Vision. Monthly Economic and Financial Monitor

Transcription

1 Vision Monthly Economic and Financial Monitor May 2018

2 Research s Economics & Strategy Stéfane Marion Chief Economist and Strategist Matthieu Arseneau Senior Economist Kyle Dahms Economist Angelo Katsoras Geopolitical Jocelyn Paquet Economist Paul-André Pinsonnault Senior Fixed Income Economist Marc Pinsonneault Senior Economist Krishen Rangasamy Senior Economist Banking & Insurance Gabriel Dechaine Associate: Ganesh Kannan Associate: Mateen Latif Diversified Financials Jaeme Gloyn Associate: Victor Dri Energy Services & Agriculture Greg Colman Assoc.: Westley MacDonald-Nixon Assoc.: Michael Storry-Robertson ETFs & Financial Products Daniel Straus Ling Zhang Associate: Linda Ma Associate: Tiffany Zhang Healthcare & Biotechnology Endri Leno Associate: Stephen Kwai Associate: Ammar Shah Industrial Products Maxim Sytchev Associate: Adam Staszewski Associate: Troy Sun Merchandising & Consumer Products Vishal Shreedhar Associate: Ryan Li Metals & Mining Don DeMarco Associate: Towaki Dojima Associate: Rabi Nizami Shane Nagle Associate: Lola Aganga Associate: Alex Bauer Michael Parkin Associate: Jonathan Egilo Associate: John Sclodnick Oil & Gas Junior & Intermediate Oil & Gas Brian Milne Associate: Brad Lenz Dan Payne Associate: Mitch Mastel Associate: Andrew Nguyen Large Cap Oil & Gas Travis Wood Associate: John Hunt Associate: Alex Reid Pipelines, Utilities & Energy Infrastructure Patrick Kenny Associate: Amber Brown Associate: Dave Nielsen Real Estate Matt Kornack Associate: Hussam Maqbool Tal Woolley Associate: Salman Chattha Special Situations Leon Aghazarian Associate: Zachary Evershed Sustainability & Clean Tech Rupert Merer Associate: Steven Hong Associate: Adnan Waheed Technology Richard Tse Associate: Andrew McGee Associate: Steven Walt Technical Analysis Dennis Mark Telecom & Media Adam Shine Associate: Ahmed Abdullah Associate: Luc Troiani Transportation & Industrial Products Cameron Doerksen Associate: Umayr Allem Administration Ihor Danyliuk Head of Research Caroline Jukes Administrative Manager Tanya Bouchard Supervisory Research Publications Vanda Bright Manager, Publishing Services Wayne Chau Publishing Associate Information Giuseppe Saltarelli giuseppe.saltarelli@nbc.ca

3 Table of Contents Highlights The Economy Interest Rates and Bond Markets Technical Analysis Sector Analysis NBF Selection List s' Tables Glossary Recommendations Alphabetical Listing NBF Disclosures, please visit URL:

4 VISION MAY Highlights Stéfane Marion Chief Economist and Strategist Economy The global economy continued to expand in the first quarter, albeit at a more moderate pace. The persistence of low inflation should limit the extent of monetary policy tightening by major central banks this year, while fiscal policy is also expected to remain stimulative in both advanced and emerging economies. As such, we expect world GDP to match last year s growth print of 3.8%, although that assumes world governments successfully manage risks posed by trade protectionism and record debt levels. A good start to the year puts the U.S. economy firmly on track to grow about 2.8% in 2018, the best performance in years. Solid fundamentals suggests an acceleration of growth after Q1. A strong labour market, federal personal tax cuts, low interest rates, and easy access to credit are all positive for consumers. Solid profits, made even healthier by corporate tax cuts, will continue to lift business investment. But protectionist policies threaten to disrupt an otherwise promising economic outlook. A weaker-than-expected start to the year prompts us to downgrade our 2018 forecast for Canadian GDP growth by three ticks to 2.2%. That assumes growth picks up in the second and third quarters as temporary factors which hurt Q1, turn into tailwinds. We have also pushed to July the timing of an expected interest rate hike from the Bank of Canada amidst a persistently dovish tone from a central bank that continues to fret about economic uncertainties while shrugging off a higherthan-target inflation rate. Interest rates and currency With the U.S. economic expansion still on track, we think the 10-year yield will drift to a new trading range slightly above 3%. Though we recognize that the risks are skewed toward a more aggressive Fed, we think FOMC members will shy away from delivering more than three rate hikes in total in 2018, since some headwinds to growth can be expected from the rise of long rates. We see 10-year Treasuries trading around 3.18% by year end. Our forecast for the longer portion of the Canadian yield curve is little changed from last month: 10-year Canadas trading at 2.63% (down 5 bps) at the end of this year and at 3.09% (up 3 bps) a year later. Given our expectation of a Fed more aggressive than the BoC in 2019, we expect the Canada-U.S. spread of 2-year yields to remain wide out to our forecast horizon. The Canadian dollar remains much weaker than levels that would typically be associated with current oil prices. The impact of unfavourable yields relative to the U.S., courtesy of a persistently dovish Bank of Canada, continues to dominate and is pulling back the loonie. But if, as we expect, some of the uncertainties surrounding NAFTA renegotiations and the housing market fade over the coming months, the inflation-targeting central bank will have no reason to keep ignoring rising inflation pressures. Improving yield differentials could push USDCAD towards 1.20 over the coming months.

5 VISION MAY The Economy

6 VISION MAY The Economy World: Fiscal boost Krishen Rangasamy Senior Economist The global economy continued to expand in the first quarter, albeit at a more moderate pace. The persistence of low inflation should limit the extent of monetary policy tightening by major central banks this year, while fiscal policy is also expected to remain stimulative in both advanced and emerging economies. As such, we expect world GDP to match last year s growth print of 3.8%, although that assumes world governments successfully manage risks posed by trade protectionism and record debt levels. The world economy continued to expand in Q1, albeit at a slower pace. After reaching a multi-year high the prior month, Markit s global composite purchasing managers index (PMI) fell back to 53.3 in March, the lowest since 2016, but still consistent with expansion. The good news is that expansion remains broadbased as evidenced by above-50 prints for major advanced and emerging economies. World: Expansion but a slower pace Markit s Global composite purchasing managers index Despite plunging in March, Markit s composite PMI is still consistent with continued expansion France Spain Germany WORLD Russia China Brazil Japan NBF Economics and Strategy (data via Bloomberg) Mar. Markit composite purchasing managers index for March 2018 Expansion U.S. Italy UK India in major developed and emerging economies The PMI s are also consistent with hard data which suggest continued global expansion in Q1, albeit at a slower pace. Latest data from the CPB indeed points to a deceleration in world industrial output growth during the first quarter (+2.7% annualized based on results for the first two months of the year) as stronger growth in emerging markets (particularly Asia) was offset by a moderation in advanced economies (including the U.S. Japan, and the eurozone). While world industrial production expanded at a slower pace, global trade volumes moved up a Index gear, growing in Q1 at the fastest pace in years, and topping the former s pace for the third consecutive quarter. So much so that, the ratio of world industrial production to global trade volumes, a proxy for world inventories, sank in Q1 to a 7-year low. That bodes well for restocking and hence production in subsequent quarters, although it s also possible producers opt to delay inventory rebuilding until the ongoing wave of protectionist threats subside. World: Inventories are relatively low q/q % chg. saar Global trade volumes Trade volumes expanded sharply in Q Q1* * Assuming no change in March and no revisions in prior months NBF Economics and Strategy (data via CPB) Ratio of world industrial production to global trade volumes leaving producers with lean inventories Q1* The strength observed in emerging economies during Q1 can be partly attributed to China s resilient economy which seems to be having positive spillovers through Asia via supply chains. China s real GDP reportedly grew 6.9% on a year-on-year basis during the first quarter and remains well on track to hit the government s annual growth target of 6.5%. More importantly, Beijing seems to be succeeding in rebalancing its economy away from trade and investment the share of consumption and government spending in overall growth was near all-time highs in Q1. China: Stable y/y growth 8.8 % q/q chg. saar Real GDP NBF Economics and Strategy (data via Datastream) y/y chg. Q % Share of contribution to GDP growth Consumption & Government Investment Trade Q1

7 VISION MAY The Economy True, much of that is due to fiscal stimulus. But there is reason to be optimistic about China s consumption growth as measures announced in the five-year plan continue to be implemented. For instance, Beijing s promises to increase pensions and healthcare coverage should widen the safety net and encourage consumers to save less and spend more. There are already positive signs about domestic demand as evidenced by imports which are now growing faster than exports, something that also explains China s declining trade surplus. All in all, the world s second largest economy remains in good shape despite some downside risks (see further down) which for now are seemingly being managed well by Beijing. That bodes well for emerging Asia and the broader gobal economy. China: Imports growing faster than exports Exports and imports y/y % chg NBF Economics and Strategy (data via Datastream) Exports Imports Also positive for growth is the continuation of accommodative policies. True, monetary policy is being tightened in some parts of the world to reflect diminishing economic slack or output gaps. But even then, monetary policy is unlikely to become overly restrictive anytime soon. Inflation, while up recently in the OECD, remains low. Price pressures also remain low in emerging economies. Perhaps more importantly, expectations of inflation remain stable and at a low level in both the OECD and emerging economies. That certainly limits the ability of central bankers to tighten policy. World: Inflation remains mild Q1 Moreover, fiscal policy may not be as tight as first thought. In its latest World Economic Outlook, the International Monetary Fund estimated advanced economies will see more fiscal stimulus in 2018 and 2019 than previously forecast. The IMF s revised forecasts for changes in the structural balance were partly due to the U.S. in light of tax cuts and increased spending from the Trump administration, although France, Germany and the UK were also deemed to have growth-oriented fiscal policy this year and next to a larger extent than what was expected back in October. Ditto for emerging economies whose fiscal policy is expected to be more stimulative than first thought especially in World: Fiscal boost revised up for % Change in structural primary fiscal balance in advanced economies NBF Economics and Strategy (data via IMF) Previous forecast New forecast 0.2 % Change in structural primary fiscal balance in emerging economies Previous forecast New forecast That s not to say the world economy is in the clear. Threatening to derail growth are major downside risks, including the significant amount of leverage in the global economy. China comes to mind as a major risk in that regard considering that economy s high credit intensity. It now takes twice as much credit compared to pre-2007 to generate an additional unit of GDP in China. Credit intensity has also increased significantly elsewhere in emerging markets, including Malaysia, Turkey and Russia. World: Credit intensity has increased sharply over last decade Credit to GDP ratio Core consumer price inflation, 3-month moving average annualized percentage change 5.6 % % Consumer price inflation expectation China Mexico Malaysia Colombia Emerging Emerging Indonesia India While core inflation has been rising in the OECD NBF Economics and Strategy (data via IMF) OECD inflation expectations have remained stable OECD q1 2016q2 2016q3 2016q4 2017q1 2017q2 2017q3 2017q4 2018q1 Turkey Brazil Russia NBF Economics and Strategy (data via IMF) %

8 VISION MAY The Economy Blame low interest rates for too long for this problem. Of course, emerging economies are not the only ones feasting on cheap credit. The OECD has also indulged in leveraging for years. For instance, corporate bond issuance have generally tilted towards low-rated names. So much so that the share of low-rated nonfinancial corporate bond issuance in total nonfinancial corporate bond issuance is now near multi-year highs in places such as the UK and the eurozone, and remains high in the U.S. In other words, the world economy could be in for a rough ride if there is a deleveraging process similar to the one seen during the Great recession of OECD: Low-rated corporations dominate nonfinancial bond issuance Low-rated nonfinancial corporate bond issuance as a share of total nonfinancial corporate bond issuance 68 % NBF Economics and Strategy (data via IMF) UK U.S. Eurozone The rise of protectionism arguably remains the most pressing threat to global prosperity over the near to medium term. An increasingly inward-looking U.S. administration has moved beyond protectionist rhetoric and proposed tariffs on some imports, particularly from China. The latter has not surprisingly retaliated with tariffs of its own on imports of some U.S. goods should the U.S. government go ahead with its proposal. Should the current trade spat escalate into a full-blown trade war (one that covers most goods), global trade volumes will be curtailed. And if history is any guide, that would hurt world GDP growth. As such, investors will be hoping for some deescalation of the situation sooner rather than later. World: Economic prosperity hinges on trade Global real GDP versus World trade volumes Japan 2010 World Economic Outlook Forecast Advanced countries United States Euroland Japan UK Canada Australia New Zealand Hong Kong Korea Taiwan Singapore Emerging Asia China India Indonesia Malaysia Philippines Thailand Latin America Mexico Brazil Argentina Venezuela Colombia Eastern Europe and CIS Russia Czech Rep Poland Turk ey Real GDP SER01 % chg Middle East and N. Africa Sub-Saharan Africa Advanced economies Emerging economies World Source: NBF Economics and Strategy NBF Economics and Strategy (data via IMF, CPB) Trade volumes %

9 VISION MAY The Economy U.S.: Solid prospects for 2018 A good start to the year puts the U.S. economy firmly on track to grow about 2.8% in 2018, the best performance in years. Solid fundamentals suggests an acceleration of growth after Q1. A strong labour market, federal personal tax cuts, low interest rates, and easy access to credit are all positive for consumers. Solid profits, made even healthier by corporate tax cuts, will continue to lift business investment. But protectionist policies threaten to disrupt an otherwise promising economic outlook. The U.S. economy started 2018 rather well according to the Bureau of Economic Analysis (BEA), the latter showing a consensus-topping 2.3% annualized print for Q1 real GDP growth. Part of the upside surprise was due to trade which contributed to growth despite monthly reports suggesting otherwise. Domestic demand also contributed thanks to business investment, government and consumption, although the latter s growth softened significantly as Americans opted to save more the savings rate rose half a percentage point to 3.1% in the first quarter. Nominal GDP rose a solid 4.4%, the fourth consecutive quarter of above 4% growth. All in all, the good start to the year puts the U.S. economy firmly on track to grow about 2.8% in 2018, the best performance in years. That should close the output gap this year (based on the Congressional Budget Office s estimates of potential GDP) and hence allow for more sustained upward inflation pressures. U.S.: Economy grew 2.3% in the first quarter of 2018 U.S.: Credit still growing at healthy pace Loans and leases 13 y/y % chg Q NBF Economics and Strategy (data via Federal Reserve) Commercial real estate Consumer loans TOTAL Residential real estate Commercial & Industrial Don t read too much into the moderation in business loan growth. Firms may be finding it cheaper to tap financial markets directly instead of relying on banks (see World section). More importantly, the moderation in loan growth is not reflective of business confidence, the latter in fact still near multi-year highs largely due to tax cuts dished out earlier this year by Congress. Flush with cash courtesy of solid after-tax profits, repatriated dollars, and access to cheap financing, firms are likely to increase investment spending further this year, although we re cognizant of risks the windfall may be used instead on stock buybacks. 8 7 q/q % chg. saar Real and Nominal GDP Contributions to real GDP 2018Q1 2017Q4 GDP U.S.: Business confidence remained strong in Q1 NFIB small business optimism index at the end % of NFIB respondents who think taxes are the single most important problem NBF Economics and Strategy (data via Datastream) Nominal GDP Real GDP Q1 Consumption Business investm. Equip./Intell Business investm. Struct Residential investm Government Domestic Demand Exports Imports Trade Final sales Inventories Economic fundamentals remain strong and policy highly stimulative, which should assist growth going forward. Credit continues to grow at a healthy pace. An apparent moderation in business credit growth (particularly commercial and industrial loans) is seemingly being more than offset by higher growth for consumer and residential loans Strong confidence for small businesses NBF Economics and Strategy (data via Datastream) 2018 Q % fueled largely by tax cuts Despite the Q1 blip, the outlook for consumption spending, which accounts for nearly 70% of U.S. GDP, remains positive. Consumer confidence is high, no doubt thanks to support from federal personal income tax cuts, still-low interest rates, easy access to credit, and of course a buoyant labour market. For the second consecutive quarter, non-farm payrolls reportedly rose more than 600,000 in Q Q1

