preventing dividend payments or growth initiatives.

Attractive growth track record and outlook Besides acquisitions, Premium Brands is strengthening its national Canadian platform and smaller U.S. base through targeted investments at existing and new facilities. These investments will be an integral part of supporting future growth. Management continues to target organic growth of 6-8% in the Foodservice and Retail segments which it has successfully reached and even occasionally exceeded in the past. We believe that these objectives are achievable although Retail’s might temporarily come under the target in Q4/13 due to restructuring initiatives related to a transition of deli meat production. Thereafter, PBH should reap the benefits in 2014.

Sometimes you have to pay for quality… PBH isn’t cheap at current levels, but remains a solid choice for investors seeking a solid combination of growth and dividend.

Stock Performance Company Profile: Headquartered in British Columbia, Premium Brands is a vertically integrated manufacturer and distributor of a broad range of specialty food products to the retail and foodservice channels. With a portfolio of leading brand names and a strong proprietary distribution network, Premium Brands has the leading position in Western Canada with an increasing presence in Eastern Canada and in the West Coast of the United States.

Leon Aghazarian, M.Sc. – (514) 879-2574 [email protected] Associate: Frederic Tremblay, M.Sc., CFA – (514) 412-0021 [email protected]

Source: www.bigcharts.com

Title: Bank of Montreal - BMO (T) Cdn$59.12 Price: Cdn$59.12 StockRating: Sector Perform TargetPrice: Cdn$64.00 Headline: Title

Department Theme Piece Banking

Royal Bank of Canada

RY (T) Cdn$73.18 Stock Rating: Outperform

Target: Cdn$75.00



Superior Operating Performance Differentiates RY


HIGHLIGHTSStock Data:

52-week Low-High $58.55 - $73.35

Shares Outstanding EOP (mln) 1,441

Market Capitalization ($mln)

S&P/TSX Composite Weighting 6.18%

(Year-End 10/31) 2013A 2014E 2015E 2016E

Core Cash EPS $5.61 $5.98 $6.47 $6.91

% Growth 11.9% 6.7% 8.2% 6.8%Net Inc. to Common EPS $5.55 $5.88 $6.36 $6.80

% Growth 12.6% 5.9% 8.2% 6.9%

Dividend / Share $2.53 $2.80 $3.00 $3.15

F/D Avg. Shares 1,467 1,450 1,429 1,409


Core Cash Net Income $8,106 $8,576 $9,151 $9,646

NI to Cont. Ops. $8,331 $8,690 $9,233 $9,728

Canadian Banking 4,414 4,645 4,897 5,108

U.S. & Carib. Banking 20 33 67 85

Inv. & Tres. Services 342 412 464 505

Wealth Management 899 1,015 1,092 1,171

Insurance 597 710 727 750

Capital Markets 1,710 1,843 1,909 2,006

Corporate and Other 349 33 77 103

Financial Data: (As of last quarter-end)

Price / Book Value 2.4x


Quarterly Dividend Per Share $0.67

Dividend Yield 3.7%

$105,506


RY has a dividend yield of 3.7% while retaining substantial capital flexibility. The bank most recently reported a Common Equity Tier 1 ratio (CET1) of 9.6% - well above the 7.0% OSFI minimum (and the domestic systemically important bank guideline of 8% by 2016). RY’s capital flexibility suggests to us that the bank will return capital generously to shareholders in the form of dividend increases and common share repurchases.

We expect that RY will next raise its quarterly dividend to $0.70/share from $0.67/share in Q2 f2014 (to be announced in the Q1 f2014 earnings release). We expect another dividend increase of $0.03/share in Q4 f2014 and raises of $0.02/share every other quarter thereafter. In Q1 f2014, we expect RY to report a quarterly common share payout ratio of 46%. Notably, the bank’s reported common share dividend payout ratio will fall to the bottom of the bank’s targeted range (40%-50%) if RY does not continue to raise its quarterly dividend by approximately 5% every other quarter.

Canadian Banking is a manageable risk. While RY’s greatest risk remains the bank’s over-reliance on Canadian Banking, RY’s outperformance in this segment has eased our concerns in the near term. Simply put, we think RY’s distribution strategy – focused disproportionately on proprietary channels – will enable the bank to sustain higher loan growth and lower credit costs than peers.

RBC Capital Markets continues to build its U.S. platform impressively. U.S. revenues rose 11% y/y and 34% q/q in Q4 f2013. Moreover, RBC Capital Markets’ U.S. businesses now account for 55% of this segment’s revenue. This gives the bank an attractive gearing to a potential strengthening of the U.S. economic recovery.

RY poised to accelerate share repurchases. After avoiding any share repurchases in Q4 f2013 under its normal course issuer bid (NCIB). We expect RY will repurchase 22 million shares in both f2014 and f2015 (approximately 3% of outstanding shares).

We rate RY Outperform, with a price target of $75.00. This is 11.6x our estimated NTM EPS one year from today, a 5% premium to peers.

Stock Performance Company Profile: Royal Bank is the largest Canadian bank in terms of assets. It operates along five business lines. Personal & Commercial Banking represents P&C banking operations in Canada, the Caribbean and the U.S. The Insurance segment encompasses RY’s global insurance activities. The Wealth Management segment includes full-service & discount brokerage, high-net worth advisory, and investment management businesses on a global scale. The Capital Markets segment includes corporate and investment banking and trading activities. Investor & Treasury Services is comprised of RBC Investor Services, Global Financial Institutions and Treasury Services.

