thursday march 1, 2018 · pdf filesilver (us$/oz) -0.03 16.40 uranium (us$/lb) 0.00 21.25...
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This publication is a general market commentary and does not constitute a research report. Any reference to a research report or a recommendation is not intended to represent the
whole report and is not itself a research report or recommendation. This commentary is for informational purposes only and does not contain investment advice. This publication may be
wholly or partially based on industry rumour, gossip and innuendo and as such is not to be relied upon as investment advice. Not authorized for distribution into the United States or to U.S.
persons. Canaccord Genuity Wealth Management is a division of Canaccord Corp. Member – Canadian Investor Protection Fund.
Monday, May 14, 2018 Follow us on Twitter @CGWM_MrngCoffee
Overnight Futures Source: Bloomberg
Contract Last Change
S&P/TSX Composite 16,005.00 0.26%
S&P/TSX 60 Index 949.50 0.30%
S&P 500 2,733.00 0.23%
NASDAQ Composite 6,974.25 0.25%
Dow Jones Mini 24,881.00 0.31%
Commodities & Currencies Source: Thomson ONE
Last Change
Change Crude Oil (US$/brrl) 70.81 0.16%
Gas (US$/mmbtu) 2.84 0.67%
Gold (US$/oz) 1318.90 -0.14%
Copper (US$/oz) 3.09 -0.80%
Canadian Dollar 0.7829 0.15%
Bitcoin (US$) 8403.01 -3.38%
10-Year Canada 2.30 0.00%
10-Year U.S. 2.99 -0.05%
Volatility Index (VIX) 13.17 4.11% Home Replete Home
Homebuilder Lennar
(LEN) has announced
that standard features
in its new homes will
include built-in Wi-Fi, smart locks,
doorbells, thermostats and lights — all
controlled by Alexa, Amazon’s (AMZN)
voice-activated digital assistant. Each house will come with two Alexa-
enabled smart speakers, an Echo Show
and an Echo Dot. New homeowners will
also get a free visit from an Amazon
technician to help set everything up
and teach them how to use it. Anyone can visit these new "Amazon
Experience Centers" to see what it's like
to yell at a speaker to open the blinds,
or push a button to order more toilet
paper from Amazon Prime. The
companies are launching the houses in
15 cities across the U.S. to start.
Before the Bell Source: Thomson Reuters Canada's main stock index looked set to open higher, with increasing
U.S. drilling activity supporting a rise in oil prices. U.S. President Donald Trump helped ease some trade tensions
between U.S. and China, after he said he’d help ZTE Corp “get back
into business, fast”. Futures for major Wall Street indexes were up ahead of the second
round of trade talks between the two countries this week, mirroring
similar movement in Asia. Meanwhile, European stocks edged lower. A strong euro pushed the
U.S. dollar down, while gold prices edged up
Stocks to Watch
Canopy Growth (WEED) announced it has entered into a non-binding
agreement to purchase, subject to certain conditions, the remaining
33% stake of BC Tweed Joint Venture not currently owned by the
company for up-to-C$374M of shares.
• Brookfield Asset Management (BAM.A). The investment firm made
a $3.3 billion approach for Australian hospital group Healthscope,
trumping a local buyout proposal and sending shares of the target
higher.
• Facebook (FB). The company has so far suspended around 200
apps in the first stage of its review into apps that had access to large
quantities of user data, a response to a scandal around political
consultancy Cambridge Analytica. • Tesla Inc (TSLA). The company has registered a new electric car firm
in Shanghai, as China prepares to scrap rules on capping foreign
ownership of new-energy vehicle (NEV) ventures.
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Monday, May 14, 2018 2018Page 2
Featured in Today’s Canaccord Genuity Global Morning Summary Click here for more
Rating Changes Canada(1) Thomson Reuters Corp. (TRI-NYSE | US$37.64 | US$ 26,781 M)
Apparent over-reaction to near-term spike in corporate costs; Upgraded to BUY, from Hold; trimming
PT to US$43, from US$44
Target Price and Estimate Changes Canada(1) Artis REIT (AX.UN-TSX | C$13.74 | C$ 2,113 M) Shifting portfolio to reduce risk Badger Daylighting Ltd. (BAD-TSX | C$26.68 | C$ 990 M) Q1/2018: Growth profile keeps getting better Carmanah Technologies Corporation (CMH-TSX | C$4.95 | C$ 93.7 M) Fundamental improvements underway Dream Office REIT (D.UN-TSX | C$24.34 | C$ 1,591 M) Transformation nearly complete, focus moves to value