10 VISION MAY The Economy But the jobless rate has failed to break below 4.1% due to a rising participation rate, the latter boosted by prime-age workers who now seem to be rejoining the labour force. That s good news for spending, particularly on durable goods and housing. U.S.: Another strong quarter of employment creation 1, ,000-1,500-2,000 Non-farm payrolls and Jobless rate q/q chg. thousands Employment (L) -2, NBF Economics and Strategy (data via Datastream) % Jobless rate (R) 2018 Q % All workers (L) Participation rate Prime-age workers, i.e years (R) % But not all is rosy in the U.S. The favourable near to medium term growth outlook has been made possible by borrowing from longer term growth courtesy of ill-timed fiscal stimulus from Congress. As we ve pointed out before, fiscal multipliers tend to be small when the economy is at capacity. So, while growth rewards of fiscal stimulus are small and temporary, the budget deficit it creates could be large and permanent. According to the Congressional Budget Office s latest estimates, the U.S. budget deficit will be over US$1 trillion by 2020, or more than 5% of GDP. Those fiscal projections would be even more dire should expiring policies be extended to soothe beneficiaries or if there is a recession. CBO expects deficit to deteriorate sharply, even assuming no recession U.S. budget balance % of GDP CBO forecasts 2018 Q Protectionist measures from the Trump administration could also wreck the mood of businesses and consumers alike, with devastating consequences. Higher prices for imported goods (due to tariffs) may hurt consumers, while jobs in the export sector could be at risk if trade partners impose retaliatory measures. The impact on the corporate bottom line should also not be underestimated, especially considering a larger share of profits now comes from abroad. Recall that last year, growth in corporate profits was driven primarily by the rest-of-the-world component which again outperformed domestic profits. That allowed the rest-of-the-world component to increase its share of overall U.S. corporate profits to a four-year high of 20% in U.S.: Increasing share of corporate profits coming from abroad Corporate profits from rest-of-the-world component 23.5 y/y % chg. Thanks to the best % performance in seven years NBF Economics and Strategy (data via Bureau of Economic Analysis) Share of overall corporate profits attributed to rest-of-the-world component foreign operations have increased their share of overall U.S. corporate profits Policy error should also not be excluded as a growth-busting possibility. Buoyed by solid economic activity and its confidence it will hit its 2% inflation target, the Federal Reserve is focused on monetary policy tightening. One can only hope that amidst Fed over-exuberance, the U.S. yield curve does not invert in the past an inverted yield curve has often preceded recessions. Recall that the yield spread between 10-year and 2-year Treasuries is now less than 50 basis points, the tightest in over a decade. U.S.: Yield curve flattest in more than a decade 10-yr Treasury yield minus 2-yr Treasury yield Shaded areas are U.S. recessions NBF Economics and Strategy (data via Congressional Budget Office) % When Washington eventually addresses this unsustainable fiscal stance via spending cuts and tax hikes, perhaps after the 2020 elections, economic growth is likely to slow down sharply. That s not to say all is clear over the near term. It s always possible a fickle Congress will alter its fiscal stance sooner Shaded areas are U.S. recessions NBF Economics and Strategy (data via Datastream)

11 VISION MAY The Economy Canada: 2018 downgrade A weaker-than-expected start to the year prompts us to downgrade our 2018 forecast for Canadian GDP growth by three ticks to 2.2%. That assumes growth picks up in the second and third quarters as temporary factors which hurt Q1, turn into tailwinds. We have also pushed to July the timing of an expected interest rate hike from the Bank of Canada amidst a persistently dovish tone from a central bank that continues to fret about economic uncertainties while shrugging off a higherthan-target inflation rate. Growth seems to have remained soft in the first quarter of 2018, with a third consecutive sub-2% print. While February output grew a decent 0.4% (thanks to contributions from both goods and services), the prior month s weakness makes it difficult to have a stronger-than-2% first quarter growth, even assuming a good month of March. Canada: Economic growth likely soft again in Q1 Real GDP by industry q/q % chg. saar 2017q1 2017q2 2017q3 2017q4 2018q1 NBF Economics and Strategy (data via Statistics Canada) Assume March m/m chg.: +0.2% +0.1% flat -0.1% There were strong headwinds hitting the economy during Q1. Some of those, including plant shutdowns in the auto sector and disruptions to pipeline operations in the energy sector, temporarily restrained goods sector output and exports, and should reverse and turn into tailwinds later in the year. But other headwinds that hurt Q1 may persist for longer. Take NAFTA renegotiations for example. While there have been positive signals from trade negotiators, a formal agreement remains elusive. Related uncertainties seem to be trumping the improved profit outlook of corporations and hence restraining overall business investment outlays. The housing market s Q1 woes could also have more lasting impacts. Recall that home sales sank to multi-year lows in places such as Toronto. Resale prices in Canada s largest city have accordingly dropped about 7% since last summer, the worst slump since the recession of The impact of negative wealth effects on consumption (which accounts for roughly 60% of GDP) should not be underestimated, more so after the sharp moderation in spending observed in Q1. Canada: Toronto house prices sank following Non-Resident Spec. Tax Seasonally adjusted monthly home sales and House Price Index monthly change %m/m Average sales from May 2015 to April 2017 Teranet-National Bank HPI Number of homes sold Average sales from May 2017 to March NBF Economics and Strategy (data from Teranet National Bank House Price Index, CREA and TREB data seasonally adjusted by NBF) 10,500 10,000 9,500 9,000 8,500 8,000 7,500 7,000 6,500 6,000 5,500 On net, we expect tailwinds to lift the economy and allow Canada s growth to accelerate in the second and third quarters. But that will not fully compensate for the poor start to the year, which is why we are revising down our 2018 Canadian GDP growth forecast by three ticks to 2.2%. Like us, the IMF and Bank of Canada lowered their 2018 forecasts in light of the weak start to the year. While the central bank acknowledged the economy is near capacity, it left monetary policy unchanged in April on account of the slow start to the year and ongoing uncertainties with regards to trade and investment. We have accordingly pushed to July the timing of the next expected interest rate hike from the Bank of Canada (see May s edition of the Monthly Fixed Income Monitor). But comes a point, the Bank of Canada will have to ditch its dovish language, even if that means the Canadian dollar appreciates a bit, and assume its responsibilities as an inflation-targeting central bank. To be sure, there are more than just temporary factors pushing up prices. For months, core prices have been on the rise, reflecting the erosion of economic slack. Note that the consumer price index excluding food and energy grew 2.9% in March on a six-month annualized basis, the highest in 15 years. Canada: Excluding food and energy, inflation highest in 15 years Ex-food/energy CPI, 6-month annualized chg % Highest since February Mar NBF Economics and Strategy (data via Statistics Canada)

12 VISION MAY The Economy Despite the rough start to the year, the outlook remains positive, at least according to the Bank of Canada s own Business Outlook Survey whose aggregate indicator fell slightly in Q1 but was nonetheless the third highest since 2011 (topped only by Q2 and Q4 last year). While concerned about protectionism, firms still expect sales growth to accelerate over the next year, sentiment reinforced by improved foreign orders. A significant 47% of respondents still had some or significant difficulties in meeting an unexpected increase in demand, and roughly a quarter of respondents said they faced labour shortages. The majority of respondents still expect to increase employment and investment over the next 12 months, not surprising in light of capacity and labour pressures. Canada: Businesses still keen to hire and invest Business Outlook Survey indicator Business sentiment remains positive NBF Economics and Strategy (data via Bank of Canada) 2018 Q1 Balance of opinion on employment and investment intentions, i.e. percentage of firms expecting higher minus the percentage expecting lower 60 % Employment Investment and that s reflected in still-high intentions to hire and invest As such, we don t believe the Q1 employment slump (-40K in total or -69K in the private sector) is the start of a concerning trend. Note that despite the first quarter s challenges in the labour market, hourly earnings still managed to grow 3.2% on a year-onyear basis in Q1, the fastest since The tilt towards full-time positions clearly helped in that regard, something that adds to evidence that Canada s labour market remains in good shape. Canada: Wages heat up as share of full-time employment surges Full-time share of total employment versus Average hourly wage rate of employees 2018 Q1 Another reason why we remain positive on employment prospects is the improved efficiency of the labour market. The Beveridge curve, the relationship between the jobless rate and the job vacancy rate the number of job vacancies as a share of the sum of all occupied and vacant jobs, is indeed moving closer to the origin. Recall that the jobless rate has managed to fall by half a percentage point since 2017Q2, even with an unchanged job vacancy rate. The country s largest provinces are seeing a similar phenomenon. In other words, workers are finding jobs without needing a higher vacancy rate, a sign that labour market mismatches are diminishing. Canada: Is the labour market becoming more efficient? Job vacancy SER09 rate (%) Canada: Jobless rate versus Job vacancy rate 17Q4 17Q3 17Q2 15Q2 17Q1 15Q Unemployment rate (%) SER10 15Q3 16Q3 16Q4 16Q2 NBF Economics and Strategy (data via Statistics Canada) 15Q4 16Q1 Job vacancy rate (%) BC Q4 17Q2 3.8 AB 3.6 ON QC Four largest provinces: Jobless rate versus Job vacancy rate 17Q4 17Q4 17Q Unemployment rate (%) Employment creation will not top last year s blistering pace, but will still provide support to consumption and housing, both of which are nonetheless expected to soften somewhat in 2018 after years of unsustainable debt-fuelled growth. We are still counting on fiscal stimulus to provide a lift to domestic demand as pre-election handouts in Quebec and Ontario complement an expected uptick in infrastructure spending at the federal level. Trade is likely to remain a drag on growth again this year as Canadian exporters of non-energy goods continue to struggle amidst competitiveness challenges. But we continue to expect a turnaround in 2019 as exporters are better able to exploit opportunities brought by a revamped NAFTA, and other trade agreements including CETA and CPTPP. 17Q2 17Q2 17Q2 % y/y % chg Canada: Exports of non-energy goods have stagnated over last four years Real exports of goods Hourly earnings (R) Index=100 in April 2007 Energy TOTAL Full-time positions as a share of total employment (L) Q NBF Economics and Strategy (data via Statistics Canada) 90 Non-energy NBF Economics and Strategy (data via Statistics Canada)

13 VISION MAY The Economy United States Economic Forecast Q4/Q4 (Annual % change)* Gross domestic product (2009 $) Consumption Residential construction Business investment 2.3 (0.6) Government expenditures Exports 0.4 (0.3) Imports Change in inventories (bil. $) Domestic demand Real disposable income Household employment Unemployment rate Inflation Before-tax profits (1.1) (2.1) Federal balance (unified budget, bil. $) (438.0) (586.0) (666.0) (800.0) (1,200.0) Current account (bil. $) (434.6) (451.7) (466.2) (497.5) (510.0) * or as noted -304 Financial Forecast** Current Q Q Q Q Q Q Q Fed Fund Target Rate month Treasury bills Treasury yield curve 2-Year Year Year Year Exchange rates U.S.$/Euro YEN/U.S.$ ** end of period Quarterly pattern Q Q Q Q Q Q Q Q actual actual actual actual forecast forecast forecast forecast Real GDP growth (q/q % chg. saar) CPI (y/y % chg.) CPI ex. food and energy (y/y % chg.) Unemployment rate (%) National Bank Financial

14 VISION MAY The Economy Q4/Q4 (Annual % change)* Gross domestic product (2007 $) Consumption Residential construction (3.0) 4.7 (1.8) (3.0) Business investment (11.3) (9.4) Government expenditures Exports Imports 0.7 (1.0) (0.0) 2.7 Change in inventories (millions $) 4, ,725 2, ,807-1, Domestic demand Real disposable income Employment Unemployment rate Inflation Before-tax profits (19.8) (1.9) Current account (bil. $) (71.5) (65.4) (63.9) (55.4) (42.4) * or as noted Canada Economic Forecast Financial Forecast** Current Q Q Q Q Q Q Q Overnight rate month T-Bills Treasury yield curve 2-Year Year Year Year CAD per USD Oil price (WTI), U.S.$ ** end of period Quarterly pattern Q Q Q Q Q Q Q Q actual actual actual forecast forecast forecast forecast forecast Real GDP growth (q/q % chg. saar) CPI (y/y % chg.) CPI ex. food and energy (y/y % chg.) Unemployment rate (%) National Bank Financial

15 VISION MAY Interest Rates and Bond Markets

16 VISION MAY Interest Rates and Bond Markets U.S. Treasury borrowing requirements as % of GDP Net change in gross debt less debt held by governments accounts, end of fiscal year Paul-André Pinsonnault Senior Fixed Income Economist Eurozone economy softens, U.S. economy stronger than expected The global economy continued to expand in the first quarter, albeit at a slower pace. Cooling was especially evident in the euro area, where although some normalization had been expected after a period of very strong growth, the extent of the deceleration surprised the ECB. Mr. Draghi described the loss of momentum as broad-based across countries and sectors. Against this backdrop, the ECB Governing Council spent its April policy meeting analysing the indicators rather than discussing the roadmap for monetary policy, though Mr. Draghi expressed confidence that inflation will converge to the ECB target in the medium term with support from ample monetary stimulus. So the mix of forward guidance on interest rates and ongoing asset purchases was left unchanged. Interestingly, when the ECB talks about its policy stance it refers to the sizable stock of assets acquired and forthcoming reinvestment. This reflects the ECB s view that its reinvestment policy will ensure that the amount of duration risk to be borne by price-sensitive private investors will increase only very moderately over time and thus limit the risk of an unwarranted decompression of the term premium (Benoit Coeuré, member of the ECB Executive Board, New York City February 23, 2018). In the U.S., it appears that the FOMC will face a different picture in coming years. The ECB s asset purchase program was larger than net new issuance. For example, only about 10% of German Bunds are held by private investors, according to the ECB, while about half of marketable U.S. Treasuries are in private hands. FOMC holdings peaked at 20% in Q and had drifted down to 17% by Q In light of the FOMC balance sheet normalization that began last October and the CBO projection of U.S. Treasury borrowing requirements, FOMC holdings could shrink to only 7% of marketable Treasury securities by 2022, leaving a much smaller FOMC footprint on the Treasury term premium. 13 % of GDP NBF Economics and Strategy (data from CBO report The Budget and Economic Outlook: 2018 to 2028, April 2018) CBO projection This will not happen overnight, of course, but with a larger portion of marketable securities held by price-sensitive investors, we would expect the term premium of Treasuries to prove more sensitive than that of Bunds to economic surprises and uncertainties. Yields of U.S. Treasuries and German Bunds % Bunds 2-year Treasuries 10-year Treasuries 2-year Bunds 10-year NBF Economics and Strategy (data via Bloomberg) The CBO s projection is of course based on current fiscal policy and much could change after the next presidential election. Under current fiscal policy, the cost of debt service would grow to exceed military spending and is projected by the CBO to amount to just above 16% of all Treasury revenue by The resulting loss of budget flexibility is a prospect that could trigger a response from U.S. politicians. Will they come up with a plan other than inflating their way out of deficit to contain the effect of the buildup of debt held by the public? Maybe. The question would then become: Will the resulting pattern of borrowing requirements be like that of or more like that of ? Time will tell.