Peter Routledge - (416) 869-7442 [email protected]

Associate: Parham Fini - (416) 869-6515 [email protected]

Title: Groupe Aeroplan Inc. - AER (T) Cdn$10.42 Price: Cdn$10.42 StockRating: Outperform TargetPrice: Cdn$13.50 Headline: Q2 EBITDA Ex-Items Beats, NCIB Expands, Air Canada Issues

Department Theme Piece Media

Sirius XM Canada Holdings Inc.

XSR (T) Cdn$9.18 Stock Rating: Outperform

Target: Cdn$11.50



Growth Tailwinds Continue, Rising FCF Bodes Well For Ongoing Dividend Expansion




52-week High-Low (U.S.) NA

Bloomberg/Reuters: Canada XSR CN / XSR-T

Bloomberg/Reuters: U.S. NA

(FYE Aug. 31) 2013a 2014e 2015e

Revenue (mln) $288.9 $318.5 $346.7

Adj. EBITDA (mln) $68.7 $78.7 $90.7

FD EPS ex-items $0.08 $0.19 $0.31

P/E nm nm 29.6x


Free Cash (mln) $49.6 $61.3 $75.1

FCF per share $0.40 $0.49 $0.60

Dividend $0.00 $0.42 $0.42

Dividend / FCF nm 85.2% 69.5%

* All figures on a pro forma basis.

Financial Data (as at November 30, 2013):


Float (mln) 17.6

Market Capitalization (mln) $1 140.7

Net Debt $80.9

Shareholders' Equity (mln) NMF

Net Debt/Capital NMF

BVPS / Price/Book NMF/NMF

Dividend / Yield $0.42/4.6%

Industry Rating: (Media): Market Weight (NBF Economics & Strategy Group)

Strong car sales & ARPU gains create growth tailwinds. After setting a new record in 2013, Canadian auto sales are expected to remain robust over the coming years. Meanwhile, the company continues to pursue initiatives aimed at driving ARPU higher which include a price increase on its basic monthly service (effective Oct. 1, 2012), ‘Best of’ programming ($4/month) as well as enhanced Internet radio and mobile listening apps also for an incremental $4/month.

After-market poised to become a key piece of XSR story. While leveraging pricing initiatives and steadily increasing its OEM penetration beyond a current level of 58% (U.S. at 70%), management has made it a priority, starting in f2013, to establish itself in the pre-owned vehicle market, especially as the number of satellite-equipped cars in Canada is expected to rise to 10 million in f2018 from four million in f2013. We look for traction in this effort to be achieved over coming years, with our estimates calling for 40,000 self-paying subscriber additions from this channel in f2015 and 80,000 in f2016.

Balance sheet getting progressively stronger. We see leverage contracting to 1.08x in f2014 and to 0.68x in f2015 from 1.15 currently. We’d note that the 9.75% Notes due in 2018 are likely to be called & refinanced after June 21.

FCF growth bodes well for ongoing dividend growth. Given the combination of growing EBITDA, low capex, the expectation of lower interest costs post-f2014, no cash taxes for several years, a lack of obvious M&A opportunities and a limited share float, we believe that dividend hikes will be the Board’s preferred option for returning capital to shareholders.

Sirius XM Canada is rated Outperform, $11.50 target. Our target, based on our f2015E DCF, implies EV/EBITDA multiples of 19.2x f2014E and 16.4x f2015E.

Stock Performance (source: Thomson Reuters) Company Profile:

Sirius XM Canada Holdings Inc. (formerly Canadian Satellite Radio Holdings Inc.) commenced operations, as one of two subscription-based satellite radio operators in Canada, on Nov. 22, 2005 and completed its initial public offering on Dec. 12, 2005. On Nov. 24, 2010, CSR entered into an agreement to combine its operations with SIRIUS Canada. The merger was completed, following regulatory approvals, on June 21, 2011. On Jan. 3, 2014, U.S.-parent SiriusXM received a low-ball bid of US$3.68/sh from Liberty Media which controls approximately 52% of SIRI.

Adam Shine, CFA - 514-879-2302 [email protected] Associates: Piotr (Peter) Stusio, CFA – 514-879-2564 [email protected] Kevin Krishnaratne, CFA – 416-869-6585 [email protected]

Title: Teck Resources Ltd. - TCK.B-T/TCK-US $25.60/US$24.89 Price: StockRating: Under Perform TargetPrice: $35.00 Headline: Not Ready to Get Excited About 3.5% Yield; Maintaining Sector

Department Theme Piece Metals & Mining

Teck Resources Ltd.

TCK.B-T/TCK-N $27.44/US$24.75 Stock Rating: Sector Perform

(Unchanged)

Target: $31.00 (Unchanged)



Teck Holds to ‘Stay-the-Course’ Strategy

(Unchanged)

Est. Total Return (incl. D/Y) 16%


52-week range (Cdn$) $ 21.11 - $ 38.13

Current Price (Cdn$) $27.44

Dividend $0.90

Dividend Yield 3.28%

Bloomberg/Reuters: Canada TCK/B CN / TCK'B.TO

(Yr-End Dec. 31) 2012a 2013e 2014e

EPS, C$ $2.60 $1.90 $1.80

P/E - 14.4x 15.2x

CFPS, C$ $5.44 $4.65 $4.70

P/CF - 5.9x 5.8x

EBITDA (C$ Mln) $2,819 $3,228 $3,266

EV/EBITDA - 6.3x 6.2x

Production (as reported)