creation through redevelopment Exchange Income Corporation (EIF-TSX | C$33.05 | C$ 1,051 M) Q1 shows benefit of portfolio diversification Hardwoods Distribution, Inc. (HDI-TSX | C$18.80 | C$ 405 M) Q1/2018 in line, valuation remains attractive Onex Corp. (ONEX-TSX | C$91.15 | C$ 10,397 M) Solid realization at Mavis Discount Oil and Gas, Integrated Q1/18 Large-cap wrap-up
United States(1) Halozyme Therapeutics (HALO-NASDAQ | US$18.82 | US$ 2,691 M) 1Q in line; continued ENHANZE momentum ReWalk Robotics (RWLK-NASDAQ | US$1.07 | US$ 32.3 M) More of the same in the Q1; expanded
reimbursement and pipeline remain key to unlocking value Zynerba Pharmaceuticals (ZYNE-NASDAQ | US$9.23 | US$ 125 M) In-line 1Q; 2018 pivotal FXS and Ph2b epilepsy
trial starts
Australia(3) Tilt Renewables Limited (TLT-NZSE | NZD1.85 | NZD 579 M) FY18 result - difficult year, but positive pipeline
progression
Portfolio Strategy Canada(1) Financial Market Performance For the week ending May 11, 2018
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Monday, May 14, 2018 2018Page 3
Technical Analysis Canada(1) Canadian Technical Comment TSX/S&P 500: Pending short-term equity market weakness an opportunity to add
exposure for developing intermediate-term rally
Company Updates Canada(1) Algonquin Power & Utilities Corp. (AQN-TSX | C$12.70 | ) Q1/18 Review and outlook Northland Power Inc. (NPI-TSX | C$24.49 | C$ 4,588 M) Q1/18 Review and outlook Yellow Pages Limited (Y-TSX | C$7.24 | C$ 203 M) Q1/18: Mixed results with disappointing digital returns, but
sharp beat in EBITDA Pipelines Q1/18 Review & Outlook
United States(1) Biomedical Devices and Services IRTC, BSX & ATRC – Bullish conviction higher for each coming out of the HRS
meeting AAR (AIR-NYSE | US$46.81 | ) OKC MRO facility visit provides positive AM data points
Market Movers Source: Bloomberg
Toronto 52-Week Highs:
Acadian Timber Corp ADN $20.24
Axmin INC AXM $0.15
Canfor Pulp Products INC CFX $21.48
Constellation Software INC CSU $985.00
Circa Enterprises INC CTO $1.39
Great Canadian Gaming Corp GC $51.50
GFM Resources LTD GFM/H $0.15
Gamehost INC GH $11.98
Gear Energy LTD GXE $1.11
Hammond Manufacturing -CL A HMM/A $2.49
Hammond Power Solutions INC HPS/A $10.05
Intercontinental Gold AND ME ICAU $0.62
Intact Gold Corp ITG $0.81
Kirkland Lake Gold LTD KL $25.36
Kingsmen Resources LTD KNG $0.25
Lassonde Inds Inc-Class A LAS/A $285.93
Logistec Corp - Class B LGT/B $51.00
Midas Gold Corp MAX $1.20
MEG Energy Corp MEG $8.66
Mercer International INC MERC/U $15.00
Magna International INC MG $81.94
Methanex Corp MX $90.27
Olympia Financial Group INC OLY $36.00
Pacton Gold INC PAC $0.55
Smooth Rock Ventures Corp SOCK $0.09
SSR Mining INC SSRM $14.62
Suncor Energy INC SU $51.40
Teranga Gold Corp TGZ $5.40
Theratechnologies INC TH $11.50
Tamarack Valley Energy LTD TVE $4.04
Vatic Ventures Corp VCV $0.32
Wall Financial Corp WFC $26.90
Westhaven Ventures INC WHN $0.19
Toronto 52-Week Lows:
Atco LTD -CL 'Ii' ACO/Y $38.49
Aguia Resources LTD AGRL $0.20
Allegiant Gold LTD AUAU $0.37
Breaking Data Corp BKD $1.00
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Monday, May 14, 2018 2018Page 4
Backstageplay INC BP/H $0.15
Bioasis Technologies INC BTI $0.55
Cogeco INC CGO $64.25
CI Financial Corp CIX $24.07
Canadian Utilities Ltd-A CU $31.57
Canadian Utilities LTD B CU/X $31.65
Decisive Dividend Corp DE $3.76
Dorel Industries-Cl A DII/A $24.25
Dorel Industries-Cl B DII/B $23.73
Erdene Resource Development ERD $0.32
Espial Group INC ESP $1.54
Extendicare INC EXE $7.70
Millennial Esports Corp GAME $0.27
Hydro ONE LTD H $19.70
Imperial Metals Corp III $1.80
K-Bro Linen INC KBL $33.03
KP Tissue INC KPT $10.12
Lico Energy Metals INC LIC $0.05
Lxrandco Inc-Class B LXR $1.05
Magellan Aerospace Corp MAL $16.53
Premium Brands Hold-Sub RCT PBH/R $116.81
Paramount Resources LTD -A POU $13.80
Prospero Silver Corp PSL $0.07
Platinum Group Metals LTD PTM $0.18
Smooth Rock Ventures Corp SOCK $0.07
Canadian Spirit Resources SPI $0.06
Supremex INC SXP $3.62
Till Capital LTD TIL $2.00
Tinka Resources LTD TK $0.44