17 VISION MAY Interest Rates and Bond Markets US: Net cost of debt service as % of revenues Net interest cost on gross debt less debt held by governments accounts % of revenues NBF Economics and Strategy (data from CBO report The Budget and Economic Outlook: 2018 to 2028, April 2018) 10-year Treasuries: Are they entering a new trading range? Intraday ranges % 1 68% of the move is explained by higher real rate 2 9 weeks of sideways trading 3 63% of the move is explained by higher inflation expectations 4 Higher term premium in response to fiscal stimulus 5 Risk-off due to fears of trade war and debacle of FAANG stocks q1 2017q2 2017q3 2017q4 2018q1 2018q2 NBF Economics and Strategy (data via Bloomberg) 1 4 5? [ %] - Stock market stabilizes - Positive developments in geopolitics and trade talks - Gradual FOMC monetary normalization remains on track - Focus back on borrowing requirements In the shorter run, bond investors face a U.S. economy that has surprised on the upside in Q In our view the good beginning of the year puts the U.S. economy firmly on track for growth of 2.8% in Not only has the overall expansion been encouraging for the Fed, but the Q1 growth of private-sector wages and salaries was the fastest since This development will be welcome to FOMC participants. It has certainly reinforced the view that a total of three or four rate rises this year is a reasonable expectation. The 10-year Treasury yield has risen 24 bps since March 29, though from a level somewhat depressed by March fears of trade wars and a debacle of FAANG stocks. With geopolitical tension eased, trade rhetoric softened and inflation numbers firmer, bond yields have drifted above those that followed Trump s tax cuts. U.S. bond yields, % Date Change Feb. 27 March 29 April 26 Feb. April Treasuries 2-yr Treasuries 10-yr TIPS 10-yr BEIR Slope 10-yr 2-yr NBF Economics and Strategy (data via Bloomberg) With the economic expansion still on track, we think the 10-year yield will drift to a new trading range slightly above 3%. Though we recognize that the risks are skewed toward a more aggressive Fed, we think FOMC members will shy away from delivering more than three rate hikes in total in 2018, since some headwinds to growth can be expected from the rise of long rates. Interest rate forecast 04/27/18 Q2 Q3 Q4 Q1/19 Q2 Q3 Q4 Q1/20 F.F. - upper bound YR YR Forward 10-yr rate Some of the upward drift in long rates that we see, out to our forecast horizon, will reflect term-premium increases over time as the FOMC unwinds its balance sheet and Treasury financing requirement remain high. At the front end of the yield curve we expect policy normalization to take the target fed funds range to 2.75% 3.0% by year end In this view, the slope of the curve as measured by the difference between the 10-year yield and the upper bound of the fed funds range will flatten from 123 bps currently to 47 bps in Q and in Canada Like many concepts in economics, the neutral policy rate is more easily defined than evaluated. On that everyone will agree. Put simply, the neutral rate is the policy rate consistent with full employment, trend growth and stable prices. It is an important concept. As St. Louis Fed president James Bullard has said, policymakers need to know its value in order to decide whether a policy rate is accommodative, neutral or restrictive. So when Bank of Canada governor Stephen Poloz, talking to reporters in Washington April 21 about the neutral rate in Canada, said we just don t know where that is, adding that he couldn t defend a 3% call any more than 2%, or even 1.5, his remarks surprised some but to a certain extent echoed those of Fed chair Alan Greenspan in June 2005: It s very difficult to know where that so-called neutral rate is. But we probably will know it when we are there because we will observe a certain degree of balance, which we had not perceived before, which would suggest that we are somewhere very close to where that is.

18 VISION MAY Interest Rates and Bond Markets But Mr. Poloz s comments in Washington were at odds with his opening statement at the Monetary Policy Report press conference on April 18, when he said we have reviewed our work on the neutral interest rate and concluded that it still lies somewhere in the range of 2.5 to 3.5 percent, given a 2 percent inflation rate. So the governor s conviction about the neutral rate appears rather weak, and sheds some light on his statement that most of the Governing Council deliberations leading to the April 18 rate announcement were about the appropriate pace of rate increases. Without some conviction about the goal post of policy normalization, or at least a good handle on it, we can only guess how difficult it would be to agree on how much is needed and how fast. The easy part of the Governing Council deliberations was to recognize that the need for a negative real policy rate continues to diminish in Canada. With the Bank going out of its way to explain that its policy decisions are part of a risk-management process, and given its view that high debt may make monetary policy less potent in boosting confidence and increasing demand if that is needed (deputy governor Lawrence Schembri, February 15), we are left thinking that policy decisions are not symmetrical that the BoC is likely to respond less aggressively than in the past to shocks that push the economy above equilibrium. The bias is to let the economy test how far capacity-building can go without threatening the credibility of its regime of flexible inflation targeting. Given this bias and the data dependence of our central bank, we expect monetary normalization to proceed slowly. It will take an accumulation of good news to prompt policy action. In this regard, the strong headwinds felt by the economy in early Q1, with GDP reported to have contracted 0.1% in January, have left the central bank with room for patience. The BoC now has the luxury of waiting to see how the housing market performs in May and June before updating its economic projections for the July 11 Monetary Policy Report. By then we expect that evidence of a pickup in growth will be widespread enough to prompt a rate hike. We continue to see the overnight rate ending 2018 at 1.75%. While financial markets are giving 31% odds of the Canadian overnight rate reaching at least 2.0% (three more BoC rate hikes) in 2018, the fed funds futures market gives 80% odds of the effective fed funds rate trading at or above 2.125% by year end. So it is not surprising that yields to maturity of short-term Government of Canada bonds are trading well below those of comparable Treasuries. Given our expectation of a Fed more aggressive than the BoC in 2019, we expect the Canada-U.S. spread of 2-year yields to remain wide out to our forecast horizon. We see 2-year Canadas trading around 2.55% by year end 2019 and 2-year Treasuries around 3.20%. Market are pricing a more rate hike south of the border Yield spreads at the front end of the yield curve will stay wide over the horizon forecast % Treasuries Canada year NBF Economics and Strategy (data via Bloomberg) Our forecast for the longer portion of the yield curve is little changed from last month: 10-year Canadas trading at 2.63% (down 5 bps) at the end of this year and at 3.09% (up 3 bps) a year later. Canada: More policy normalization coming in 2018 Normalization needs to be gradual to balance risks to financial stability, economy and inflation % BoC overnight rate Interest rate forecast 04/27/18 Q2 Q3 Q4 Q1/19 Q2 Q3 Q4 Q1/20 Overnight YR YR Forward 10-yr rate NBF Economics and Strategy (data via Bloomberg) We expect 10-year Canadas, currently trading at 2.32%, to be trading around 2.63% in Q year yield 10-year yield The Canadian bond market returned a negative 0.95% in April according to the ICE BofAML broad market index. Spread products, after disappointing in the first quarter, added some value relative to Canadas in April. Provincials maturing in more than 10 years have returned 43 bps more than long Canadas and long corporates returned 93 bps more.

19 VISION MAY Interest Rates and Bond Markets Canada: Corporate and provincial yield spreads 10-year maturities, BFV CAD yields Percentage points NBF Economics and Strategy (data via Bloomberg) few more charts Spreads to Canadas (L) Corporate A Ontario Corporate A Ontario Canada Looking at the Canadian yield curve, one will notice how flat it is at the longer end. % But this is also true south of the border. Slope of the yield curve since 1992: 30-year yield minus 10-year yield Canada and U.S. Treasuries % NBF Economics and Strategy (data via Bloomberg) Treasuries Canada Canadian interest rates Weekly, last observation April 27, % Corporates A Canada Ontario an NBF Economics and Strategy (data via Bloomberg) Slope of the yield curve since 1992: 10-year yield minus 2-year yield Canada and U.S. Treasuries % Treasuries Canada NBF Economics and Strategy (data via Bloomberg)

20 VISION MAY Interest Rates and Bond Markets Recommended bond allocation Recommended duration 7.28 vs the benchmark 7.39 Maintain overweight in provincial and corporate bonds Long 31.9% Short 47.1% Federal 30.0% Corporate 31.2% Canadian bond market total returns Total Returns 04/27/2018 Since Since Since Since 03/30/ /26/ /27/ /28/2017 Cash Canada Short Mid Long Universe Mid 21.0% Benchmark Allocation Short 45.6%, Mid 22.5%, Long 31.9% Federal 36.6%, Provinces 35.5% Corporations 27.9% Provinces 38.8% Provincial Municipal Corporate AA A BBB Universe Total S&P/TSX NBF Economics and Strategy NBF Economics and Strategy (data via Datastream) U.S. interest rates Last observation April 27, 2018 Canadian interest rates Weekly, last observation April 27, % Long corporate 8 7 % Long corporate A Long provincial Target fed funds 30-year mortgage U.S. 2-year U.S. 10-year BoC overnight target Canada 2-year Canada 10-year NBF Economics and Strategy (data via Bloomberg) NBF Economics and Strategy (data via Bloomberg) Bond Market - Canada Close-on 4/27/18 3/30/18 1/26/18 10/27/17 4/28/17 Interest Rates 90-day (B/A's) years years years years Spreads 90 d - 2 years years years years Currencies CAD / USD EUR / CAD Source: NBF Economics and Strategy (data via Bloomberg)

21 VISION MAY Technical Analysis

22 VISION MAY Technical Analysis Dennis Mark, cfa In the May issue of Vision we revisit the energy sector as it begins to emerge as a leading sector in this market. S&PTSX Energy/WTI Daily.SPTTEN, CLc (TOR) Value Ratio,.SPTTEN, Trade Price(Last), CLc1, Trade Price(Last), 1.0, 1.0, False, False , CAD Auto Source: Reuters The recovery in WTI oil prices has brought about a disappointing performance in energy stocks generally and particularly Canadian energy stocks. A ratio chart of the S&PTSX Energy/WTI depicts the weak relative performance of the S&PTSX Energy Index to WTI. This ratio is back to levels around As highlighted in the accompanying chart, energy stocks usually start to outperform WTI on a relative basis whenever this ratio has traded down to current levels. The historical record indicates this is the fifth occasion this ratio has dropped to similar levels and was followed by a period of relative outperformance of energy stocks to WTI. Technical action is confirming a similar conclusion.

23 VISION MAY Technical Analysis Dennis Mark, cfa S&P/TSX Energy Daily [.SPTTEN List 1 of 38].SPTTEN Cndl,.SPTTEN, Trade Price, , , , , , +0.11, (+0.06%), SMA,.SPTTEN, Trade Price(Last), 50, , , SMA,.SPTTEN, Trade Price(Last), 200, , (TOR) Price CAD Vol,.SPTTEN, Trade Price, , 4.631M 164 Auto Volume 100M 50M 4.631M Auto May 16 Jun 16 Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Feb 18 Mar 18 Apr 18 May 18 Source: Reuters A broad recovery is unfolding in the energy sector. The bear market that took many energy stocks down significantly has played out and the sector is in recovery mode. Extended basing action over the past year or two is constructive. Time risk at this point is greater than price risk. The S&P/TSX energy sector has established support around the 160 level where it recently rallied off of. Important chart resistance at 204 is being challenged as WTI pushes toward US$ The next technical positive comes when this index breaks above 204 with some volume and conviction. We continue to selectively recommend energy stocks as they trade to attractive risk/reward entry points.

24 VISION MAY Technical Analysis Dennis Mark, cfa IBD Relative performance rank Source: NBF The IBD relative performance rank for the Canadian oil & gas sector hit a new 15-month high recently after spending a number of months in the basement. These rankings are following on the heels of the U.S. oil & gas sector which has an IBD rank of 9 out of 197. This suggests that this sector is increasingly being favoured relative to other sectors. A current ranking of 102 out of 197 is knocking on the doorstep to the top half of the rankings parade with potential to improve toward the top of the rankings.

25 VISION MAY Technical Analysis Dennis Mark, cfa Bayex Energy Corp. (BTE) Daily [.SPTTEN List 5 of 38] BTE.TO Cndl, BTE.TO, Trade Price, , 5.46, 5.70, 5.40, 5.68, +0.13, (+2.34%), SMA, BTE.TO, Trade Price(Last), 50, , 3.92, SMA, BTE.TO, Trade Price(Last), 200, , (TOR) Price CAD Vol, BTE.TO, Trade Price, , 2.090M Auto Volume 10M 2.090M Auto Q Q Q Q Q Q Q Q Q Source: Reuters The BTE chart broke out of a one-year base recently at $4.70 with bullish implications. Volume and momentum characteristics indicate the potential for a strong positive performance. Volume on the breakout increased dramatically reflecting strong buying interest. The stock did not look back on the breakout as building upside momentum carried the stock to new 52-week highs. An emerging bull trend points to an initial target of $7.00 to $7.50 as first stop with potential for much more. Use any pullbacks to around $5.00 as an opportunity to buy the stock.

26 VISION MAY Technical Analysis Dennis Mark, cfa Precision Drilling Corp. (PD) Daily [.SPTTEN List 22 of 38] PD.TO Cndl, PD.TO, Trade Price, , 4.450, 4.640, 4.420, 4.625, , (+3.70%), SMA, PD.TO, Trade Price(Last), 50, , 3.905, SMA, PD.TO, Trade Price(Last), 200, , (TOR) Price CAD Vol, PD.TO, Trade Price, , 967, Auto Volume 5M 967, Auto Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Feb 18 Mar 18 Apr 18 May 18 Source: Reuters The drilling sector is typically the lagging sector in an energy recovery phase and so far this has been the case. Now that the Oil Service Index in the United States has broken out of a base, the prospects for this sector have improved on a technical basis. Our favourite remains Precision Drilling as this stock also trades in the United States. An initial breakout at $4.00 is starting to gain traction as the stock trades up to challenge minor resistance at its rally highs at $4.85. Volume since the fourth quarter 2017 has maintained a high level as the stock bases and turns up. There is potential for the stock to break out to new recovery highs and trade to $6.50 to $7.00.

27 VISION MAY Technical Analysis Dennis Mark, cfa Tamarack Valley Energy Ltd. (TVE) Daily TVE.TO Cndl, TVE.TO, Trade Price, , 3.54, 3.59, 3.53, 3.58, -0.01, (-0.28%), SMA, TVE.TO, Trade Price(Last), 50, , 2.88, SMA, TVE.TO, Trade Price(Last), 200, , (TOR) Price CAD Vol, TVE.TO, Trade Price, , 97, Auto Volume 10M 97, Auto M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: Reuters The TVE chart has a very attractive formation that offers a lot of potential. A recent upside breakout at $3.10 completed a one-year base that reverses its trend to the upside. Strong volume and momentum on and after the breakout is bullish. Next key resistance at $4.20 will be challenged with potential for another upside breakout. Any breakout at the $4.20 level will be important as it will complete three years of basing action. This breakout will set the stage for a rally to test the old highs at $7.50 to $8.00.

28 VISION MAY Sector Analysis In this section, commentaries and stock closing prices are based on the information available up to April 30, Information in this section is based on NBF analysis and estimates and Thomson Reuters Eikon.