Coal, mln tonnes 24.7 25.0 26.0

Cu, tonnes 000's 373 362 420

Zn, tonnes 000's 598 590 616

Financial Data:


Market Capitalization (Cdn$ mln) $15,918

Fully Diluted (mln) 588.9

Book Value per Share (Cdn$) $32.42


Net Asset Value per Share (Cdn$) $37.00

Price/NAV 0.7x

LT Debt (C$ mln) $7,742

Total Cash (C$ mln) $1,738

Source: NBF Estimates / Company Reports


Regular dividend increases and share buybacks distinguish Teck as an attractive income investment in the Metals & Mining sector. The current semi-annual dividend of $0.45 per share ($0.90 annually) implies a 3.3% dividend yield. Teck is also engaged in an NCIB to purchase up to 20 million Class B shares up to June 27, 2014 (following the completion of a similar buyback program, whereby the company repurchased 10 million shares prior to June 2013).

Dividend backed by well-diversified operating base. Teck is the largest diversified mining company in Canada, with interests in a suite of six operating coal mines in BC and Alberta, accounting for 46% of our NAV. Teck is also amongst the world’s largest zinc producers - primarily from its Red Dog mine in Alaska. Teck's copper division includes interests in Highland Valley Copper in BC, Antamina in Peru, Quebrada Blanca in Chile, Carmen de Andacollo in Chile and Duck Pond in Newfoundland.

Disciplined capital allocation facilitates NCIB and stable dividend. In the context of current commodity markets, Teck has deferred the Quintette coal expansion until met coal markets improve and has also delayed initial production from QB2 until 2019. An ongoing cost reduction program (initiated in 2013) has identified over $250 mln of annual cost savings. The combination of these initiatives further solidifies Teck’s financial strength in the near term, which includes $3.9 bln in available liquidity and only ~$300 mln of debt repayments schedule from 2014-2016.

Sector Perform with a $31.00 target. Our Sector Perform rating balances our cautious outlook for met coal markets with Teck’s solid operating base and focus on returning capital to shareholders. Our $31.00 target price is derived using a multiple of 7.0x EV/2014E CF (50%) + 1.0x NAV (50%).

Stock Performance Company Profile: Teck Resources (Teck) is the largest diversified mining company in Canada, with assets located Canada, United States, Chile and Peru. Teck is the world’s second largest exporter of seaborne hard coking coal (HCC), the world’s second larger producer of zinc and the company's copper division is set to increase production beyond 800,000 tpa of copper through the addition of QB2 and Relincho. Shane Nagle, CFA - (416) 869-7936 [email protected]

Source: Thomson

Title: Bonterra Energy Corp. - BNE (T) Cdn$47.26 Price: Cdn$47.26 StockRating: Outperform TargetPrice: Cdn$55.00 Headline: NBF Dividend All-Star

Department Theme Piece Oil & Gas Exploration & Production

TORC Oil & Gas Ltd.

TOG (T) Cdn$10.44


Target: Cdn$12.50



Sustainable Model Supported by Organic Growth


HIGHLIGHTS Stock Data - Q4e 2013:

52-week High-Low (Cdn$) $12.05 - $10.44


Yield (%) 5.2%


Market Cap. (mln) $952.2



Oil & NGL's (bbls/d) 4,785 8,585 9,180

Nat. Gas (mcf/d) 6,811 9,090 9,720

Boe/d (6:1) 5,920 10,100 10,800

% Nat. Gas 19% 15% 15%

Pricing* 2013e 2014e 2015e

WTI (US$/bbl) $98.00 $96.25 $88.75

AECO (Cdn$/mcf) $3.20 $3.75 $3.75

Corp. Oil & NGL's ($/bbl) $87.39 $89.23 $85.84

Corp. Nat. Gas ($/mcf) $3.35 $3.96 $3.96

Corp. Wellhead ($/boe) $74.49 $79.41 $76.53

* Strip pricing 13/14 (as at 12/31/2013)Estimates 2013e 2014e 2015e

Cash Flow (mln) $86.5 $171.3 $177.5

CFPS - diluted $1.45 $1.85 $1.89

CF Netback ($/boe) $43.44 $46.47 $45.02

Capex (mln) $645.6 $125.0 $133.8

Net Debt (mln) $149.9 $141.1 $135.3


P/CF 6.3 x 5.6 x 5.5 x

EV/DACF 12.1 x 6.1 x 6.0 x

Net Debt / CF 1.7 x 0.8 x 0.8 x

EV/BOE/D $73,724 $106,861 $101,039

P/NAVPS 1.2x

EV/boe P+P $27.35

Source: Company Reports, NBF Estimates

Note: 2012e Capex excludes dispositions

*Reflects TORC financials


Stable Development-Stage Assets Underpin Model In 2014, 75% of the spending will be directed toward SE AB (20%) and the Cardium (55%). Both assets are in development stage, with SE AB already spinning off ~$75 mln in annual free cash flow (vs. pre-DRIP dividend of $50 mln) and the Cardium assets trending closer to the self-funding stage with massive inventory still remaining at both projects (SE AB >8 years & Cardium >15 years).

Exploration Activity to Drive Improved Sustainability There are three projects that are in progress that speak directly to this condition: 1) Monarch Development (awaiting completion mid-January), 2) Monarch Exploration (flowing back), and 3) Three Forks Exploration (flowing back). Each of these projects is relatively heavily risked in the company's 2014 program (0% - 60% C.O.S.), and as a result, positive success will represent incremental production and improved sustainability to budgeted numbers.