Tmac Resources INC TMR $6.10
Thomson Reuters Corp TRI $46.69
Wealth Minerals LTD WML $1.05
WOW Unlimited Media INC WOW/A $1.15
U.S. 52-Week Highs:
AIA Group LTD AAIGF $9.39
Abiomed INC ABMD $374.75
Adobe Systems INC ADBE $241.93
Aercap Holdings NV AER $56.11
Align Technology INC ALGN $288.36
Astellas Pharma INC ALPMF $15.40
Ansys INC ANSS $173.20
Anadarko Petroleum Corp APC $69.28
Aspen Technology INC AZPN $95.09
Booz Allen Hamilton Holdings BAH $41.16
Boliden AB BDNNF $37.59
BHP Billiton PLC BHPBF $23.09
BHP Billiton Limited BHPLF $25.24
Bio-Rad Laboratories-A BIO $286.84
Broadridge Financial Solutio BR $118.34
Boston Scientific Corp BSX $30.41
Capgemini SE CAPMF $138.65
CDW Corp/De CDW $79.00
Cnooc LTD CEOHF $1.80
Cullen/Frost Bankers INC CFR $119.66
Christian Dior SE CHDRF $426.00
Chemed Corp CHE $330.24
Cantel Medical Corp CMD $124.28
Sumitomo Mitsui Trust Holdin CMTDF $43.35
Constellation Software INC CNSWF $774.80
Copart INC CPRT $55.31
China Resources Power Holdin CRPJF $1.94
CSX Corp CSX $63.88
Cintas Corp CTAS $183.99
Electronic Arts INC EA $134.58
Graftech International LTD EAF $18.78
EOG Resources INC EOG $120.00
Epam Systems INC EPAM $131.75
AXA Equitable Holdings INC EQH $21.50
E*Trade Financial Corp ETFC $65.14
East West Bancorp INC EWBC $70.01
Expeditors Intl Wash INC EXPD $73.04
Fair Isaac Corp FICO $180.42
Fairfax Financial Hldgs LTD FRFHF $565.00
Fortinet INC FTNT $60.57
Hamamatsu Photonics KK HPHTF $41.36
Hexcel Corp HXL $69.90
Icon PLC ICLR $126.59
Illumina INC ILMN $267.32
IHS Markit LTD INFO $52.28
Intuit INC INTU $196.28
Jazz Pharmaceuticals PLC JAZZ $166.80
Kirby Corp KEX $91.30
Lundin Petroleum AB LNDNF $31.45
Lamb Weston Holdings INC LW $68.70
Mastercard INC - A MA $194.09
Moody'S Corp MCO $174.75
Methanex Corp MEOH $70.60
Magna International INC MGA $64.12
Msci INC MSCI $161.45
Madison Square Garden CO- A MSG $254.81
Vail Resorts INC MTN $238.21
Noble Energy INC NBL $35.34
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Monday, May 14, 2018 2018Page 5
NRG Energy INC NRG $35.17
Netapp INC NTAP $72.81
Nutanix INC - A NTNX $59.87
NEX Group PLC NXGRF $13.38
Oneok INC OKE $66.04
Okta INC OKTA $51.00
Occidental Petroleum Corp OXY $85.79
Pegasystems INC PEGA $67.95
Progressive Corp PGR $62.99
Pool Corp POOL $150.99
Prada S.P.A. PRDSF $5.86
PTC INC PTC $88.52
Robert Half Intl INC RHI $63.50
Start Today CO LTD SATLF $35.24
Santander Consumer USA Holdi SC $19.63
Schwab (Charles) Corp SCHW $59.94
Stora Enso Oyj-R SHS SEOJF $20.46
Servicemaster Global Holding SERV $57.07
Shimadzu Corp SHMZF $29.10
SVB Financial Group SIVB $324.77
China Petroleum & Chemical-H SNPMF $1.05
Synovus Financial Corp SNV $54.38
S&P Global INC SPGI $201.44
Splunk INC SPLK $117.86
Sarepta Therapeutics INC SRPT $93.92
Shiseido CO LTD SSDOF $70.50
Steris PLC STE $104.09
Suncor Energy INC SU $40.21
Swedish Match AB SWMAF $47.68
Atlassian Corp Plc-Class A TEAM $66.00
Transunion TRU $69.56
2U INC TWOU $98.30
Textron INC TXT $66.16
Tyler Technologies INC TYL $232.12
Ultimate Software Group INC ULTI $263.59
Upm-Kymmene OYJ UPMKF $37.11
Visa Inc-Class A Shares V $132.09
Webster Financial Corp WBS $64.11
WEX INC WEX $176.83
Wirecard AG WRCDF $146.47
Want Want China Holdings LTD WWNTF $0.94
XPO Logistics INC XPO $109.95
Zendesk INC ZEN $57.31
Zions Bancorporation ZION $58.28
U.S. 52-Week Lows:
ADT INC ADT $7.32
AMP LTD AMLTF $2.69
BT Group PLC BTGOF $2.90
Anheuser-Busch Inbev Sa/Nv BUDFF $93.86
Canadian Utilities Ltd-A CDUAF $24.71
Coty Inc-Cl A COTY $14.04
AXA Equitable Holdings INC EQH $20.39
Fannie MAE FNMA $1.21
Hydro ONE LTD HRNNF $15.46
PPG Industries INC PPG $100.36
Sanofi SNYNF $76.90
Symantec Corp SYMC $18.85
Thomson Reuters Corp TRI $36.52
Quest® Screen: Q-Discount • The Q-discount screen divides Quest’s most stable valuation metric (Quest market-to-book) by the most
closely associated operating metric Cash Flow Return on Capital (CFROC) ÷ WACC.
• A long-term view at how the relationship between the above two ratios has changed over time is taken into
account.
• A Q-discount lower than the 10-year average (Q-discount relative to Long Run Avg.) suggests that the
valuation has moved favourably once the change in cash flow returns has been taken into consideration.