29 VISION MAY NBF Selection List Sector Analysis Sector Company Ticker Price Target Price Div. Yield Est. TR Industry Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunication Services Utilities Real Estate Encana Corp. ECA US$12.48 US$ % 44.71% Oil, Gas & Consumable Fuels Enerplus Corp. ERF $14.90 $ % 31.68% Oil, Gas & Consumable Fuels Kelt Exploration Ltd. KEL $8.12 $ % 26.23% Oil, Gas & Consumable Fuels North American Construction Group Ltd. NOA $7.25 $ % 66.62% Energy Equipment & Services Pembina Pipeline Corp. PPL $40.89 $ % 39.79% Oil, Gas & Consumable Fuels Secure Energy Services Inc. SES $8.08 $ % 58.04% Energy Equipment & Services Suncor Energy Inc. SU $49.10 $ % 16.99% Oil, Gas & Consumable Fuels Tidewater Midstream and Infrastructure Ltd. TWM $1.30 $ % 76.15% Oil, Gas & Consumable Fuels Whitecap Resources Inc. WCP $9.30 $ % 26.97% Oil, Gas & Consumable Fuels Arizona Mining Inc. AZ $4.05 $ % 48.15% Metals & Mining Atlantic Gold Corp. AGB $1.85 $ % 62.16% Gold Capstone Mining Corp. CS $1.12 $ % 56.25% Metals & Mining Cascades Inc. CAS $12.25 $ % 64.57% Containers & Packaging Falco Resources Ltd. FPC $0.65 $ % % Metals & Mining Osisko Mining Inc. OSK $2.66 $ % % Metals & Mining SSR Mining Inc. SSRM $13.15 $ % 36.88% Gold Stelco Holdings Inc. STLC $23.57 $ % 41.71% Metals & Mining Stella-Jones Inc. SJ $46.53 $ % 14.94% Paper & Forest Products Teck Resources Ltd. TECK.b $32.23 $ % 40.24% Metals & Mining Wesdome Gold Mines Ltd. WDO $1.89 $ % % Gold Bombardier Inc. BBD.b $3.97 $ % 13.35% Capital Goods CanWel Building Materials CWX $6.70 $ % 27.76% Capital Goods Cervus Equipment Corp. CERV $13.21 $ % 46.86% Capital Goods Chorus Aviation Inc. CHR $7.70 $ % 36.10% Transportation Exchange Income Corp. EIF $30.33 $ % 52.29% Transportation Rocky Mountain Dealerships Inc. RME $12.36 $ % 41.26% Capital Goods StorageVault Canada Inc. SVI $2.42 $ % 34.72% Commercial & Professional Services Transcontinental Inc. TCL.a $27.04 $ % 25.15% Commercial & Professional Services AutoCanada Inc. ACQ $21.82 $ % 37.03% Retailing Cineplex Inc. CGX $30.01 $ % 23.89% Media Enercare Inc. ECI $17.36 $ % 44.00% Consumer Services Spin Master Corp. TOY $48.03 $ % 35.33% Consumer Durables & Apparel Empire Company Ltd. EMP.a $25.86 $ % 17.63% Food & Staples Retailing Immunovaccine Inc. IMV $2.01 $ % 49.25% Pharmaceuticals, Biotechnology & Life Scienc Canadian Imperial Bank of Commerce CM $ $ % 26.37% Banks ECN Capital Corp. ECN $3.40 $ % 48.24% Diversified Financials Firera Capital Corp. FSZ $11.32 $ % 43.64% Diversified Financials Great-West Lifeco Inc. GWO $34.23 $ % 18.48% Insurance Manulife Financial Corp. MFC $24.23 $ % 31.57% Insurance TMX Group X $77.44 $ % 13.64% Diversified Financials Kinaxis Inc. KXS $82.99 $ % 20.50% Software & Services Open Text Corp. OTEX US$35.33 US$ % 43.02% Software & Services Shopify Inc. SHOP US$ US$ % 19.73% Software & Services Algonquin Power & Utilities AQN US$12.50 US$ % 24.70% Utilities Boralex Inc. BLX $22.95 $ % 20.26% Utilities Capital Power Corp. CPX $24.38 $ % 38.11% Utilities Northland Power Inc. NPI $23.15 $ % 17.49% Utilities Cominar REIT CUF.un $12.53 $ % 37.43% Real Estate H&R REIT HR.un $20.62 $ % 25.51% Real Estate RioCan REIT REI.un $23.35 $ % 29.29% Real Estate SmartCentres REIT SRU.un $28.80 $ % 24.06% Real Estate Tricon Capital Group Inc. TCN $10.06 $ % 22.07% Real Estate The NBF Selection List highlights our s best investment ideas each Month. A maximum of three names per s are selected based on best Total Estimated Return. Prices as of April 30, 2018 Source: NBF Research, Thomson Reuters

30 VISION MAY s' Tables Glossary Sector Analysis GENERAL TERMS Stock Sym. = Stock ticker Stock Rating = s recommendation OP = Outperform SP = Sector Perform UP = Underperform TENDER = Recommendation to accept acquisition offer UR = Recommendation under review R = Restricted stock Risk Rating = s recommendation BA = Below Average A = Average AA = Above Average S = Speculative = Price target from the previous month. or = Price target upgrade or downgrade. Price target = 12-month price target = Recommendation change from the previous month. or = Recommendation upgrade or downgrade. Shares/Units O/S = Number of shares/units outstanding in millions. FDEPS = Listed are the fully diluted earnings per share for the last fiscal year reported and our estimates for fiscal year 1 (FY1) and 2 (FY2). EBITDA per share = Listed are the latest actual earnings before interest, taxes, depreciation and amortization for the fiscal year 1 (FY1) and 2 (FY2). P/E = Price/earnings valuation multiple. P/E calculations for earnings of zero or negative are deemed not applicable (N/A). P/E greater than 100 are deemed not meaningful (nm). FDCFPS = Listed are the fully diluted cash flow per share for the last fiscal year reported and our estimates for fiscal year 1 (FY1) and 2 (FY2). EV/EBITDA = This ratio represents the current enterprise value, which is defined as the sum of market capitalization for common equity plus total debt, minority interest and preferred stock minus total cash and equivalents, divided by earnings before interest, taxes, depreciation and amortization. NAV = Net Asset Value. This concept represents the market value of the assets minus the market value of liabilities divided by the shares outstanding. DEBT/CAPITAL = Evaluates the relationship between the debt load (long-term debt) and the capital invested (long-term debt and equity) in the business (based on the latest release). SECTOR-SPECIFIC TERMS OIL AND GAS EV/DACF = Enterprise value divided by debt- adjusted cash flow. DACF is calculated by taking the cash flow from operations and adding in the financing costs. CFPS/FD = Cash flow per share on a fully diluted basis. P/CFPS = Price/cash flow per share valuation multiple. P/CFPS calculations for cash flow of zero or negative are deemed not applicable (N/A). P/CFPS greater than 100 are deemed not meaningful (nm). CNAV = Contingent NAV PIPELINES, UTILITIES AND ENERGY INFRASTRUCTURE Distributions per Share = Gross value distributed per share for the last year and expected for fiscal year 1 & 2 (FY1 & FY2). Cash Yield = Distributions per share for fiscal year 1 & 2 (FY1 & FY2) in percentage of actual price. Distr. CF per Share-FD = Funds from operations less maintenance capital expenditures on a fully diluted per share basis. Free-EBITDA = EBITDA less maintenance capital expenditures. P/Distr. CF = Price per distributable cash flow. Debt/DCF = This ratio represents the actual net debt of the company (long-term debt plus working capital based on the latest annual release) on the distributable cash flow. FINANCIALS (DIVERSIFIED) & FINANCIAL SERVICES Book value = Net worth of a company on a per share basis. It is calculated by taking the total equity of a company from which we subtract the preferred share capital divided by the number of shares outstanding (based on the latest release). P/BV = Price per book value. REAL ESTATE Distributions per Unit = Gross value distributed per unit for the last year and expected for fiscal year 1 & 2 (FY1 & FY2). Cash Yield = Distributions per share for fiscal year 1 & 2 (FY1 & FY2) in percentage of actual price. FFO = Funds from Operations is a measure of the cash generated in a given period. It is calculated by taking net income and adjusting for changes in fair value of investment properties, amortization of investment property, gains and losses from property dispositions, and property acquisition costs on business combinations. FD FFO = Fully diluted Funds from Operations. P/FFO = Price per Funds from Operations. METALS AND MINING: PRECIOUS METALS / BASE METALS P/CF = Price/cash flow valuation multiple. P/CFPS calculations for cash flow of zero or negative are deemed not applicable (N/A). P/CFPS greater than 100 are deemed not meaningful (nm). P/NAVPS = Price per net asset value per share. SPECIAL SITUATIONS FDDCPS = Fully diluted distributable cash flow per share. Cash flow (EBITDA less interest, cash taxes, maintenance capital expenditures and any one-time charges) available to be paid to common shareholders while taking into consideration any possible sources of conversion to outstanding shares such as convertible bonds and stock options. SUSTAINABILITY AND CLEAN TECH Sales per share = revenue/fully diluted shares outstanding. P/S = Price/sales TRANSPORTATION AND INDUSTRIAL PRODUCTS FDFCFPS = Fully diluted free cash flow per share. P/CFPS = Price/cash flow per share valuation multiple. P/CFPS calculations for cash flow of zero or negative are deemed not applicable (N/A). P/CFPS greater than 100 are deemed not meaningful (nm).

31 VISION MAY Banking & Insurance Sector Analysis Gabriel Dechaine Associates: Ganesh Kannan: Mateen Latif: Canadian Banks & Lifecos Sticking to lifecos over banks Canadian Banks: Could a housing slowdown take the wind out of Canadian commercial lending? Commercial lending is a very profitable business for Canadian banks. We estimate that these loans generate an ROE of 20%+ and have contributed a fifth of average Canadian P&C segment earnings growth over the past year. We also believe that Commercial Real Estate (CRE) is an important component of this growth. Although there are no immediate sources of concerns, we believe investors will be interested to know which banks have the most exposure to Canadian CRE loans if a credit event arises (these include CM, NA & RY). Alternatively, in the event of a more benign slowdown scenario, it is important to highlight which banks have been most dependent on commercial loan growth to drive earnings over the past year (these include BMO, BNS and CM). GTA home price weakness amplifies housing overhang. Sticking to lifecos over banks: The emergence of a housing-related overhang is an annual tradition for Canadian bank stocks. Another tradition is the eventual removal of the housing overhang (i.e., when nothing bad happens), which we believe explains the pattern of strong second half performance by Big-6 bank stocks, whereby they have outperformed the S&P/TSX in nine of the past 11 years (i.e., during H2s) may be setting up in a similar fashion, especially with the sector s 11x forward P/E at a 22-month low that could present a re-rating opportunity if the right catalyst emerges (e.g., favourable NAFTA resolution, resumption of positive GTA home price appreciation by July). Nonetheless, in large-cap Canadian Financials we maintain our lifecos over banks recommendation since: (1) lifecos business models have less direct linkage to Canada s GDP, especially with GWO/MFC/SLF generating over half of their core earnings outside of Canada; (2) greater earnings upside from FX translation, (3) less housing exposure in the lifeco sector; and (4) generally strong balance sheets, with GWO and SLF more or less confirming excess capital positions under new LICAT regulation. Selections Bank of Nova Scotia Canadian Imperial Bank of Canada Great-West Lifeco Manulife Financial Sun Life Financial Toronto Dominion Bank Market Shares Stock Last FDEPS Book Value per Share 12-Mth Stock Stock Cap O/S Price Year Last est. est. P/E Last est. est. P/BV Div. Price Sym. Rating (Mln) (Mln) 4/30 Reported FY FY1 FY2 FY1 FY2 Quarter FY1 FY2 FY1 FY2 % Target Banking Bank of Montreal BMO SP 62, / % Bank of Nova Scotia BNS OP 94,581 1, / % CIBC CM OP 49, / % National Bank NA NR 20, / % NR Royal Bank of Canada RY SP 141,005 1, / % Toronto-Dominion Bank TD OP 133,067 1, / % Canadian Western Bank CWB SP 3, / % Laurentian Bank LB SP 2, / % Insurance Great-West Lifeco GWO OP 33, / % Industrial Alliance IAG SP 5, / % Manulife Financial MFC OP 48,052 1, / % Sun Life Financial SLF OP 32, / % Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted; NR = Not Rated

32 VISION MAY Diversified Financials Sector Analysis Jaeme Gloyn, CFA Associate: Victor Dri: Mortgage Companies Q Preview Maintaining our Cautious Approach to Lenders in 2018 We continue to maintain our view that macro-related risks including 1) weakening GTHA housing market backdrop, 2) malignant regulatory and government policy backdrop, and 3) the aftermath of increasing speculative behaviour will weigh on near-term share price performance for the mortgage lenders we cover. In addition, we believe that alternative lenders (HCG, EQB, SCB) face a less favorable profitability outlook as intensifying competition in the residential mortgage market drives a) net interest margin pressure, and b) a shift in portfolio mix to lower-roe commercial mortgages. For these reasons, we continue to advise investors exercise caution and await better visibility on the aforementioned macro risks, and underlying company profitability. Speculation (Or Lack Thereof) Driving Recent Home Sales Plunge: In light of point #3 above, an external real estate expert examined the impact investors/speculators had on the GTA housing market. The report found that areas experiencing the greatest investor interest during Q1-17 (e.g., York region) experienced the largest slowdown in housing activity in Q3-17 and Q4-17 following regulatory/policy intervention. Will housing activity return to pre-intervention levels? Studying the effects of significant intervention both internationally and in Vancouver demonstrates that a portion of demand is permanently removed. In fact, housing activity shows signs of stabilizing roughly 20-40% below pre-intervention levels, i.e., a new normal. We believe this supports our continued cautious stance on the GTA housing market through the remainder of the year, and potentially longer. Valuation Perspectives: We continue to tier our coverage universe into three buckets. Overvalued: MKP; Fairly Valued: HCG, EQB and FN (new); and Undervalued: MIC, TF and SCB. Given FN s valuation moved below the long-term average, we believe downside risk diminished and we upgraded our rating to Sector Perform from Underperform. Selections TMX Group ECN Capital Fiera Capital Morneau Shepell How does this affect the mortgage companies we cover? Slower housing activity is clearly negative for all mortgage companies, but the data suggests that the surrounding GTA regions (i.e., the 905 ) will face more acute pressures. Importantly, we believe the alternative lenders portfolios are relatively more exposed to the 905 regions. In our view, the depressed level of housing activity in these regions speaks to the intensifying competitiveness in the alternative mortgage market, which continues to prevent alternative mortgage rates from increasing. Combined with a GIC- Swap Rate spread widening of ~20 bps in recent months, we believe margin compression remains a meaningful downside risk.