Conservative Guidance TOG has set a $125 mln capital budget for 2014, to provide for the drilling of 46 (34.9 net) wells across its asset base - this budget is 77% directed towards drilling and completions. The budget is expected to result in average production of 10,100 boe/d (85% liquids), including 7% Y/Y growth to exit at 10,450 boe/d (from current guided exit of 9,800 boe/d).

Outperform Rating and $12.50 Target We continue to believe that the company is delivering a very sustainable Growth & Yield model, which stands as very competitive versus the peers and should continue to support share price expansion in the medium term. TOG currently trades at 6.1x 2014 EV/DACF and offers a total return >10% (production per-share growth + yield) with a total payout (net of DRIP) of 95%, which stands positively vs. the junior yield peers at 6.2x, 8% and 104%, respectively.

Stock Performance (source: Bloomberg) Company Profile: Initially created through the combination of VRO Energy (VRO-T) and TORC Oil & Gas (Private), the company transitioned to a yield model pursuant the acquisition of 5,700 boe/d of high netback low decline light oil assets in SE Sask. The pro-forma entity has a production base of ~9,800 boe/d. Other assets include 90 net sections in the Cardium play and at least 150 net sections in the emerging Alberta Bakken petroleum system at Monarch. The company is led by Brett Herman (President & CEO), formerly of StarPoint Energy, TriStar Oil & Gas and Result Energy. Dan Payne, CFA - (403) 290-5441 [email protected]

Associate: Allan Dixon - (403) 441-0952 [email protected]

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Title: Groupe Aeroplan Inc. - AER (T) Cdn$10.42 Price: Cdn$10.42 StockRating: Outperform TargetPrice: Cdn$13.50 Headline: Q2 EBITDA Ex-Items Beats, NCIB Expands, Air Canada Issues

Department Theme Piece Media

Transcontinental Inc.

TCL.A (T) Cdn$14.28 Stock Rating: Sector Perform

Target: Cdn$16.50



Declining Leverage & Robust FCF Profile Point To Renewed Annual Dividend Growth




52-week High-Low (U.S.) NA

Bloomberg/Reuters: Canada XSR CN / XSR-T

Bloomberg/Reuters: U.S. NA

(FYE Aug. 31) 2013a 2014e 2015e

Revenue (mln) $2 094.7 $2 095.0 $2 069.8

EBITDA (mln) $341.8 $351.8 $356.0

FD EPS ex-items $1.91 $1.97 $2.05

P/E 7.5x 7.2x 7.0x


Free Cash (mln)* $143.4 $178.7 $193.3

FCF per share $1.84 $2.29 $2.48

Dividend $0.58 $0.63 $0.69

Dividend / FCF 31.5% 27.3% 27.6%

* 2013a FCF is ex-US$200MM payment from Hearst.

Financial Data (as at October 31, 2013):


Float (mln) 71.8

Market Capitalization (mln) $1 066.5

Net Debt $316.9

Shareholders' Equity (mln) $815.0

Net Debt/Capital 28.0%

BVPS / Price/Book $9.21 / 1.6x

Dividend / Yield $0.58/4.1%

Industry Rating: (Media): Market Weight (NBF Economics & Strategy Group)

Canada’s largest printer with significant Media presence. Transcontinental is Canada’s largest printer and the third largest in North America. Its second segment is Media (consumer magazines, French-language educational books, community newspapers in Quebec and the Atlantic provinces, door-to-door flyer distribution) which includes Interactive (marketing solutions). The revenue split between Printing and Media is roughly 68% and 32%, respectively.

Strong FCF profile after years of elevated investments. Between f2008 and f2009, the company invested over $0.5 billion in its printing platform to satisfy new or expanded mandates, gain share and establish a national retail flyer platform. Since then spending on capex (incl. intangibles) has declined to around $70 million per year. Meanwhile, management continues to pursue efficiencies across the organization, with the final phase of its Quad integration expected to yield incremental savings of about $5 million, on top of the $40 million already achieved since March 2012.

Dividend growth to resume after special f2013 payment. At Q4/13, net debt to EBITDA stood at 0.9x, below the company’s target range of 1.0x to 2.0x. In the absence of material M&A, we forecast leverage to decrease to 0.7x in f2014 and to 0.3x in f2015. Notwithstanding the investments that the company is pursuing in Media, its balance sheet is very strong and FCF robust, such that annual dividend growth should resume with Q1/14 reporting in March, following the payment of a special dividend of a $1/share last year.

Transcontinental is rated Sector Perform, $16.50 target. Our target, based on our NAV, implies EV/EBITDA of 4.5x PF2014E and 4.2x f2015E. The company’s forward multiple averaged 4.5x over the past six years. Since we downgraded the stock on Dec. 2, 2013, its price has dropped over 15%.

Stock Performance (source: Thomson Reuters) Company Profile:

Transcontinental is one of North America’s ten largest commercial printers with operations in Canada and the U.S. The company is Canada’s second-largest publisher of magazines and weekly newspapers and leader in door-to-door flyer distribution.

Rémi Marcoux, founder and chairman, controls 16.3% equity and 69.7% votes.

Adam Shine, CFA - 514-879-2302 [email protected] Associates: Piotr (Peter) Stusio, CFA – 514-879-2564 [email protected] Kevin Krishnaratne, CFA – 416-869-6585 [email protected]

Title: Vermilion Energy Inc. - VET (T) Cdn$51.10 Price: Cdn$51.10 StockRating: Outperform TargetPrice: Cdn$53.00 Headline: NBF Dividend All-Star


Vermilion Energy Inc.