Stocks Ticker Market
Cap (m)
Quest
market-
to-book
CFROC/
WACC
Q-
discount
CFROC/WACC
- 10 year avg
Q-
discount
rel. LRA
Included in CG Portfolio
Conditions >= 0.00 <= 1.00 >= 1.00 <= 0.9
Canfor Pulp CFX 1,055.8 0.6 1.72 0.34 1.06 0.79 Cdn. Small Cap
CI Financial CIX 5,379.3 2.0 2.44 0.82 2.41 0.78 Cdn. Dividend
Cdn. Focused Dividend
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Monday, May 14, 2018 2018Page 6
Cdn. Focused Equity
Fortuna Silver FVI 901.4 0.9 1.41 0.61 1.46 0.75 Cdn. Small Cap
Inter Pipeline IPL 7,028.2 1.1 1.35 0.81 1.19 0.80 Cdn. Dividend
Cdn. Focused Dividend
Magna MG 22,405.1 0.9 2.08 0.43 1.40 0.88
Cdn. Dividend
Cdn. Focused Dividend
Cdn. Focused Equity
Med. Facilities DR 339.1 0.8 3.42 0.24 3.60 0.76 Cdn. Small Cap
Teck Resources TECK.B 15,643.0 0.4 1.13 0.39 1.01 0.70 Cdn. Focused Dividend
Cdn. Focused Equity
ZCL Comp ZCL 245.8 1.6 2.20 0.72 1.24 0.74 Cdn. Small Cap
Based on data as at May 11, 2018
For more on this Quest filter, click here
Portfolio Strategy Incubator EM Concerns Resurface In his latest piece, Canaccord Genuity North
American Portfolio Strategist Martin Roberge
notes the S&P 500 (SPX) and S&P/TSX Composite
(.TTT) had a strong week on the back of
softening U.S. inflation data, which have
capped the ascension in bond yields and the
US$ appreciation. The latter, along with the
decision by U.S. President Trump to pull out from
the Iran deal, boosted commodities where the
rally is now broadening outside of oil prices. As a result, the late-cycle trade led markets this
week with the energy (+2.0%) and materials
(+2.1%) sectors strongly outperforming utilities (-
1.6%) and telecoms (+0.1%). Once again, REITs
(+1.9%) keep diverging with bond proxies. As
Roberge highlighted in his Mid-Week note
Wednesday, REITs exhibit the third-highest
correlation to oil prices after the energy and
materials sectors. This elevated correlation likely
results from REITs’ inflation attributes in times of
rapidly rising commodity prices fuelling inflation
expectations. The S&P TSX Real Estate Index
(TTRE) is only 1% away from an all-time high. Roberge’s focus is on emerging markets (EMs)
where equities have underperformed DMs. As
usual, the culprit seems to be the steep US$
appreciation (~5%) from March lows. Many EMs have US$-dominated debt which becomes more expensive to
service when the dollar depreciates. As such, EM debt concerns have resurfaced lately with some investors
fearing that further EM currency depreciation could bring back memories of the 1998 and 2008 EM currency crisis.
Roberge believes such fears are premature.
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Monday, May 14, 2018 2018Page 7
This week, the spotlight will be on inflation and retail sales in Canada. Intensifying price pressures would likely
cement expectations that the BoC will deliver a rate hike this summer. In the US, we await retail sales, building
permits, housing starts and industrial production. Elsewhere, Q1/18 GDP growth statistics are on deck in Europe
and in Japan. In China, we will focus on retail sales and industrial production. In India, inflation statistics should
help gauge the RBI. Last, in Brazil, the central bank is expected to deliver a 25bps rate cut understanding that
inflation remained below 3% since July 2017.
Click here for more
Canadian Equities of Interest Listed Alphabetically by Symbol
NAFTA
T minus three days…U.S. House Speaker Paul Ryan has set a May 17 deadline to be notified of a new NAFTA trade
deal to give the current Congress a chance of passing it, while Mexico’s top trade official has said time was
running short to meet such a deadline. Ryan, who controls legislation in the House of Representatives, set his
deadline in remarks delivered last week to the Ripon Society in Washington. Under the “fast track” trade
negotiating law, there are lengthy notification periods before U.S. President Donald Trump could sign a new North
American Free Trade Agreement and before Congress could begin considering it. Letting negotiations drag on much longer would punt consideration to a new Congress elected in November
that will take office in January 2018, one that could cede more control to Democrats. “We have to have the
paper – not just an agreement, we have to have the paper – from USTR by May 17 for us to vote on it this year, in
December, in the lame duck” session, Ryan said. A spokeswoman for Ryan said that he was referring to a
notification of intent to sign the NAFTA agreement, not necessarily the full text. Last week’s talks hit an obstacle as the U.S. and Mexico sought to settle differences over the key issue of
automobiles. Ryan also expressed scepticism that a deal could be reached in time and noted that several major
issues remained unresolved, such as U.S. demands for more access to Canada’s dairy market and to make an
investment dispute arbitration system optional.