33 VISION MAY Diversified Financials Sector Analysis Jaeme Gloyn, CFA Associate: Victor Dri: Mkt Shares Stock Last FDEPS Book Value per Share 12-Mth Stock Stock Cap O/S Price Year Last est. est. P/E Last est. est. P/BV Div. Price Sym. Rating (Bln) (Mln) 4/30 Reported FY FY1 FY2 FY1 FY2 Quarter FY1 FY2 FY1 FY2 % Target Mortgage Finance Equitable Group EQB SP / % First National Financial FN SP / % Genworth MI Canada MIC OP / % Home Capital Group HCG SP / % MCAN Mortgage Corp. MKP UP / % Street Capital Group SCB SP / % 0.90 Timbercreek Financial TF OP / % Specialty Finance ECN Capital ECN OP / % 5.00 Element Fleet Management EFN UP / % 4.00 Alaris Royalty Corp. AD OP / % Callidus Capital Corp. CBL SP / / % 3.50 HR Companies Morneau Shepell MSI OP / % People Corporation PEO OP / % 9.00 Securities Exchange TMX Group X OP / % Insurance Intact Financial Corp. IFC SP / % Asset Managers Fiera Capital Corp. FSZ OP / % Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T=Tender; UR= Under Review; R=Restricted

34 VISION MAY Energy Services & Agriculture Sector Analysis Greg Colman Associates: Westley MacDonald-Nixon: Michael Storry-Robertson: Energy Services Our recent tour of the Middle East reinforces the opportunity for OFS (oilfield service) companies willing or able to gain market share in the region: We recently had the opportunity to tour the Kingdom of Saudi Arabia and the Sultanate of Oman with three companies, visiting their staging grounds, customers and on-site operations. We came away from the trip with three key takeaways; (1) despite a reputation for geopolitical instability, the OFS environment in the GCC (Gulf Cooperation Council) appears to be one of stability compared with the volatile North American OFS market; (2) a push for increased gas production should create OFS market opportunities even in an environment of flat oil production, and we note, for Enerflex in particular; and (3) a resounding push for local content should create opportunities for not only domestic companies but also for international ones with a high and rising local employment percentage. Enerflex Ltd. (TSX: EFX, Outperform, $19.00 target) recorded revenue growth from four key countries in the MEA region of 98% since 2015 to a record $277 million in 2017, and we see a relatively untapped and addressable market in expanded Saudi Arabia unconventional gas measured in the billions. After years of work to meet qualifications to operate in the region, Shawcor Ltd. (TSX: SCL, Outperform, $36.00 target) is beginning to book pipe contracts in the Middle East where composite pipe is only mid-single-digit market share. While the opportunity for our coverage remains mainly in its infancy, we see a long runway for growth in this market. Selections Secure Energy Services (SES: TSX, Outperform, $12.50 Target) Enerflex Ltd. (EFX: TSX, Outperform, $19.00 Target) Market Shares Stock EBITDA (mlm) EV/EBITDA Net Debt/ 12-Mth Price Stock Stock Cap O/S Price EBITDA Sym. Rating (Mln) (Mln) 4/ e 2018e e 2018e 2016 Target Return Black Diamond Group Ltd. BDI SP % Calfrac Well Services Ltd. CFW SP n/m % Canadian Energy Services & Tech CEU OP % Enerflex Ltd. EFX OP % High Arctic Energy Services Inc. HWO SP nmf % Horizon North Logistics Inc. HNL OP % Mullen Group Ltd. MTL OP % Newalta Corp. NAL SP % Pason Systems Corp. PSI OP nmf % Secure Energy Services Inc. SES OP % Shawcor Ltd. SCL OP % STEP Energy Services Ltd. STEP OP % Trican Well Services TCW OP nmf % Trinidad Drilling Ltd. TDG SP % Xtreme Drilling and Coil Services Corp. XDC SP , % Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted

35 VISION MAY Energy Services & Agriculture Sector Analysis Greg Colman Associates: Westley MacDonald-Nixon: Michael Storry-Robertson: Agriculture The agriculture sector stands out as an attractive space to position late in the cycle as a hedge against inflation when grain prices tend to move higher. In particular we like Ag Growth International Inc. (TSX: AFN, Outperform, $67.00 target), a leading manufacturer and seller of grain storage and handling equipment to farms and commercial customers. We believe nearly all of the company s end markets and geographies are pointing higher in 2018, as earnings power begins to benefit from recent investments made to expand capacity in internationally. In light of our estimation of material growth prospects, we believe that a 4.6% dividend yield that is backed by a solid 7.3% free cash flow yield on our 2018e forecasts points to opportunity. A brief macro overview of the positive fundamentals shifts in demand follows. The expansion by private enterprise of the Canadian grain handling network looks set to accelerate in 2018, with the expected addition of 16 grain elevators representing 4.7% y/y capacity growth, in what would be the biggest build in over a decade. As a result, we believe the Commercial product lines sport a higher-than-normal book of business entering We suspect the demand strength is coming from both domestic and international grain handlers that are finding the need to expand grain infrastructure networks as a result of the continued upward growth in grain volumes. With the Farm segment turning the corner as well, we believe consolidated EBITDA growth will reach 19% y/y in Recent headwinds surrounding trade barriers and tariffs have created an interesting entry point in our view, and we reiterate our Outperform rating and $67.00 target driven by a 10.6x multiple of 2019 EBITDA. Selections Rocky Mountain Dealerships Inc. (RME:TSX, Outperform, $17.00 Target) Cervus Equipment Corp. (TSX: CERV, Outperform, $19.00 Target) Market Shares Stock Last FDEPS EBITDA (mln) Net Y1 Net 12-Mth Stock Stock Cap O/S Price Year (A) est. est. P/E (A) est. est. EV/EBITDA Debt Debt/ Price Sym. Rating (Mln) (Mln) 4/30 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 (mln) EBITDA Target Ag Growth International Inc. AFN-T OP $ $ Dec-16 $ 2.40 $ 2.40 $ x 21.7x $ $ $ x 15.9x $ x $ AGT Food and Ingredients Inc. AGT-T OP $ $ Dec-16 $ 0.60 $ 0.60 $ x 27.3x $ 1, $ 1, $ 2, nmf 22.4x $ x $ Cervus Equipment Corporation CERV-T OP $ $ Dec-16 $ 0.28 $ 0.40 $ x 33.0x $ 1, $ 1, $ 1, x 7.6x $ x $ Rocky Mountain Dealerships Inc. RME-T OP $ $ Dec-16 $ 0.46 $ 0.46 $ x 26.9x $ $ 1, $ 1, x 8.4x $ x $ Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted

36 VISION MAY Healthcare & Biotechnology Sector Analysis Endri Leno Associates: Stephen Kwai : Ammar Shah: Highlights as of April 2018 Chemtrade Logistics Income Fund (CHE.un: TSX) Transferring Coverage: Chemtrade is a provider of industrial chemicals and services, with three business segments consisting of: Sulphur Products & Performance Chemicals (SPPC), Water Solutions & Specialty Chemicals (WSSC) and Electrochemicals (EC). Currently, the Company s valuation is the main reason indicating a promising outlook. The primary factors that we find attractive in Chemtrade are 1) inexpensiveness, 2) high yield, 3) conservative payout, 4) operational normalization, and 5) higher expected pricing for three key products. The Company s FY+1 EV/EBITDA is currently trading on the lower end of its historical range around ~7x while also trading below its Canadian and Global chemical company peers. Furthermore, its distribution yield, approximately 8%, is attractive to investors who are seeking high periodic cash flows while also maintaining a conservative payout ratio (57% 2019e) as management indicated its priority to reduce debt. On a product level, a stronger pricing environment has been in Chemtrade s favour as of late. Caustic soda, chlorate and merchant sulphuric are all poised to impact Chemtrade s top line positively. Lastly, although 2017 was a disappointing year for Chemtrade as its legacy business faced some unexpected operational concerns amidst the Canexus integration, 2018 will start to reflect a more normalized operation. Maintenance towards some of its key plants will be completed throughout H Our potential concerns would be (1) the relatively higher capex spend at EC; (2) the elevated leverage following Canexus s acquisition; and (3) general fund outflow from high-yield stocks given rising rates. Selections Immunovaccine Inc. Enercare Healthcare and Biotechnology Market Shares Stock Last FDDCPS EBITDA (mln) Net Y1 Net 12-Mth Stock Stock Capitalization O/S Price Quarter Current (A) est. est. P/DCPS (A) est. est. EV/EBITDA Debt Debt/ Price Sym. Rating (Mln) (Mln) 4/30 Reported Yield Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 (Mln) EBITDA Target CRH Medical CRH OP / % 0.30u 0.33u 0.39u u 32.1u 38.8u u IMV Inc. IMV OP / % (0.21) (0.33) (0.18) nmf nmf (9.4) (15.1) (9.3) nmf nmf 0.0 nmf 9.60 Jamieson Wellness JWEL OP / % Knight Therapeutics GUD OP 1, / % (7.3) (4.6) (4.0) nmf nmf Medical Facilities Corp. DR SP / % 1.29u 1.21u 1.11u u 53.8u 50.2u u ProMetic Life Sciences PLI UP / % (0.18) (0.13) (0.09) nmf nmf (110.1) (94.2) (57.0) nmf nmf nmf 0.75 Theratechnologies TH OP / % (0.16) nmf nmf (6.9) TSO3 TOS SP / % (0.06)u (0.14)u (0.11)u nmf nmf (4.3)u (11.4)u (8.4)u nmf nmf 0.0u Special Situations Crius Energy Trust KWH.UN OP / % 0.87u 0.95u 1.10u u 92.32u u u Enercare ECI OP / % u K-Bro Linen KBL OP / % u Just Energy Group JE OP / % 0.92u 0.62u 0.77u 9.29u 7.42u u u u 7.56u 7.67u 39.00u 2.5u 6.25 Rogers Sugar RSI SP / % Chemtrade Logistics Income Fund CHE_u OP 1, / % Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted u = US Dollars

37 VISION MAY Industrial Products Sector Analysis Maxim Sytchev Associates: Adam Staszewski: Troy Sun: Toromont Industries Ltd. (TIH: TSX; Outperform from Sector Perform, $63.00 target price unchanged): We want to be more constructive on the name given recent Budget pronouncements (and high ROE); upgraded to Outperform. The shares are now trading at the same level as post the original Hewitt transaction jump (and hence having given up the 7% drift post). We find four points that have actually become incrementally more positive since the announcement of the transaction: 1) Hewitt s contribution appears to be relatively more robust as Q4/17 results attest to, even though we want to be mindful of the seasonality for that business. 2) The Quebec and Ontario Budgets released over the last month are all focusing on large horizontal infrastructure i.e., light-rail, subways, roads, bridges. This type of work is the most equipment-intensive and therefore benefits Toromont the most vs. vertical infra spending (i.e., schools, hospitals, rec facilities). Also, while investors historically migrated towards the likes of SNC / WSP / Aecon to play the horizontal infrastructure thematic in Eastern Canada, recall that SNC and WSP now, respectively, derive only 28% and 18% of top line from Canada as a whole. In contrast, Hewitt represents one third of the company s top line and we would estimate 60% of that spend is infra-related. Likely 50-60% of Ontario, which is the bulk of TIH s remaining business, is also infra-levered. Hence, the company appears to be the most levered / direct beneficiary of Eastern Canada momentum. 3) On the commodity front, gold has been steadily advancing (lower CAD is also helping Canadian producers) while iron ore has been generally steady. Recall that gold is a bigger market for TIH in Toronto while iron ore is a key Quebec / Labrador market. We also believe that a more aggressive rental CAPEX rollout in Quebec is in the offing (recall that rentals represented 9% of Hewitt vs. 14% for legacy Equipment division of Toromont). 4) At 16.9x 2019E P/E Toromont shares are not bargain bin material, but with expected ROE generation of 18.4% and 19.0% in 2018E and 2019E (vs. TSX at 12.1% and 12.4%), we believe that TIH is once again compelling on a relative basis; hence upgraded to Outperform, $63.00 price target remains unchanged (15% upside from current levels). Selections SNC-Lavalin Finning Toromont North American Energy Partners Stelco AutoCanada IBI Group and Bird Construction 12-mth Stock Last EPS EBITDA (mln) Stock Stock Price price Market Year (A) est. est. P/E (A) est. est. EV/EBITDA Div. Net debt/ Symbol Rating Target 4/30 Cap ($mln) Reported Last FY FY1E FY2E FY1 FY2 Last FY FY1 FY2 FY1 FY2 Yield FY1 EBITDA E&C / Equipment Distribution Aecon Group ARE T $20.37 $18.18 $1, / 2017 $0.69 T T T T $158 T T T T 2.8% 0.86x (incl. converts) Bird Construction Inc. BDT OP $11.00 $8.63 $ / 2017 $0.27 $0.42 $ x 13.6x $27 $40 $49 6.2x 5.1x 4.5% net cash; NM Finning International Inc. FTT OP $39.00 $32.56 $5, / 2017 $1.31 $1.84 $ x 15.4x $583 $694 $ x 8.3x 2.3% 1.2x IBI Group Inc. IBG OP $9.00 $7.16 $ / 2017 $0.38 $0.52 $ x 14.6x $40 $43 $46 8.7x 8.1x 0.0% 2.3x (incl. converts) North American Construction Group Ltd. NOA OP $12.00 $7.32 $ / 2017 $0.20 $0.43 $ x 11.8x $61 $76 $81 4.1x 3.9x 1.1% 1.6x Ritchie Bros. Auctioneers RBA SP u$35.00 u$32.74 u$3, / 2017 u$0.78 u$1.04 u$ x 24.1x u$204 u$238 u$ x 14.6x 2.1% 2.2x SNC-Lavalin SNC OP $73.50 $56.40 $9, / 2017 $2.35 $3.60 $ x 7.6x $819 $1,236 $1, x 5.7x 1.9% 1.7x Stantec Inc. STN SP $37.00 $31.74 $3, / 2017 $1.67 $1.78 $ x 15.5x $378 $427 $ x 8.8x 1.7% 1.2x (pro-forma MWH) Stuart Olson SOX SP $7.00 $7.34 $ / 2017 $0.35 $0.55 $ x 12.2x $36 $44 $46 6.1x 5.3x 6.5% 1.2x (incl. converts) Toromont Industries Ltd. TIH OP $63.00 $56.17 $4, / 2017 $2.20 $2.59 $ x 17.0x $339 $446 $ x 9.8x 1.6% 1.3x WSP Global WSP SP $57.00 $63.74 $6, / 2017 $1.97 $2.08 $ x 20.8x $555 $659 $ x 10.9x 2.4% 1.9x AutoCanada ACQ OP $29.50 $21.85 $ / 2017 $1.53 $2.19 $ x 8.9x $95 $115 $ x 6.2x 0.5% 1.6x Stelco STLC OP $33.00 $23.55 $2, / 2017 $0.50 $3.72 $ x 6.5x $215 $441 $ x 4.6x 1.7% net cash Median 17.5x 14.1x 7.7x 7.1x 1.9% Note: u = USD; Stock Rating: OP = Outperform; SP = Sector Perform; UP = Underperform; T=Tender; UR= Under Review; R=Restricted

38 VISION MAY Merchandising & Consumer Products Sector Analysis Vishal Shreedhar Associate: Ryan Li: Dollarama Inc. (DOL: TSX) Company Update: Updating our analysis on Dollar City given new information Solid metrics at Dollar City : DOL s recent AIF indicates that Dollar City currently operates 107 stores in El Salvador [40], Guatemala [39] and Colombia [28]. The price point at Dollar City ranges from US$0.69 to US$3.00 (El Salvador) vs. Dollarama at Cdn$0.82 to Cdn$4.00. The average Dollar City store is about 6,285 square feet vs. Dollarama at about 10,120 square feet. DOL s AIF also indicated that (amongst stores operating for at least 13 months) annual sales per store at Dollar City averaged about US$1.6 million; this is new information. If we convert to CAD, sales productivity at Dollar City is about Cdn$328 per square foot vs. Dollarama at about Cdn$288 per square foot. Margin details were not disclosed. Our view is that Dollar City generates lower margins than Dollarama; however, we suspect moderately so. The sales per store figures are largely in line with assumptions utilized in the Dollar City valuation analysis in our March 21, 2018 commentary, excepting for FX. We highlight that the markets that Dollar City currently operates in are large and have an aggregate population of 70+ mln. Furthermore, previously indicated expansion opportunities/markets represent an incremental population of 70+ mln. Long-term opportunity for growth appears to be significant. Currently, DOL operates in an advisory role to Dollar City and is the main supplier of merchandise. DOL has the option to acquire a majority interest (in Dollar City) in early February We think it s likely that DOL will ultimately proceed. Thoughts on Dollar City value : Given new data on Dollar City, we are updating our analysis on potential value of this strategic option. We caution that there are so many unknowns that this exercise may ultimately prove to be moot. That said, the market is contemplating growth potential, so we offer some thoughts below. We value the Dollar City opportunity at ~$25/share. There is a very wide interval on this estimate. Our assumptions are: 9% WACC, 3% terminal growth, 17.5% EBIT margin (F2018 DOL EBIT margin is 23.1%), 2,500+ stores over 20+ years, takeout multiple at 15x EBITDA, 100% ownership, etc. Perhaps more important than our point estimate is the recognition that Dollar City offers sales productivity that is superior to Dollarama, and that the market opportunity is substantial. Outperform rating; Price target is $167 : We value Dollarama at 30.0x our F2020 EPS. Selection Empire Company Market Shares Stock Last FDEPS EBITDA Debt/ 12-Mth Stock Stock Cap. O/S Price Year (A) est. est. P/E (A) est. est. EV/EBITDA Book Total Price Sym. Rating (Mln) (Mln) 4/30 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value Capital Target General Merchandise Canadian Tire CTC.a OP 11, / ,694 1,774 1, Dollarama DOL OP 16, / Specialty Stores Couche Tard ATD.b OP 31, / ,421 2,955 3, Parkland Fuel Corporation PKI OP 3, / Apparel Gildan GIL SP 8, / Roots Corporation ROOT OP / Drug Stores Jean Coutu PJC.a R R R R R R R R R R R R R R R R R R Grocers Empire Company EMP.a OP 6, / ,016 1, Loblaw L SP 25, / ,092 4,166 4, Metro MRU R R R R R R R R R R R R R R R R R R Food Manufacturer Saputo SAP SP 16, / ,290 1,315 1, Department Stores Hudson's Bay Company HBC SP 1, /2018 (2.96) (1.72) (1.34) NA NA Mattress Retailing Sleep Country Canada ZZZ OP 1, / Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted u=us dollars