VET (T) Cdn$63.20


Target: Cdn$68.00



International Diversification And Operational Excellence Drives Dividend Growth



52-week High-Low (Cdn$) $45.78 - $63.80

Dividend Yield 4.1%





Production 2012a 2013e 2014e

Oil & NGL's (bbls/d) 25,270 27,868 29,402

Nat. Gas (mmcf/d) 75.2 79.4 96.6

Boe/d (6:1) 37,803 41,100 45,500

% Nat. Gas 33% 32% 35%

Pricing* 2012a 2013e 2014e

WTI (US$/bbl) $94.10 $98.00 $96.25

Brent (US$/bbl) $111.90 $111.98 $116.46

AECO (Cdn$/mcf) $2.38 $3.20 $3.75

Estimates 2012a 2013e 2014e

CFPS $5.62 $6.53 $7.33

EPS $1.92 $3.17 $4.18

DPS $2.28 $2.40 $2.58

Cash Flow (mln) $557.7 $668.0 $764.3

Capex (mln) $452.5 $530.0 $555.0

Net Debt (mln) $677.2 $747.1 $912.8

D/CF 1.2 x 1.1 x 1.2 x

Basic Payout (%) 40% 36% 35%

Total Payout (%) 121% 116% 107%


NAV ($/sh) $41.72

CNAV ($/sh) $52.92

Valuation 2012a 2013e 2014e

EV/DACF 8.8 x 8.8 x 9.3 x

EV/BOE/D $136,103 $150,906 $166,583

EV/boe P+P $35.94

P/CNAVPS 1.2x




Diversified Asset Base With Leverage to Global Oil Prices Vermilion is an Intermediate Yield E&P company with a globally diversified asset base including properties in France, Netherlands, Ireland, Australia, Canada and a newly acquired core area in Germany. The company’s globally diversified portfolio provides premium pricing and top-quartile netbacks since over ~80% of its production receives Brent oil-linked pricing, including its European gas production.

Targeting Production Growth to 50,000 boe/d by 2015 Vermilion has several internal growth opportunities which are expected to increase production to ~50,000 boe/d by 2015 from ~41,500 boe/d in Q3/14. The main growth assets include the West Pembina Cardium light oil play in Alberta, Netherlands gas and the Corrib offshore gas project in Ireland, which is scheduled for start-up mid-2015, adding ~9,700 boe/d to Vermilion’s production base.

Recent Dividend Increase Reflects Strength of Business Vermilion has never reduced its dividend, and, in fact, recently increased its monthly dividend by 7.5% to $0.215/shr (from $0.20/shr), which we believe is a reflection of its strong financial position and management’s confidence in its future growth prospects.

Outperform Rating with a $68.00 Target We currently rate Vermilion as Outperform and have a 12-month target price of $68.00 which is based on a 2014 EV/DACF multiple of 10x.

Stock Performance Company Profile: Vermilion Energy is an internationally diversified and oil-weighted Intermediate Yield E&P pursuing a growth and income business model. The company has a globally diversified portfolio of assets located in France, Netherlands, Ireland, Australia and Canada. Approximately 65% of current production is sourced outside of Canada, which provides the company with diversification across geographic areas, regulatory regimes and commodity price benchmarks.

Kyle Preston, CFA, CMA - (403) 290-5102 [email protected] Associates: Amy Chang, CFA - (403) 290-5627 [email protected] Marc D. Corbeil, CFA - (403) 441-0955 [email protected]

Source: Bloomberg

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Title: Vicwest Inc. - VIC (T) $11.03 Price: $11.03 StockRating: Outperform TargetPrice: $13.50 Headline: Transient Events Spoil Q1, are Apt to Temper Early Q2, but

Department Theme Piece Construction and Containers

Vicwest Inc.

VIC (T) $11.09 Stock Rating: Outperform

(Unchanged)

Target: $14.00 (Unchanged)



Leading Steel Fabricator With Top Brands in Both Building & Storage Solutions

(Unchanged)


HIGHLIGHTS 52-w eek High-Low $14.15 - $11.03Shares Outstanding (mln) 17.6 Market Capitalization (mln) $195Net Debt (mln) $88Enterprise Value (mln) $284

Year End: Dec. 31 2013E 2014E 2015E

Sales (mln) $401.3 $451.3 $480.2

Gross margin % 16.7% 19.9% 20.4%

EBITDA adj. (mln) $21.6 $42.9 $49.7

Diluted EPS adj. $0.16 $0.96 $1.25P/E 67.5x 11.5x 8.9xEV/EBITDA 13.1x 6.6x 5.7x

Financial Data: As at September 30, 2013

Cash (mln) $8.7Total Debt (mln) $97.2

Current Ratio 1.8x


Net Debt to TTM EBITDA (adj) 4.1x

Dividend $0.60

Dividend Yield 5.4%

All amounts in Canadian dollars


Leading Canadian brands in both BP and Westeel divisions. Vicwest was founded more than 100 years ago and has developed strong domestic market positions. Westeel bins, for example, command an approximate 60% share of the Canadian steel ag storage market. The Company specializes in large-scale corrugated steel bins.

Robust international growth prospects for Westeel.

Westeel is one of the world's leading ag storage bin manufacturers. The Company specializes in larger diameter bins (100' plus) that are in high demand in emerging markets, Eastern Europe and the Black Sea region where infrastructure projects are generally of a larger scale (i.e., corporate farming and commercial opportunities). Management estimates annual sales of the global steel ag storage market to be $3 billion.