Bitcoin Spot (BTC=BTSP : US$8,443.01), Net Change: -577.98, % Change: -6.41%
Hive Blockchain Technologies* (HIVE : $1.30), Net Change: 0.02, % Change: 1.56%, Vol: 1,367,480
Bitcoin Invt Trust* (GBTC : US$14.10), Net Change: -0.48, % Change: -3.29%, Vol: 3,952,731
Exeblock Technology* (XBLK : $0.23), Net Change: 0.00, % Change: 1.10%, Vol: 86,768
Ether Capita* (ETHC : $2.11), Net Change: -0.18, % Change: -7.86%, Vol: 71,092
Nothing cryptic about this. Reuters reported on Friday that prosecutors in South Korea raided the largest
cryptocurrency exchange in the country, UPbit. According to CoinDesk Korea, investigators from the Prosecutors’
Office of the southern district of Seoul searched the head office of the exchange in the Gangnam-gu district on
May 10-11. UPbit is suspected of fraud for allegedly selling cryptocurrency to customers that it does not actually hold,
according to the report. “We have secured hard disks and accounting books through confiscation. Analysis is
expected to take days,” the Prosecutors’ Office stated. When asked for comment by CoinDesk Korea, an UPbit
representative said, “At this time, I cannot answer anything about this seizure.” However, the exchange’s support website confirms the investigation in a note posted Friday and states that its
services are still operational, saying: “UPbit is currently under investigation by the prosecution, and we are working
diligently. UPbit services such as all transactions and withdrawals are operating normally. Your assets are kept
securely in your account, so you can rest assured that you can use UPbit services.”
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Monday, May 14, 2018 2018Page 8
The news comes as authorities in the country have been investigating cryptocurrency exchanges amid regulatory
tightening in the country. In March, prosecutors reportedly raided the offices of three cryptocurrency exchanges
on suspicion of siphoning off funds from customers' accounts. One of the exchanges raided was Coinnest, the
fifth-largest in Korea at the time. Kim Ikhwan, the firm’s founder, and another executive were taken into custody
in early April.
Click here for more
CES Energy Solutions* (CEU : $5.66), Net Change: -0.61, % Change: -9.73%, Vol: 2,181,789 Quest▼2
The Morning Coffee’s exclusive supplier of Polysaccharide polymer derivitized starch. Canaccord Genuity Oilfield
Services Analyst John Bereznicki has lowered his target on CES Energy, as margin compression drove a Q1 EBITDA
miss. While the company met his Q1/18 revenue estimate (of $297.1 million) it fell well short of his $47.4-million
EBITDA expectation (consensus EBITDA was ~$48 million). Lower-than-expected interest and depreciation costs resulted in ~$0.03 in positive EPS variance relative to
Bereznicki’s $0.04 estimate. While CES generated sequential revenue growth of 8% in Q1/18, this was
accompanied by cash gross margin erosion of ~140 bps over this same period. According to management, this
was driven by input cost inflation that CES was unable to recoup from its customers. While strengthening oil prices give increasing conviction CES can derive at least modest real pricing power by
late 2018, Bereznicki has nonetheless tempered his margin assumptions through 2019, although he continues to
believe CES enjoys a rich organic growth portfolio. Bereznicki expects CES to realize at least modest real pricing power across most of its business segments by late
2018 as its larger competitors implement pricing increases in response to rising oil prices and input costs. Note that
CES deployed $17.8 million in capital in Q1/18 and exited the quarter with in-line net debt of $431.7 million (2.4x
2018E EBITDA). The company intends to spend $68 million in capital this year, including sustaining expenditures of
$18 million.
Click here for more
Finning* (FTT : $33.28), Net Change: -0.55, % Change: -1.63%, Vol: 616,877 Quest►7
On the right tract. Canaccord Genuity Engineering & Construction Analyst Yuri Lynk has raised his target on
Finning, following in-line Q1/2018 results. With backlog higher by 129% y/y at $1.6 billion, Finning boasts excellent
visibility, with Lynk forecasting a 24% 2017-2019 EPS CAGR driven by: 1) a supportive macro: construction and
mining equipment demand is improving; 2) improved demand for product support: planned 797 rebuilds in
Canada are scheduled to triple in 2019 while the digital/e-commerce road map increases market share; and 3)
Catepillar (CAT)/Finning initiatives: such as electric and autonomous trucks. At an investor meeting last week, Finning raised the ceiling on ROIC potential in each of the business units and
set a new target for SG&A/revenue of 18% versus ~20% in 2017. All told, Yuri say he came out of the quarter
incrementally more upbeat on Finning shares. Q1/2018 adjusted-EPS increased 40% y/y to 39 cents, slightly above Lynk’s estimate of 36 cents and in line with
the consensus of 39 cents. Revenue was 7% above his estimate and consensus as it increased 19% y/y. Gross
margin declined 170 bps y/y to 26.3% due to product mix and a ~$3.5 million impact due to an unplanned
maintenance outage of testing equipment at OEM. SG&A was 20.1% of revenue compared to 21.9% in Q1/2017
as management was able to deliver revenue leverage on the fixed cost base. Note that Canada accounted for more than half of the revenue increase on strong performance in all lines of
business. Product support revenue increased 11% y/y on strong parts demand in all markets. New equipment
deliveries increased 62% y/y driven by increased mining, infrastructure and oil & gas activity.