39 VISION MAY Metals & Mining: Base Metals Sector Analysis Don DeMarco Associates: Towaki Dojima: Rabi Nizami: Shane Nagle, CFA Associates: Lola Aganga: Alex Bauer: (All dollar amounts in Canadian dollars unless noted) Price Volatility to Persist Throughout 2018 Copper prices have remained volatile in recent weeks as betterthan-expected market data out of China has been offset by a lack of supply disruptions to date in The largest labour negotiation in 2018 at Escondida is set to kick off in June meaning balanced markets and a risk for heightened volatility remain intact. Our positive long-term bias for base metals remains unchanged driven by a lack of an advanced stage project pipeline and the building of a structural deficit in the coming years for several commodities (namely: copper). Electric vehicles are emerging as the dominant story for long-term copper demand, expected to partially offset the reduced production of internal combustion engine vehicles. Top picks: Teck With coking coal prices remaining elevated throughout H1/18, FCF margins remain strong for Teck, with 10% FCF yield throughout With a sanction decision anticipated on the company s QB2 project later in 2018, more focus is expected to be given to the company s copper growth profile, with a number of catalysts delivered throughout 2018/2019. Including BFS on Zafranel by Q4/18, PFS on San Nicolas in H2/19 and BFS on its NuevaUnion project (50/50 JV with Goldcorp) in Capstone Despite markets not yet displaying a willingness to move down-cap. The company s FCF yield of 18%, leverage to copper prices (NAV increases 55% for every 10% move in copper price) and discounted valuation warrant a closer look for those more bullish on the prospects for copper. Arizona Mining Exploration results continue to highlight further extension of the company s high-grade resource at Taylor. We maintain our Outperform rating as an updated resource estimate/feasibility study by mid-2018 is expected to confirm the project s robust economics (NBF after-tax IRR of 41% and 1.5-year payback period) and attractive exploration opportunities. We continue to view AZ as a prime takeout target given the lack of comparable high-quality development projects in the Americas. Selections Teck Lundin Mining Capstone Mining Arizona Mining Lundin Despite the impact of increased stripping at Candelaria (given the recent pit-wall slide) and persistently lower zinc recoveries at Neves-Corvo have had on 2018E FCF, ongoing Brownfield expansion initiatives are expected to add growth beyond this year, building on LUN s strong balance sheet and currently discounted valuation. Market Shares Stock 12-Month EPS CFPS Net Stock Stock Cap O/S Price Price FY0 FY1 FY2 P/E FY0 FY1 FY2 P/CF Asset Symbol Rating (Mln) (Mln) 4/30 Target FY1 FY2 FY1 FY2 Value P/NAV Producers Capstone Mining CS.TO OP Nagle 0.08u (0.02)u 0.14u n/a 7.8x 0.41u 0.34u 0.37u 2.6x 2.3x x Copper Mountain Mining CMMC.TO OP DeMarco 0.20c 0.19c 0.16c 6.2x 7.5x 0.47c 0.54c 0.41c 2.2x 2.9x x First Quantum Minerals FM.TO SP 12, Nagle 0.15u (0.16)u 1.01u n/a 18.3x 1.20u 1.35u 2.60u 10.7x 5.5x x Hudbay Minerals HBM.TO SP 2, Nagle 0.14u 0.59u 0.86u 11.8x 10.5x 1.67u 2.18u 2.03u 3.2x 3.4x x Lundin Mining LUN.TO OP 6, Nagle 0.07u 0.59u 0.45u 11.2x 19.1x 0.79u 1.22u 0.98u 5.4x 6.7x x Sherritt International S.TO OP DeMarco (0.87)u (0.01)u 0.09u x (0.05)u 0.11u 0.21u 11.4x 5.8x x Taseko Mines TKO.TO OP DeMarco 0.18c 0.07c 0.28c 22.5x 5.5x 0.66c 0.54c 0.61c 2.8x 2.5x x Teck Resources TECKb.TO OP 18, Nagle 1.91c 4.45c 4.91c 7.2x 6.6x 5.93c 8.58c 8.64c 3.8x 3.7x x Trevali Mining TV.TO SP Nagle 0.00c 0.08c 0.20c 10.9x 5.9x 0.00c 0.18c 0.29c 5.2x 3.2x x Developers Arizona Mining AZ.TO OP 1, Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a x SolGold SOLG.TO OP 780 1, Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a x Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; R = Restricted; T = Tender; UR = Under Review u = US dollars; c = Canadian dollars

40 VISION MAY Metals & Mining: Precious Metals Sector Analysis Don DeMarco Associates: Towaki Dojima: Rabi Nizami: Shane Nagle, CFA Associates: Lola Aganga: Alex Bauer: Michael Parkin Associates: Jonathan Egilo: John Sclodnick: (All dollar amounts in Canadian dollars unless noted) Expecting modest gains for gold this year Expecting gold to be modestly higher in 2018: We see the potential for gold to show modest gains Y/Y. Our positive bias to gold is supported by expectations for a weaker USD in 2018, combined with nascent signs of inflation. However, we believe that gains will be limited by the Fed rate hike expectations for In our view, the gold price will remain tightly correlated with U.S. real rates, and we believe that the U.S. real rate could potentially show limited growth from current levels as inflation could take hold to mitigate the impact of rate hikes. Cost creep could remerge with higher oil prices and stronger local operating currencies: In our view, we could see operating costs begin to trend higher in USD terms. This concern is founded on oil prices, which began to rise in 3Q17, and would likely now impact the cost of operating inputs. Additionally, with a weak USD driving the gold price higher, it would also increase USD reported operating costs priced in local currency. This could present a cash flow headwind for producers. Top Picks offer dependable results, strong balance sheets, low capex plans and numerous catalysts: We believe the companies that are most likely to outperform are those with: (1) management teams with solid track records of executing on guidance, (2) strong balance sheets, (3) encouraging Y/Y guidance with growth in production and/or declining costs, (4) exiting heavy capital spending programs, and (5) a catalystpacked calendar. On an EV/EBITDA valuation basis we see some names trading at very attractive multiples, and with those that have a history of achieving guidance and showing potential for delivering positive catalysts, we believe these names offer good investment opportunities. Selections Gold Producers: Atlantic Gold Corp. (AGB:TSXV; Outperform; $3.00 target) SSR Mining Inc. (SSRM:TSX; Outperform; $18.00 target) Wesdome Gold Mines Ltd. (WDO:TSX; Outperform; $4.00 target) Gold Developers: Falco Resources Ltd. (FPC:TSXV; Outperform; $1.90 target) Osisko Mining (OSK:TSX; Outperform; $5.50 target) Royalties: Sandstorm Gold Ltd. (SSL:TSX, Outperform, $8.25 target)

41 VISION MAY Metals & Mining: Precious Metals Sector Analysis Don DeMarco Associates: Towaki Dojima: Rabi Nizami: Shane Nagle, CFA Associates: Lola Aganga: Alex Bauer: Michael Parkin Associates: Jonathan Egilo: John Sclodnick: Senior Producers (>1 Moz production) Market Shares Stock 12-Month EPS CFPS Net Stock Stock Cap O/S Price Price FY0 FY1 FY2 P/E FY0 FY1 FY2 P/CF Asset Symbol Rating (Mln) (Mln) 4/30 Target FY1 FY2 FY1 FY2 Value P/NAV Agnico-Eagle Mines Ltd AEM-T SP 12, Parkin 1.01u 0.57u 0.58u 74.1x 73.1x 3.61u 3.04u 3.08u 14.0x 13.8x x Goldcorp Inc G-T OP 15, Parkin 0.39u 0.32u 0.80u 42.4x 16.9x 1.23u 1.47u 2.06u 9.1x 6.5x x Kinross Gold Corporation K-T SP 6,198 1, DeMarco 0.14u 0.19u 0.06u 31.4x 100.0x 0.83u 0.93u 0.99u 6.5x 6.1x x Yamana Gold Inc YRI-T OP 3, Parkin 0.09u 0.16u 0.15u 17.5x 19.2x 0.42u 0.64u 0.58u 4.4x 4.8x x Royalty Companies Franco-Nevada Corp FNV-T SP 16, Nagle 0.94u 1.08u 1.12u 65.4x 81.3x 2.65u 2.72u 2.55u 26.0x 27.7x x Maverix Metals Inc MMX-V OP Nagle (0.02)u 0.02u 0.06u 92.4x 27.5x (0.02)u 0.10u 0.18u 16.0x 8.9x x Osisko Gold Royalties Ltd OR-T OP 1, Nagle 0.33c 0.19c (0.15)c 65.6x n/a 0.52c 0.40c 0.47c 31.6x 26.4x R Royal Gold Inc RGLD-O SP 5, u u Nagle 1.49u 1.69u 1.98u 52.5x 44.8x 4.18u 4.27u 4.80u 16.1x 14.3x x Sandstorm Gold Ltd SSL-T OP 1, Nagle 0.07u 0.05u 0.05u 92.1x 118.8x 0.28u 0.27u 0.29u 17.1x 15.9x x Wheaton Precious Metals Corp WPM-T OP 11, Nagle 0.62u 0.63u 0.61u 32.8x 43.7x 1.34u 1.23u 1.14u 16.8x 18.1x x Intermediate Producers (>250 Koz production) Alamos Gold Inc. AGI-T OP 2, Parkin 0.09u 0.12u 0.22u 41.6x 22.9x 0.59u 0.64u 0.80u 7.8x 6.2x x B2Gold Corp BTO-T OP 3, DeMarco 0.10u 0.27u 0.23u 14.6x 16.6x 0.23u 0.51u 0.47u 7.6x 8.3x x Centerra Gold Inc. CG-T OP 2, Parkin 0.96u 0.43u 0.27u 13.1x 21.2x 1.75u 1.18u 1.45u 4.8x 3.9x x Detour Gold Corp DGC-T OP 1, Parkin 0.63u 0.55u 0.49u 14.1x 15.9x 1.61u 1.88u 1.81u 4.1x 4.3x x First Majestic Silver Corp FR-T SP 1, Nagle 0.12u (0.04)u (0.03)u n/a n/a 0.63u 0.46u 0.57u 14.1x 11.3x x Fortuna Silver Mines Inc FVI-T OP 1, Nagle 0.13u 0.32u 0.27u 17.7x 27.0x 0.46u 0.55u 0.52u 10.3x 10.9x x IAMGOLD Corporation IMG-T OP 3, Parkin 0.06u 0.17u 0.19u 33.9x 31.9x 0.63u 0.80u 0.84u 7.4x 7.1x x Kirkland Lake Gold Corp. KL-T OP 5, Parkin 0.67u 1.05u 1.57u 17.8x 11.9x 1.40u 1.81u 2.44u 10.3x 7.7x x New Gold Inc NGD-T OP 1, Parkin 0.11u 0.10u 0.28u 21.4x 8.0x 0.40u 0.78u 1.07u 2.9x 2.1x x OceanaGold Corp. OGC-T OP 1, Parkin 0.31u 0.18u 0.10u 13.8x 23.7x 0.62u 0.53u 0.45u 4.6x 5.4x x SSR Mining Inc. SSRM-T OP 1, Parkin 0.34u 0.19u 0.57u 52.7x 17.8x 1.24u 0.95u 1.51u 10.7x 6.8x x Tahoe Resources Inc THO-T SP 2, Parkin 0.27u 0.23u 0.53u 22.0x 9.6x 0.72u 0.91u 1.28u 5.6x 4.0x x Junior Producers (<250 Koz production) Alacer Gold Corp ASR-T SP DeMarco 0.00u 0.09u 0.25u 28.1x 10.3x 0.26u 0.14u 0.56u 18.4x 4.6x x Atlantic Gold Corp AGB-V OP DeMarco (0.03)u 0.12u 0.19u 18.7x 11.8x (0.02)u 0.22u 0.27u 10.4x 8.2x x Brio Gold Inc BRIO-T R R R R R DeMarco R R R R R R R R R R R R Wesdome Corp. WDO-T OP DeMarco 0.06u 0.15u 0.20u 15.8x 11.8x 0.16u 0.20u 0.27u 11.4x 8.7x x Golden Star Resources GSC-T OP DeMarco 0.09u 0.17u 0.15u 6.6x 7.4x 0.13u 0.20u 0.17u 5.6x 6.6x x Semafo Inc. SMF-T OP 1, DeMarco 0.00u 0.13u 0.37u 37.1x 13.2x 0.33u 0.39u 0.75u 12.6x 6.5x x Developers Almaden Minerals Ltd AMM-T OP Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a x Belo Sun Mining Corp BSX-T SP Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a x Equinox Gold EQX.V OP Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a x Falco Resources FPC-V OP Sclodnick n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a x Liberty Gold Corp LGD-T OP Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a x Lydian International Ltd LYD-T OP Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a x MAG Silver Corp MAG-T OP 1, Nagle n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a x Osisko Mining OSK-T OP DeMarco (1.42)u (0.07)u (0.06)u - - (0.02)u (0.04)u (0.03)u x Sabina Gold and Silver Corp. SBB-T OP Sclodnick n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a x SilverCrest Metals Inc. SIL.V R R R R R DeMarco R R R R R R R R R R R R Troilus Gold Corp. TLG-V OP Sclodnick n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a x Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; R = Restricted; T = Tender; UR = Under Review u = US dollars; c = Canadian dollars

42 VISION MAY Oil & Gas Sector Analysis Junior & Intermediate Large Cap Brian Milne Associate: Brad Lenz: Travis Wood Associates: John Hunt: Alex Reid: Dan Payne Associates: Mitch Mastel: Andrew Nguyen: Crude: WTI rose from for the majority of the month from ~US$63/bbl in early April to ~US$68/bbl (as of April 30, 2018), a level not seen since late Reasons for oil s upward trajectory include a continued rise in expected demand, the possibility of a round of new sanctions against Iran, continuing internal issues in Venezuela hampering its oil production, and OPEC s strict adherence to supply cuts (163% compliance). Markets are reacting to the recent price movements as money managers have been piling into long positions and the long to short ratio in many major petroleum contracts are at record highs. Notably, Brent and WTI reached the most lopsided position ever with 15 longs for every short. Canadian heavy crude, WCS to WTI differential continues to struggle, at ~US$18/bbl (as of April 30, 2018), well above last year s level (~US$9/bbl). Pipelines are running near max capacity and crude rail shippers are reluctant to commit to expanding capacity in fear of losing business abruptly as new pipelines are brought on stream over the next few years. With no new additional pipeline capacity expected until 2019, production growth of +275 mbbls/d of bitumen supply in 2018, and Canadian heavy oil storage levels at record high, differentials are expected to remain wide throughout Adding to the negative sentiment surrounding the differential, on April 8, 2018, Kinder Morgan announced the suspension of all non-essential work on the Trans Mountain pipeline in the face of mounting public and regulatory uncertainty. The company plans on making a decision on the fate of the pipeline on May 31, Additionally, the potential of disruption in crude by rail exports looms as CP Rail workers are threatening possible strike actions. A very different story for Canadian light oil producers, which participated in the recent WTI price rally, and are enjoying commodity pricing of ~Cdn$78/bbl (Edmonton par) at levels not seen since late The latest EIA Outlook forecast calls for 2018 global crude oil demand to reach 99.3 mmbbl/d (+1.5 mmbbl/d from 2017), while global oil supply in March reached 97.8 mmbbl/d. OPEC production edged lower in March to 31.8 mmbbl/d and is expected to rise slightly to 32.6 mmbbl/d by the end of U.S. crude inventories currently sit below the five-year average range (primarily due to OPEC supply cuts) at ~430mmbbl. U.S. production, having increased an incredible 25% over the last two years, is expected to overtake Saudi Arabia s position as the number two producer in 2018 to reach 10.7 mmbbls/d, and over 11 mmbbls/d in 2019 overtaking Russia s number one position. Also important to note, OECD s commercial stock in March sat at 2,841 mmbbl, slightly above the five-year average, which was OPEC s original target when production cuts began.