Balance sheet metrics suggest Vicwest is on sound

financial footing. Vicwest exited Q3/F13 with net debt to TTM EBITDA (adj.) ratio of 4.1x, slightly high, but arguably on trough-like EBITDA. Also we note the short-term liquidity position is healthy, with the current ratio sitting at 1.8x. Overall, a net debt to capitalization ratio of ~28% reveals a largely unlevered capital structure and gives us confidence that the financial risk of the Company is relatively benign.

DCF-based target remains $14.00; still OP rated. We note

the implied 5.7x F15E EV/EBITDA of our target is consistent with the upper end of the recent historic trading range, which we submit is warranted given near-term agri tailwinds in N.A. grain infrastructure demand plus prospects of a continued U.S. economic recovery.

Stock Performance (Source: Thomson ONE) Company Profile: Vicwest Inc. (“Vicwest”) is a Canadian steel fabricator and distributor with two divisions: 1) Building Products (BP), a top Canadian supplier of roofing/siding/paneling products in the industrial/commercial/institutional sectors; and 2) Westeel Storage Solutions, a leading OEM of containment products for the agri/mining/forestry/petroleum industries. Robert B. Winslow, CFA - (416) 869-7937 [email protected] Andrew Jacklin – (416) 869-7571 [email protected]

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Title: WesternOne Inc. - WEQ (T) Cdn$7.66 Price: Cdn$7.66 StockRating: Outperform TargetPrice: Cdn$9.00 Headline: Attractive Source of Growth & Income

Department Theme Piece Infrastructure

WesternOne Inc.

WEQ (T) Cdn$7.66 Stock Rating: Outperform

Target: Cdn$9.00



One Of The Best Combinations Of Yield & Payout Amongst TSX Diversifieds



Cash Yield 7.8%


52-week High-Low $9.05-$7.00

Bloomberg/Reuters: WEQ CN / WEQ.TO

Forecasts:FYE Dec. 31 2012a 2013e 2014e

Revenue (mln) $217.8 $378.2 $421.7

EBITDA (mln) $47.3 $50.4 $57.3

DCPS $1.48 $1.22 $1.24

Dividend $0.60 $0.60 $0.60

Payout Ratio 40% 49% 49%

DC Yield 19.4% 15.9% 16.1%


P/DCPS 5.2x 6.3x 6.2x

Financial Data:


Market Capitalization (mln) $237.0


Enterprise Value (mln) $381.0


Net Debt to 2014e EBITDA 2.5x


Both portfolios positioned to outperform WEQ has two portfolios, each contributing roughly 50% of EBITDA: 1) WesternOne Infrastructure Services (WIS), which provides equipment rentals, sales and services, with a focus on aerial fleets and construction heat/propane distribution; and 2) Britco, which provides modular housing construction, leasing and services to a variety of customers located in Western Canada, the United States and Australia.

2013 headwinds largely behind the company Weighing on LTM performance was: 1) the unfortunate passing of CEO and founder Darren Latoski; 2) disappointing H2 margins from Britco on account of production scheduling (lower margin prep work / special structures ahead of higher margin dorms for the large Manitoba Hydro & Devon contracts); and 3) Australia underperforming owing to its generally depressed resource sectors. We argue the market has largely digested these issues, and that 2014 will be a rebound year after a disappointing 2013 due to: 1) margins normalizing at Britco Canada, as batch dorm production commences; 2) the Australia portfolio showing its EBITDA losses have reached an inflection point, and that profitability can be reached by YE; 3) upside from meaningful capex spends at WIS; 4) continued favourable activity levels for both WIS and Britco; and 5) the announcement of a CEO (anticipated H1/14).

Elevated yield easily supported by balance sheet & payout Following its recent ~$50 mln equity raise WEQ is leveraged ~2.5x net debt to forward EBITDA, but after adjusting for in-the-money convertible debentures this metric falls to a very conservative ~1.2x (TSX diversified income equity average ~2.6x). We forecast a 49% 2014e payout, compelling relative to its 7.8% yield and the company’s above average growth profile.

Stock Performance (Source: Reuters) Company Profile: WesternOne Inc. is a consolidation of equipment rental, sales fuel distribution and modular building companies established to capitalize on the western Canadian infrastructure, construction and production equipment markets, this mandate having expanded to the United States & Australia.

Trevor Johnson, CFA, MBA - (416) 869-8511 [email protected] Associates: Keegan McCormick - (416) 507-8108 [email protected] Endri Leno - (416) 869-8047 [email protected]

Title: Whitecap Resources Inc. - WCP (T) $9.38 Price: $9.38 StockRating: Outperform TargetPrice: $12.50 Headline: Stands out from its energy peers across a number of