Click here for more
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Monday, May 14, 2018 2018Page 9
Pretium Resources* (PVG : $9.15), Net Change: 0.34, % Change: 3.86%, Vol: 743,273 Quest►5
Who's down with PVG? Yeah, you know...Canaccord Genuity Precious Metals Analyst Rahul Paul remains bullish
on Pretium Resources following its Q1/18 financial results. While Q1/18 production was pre-released (12% ahead
of his initial expectations), lower gold sales (timing related) and a higher proportion of expensed (vs capitalized)
development resulted in the lower earnings miss relative to his forecasts. While AISC of $1,009/oz was higher than Paul’s estimate of $802/oz, he notes that the total spend (including
capital/operating costs and corporate G&A) for Q1/18 was $69.5 M (within the quarterly range of $68-70 M
implied by H1/18 guidance). As such, the AISC variance also appears to be driven by lower sales (timing related),
and could reverse if the inventoried ounces are sold in Q2/18. Although Paul sees the potential for some share price weakness in light of the headline EPS miss and higher costs,
he considers Q2/18 results to be the key catalyst and sees the potential for strong share price performance if
management is able to deliver on guidance. H1/18 guidance has been maintained (150-200 koz @ AISC of $700-
900/oz), and appears attainable even with no material improvement relative to the Feb/March production run-
rate (Paul’s H1/18 estimate of 162 koz @ $888/oz is within the guidance). So far, operations appear to be tracking in line with plan, and Paul sees potential for improved grades and
production in Q2/18, considering the increased benefit of grade control (all of Q2/18 vs just one month in Q1/18)
and greater operational flexibility provided by additional high-grade stopes coming online.
Click here for more
SSR Mining* (SSRM : $13.86), Net Change: 0.57, % Change: 4.29%, Vol: 597,813 Quest▲10
As easy as A, B, Seabee. Canaccord Genuity Precious Metals Analyst Rahul Paul remains decidedly bullish on SSR
Mining, following its Q1/18 financial results. Earnings of $0.05 came in ahead of his expectations, driven largely by
non-operating items (consolidated costs were in line with his expectations, with production performance pre-
released). Of note was strong cost performance at Seabee, where total cash costs of $481/oz came in 21% below
his expectations. Guidance remains unchanged and Paul believes the company remains on track for another strong year in 2018.
In addition to operating/financial results, he expects near-mine (Marigold) and regional (Seabee) exploration to
provide for additional catalysts going forward. After updating for the quarter, he now forecasts production of 336
koz AuEq at total cash costs of $723/oz, in line with guidance of 340 koz AuEq at total cash costs of $715 - $770/oz.
Paul expects that guidance could prove conservative if the outperformance at Seabee were to continue. Subsequent to the quarter, SSR divested its remaining holdings in Pretium Resources (PVG) for pre-tax proceeds
of ~$35M. Paul notes this further bolsters the company’s already strong balance sheet ($473M in cash and
equivalents at quarter-end).
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Thomson Reuters* (TRI : $48.14), Net Change: -1.85, % Change: -3.70%, Vol: 2,890,142 Quest▼2
Read it on Bloomberg. Thomson Reuters reported Q1/18 results on Friday with headline numbers broadly in line to
a little below due to higher corporate costs. Canaccord Genuity Telecom & Media Analyst Aravinda
Galappatthige notes that its Financial & Risk (F&R) business is now reported under discontinued items, given its
pending sale (55% stake) in H2/18 to private equity firm Blackstone Group (BX). Also, there are some changes to
the base periods that impacts comparability with forecasts, Galappatthige suspects due to certain components
of F&R that are to be retained being incorporated in continuing segments. Hence, he focuses on growth rates for
comparability. Adj EBITDA was $430M, up 3.6% y/y vs. Galappatthige’s $443M estimate, which assumes 7.1% growth. The variance
was due to us under-estimating corporate costs by $10M. Meanwhile, adj EPS came in at $0.28 up from $0.25 last
year, and compared to his $0.30 estimate. Legal revenues grew 3.7% y/y and 2% ex-f/x to $872M. This compares
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Monday, May 14, 2018 2018Page 10
with Galappatthige’s expectation of 1.5% ex f/x growth. Legal recurring revenues remained healthy growing 4%,
while print declined only 2%. The transactions revenue decline eased to 1%. Meanwhile, adj. EBITDA was up 1.6%
to $$319M. This compares with his expectation of 2.8% growth. Galappatthige notes 2018 guidance reflects massive corporate costs. The highlight was $500-600M in total
corporate costs due to stranded costs and incremental investments to reposition the company following the exit
of F&R. The stranded and other costs component of this, which could be ~$250M of this $500-600M, is expected
to ease to $50M by 2020. Previously, the company also indicated that the underlying corporate cost base of $280-
290M could be halved over time.
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U.S. Macro Strategy You Ain't Seen Nuttin' Yet In his latest piece, Canaccord Genuity Chief Market Strategist Tony Dwyer has taken his trusty intermediate-term
oversold signal a step further. In early April, his “whooshes can become ramps” noted how a trusty 14-week
stochastic indicator for the S&P 500 (SPX) index hit a level that identified the close proximity to an intermediate-
term low in a non-recession environment. Each week, Dwyer takes this indicator a step further, by looking at the
overbought / oversold level for each individual component of the S&P 100 Index (OEX).
The indicator suggests you ain’t
seen nothing yet. In mid-April,
over 61% of the stocks in the OEX
reached oversold, the highest
percent since February 2016.
Dwyer went back to the post-
dotcom bust and found that
since 2003, in a non-recession
environment, whenever the
percentage of OEX components
moved above 55% (oversold
extreme), and then dropped
back below 55%, it was an
excellent signal and the next leg
higher in the bull market was
underway.
In fact, of the seven prior
instances since July 2003
(excluding the bear market),
there were only two instances
when the intermediate-term low
occurred AFTER the signal. In
those two instances the signal
was within ~2 months of the low
and the SPX had a median loss of
only -4.28%. These losses were
more than made up for as the SPX
experienced a median gain of
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Monday, May 14, 2018 2018Page 11
23.78% to peak before the next major correction that caused another oversold extreme.
Fundamental, tactical and historical framework remain positive. Dwyer reminds us it is essential to remember
“the” peak of a cycle comes well after the initial inversion of the 2-10yr UST yield curve that eventually results in a
recession. As a result, intermediate-term corrections offer opportunities rather than something to fear.
Throughout this cycle, each intermediate-term correction feels like the fundamental backdrop is at risk, only to
ultimately realize that positive influences that drive our core thesis still exist. These include: 1) solid global growth;
2) positive domestic activity driving EPS; 3) capital spending improvement; 4) real household median incomes
jumping with strong employment; and 5) the demographic-driven push to higher home ownership. Dwyer would
add to his overweight sectors of Financials, Info Tech and Industrials with an intermediate-term time horizon.
Click here for more
U.S. Equities of Interest Listed Alphabetically by Symbol
Dropbox* (DBX : US$31.25), Net Change: -0.74, % Change: -2.31%, Vol: 7,334,092
This ain’t my first rodeo. Canaccord Genuity Enterprise Software Analyst Richard Davis likes Dropbox on any dips,
saying on Friday maybe it’s easier to be calm after you’ve gone through more than 1,000 earnings calls. Davis
says he got a handful of inbound questions Thursday night as to whether “someone knows something” because
Dropbox dipped in after hours, answering, “Seriously, does anyone really believe that significant fund managers
are frantically selling or buying after hours?” Here are the facts, Davis points out: Dropbox delivered an upside on essentially every financial metric. The
company made admirable progress on customer additions, ARPU, and product innovation. Most importantly, the
firm’s trajectory toward becoming perhaps the leading platform for Team Content Collaboration did not falter. Davis says this stock reaction reminds us of the recent silliness in which fretting about Atlassian’s quarter led to a
dip to which savvy investors said, “Thank you very much”, and gobbled up shares from weak hands. Indeed,
Dropbox reported a typically strong first quarter post-IPO with upside across all relevant financial and operating
metrics – revenue, operating income, FCF, deferred revenue, customer additions and ARPU. Moreover, Dropbox announced multiple key partnerships in Q1 such as with Salesforce (CRM), Google (GOOGL),
and Adobe (ADBE), further deepening its already strong ecosystem. Note that Dropbox issued 2018 guidance
calling for revenue of $1.355B at the high end, for 22% growth y-o-y, ahead of Davis’ $1.310B estimate (18%
growth). Operating margins are now expected to fall in the 9-10% range, ahead of his 7.2% estimate, while FCF
guidance is for $340-350M, vs his prior $329M estimate.
Click here for more
Facebook* (FB : US$186.77), Net Change: 1.25, % Change: 0.67%, Vol: 20,970,106 Quest▲9
Facecoin? No? You prefer Bitbook? As Gizmodo pointed out on Friday, sometimes life comes at you fast. Last
Tuesday, news broke that Facebook formed a blockchain division. Now it there is word that the company is
looking into creating its own cryptocurrency. Cheddar reported on Friday that Facebook is allegedly “exploring” incorporating cryptocurrency onto their
platform with a potential eye towards payment transactions. Admittingly, the report was a bit vague about any
further details or concrete plans on what the social media platform might want to do with the technology ever
company wants to pivot towards. Asked for comment, a Facebook spokesperson did not deny that the company was looking into the possibility of
creating its own cryptocurrency but emphasized that its efforts in this area are still in their early days. “Like many
other companies, Facebook is exploring ways to leverage the power of blockchain technology,” the
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Monday, May 14, 2018 2018Page 12
spokesperson said in an email. “This new small team will be exploring many different applications. We don’t have
anything further to share.” The lack of details certainly won’t hold back speculation about what the company might want to do in this space
and potentially could only fuel more of the fire: Are ZuckerCoins going to be arriving in your Facebook wallet
anytime soon? Imagine a company with over 2 billion users do with a decentralized currency.
Nvidia* (NVDA : US$254.25), Net Change: -5.94, % Change: -2.28%, Vol: 30,275,076 Quest▲9
Plenty of game left. Nvidia’s ascent stalled on Friday, as investors worried that a short-term surge in demand for
graphics chips from cryptocurrency miners may be undermining its core business with computer gamers. Most
analysts continued to hold a positive opinion about the stock with at least nine brokerages raising their price
targets for Nvidia shares. Net income rose to $1.24 billion, or $1.98 per share, in the first quarter ended April 29, from $507 million, or 79 cents
per share, a year earlier. Total revenue rose to $3.21 billion from $1.94 billion. Excluding items, Nvidia earned $2.05
per share; analysts on average had expected earnings of $1.46 per share on revenue of $2.91 billion. But too
many cryptocurrency clients and fewer cloud computing orders than expected underwhelmed many investors,
although Nvidia said a supply shortage that hit its core video game audience had eased. The company best known for chips that enhance video game graphics has diversified into an array of businesses
including artificial intelligence, self-driving cars and digital mining, but investors are most concerned with its
inroads in the market for cloud computing. Revenue from Nvidia’s data centre business rose 71% to $701 million,
which missed some targets. But for the first time, Nvidia disclosed that it made $289 million in sales – about 9% of its overall $3.2 billion in revenue
– from chips for mining cryptocurrencies. Analysts had expected a much lower $200 million and the greater
reliance on the fast-growing but volatile business contributed to Friday’s pullback.