Department Theme Piece Oil & Gas Production and Exploration

Whitecap Resources Inc. WCP (T) $12.20 Stock Rating: Outperform

Target: $15.50



Stands out as one of the most sustainable energy yield models


HIGHLIGHTS Stock Data Q1 2014e

52-week High-Low (Cdn$) $8.55 - $12.94


Current Dividend Yield 5.6%

Net Debt (mln) $473

Market Cap. (mln) $2,435

Enterprise Value (mln) $2,907


Oil & NGL's (bbls/d) 13,641 19,880 21,240

Nat. Gas (mcf/d) 36,770 48,720 49,560

Boe/d (6:1) 19,769 28,000 29,500

% Nat. Gas 31% 29% 28%


WTI (US$/bbl) $98.01 $96.25 $88.75

AECO (Cdn$/mcf) $3.18 $3.75 $3.75

Corp. Oil & NGL's ($/bbl) $84.69 $87.18 $83.89

Corp. Nat. Gas ($/mcf) $3.35 $3.94 $3.95

Corp. Wellhead ($/boe) $64.66 $68.76 $67.04

* Strip pricing 14/15 (as at 12/31/2013)Estimates 2013e 2014e 2015e

Cash Flow (mln) $281.8 $403.1 $427.9

CFPS - diluted $1.83 $1.99 $2.11

CF Netback ($/boe) $39.00 $39.44 $39.74

Capex (mln) $654.4 $582.4 $260.0

Net Debt (mln) $407.3 $391.6 $359.5


P/CF 5.9 x 6.1 x 5.8 x

EV/DACF 6.9 x 6.8 x 6.4 x

Net Debt / CF 1.4 x 1.0 x 0.8 x

EV/BOE/D $103,063 $102,541 $96,239

P/NAVPS 1.3x

EV/boe P+P $19.85

Source: Company Reports, NBF Estimates

Industry Rating (Oil & Gas Exploration and Production): Overweight (NBF Economics & Strategy Group)

2013 results. Annual production averaged 19,769 boe/d (69% liquids), in line with NBF and consensus. NBF estimates 2013 cash flow of ~$280 mln ($1.83/sh). Operating netbacks were ~$42.50/boe with cash flow netbacks of ~$39/boe. PPS growth in 2013 was 7%, with cash flow per share growth estimated at 9%. Organic growth was driven by a $190 mln program that saw WCP drill 100 gross wells and a number of tuck-in acquisitions (1 corporate & 4 asset deals). During 2013 the company expanded its Deep Basin acreage prospective for Dunvegan oil.

Kicking off 2014 with an active & diversified program. Production is expected to average 27,900 boe/d (70% liquids) with cash flow netbacks of $39/boe. WCP has set a $255 mln capital program to drill 165 gross wells; ~45% of the budget will be allocated to the Viking and ~40% to the Cardium. WCP will employ up to nine rigs in Q1 with spending of $125 mln (45-50% of annual spending) drilling ~80 wells (~20 Cardium, ~50 Viking, 4 Dunvegan, ongoing waterflood optimization & vertical delineation at Valhalla). The front-end weighted program is similar to 2013 and ensures momentum into break-up (~15% spending in Q2) with activity pick-up again in Q3 (20-25%).

WCP screens better than its intermediate peers on sustainability metrics. WCP continues to build on the sustainability of the yield growth model. Despite having an ~8% growth rate in 2014, 2.5x greater than peers, WCP is still able to have on the lowest total payouts in its peer group at 98% (vs. peers at 124%) with a yield in line with group average at 5.6%. WCP has successfully transitioned from the junior to the larger cap yield peer group over the last year.

Maintaining our Action List Outperform rating and $15.50 target. WCP continues to be our highest conviction pick within the intermediate-yield space with a discount valuation and peer-leading sustainable metrics.

Stock Performance (source: Bloomberg) Company Profile: Whitecap Resources entered the market through a reverse takeover of Spitfire Energy in June 2010. The company has a diversified asset base with three light oil core areas including the Montney at Valhalla, the Cardium through West Central Alberta and the Viking in Saskatchewan. Through a combination of a focused drilling program and accretive acquisitions the company has transitioned into the intermediate peer group. Whitecap provides investors exposure to a deep development oil inventory, focused growth strategy and is led by a proven management team.

Matthew Taylor, CFA – (403) 290-5625 [email protected]

Associate: Brent Legate, P.Eng. (403) 290-5445 [email protected]

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Title: WPT Industrial REIT - WIR.U (TSX) US$8.50 Price: US$8.50 StockRating: Outperform TargetPrice: US$9.00 Headline: Post IPO Sell-Off Creates Opportunity


WPT Industrial REIT

WIR.U (TSX) US$8.50 Stock Rating: Outperform

Target: US$9.50



Elevated Yield Fails to Reflect Portfolio Quality, Stability & Growth


HIGHLIGHTS Stock Data

Cash Yield 8.3%


52-week High-Low US$10.27-$7.45

Bloomberg/Reuters: WIR/U.CN / WIRu.TO

Forecasts (US$):

FYE Dec 31 2013e* 2014e

Revenue $34.0 $55.6

EBITDA $22.6 $37.1

FFO/Unit $0.67 $1.01

AFFO/Unit $0.50 $0.78

Distribution $0.48 $0.70

FFO Payout 71.7% 69.1%

AFFO Payout 95.4% 90.1%

EV/EBITDA 15.4x 9.8x

P/FFO 12.7x 8.3x

P/AFFO 16.8x 10.8x

* April 2013 IPO onward

Financial Data (US$):

Public Units Outstanding (mln) 10.8

Public Market Capitalization (mln) $90.5

Class B Units Outstanding (mln) 13.1


Net Debt to GBV 52%

NAV per unit (7.0% cap rate) $10.04


Dedicated U.S. industrial portfolio: WPT Industrial REIT owns 36 distribution facilities / warehouses and two office properties totaling ~9.9 million square feet of gross leasable area. The portfolio’s average age is 12 years and located in key U.S. distribution markets across 12 states, including Indiana (17% of appraised value), Minnesota (17%), Georgia (16%), Ohio (13%) and Kansas (11%).

Warehouse/distribution tenants attractive counterparties: Characterized by high occupancy (96.3%+ portfolio occupancy), long-term tenancy (avg. lease to maturity >5.5 years), recurring revs (97% renewal rate since 2006), visible cash flows (~90% occupancy since 2010 & typically triple net leases) and stable, growing rents (+1.5% y/y forecast through 2014e). WPT’s focus on U.S. ecommerce and online retailers is a compelling vertical representing ~33% of the portfolio, with this tenant class projected to continue growing immensely (sales 25%+ CAGR through 2017e).

Internal growth opportunities: 1) rents in key markets are under pre-recession levels (often 15%+); 2) the portfolio contains an est. 500k square feet of vacant land for expansion (+5%); and 3) right of first refusal to acquire additional properties from Welsh, with 1.5+ mln square feet in a position to be added once occupancy stabilizes.

Management aligned: property/asset manager Welsh retained 49% interest, now 55% post NCIB and after helping fund WPT’s initial acq’n. WPT benefits from internal financing as Welsh is in a position to continue contributing equity by increasing its Class B ownership.

Elevated but sustainable yield: we argue market timing, not fundamentals, has been the main contributing factor for WPT’s slow public start. Investors receive a sustainable 8%+ yield in anticipation of unit price reverting back towards IPO levels, underpinned by an attractive tenant base and portfolio, reasonably leveraged balance sheet (~52% D/GBV) and stable and predictable cash flows.

Stock Performance (Reuters) Company Profile: WPT Industrial REIT offers investors USD denominated exposure to industrial warehouses and distribution centres across the U.S. WPT currently owns 36 warehouses / distribution facilities and two office properties located across 12 states.

Trevor Johnson, CFA, MBA - (416) 869-8511 [email protected]

Associates: Keegan McCormick – (416) 507-8108 [email protected] Endri Leno - (416) 869-8047 [email protected]

Christopher O’Neill, MBA - (416) 869-6517 [email protected]

APPENDIX: Target Price, Recommendations and Industry Risk Ratings

Equity TickerTarget Price

Rating Analyst IndustryIndustry Rating

AGF Management AGF.B $15.00 Outperform Khan Diversif ied Financials Market Weight

American Hotel income Properties HOT.UN $13.00 Outperform Johnson Real Estate Market Weight

AltaGas ALA $48.00 Outperform KennyPipelines, Utilities &

Energy InfrastructureUnderw eight

ARC Resources ARX $32.00 Sector Perform PrestonOil & Gas Exploration

and ProductionOverw eight

Artis REIT AX.UN $17.75 Outperform Kornack Real Estate Market Weight

Baytex Energy BTE $51.00 Outperform PrestonOil & Gas Exploration


Cdn Energy Services & Tech. CEU $24.00 Outperform Colman Oil & Gas Services Overw eight

Canyon Services Group FRC $15.00 Outperform Colman Oil & Gas Services Overw eight

Cathedral Energy CET $6.00 Outperform Colman Oil & Gas Services Overw eight

Crescent Point CPG $50.00 Outperform PrestonOil & Gas Exploration


Crombie REIT CRR.UN $16.50 Outperform Kornack Real Estate Market Weight

Enercare ECI $12.00 Outperform Mersereau Consumer Services Overw eight

First National FN $23.00 Sector Perform Khan Diversif ied Financials Market Weight

Gibson Energy GEI $32.00 Outperform KennyPipelines, Utilities &


Great West Life GWO $35.00 Outperform Routledge Insurance Market Weight

HealthLease Properties HLP.UN $12.00 Outperform Kornack Real Estate Market Weight

Innergex Renew able INE $10.75 Outperform MererIndependent Pow er Producers &

Energy Traders Underw eight

Inter Pipeline IPL $31.00 Outperform KennyEnergy Equipment & Services; Oil, Gas & Consumable Fuels

Underw eight

Keyera KEY $73.00 Outperform KennyPipelines, Utilities &


KP Tissue KPT $21.00 Outperform Aghazarian Consumer Staples Underw eight

Milestone Apartments REIT MST.UN $11.60 Outperform Kornack Real Estate Market Weight

MCAN Mortgage MKP $16.00 Outperform Khan Diversif ied Financials Market Weight

Premium Brands PBH $20.00 Sector Perform Aghazarian Food Products Underw eight

Pembina Pipeline PPL $45.00 Outperform KennyEnergy Equipment & Services; Oil, Gas & Consumable Fuels

Underw eight

Royal Bank of Canada RY $75.00 Outperform Routledge Banking Market Weight

Sirius XM Canada XSR $11.50 Outperform Shine Media Market Weight

Teck Resources TCK.B $31.00 Sector Perform Nagle Metals & Mining Market Weight

Temple Hotels TPH $7.00 Outperform Johnson Real Estate Market Weight

TORC Oil & Gas TOG $12.50 Outperform PayneOil & Gas Exploration


Transcontinental TCL.A $16.50 Sector Perform Shine Communications and Media Market Weight

Vermilion Energy VET $68.00 Outperform PrestonOil & Gas Exploration


Vicw est VIC $14.00 Outperform Winslow Construction and Containers Market Weight

WesternOne Equity WEQ $9.00 Outperform Johnson Infrastructure Market Weight

Whitecap Resources WCP $15.50 Outperform TaylorOil & Gas Exploration


WPT Industrial REIT WIR.U US$9.50 Outperform Johnson Real Estate Market WeightSource: Company Reports, NBF

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