Symantec* (SYMC : US$19.47), Net Change: -9.72, % Change: -33.30%, Vol: 112,192,609 Quest▼2
Everybody’s working for the weekend. Some more than others. Symantec lost a third of its value on Friday after
the cyber-security firm disclosed its board’s audit committee was investigating “concerns” raised by a former
employee and that it might have to restate results. As it lost $6 billion in market cap, at least nine analysts downgraded the Symantec, which disclosed the
whistleblower probe late on Thursday, saying it might miss a deadline for filing its annual 10-K report, may need to
restate some financial results and might revise guidance. Symantec VP Cynthia Hiponia said the probe began “in connection with concerns raised by a former employee.”
She did not say whether that person had approached Symantec or raised the issue with securities regulators. She
added that the company had voluntarily advised the U.S. SEC that it was investigating the matter. Sean X. McKessy, a former chief of an SEC program that rewards whistleblowers for turning in firms that violate
U.S. securities laws, said the warning of a delay in filing the 10-K suggests that the issue is related to accounting
practices. He said the SEC has likely begun an informal review of the matter, but would likely wait to see results of
the company’s probe before deciding how to proceed.
Yelp* (YELP : US$44.02), Net Change: -3.73, % Change: -7.81%, Vol: 8,037,031 Quest►6
This selloff is rated two out of four stars. Profit-taking was the order of the day on Yelp shares on the back of the
company’s strong corporate results that beat Wall Street expectations. For the quarter ended March 31, Yelp
posted a loss of $0.01 per share on revenue of US$223.1 million, handily beating the consensus expectations for a
loss of $0.05 on $220.1 million. “We had a great start to 2018, accelerating advertising revenue growth and
attracting a record number of new advertisers in the first quarter,” said Jeremy Stoppelman, Yelp’s co-founder
and CEO.
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For the unfamiliar, Yelp started out by giving users a way to see what others have said about a business or what
dishes are popular at a restaurant. Since its founding in 2004, Yelp has amassed 127 million reviews in areas such
as retail, restaurants, home and local services and beauty in more than 30 countries. Users can now make
restaurant reservations, get price quotes from businesses, hold a place in line for a restaurant, get food delivered
and earn cash from Yelp’s loyalty program. But while Yelp’s shift toward non-term contracts might be a hit with advertisers, investors remain cautious.
Management notes that longer contracts are still available and says first-time and seasonal advertisers
appreciate the change; the move widens the top of the company’s funnel, giving it an opportunity to build
longer relationships with advertisers. It’s likely to quickly boost revenue and customer count, while lowering
revenue per customer. Going forward, Yelp expects second-quarter revenue of $230-233 million compared to
current consensus estimate of $231.1 million.
Expected Earnings Source: Thomson Reuters
Gluskin Sheff + Associates Inc (GS). Expected Q3 earnings of 20 cents per share
THE LAST DROP: Best Buy has redesigned their logo in order to make it more modern. Best Buy’s CEO said, “With
this new logo, we’re going to sell a lot of VCRs.”
– Jimmy Fallon
Quest®: Canaccord Genuity’s proprietary online valuation and analytical tool which combines consensus
market figures with the Quest® Discounted Cash Flow (DCF) Valuation Model. Quest® triAngle is Canaccord Genuity’s proprietary 15-factor, stock-picking tool, which systematically measures
Value, Quality and Momentum and presents the results in a simple, easy to understand score. It takes a multi-
pronged approach to Value, Quality and Momentum using five factors for each component, which adds more
consistency of performance unlike a reliance on one single measure. It uses a mix of historic and forecast data,
and combines absolute valuation data with comparisons relative to history. The triAngle is designed to
generate stock ideas and provide a consistent framework for analysis of portfolio holdings. How the triAngle score is calculated * Canaccord Genuity and its affiliated companies may have a Corporate Finance or other relationship with the
company and may trade in any of the Designated Investments mentioned herein either for their own account
or the accounts of their customers, in good faith and in the normal course of market making. The authors have
not received, and will not receive, compensation that is directly based upon or linked to one or more specific
Corporate Finance activities, or to coverage contained in the Morning Coffee. 1. Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX)
The recommendations and opinions expressed in this research report accurately reflect the Investment
Analyst’s personal, independent and objective views about any and all the Designated Investments and
Relevant Issuers discussed herein. 3. Canaccord Genuity (Australia) Limited is the Australian affiliate of global capital markets group Canaccord
Genuity Group Inc. (CF : TSX). The recommendations and opinions expressed in this research report accurately
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Monday, May 14, 2018 2018Page 14
reflect the Analyst’s personal, independent and objective views about any and all the designated investments
and relevant issuers discussed herein.