43 VISION MAY Oil & Gas Sector Analysis Brian Milne Associate: Brad Lenz: Dan Payne Associates: Mitch Mastel: Andrew Nguyen: Travis Wood Associates: John Hunt: Alex Reid: Natural Gas: Natural gas in the United States has seen a strong start to the year as lasting cold temperatures resulted in significant inventory draw, further normalizing current levels at ~1.3 tcf, well below the five-year average (~1.8 tcf) and significantly lower than last year s level (-41%). NYMEX spot currently (April 30, 2018) trades at ~US$2.80/MMBtu, a decrease of 11% since last year this time, and U.S. production remains robust at ~80 bcf/d. The United States became a net exporter of natural gas for the first time, aided by LNG exports (over 2 bcf/d), and with five additional terminals coming online in the next two years, the United States is expected to become the third largest exporter of LNG by The situation is markedly different in Canada with production levels trending higher and pipelines at full capacity. Western Canadian natural gas production by field receipt hit ~15.1 bcf/d (+1.0 bcf/d from this time 2017) and 11% above the fiveyear average. This led to seasonally weak AECO pricing of ~US$1.25/MMBtu (down ~44% from this time 2017). The situation remains bearish for the near future with expected pipeline maintenance outages in 2018 spring/summer adding volatility to pricing, and higher natural gas production from producers chasing robust liquids pricing, which have all pushed the 2019 AECO forward strip to trade at ~US$1.26/MMBtu. Reasons that the natural gas situation in Canada may improve over the next few years include reduced capital spending from natural gas producers, which will lead to an organic production decrease as assets decline, inventory levels with ample room for further injection (297 bcf, 39 bcf below the five-year average) and increasing oilsands demand. Also important to note, LNG Canada, a consortium of Shell, PetroChina, KOGAS and Mitsubishi, is expected to make a final investment decision (FID) over the next few weeks for an LNG terminal in Kitimat, B.C., with capacity of 2 bcf/d by Selections Encana (ECA) Enerplus (ERF) Kelt (KEL) Suncor (SU) Whitecap (WCP)

44 VISION MAY Oil & Gas Sector Analysis Brian Milne Associate: Brad Lenz: Dan Payne Associates: Mitch Mastel: Andrew Nguyen: Travis Wood Associates: John Hunt: Alex Reid: Brian Milne Share Share Market EV/DACF Net Debt/ CFPS - FD NAV Stock Stock O/S Price Cap. Yield est. est. est. Cash Flow est. est. est. Sym. Rating D (Mln) 04/30 (Mln) (%) E 2017E E 2017E 2016 Target Return D Oil & Gas Baytex Energy BTE SP $5.75 $1,378 0% 7.3x 6.9x 6.5x 6.4x 4.9x $1.30 $1.47 $ x 3.9x $1.60 $5.25-9% Gear Energy GXE OP $0.94 $183 0% 7.0x 4.9x 4.0x 1.2x 1.0x $0.21 $0.21 $ x 4.5x $1.60 $ % Granite Oil GXO R R R R R R R R R R R R R R R R R R Cona Resources CONA T $2.54 $262 0% 3.5x 5.1x 9.2x 1.9x 3.7x $1.11 $0.86 $ x 3.0x $1.60 $2.55 0% Paramount Resources POU OP $18.33 $2,469 0% 11.3x 13.5x 6.6x nmf 2.9x $0.34 $1.89 $3.35 nmf 9.7x $1.60 $ % Pengrowth Energy PGF SP $1.15 $652 0% 4.2x 4.2x 9.6x 3.1x 2.7x $0.87 $0.42 $ x 2.7x $1.60 $ % Obsidian Energy OBE SP $1.42 $723 0% 4.1x 5.1x 6.4x 2.7x 1.9x $0.36 $0.38 $ x 3.7x $1.60 $ % Petrus Resources PRQ OP 49.4 $1.13 $56 0% 4.5x 3.9x 3.9x 4.4x 3.3x $0.64 $0.92 $ x 1.2x $1.60 $ % Iron Bridge Resources IBR SP $0.49 $76 0% 2.3x 24.9x 7.9x 0.0x nmf $0.20 $0.01 $ x 49.2x $1.60 $ % Encana Corporation (US$) ECA OP $12.48 $12,144 0% 8.5x 9.3x 6.9x 4.6x 2.8x $0.95 $1.38 $ x 9.0x $1.60 $ % MEG Energy MEG SP $6.64 $1,953 0% 23.7x 8.8x 10.5x nmf 11.6x -$0.27 $1.29 $0.87 nmf 5.2x $1.60 $6.25-6% * Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted P/CFPS 12-Mth Price Dan Payne Share Share Market EV/DACF Net Debt/ CFPS - FD NAV Oil & Gas Stock Stock O/S Price Cap. Yield est. est. est. Cash Flow est. est. est. Sym. Rating D (Mln) 04/30 (Mln) (%) E 2017E E 2017E 2016 Target Return D Advantage Oil & Gas AAV OP $4.09 $768 0% 5.2x 5.2x 7.3x 1.0x 1.2x $0.92 $0.97 $ x 4.2x $1.60 $ % Bellatrix Exploration BXE SP 49.4 $1.91 $94 0% 5.8x 5.6x 5.6x 9.7x 7.2x $0.96 $1.18 $ x 1.6x $1.60 $2.00 5% Birchcliff Energy BIR OP $4.65 $1,236 2% 15.7x 5.6x 5.6x 4.1x 1.9x $0.74 $1.19 $ x 3.9x $1.60 $ % Bonterra Energy BNE OP 33.3 $15.80 $526 8% 8.5x 7.1x 5.4x 4.1x 3.1x $2.57 $3.08 $ x 5.1x $1.60 $ % Cardinal Energy CJ OP $5.18 $593 8% 8.1x 9.6x 6.2x 2.0x 3.4x $0.84 $0.87 $ x 5.9x $1.60 $ % Chinook Energy Inc. CKE OP $0.21 $46 0% 46.4x 9.7x 4.8x 15.1x 0.1x $0.00 $0.02 $ x 8.9x $1.60 $ % Crew Energy CR OP $2.61 $400 0% 6.3x 5.7x 7.1x 3.1x 3.2x $0.55 $0.72 $ x 3.6x $1.60 $ % Kelt Exploration KEL OP $8.12 $1,461 0% 19.7x 14.4x 8.3x 3.6x 2.0x $0.34 $0.61 $ x 13.4x $1.60 $ % Leucrotta Energy LXE OP $1.97 $404 0% x 41.8x 27.6x 26.2x -1.9x -$0.01 $0.05 $ x 38.9x $1.60 $2.00 2% NuVista Energy NVA OP $8.43 $1,470 0% 9.3x 7.9x 6.8x 0.6x 1.1x $0.87 $1.15 $ x 7.3x $1.60 $ % Painted Pony Energy Ltd. PONY SP $2.80 $451 0% 8.0x 6.6x 6.3x 4.1x 3.4x $0.56 $0.75 $ x 3.8x $1.60 $ % Pinecliff Energy PNE SP $0.30 $92 0% 5.8x 4.5x 11.7x 3.3x 1.8x $0.06 $0.09 $ x 3.2x $1.60 $ % Raging River Exploration RRX R R R R R R R R R R R R R R R R R R Storm Resources SRX SP $2.71 $329 0% 11.1x 6.4x 4.6x 2.6x 1.7x $0.29 $0.53 $ x 5.1x $1.60 $ % Spartan Energy SPE SP $6.36 $1,169 0% 16.9x 6.5x 4.3x 2.8x 1.0x $0.66 $1.09 $ x 5.8x $1.60 $ % Surge Energy SGY OP $2.39 $579 4% 9.1x 7.1x 5.7x 2.3x 2.3x $0.32 $0.45 $ x 5.3x $1.60 $ % Tamarack Valley Energy TVE OP $3.56 $813 0% 8.1x 6.0x 4.4x 0.8x 1.1x $0.52 $0.70 $ x 5.1x $1.60 $ % Torc Oil & Gas TOG OP $7.28 $1,448 3% 10.8x 7.9x 5.7x 2.2x 1.3x $0.73 $1.10 $ x 6.6x $1.60 $ % Tourmaline Oil TOU OP $24.15 $6,547 1% 10.2x 6.6x 6.8x 2.2x 1.4x $3.13 $4.47 $ x 5.4x $1.60 $ % * Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted P/CFPS 12-Mth Price Share Stock Market EV/DACF Net Debt/ CFPS - FD NAV 12-Mth Travis Wood Stock Stock O/S Price Cap. Yield est. est. est. Cash Flow est. est. P/CFPS Price Sym. Rating (Mln) 4/30 (Mln) (%) E 2017E E 2017E 2016 Target Return Oil & Gas ARC Resources Ltd. ARX SP $14.32 $5,062 4% 11.3x 7.4x 7.4x 0.5x 0.9x $1.80 $2.07 $ x 6.9x $1.60 $ % Bonavista Energy Corporation BNP SP $1.58 $405 3% N/A 3.7x 3.8x 3.4x 2.8x $1.09 $1.15 $1.04 N/A 1.3x $1.60 $1.65 7% Canadian Natural Resources CNQ OP $46.32 $56,782 3% 11.9x 9.9x 6.7x 3.7x 3.0x $3.82 $6.21 $ x 7.7x $1.60 $ % Cenovus Energy CVE SP $12.86 $15,802 2% 9.9x 7.0x 10.4x 1.3x 2.8x $1.71 $2.69 $ x 5.3x $1.60 $ % Crescent Point Energy Corp. CPG OP $11.25 $6,140 3% 8.0x 5.4x 4.6x 2.4x 2.4x $3.03 $3.17 $ x 3.6x $1.60 $ % Enerplus Corporation ERF OP $14.90 $3,731 1% 11.5x 8.1x 5.6x 1.4x 0.9x $1.33 $1.91 $ x 7.9x $1.60 $ % Freehold Royalties FRU OP $13.01 $1,538 5% 16.6x 12.7x 10.5x 0.8x 0.6x $0.85 $1.05 $ x 12.4x $1.60 $ % Imperial Oil IMO SP $39.93 $33,303 2% 23.7x 13.0x 10.8x 3.1x 1.4x $1.96 $3.27 $ x 12.1x $1.60 $ % Peyto Exploration & Development Corp. PEY OP $12.14 $2,002 6% 11.9x 5.4x 5.7x 2.2x 2.3x $3.17 $3.48 $ x 3.5x $1.60 $ % PrairieSky Royalty PSK SP $28.47 $6,720 3% 27.9x 23.1x 26.4x -0.2x -0.2x $0.88 $1.23 $ x 23.2x $1.60 $ % Seven Generations VII OP $18.32 $6,779 0% 12.7x 6.2x 4.8x 2.2x 1.5x $2.21 $3.32 $ x 5.6x $1.60 $ % Vermilion Energy Inc. VET OP $43.40 $5,312 6% 11.9x 10.2x 8.8x 2.8x 2.3x $4.36 $4.93 $ x 8.8x $1.60 $ % Suncor Energy SU OP $44.49 $73,185 3% 14.1x 9.7x 7.8x 2.2x 1.5x $3.71 $5.52 $ x 8.0x $0.00 $ % Whitecap Resources WCP OP $9.30 $3,888 3% 10.5x 9.6x 6.5x 2.1x 2.5x $1.13 $1.37 $ x 7.6x $1.60 $ % *In USD ** Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted

45 VISION MAY Pipelines, Utilities & Energy Infrastructure Sector Analysis Patrick Kenny, CFA Associates: Amber Brown: Dave Nielsen: After a modest +2.4% performance in 2017 (TSX: +6%; TSX Energy Index: -10%), thus far in 2018 the Pipelines, Utilities & Energy midstream sector is down ~9% vs. TSX Composite Index which is down 4% largely reflecting rising interest rate concerns. Our NBF Economics and Strategy group is forecasting a 10-year GCAN rate of ~3.0% for 2019, up ~65 bps from current levels of ~2.35%. Meanwhile, as a partial offset, credit spreads have continued to tighten over the past year, currently hovering around ~180 bps, down ~15 bps relative to the same period last year and sitting ~50 bps below the historical average of ~230 bps. Of note, for every 50 bps increase to our long-term GCAN 10-year rate assumption of 3.0%, our valuations decline ~8% on average. On the commodity price front, at ~US$68/bbl, WTI is up ~34% over 2017 levels, while our 2018e AECO gas price of $1.75/mcf calls for a ~27% drop year-over-year. Luckily, third-party midstream assets are primarily focused on processing liquids-rich gas production, while our 2018 NGL frac spread assumption of ~US$31/bbl moves up ~36% from our prior forecast, suggesting an upward bias to Street estimates for those companies with material NGL frac spread exposure namely PPL, IPL and TWM. On the Alberta power front, our $57.50/MWh forecast for remains intact (vs. $22/MWh in 2017), reaffirming our bullish stance on CPX. Longer term, the WCSB remains on pace to grow oil production to 4.8 mmbpd by 2022e (+0.6 mmbpd from 2017) driven by oil sands projects recently commissioned (volume ramp-up) and under construction. We estimate operational pipeline utilization of ~110% for 2018e, suggesting ~400 mbpd of rail transportation required to clear the market, pointing towards a wider heavy oil differential persisting over the next few years. The current WTI-WCS heavy oil differential of US$18/bbl suggests continued tailwinds for crude oil marketing / midstream businesses within GEI, PPL, KEY and ENB. Meanwhile, with Congress passing the U.S. Government s tax reform bill in late December 2017, the corporate tax rate has been officially reduced to 21% (from 35%). As such, this has a negative impact to near-term cash flows of U.S. rate-regulated utilities as it effectively reduces the revenue requirement for these businesses (without an equally offsetting reduction to cash taxes given prior tax shield). We calculate an approximate 10% impact to near-term U.S. utility EBITDA, largely affecting EMA, FTS, ALA, VNR and H. Although several near-term headwinds currently face the sector, including rising interest rates, FX fluctuations and weak AECO gas prices we continue to see relatively steady AFFO per share growth (and dividend growth) through Overall, our Outperform-rated names for 2018 are Inter Pipeline (IPL), Keyera (KEY), Pembina (PPL), Superior Plus (SPB), Tidewater (TWM), Capital Power (CPX) and Enbridge (ENB), while our Underperform-rated names are Emera (EMA) and Valener (VNR). Selections Pembina Capital Power Keyera Tidewater Units Unit Market Distributions per Share Distr. CF per Share - FD Net 12-Mth Stock Stock Risk O/S Price Cap. est. est. est. Cash Yield est. est. est. P/Distr. CF Debt/ Price Combined Sym. Rating Rating (Mln) 4/30 (Mln) e 2019e e 2019e 19e EBITDA Target Return Return Pipeline & Midstream AltaGas ALA SP AA , % 9.7% % 24.4% Enbridge Inc. ENB OP AA , % 7.8% % 57.6% Enbridge Income Fund ENF SP AA , % 9.0% % 29.3% Gibson Energy GEI SP AA , % 8.0% % 23.6% Inter Pipeline IPL OP AA , % 7.5% % 41.4% Keyera KEY OP AA , % 5.2% % 28.1% Kinder Morgan KML SP AA , % 4.1% % 18.2% Pembina Pipelines PPL OP AA , % 5.9% % 40.1% Superior Plus SPB OP AA , % 5.8% % 18.2% Tidewater Midstream TWM OP AA % 3.3% % 77.7% TransCanada Corp. TRP SP A , % 5.5% % 24.6% Valener Veresen Inc. VNR VSN #N/A UP #N/A A 39.0 #N/A #N/A #N/A #N/A #N/A #N/A 5.8% #N/A 6.0% #N/A #N/A 1.44 #N/A 1.34 #N/A 1.37 #N/A #N/A #N/A 9.1% #N/A #N/A 15.1% Power Producers & Utilities ATCO Ltd. ACO SP A , % 4.4% % 18.2% Canadian Utilities CU SP A , % 5.2% % 19.5% Capital Power CPX OP AA , % 7.6% % 38.6% Emera Inc. EMA UP A , % 6.1% % 10.6% Fortis Inc. FTS SP A , % 4.2% % 3.5% Hydro One Ltd. H SP A , % 4.7% % 22.1% TransAlta TA SP AA , % 2.3% % 18.8% Risk Ratings: BA = Below Average; A = Average; AA = Above Average; S = Speculative Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted

46 VISION MAY Real Estate Sector Analysis Matt Kornack Associate: Hussam Maqbool: Suggesting a Value / Momentum Barbell for your Portfolio: We are suggesting a mix of our best value (HR, REI and CUF) and momentum (DIR, SMU, WIR, AP) ideas heading into Q reporting. We arrive at this view because the TSX Real Estate/REIT indices have generally been flat YTD, despite rising rates with U.S. indices trading down high single digits. We are concerned about downside risk, and think that leaning into one or two value ideas provides better protection (as we see 20%+ total returns and support from NCIBs). That being said, valuation alone is not always a sufficient catalyst, so we would hold a position in one or two momentum picks where we still see potential double-digit total returns given reasonable valuation and capex profiles. We do not anticipate Q1 reporting to be newsy, but have made minor tweaks to estimates and targets heading into reporting season. Retail Cheap vs. History, Multi-Family Multiples Expanding: Some key trends are evident in historical and current trading multiples, namely: 1) Retail is trading at trough multiples on AFFO figures. Investors are signaling a different trajectory ahead for Retail REITs, owing largely, we believe, to concerns about long-term retail space demand and the impact of higher rates on valuations. Our target multiples are at or below five-year averages, so we are in at least partial agreement with the investing public. RioCan, which is finalizing its strategic refocusing, is our top value play in this segment at a 3x discount to its average AFFO multiple and ~17% discount to NAV. 2) Diversified names have been under pressure trading at or below average multiples on earnings that have been depressed by transitory vacancies. H&R and Cominar look interesting; H&R as it is seeking to reduce its NAV discount through a focus on governance, structure and a streamlined asset base, and Cominar as it took the difficult but necessary step to cut its distribution levels to facilitate NAV growth. Artis appears to be more fully priced. 3) Multi-Family names are trading at or near peak multiples on strong earnings performance. Unlike Retail REITs, multi-family valuations have remained strong, despite rising rates and no incremental positive catalyst to the industry s growth/risk outlook. If anything, we believe that rent control in major markets and escalating capex for older assets remain underappreciated risks. In this segment, Killam screens best given a cheaper valuation and newer vintage assets requiring less maintenance capital. 4) Industrial names are catching a bid after the privatization announcement for PIRET. Dream and Summit have been the biggest net beneficiaries of this trade. WPT in our view represents an interesting catch-up opportunity as we believe investors are hesitating about its asset management / development platform internalization. Considering both DIR and SMU have more expansive management contracts, we think the market is being selectively negative. 5) Urban Office is back in vogue as Toronto s downtown market is seeing extremely tight vacancy levels (driving interest in both Allied and Dream Office). The latter s multiple expansion is in part driven by a steep drop in AFFO/unit related to its portfolio contraction and restructuring. As a result, we prefer Allied, which has the most urban portfolio in Canada of any asset class, whose cap rates seem likely to be supported by the strong fundamentals in the Toronto office market. Selections RioCan (REI.un: TSX, Outperform, $28.75 target) SmartCentres REIT (SRU.un: TSX, Outperform, $34.00 target) H&R REIT (HR.un: TSX; Outperform; $24.50 target) Cominar REIT (CUF.un: TSX, Outperform, $16.50 target) StorageVault Canada (SVI: TSX.V, Outperform, $3.25 target) Tal Woolley Associate: Salman Chattha: WPT Industrial REIT (WIR.u: TSX, Outperform, $14.50 target) Allied Properties REIT (AP.un: TSX, Outperform, $45.00 target) Tricon Capital Group (TCN.TO: TSX. Outperform, $12.00 target)

47 VISION MAY Real Estate Sector Analysis Matt Kornack Associate: Hussam Maqbool: Tal Woolley Associate: Salman Chattha: Matt Kornack, Tal Woolley Market Units Unit Distributions per Unit Cash Yield FD FFO P/FFO Net 12-Mth REIT Stock Cap O/S Price (A) est. est. Current (A) est. est. P/FFO Asset Price Combined Sym. Rating (Mln) (Mln) 4/ A 2018e 2019e Annualized A 2018e 2019e Value Target Return Return (1) Retail RioCan REIT REI.un OP $7,559 Kornack % 6.2% 6.2% 6.2% % 29.3% Choice Properties REIT CHP.un SP $4,725 Woolley % 6.7% 6.9% 6.4% % 16.0% Crombie REIT CRR.un SP $1,874 Woolley % 7.2% 7.2% 7.2% % 23.8% CT REIT CRT.un SP $2,800 Woolley % 5.6% 5.9% 5.9% % 12.4% First Capital Realty FCR OP $5,003 Kornack % 4.3% 4.3% 4.3% % 21.4% SmartCentres REIT SRU.un OP $4,581 Woolley u 1.78u 1.88u 5.9% 6.2% 6.5% 5.6% 2.18u 2.28u 2.39u u 34.00u 18.1% 24.2% Automotive Properties REIT APR.un SP $275 Woolley % 7.7% 7.7% 7.7% % 12.4% Office & Diversified Allied Properties REIT AP.un OP $3,907 Kornack % 3.8% 3.8% 3.8% % 12.2% Artis REIT AX.un SP $2,017 Kornack % 8.1% 8.1% 8.1% % 12.6% BTB REIT BTB.un SP $223 Kornack % 9.1% 9.1% 9.1% % 6.7% Cominar REIT CUF.un OP $2,279 Kornack % 5.7% 5.7% 5.7% % 37.4% DREAM Office REIT D.un SP $1,639 Kornack % 4.2% 4.2% 4.2% % 0.9% H&R REIT HR.un OP $6,570 Kornack % 6.7% 6.7% 6.7% % 25.5% NorthWest H.P. REIT NWH.un SP $1,344 Kornack % 7.1% 7.1% 7.1% % 9.8% Slate Office REIT SOT.un SP $563 Kornack % 10.0% 10.0% 10.0% % 13.3% Industrial DREAM Industrial REIT DIR.un OP $943 Kornack % 7.0% 7.0% 7.0% % 13.7% Summit Industrial SMU.un OP $557 Kornack % 6.1% 6.2% 6.2% % 11.4% WPT Industrial REIT WIR'U-T OP $576 Kornack % 5.9% 5.9% 5.5% % 18.0% Hotels American Hotel Income Properties HOT.un SP $247 Woolley % 8.0% 8.0% 11.2% % 19.6% Multi-Res Boardwalk REIT BEI.un SP $2,343 Kornack % 2.2% 2.2% 2.2% % -0.8% CAP REIT CAR.un SP $5,189 Kornack % 3.5% 3.5% 3.5% % 6.0% InterRent REIT IIP.un SP $989 Kornack % 2.7% 2.7% 2.7% % 4.6% Pure Multi-family REIT RUFu.V OP $309 Kornack % 5.1% 5.1% 5.1% % 11.8% Killam Apartment REIT KMP.un OP $1,197 Kornack % 4.5% 4.5% 4.5% % 13.8% International DREAM Global REIT DRG.un OP $2,416 Kornack u 0.80u 0.80u 0.80u 5.8% 5.8% 5.8% 5.8% 0.94u 1.00u 1.05u u 14.75u 7.7% 13.6% Inovalis REIT INO.un SP $245 Kornack % 8.0% 8.0% % 10.5% Seniors Housing Invesque IVQu SP $542 Kornack % 8.5% 8.5% 8.5% % 11.6% Self Storage StorageVault Canada SVI.V OP $835 Woolley % 0.4% 0.4% 0.4% % 34.7% Asset Management Tricon Capital Group TCN OP $1,343 Woolley % 2.8% 2.9% 2.9% 1.10u (2) 1.40u (2) 1.46u (2) 9.2 (3) 7.3 (3) 7.0 (3) % 22.1% Stock Rating: OP = Outperform; SP = Sector Perform; UP = Underperform; T=Tender; UR= Under Review; R=Restricted (1) Combined return = price return + 12 months rolling forward distribution return; For Amica, distribution is quarterly. (2) Figures represent Diluted EPS (3) Figures represent P/E ratio u = US Dollars

48 VISION MAY Special Situations Sector Analysis Leon Aghazarian, M.Sc Associate: Zachary Evershed, cfa: Having hosted Cascades management in Toronto for institutional investor meetings, we take this opportunity to discuss the hot topics on everyone s mind: Tissue/Pulp headwinds, the 2018 CAPEX budget and OCC/Containerboard price tailwinds. Pulp price inflation a major headwind for Tissue, but minor overall impact: Ramping Pulp input prices represent a headwind to the Tissue segment, and overcapacity in the industry compounds the issue as there is little chance of increasing selling prices to compensate due to increased competition. This dynamic would certainly be alarming if Cascades had significant exposure to Tissue, or if it came as a surprise. In truth, this has been an ongoing dynamic since 2017 and the impact on CAS's Tissue profitability was clear ($150 million in EBITDA in 2016, down 37% in 2017 to $94 million), and we forecast 2018e EBITDA of $62 million, down 34% y/y. While Tissue made up 29% of revenue and 24% of EBITDA in 2017, in 2018e, we estimate only 10% of overall EBITDA from the segment, as we previously reduced our expectations owing to the headwinds it faces. Thus, we believe the drag on Tissue is fully priced in. Cascades 2018 CAPEX budget: striking while the iron is hot: The main question mark then is why Cascades would invest $115 - $135 million in the ailing Tissue segment, especially considering the predicted oversupply in the market. The answer is that the firm is focused on modernizing Tissue assets. Granted, the sector will continue to struggle in 2018 and potentially 2019 with additional capacity coming online, but we would point out the similarities to the situation of Containerboard five years ago, wherein investment in the asset base got the segment on its feet. Containerboard has turned around and is now the powerhouse providing the cash flow for the necessary CAPEX. Asset-based businesses require CAPEX, and we re supportive of the reinvestment strategy. The iron is quite hot: OCC and Containerboard prices are ideal for Cascades: We view the increase in CAPEX as a measured decision to strike while the iron is hot as the pricing environment is nearly ideal for Cascades as it has very little exposure to pulp: 86% of its fiber input is recycled. The bulk of the recycled fiber goes to the Containerboard segment and is made up of OCC, which has seen its price drop substantially since September to its current US$85/ton from US$165/ton. With the drop in input prices, Containerboard is set to benefit (fully by Q3) from a selling price increase of US$50/ton to US$755/ton, initiated by Cascades' larger peers in response to ramping pulp prices; in stark contrast to Cascades, the peers use primarily virgin (pulp) fiber to manufacture their containerboard. Thus, Containerboard will likely benefit from a near-ideal pricing environment in which selling prices are increasing while its primary input is dropping. We estimate Containerboard will account for 66% of EBITDA in 2018e. Recall that we conservatively model US$110/ ton for OCC prices, and that if prices remain at the current US$85/ ton, 2018e EBITDA could increase by $23 million according to our sensitivity analysis, all else equal. Selections Cascades Stella-Jones CanWel Market Shares Stock Last FDEPS EBITDA (mln) 12-Mth Stock Stock Cap O/S Price Year (A) est. est. P/E (A) est. est. EV/EBITDA Div. Net Debt/ Price Symbol Rating (Mln) (Mln) 4/30 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 yield FY2 EBITDA Target Boyd Group Income Fund BYD_u OP 2, / % CanWel Building Materials CWX OP / % Cara Operations CARA OP 1, / % Cascades CAS OP 1, / % Domtar Corporation UFS SP 2, / % Dorel Industries DIIb SP / % Freshii FRII OP / % GDI Integrated Facility Servic GDI OP / % Goodfood Market Corp FOOD R R R /2017 R R R R R R R R R R 0.0% R R Hardwoods Distribution HDI OP / % KP Tissue KPT SP / % Lassonde Industries LASa SP 1, / % MTY Food Group MTY SP 1, / % New Look Vision Group BCI OP / % Park Lawn Corporation PLC R R R /2017 R R R R R R R R R R 1.7% R R Premium Brands Holdings PBH R R R /2017 R R R R R R R R R R 1.6% R R Richelieu Hardware RCH OP 1, / % Savaria Corporation SIS R R R /2017 R R R R R R R R R R 2.2% R R Stella-Jones SJ OP 3, / % Uni-Sélect UNS OP / % Stock Rating: OP = Outperform; SP = Sector Perform; UP = Underperform; T=Tender; UR= Under Review; R=Restricted Note: Dorel data is in USD except stock prices and target prices. KP Tissue: Financial data reflects Kruger Products L.P. (in which KP Tissue has a 16% interest).

49 VISION MAY Sustainability & Clean Tech Sector Analysis Activity in our universe of infrastructure companies over the last few weeks has confirmed that there are still global growth opportunities for Canadian companies, despite an increasingly competitive market for assets. The infrastructure space is facing a headwind from rising bond yields, but capital investment can help to offset the impact. Recent Highlights: Rupert Merer, P. Eng, CFA Associates: Steven Hong: Adnan Waheed: Northland Power Inc. (NPI: TSX, Outperform, $26.00 target): NPI is a leading developer and operator of power assets and one of the world s largest operators of offshore wind farms (with net interest in 2,029 MW of generating capacity and 252 MW of capacity under construction). On April 30 th, NPI was offered a 300 MW Power Purchase Agreement with a Feed-in-Tariff for its Hai Long 2 offshore wind farm in Taiwan (NPI owns 60% of a JV with Yushan Energy). The project could be operational by 2024 and provide about $1.00 /sh in upside based on our assumptions. With increasing discretionary cash flow, we believe NPI should be able to fund growth from internal equity. In total, 3.8 GW of projects were awarded in Taiwan, but another 2 GW could be awarded later this year. NPI has demonstrated its ability to be competitive in a global market, up against larger entities with a lower cost of capital, and will bid for more growth in Taiwan. Boralex Inc. (BLX: TSX, Outperform, $27.00 target): BLX is a leading developer and operator of wind, solar and hydro power facilities in North America and France, with 1,619 MW of generating capacity (including 772 MW in France). On April 20 th, BLX announced plans to acquire Kallista Energy Investment for C$202 million, with the assumption of C$146.7 million in project debt. BLX will receive 163 MW of operating wind projects (average remaining contract life of eight years), a 10 MW shovel-ready project and a portfolio of 158 MW projects (all in France). We believe the deal is accretive and BLX should benefit from increasing scale in France. On the back of the announcement and with increased visibility on growth, we increased our target to $27/sh from $26/sh. Algonquin Power & Utilities Corp. (AQN: TSX, Outperform, $15.00 target): AQN is an operator of regulated utility assets (gas, water and electric) and a developer of renewable power infrastructure with 1,050 MW (gross) of generating capacity and 150 MW in construction. On April 17 th, AQN announced plans to purchase an additional 16.5% interest in Atlantica Yield (NASDAQ: AY, not rated) from Abengoa, S.A (ABG) (BME: ABG, not rated) at US$20.90/sh for a total of US$345 million. This is a premium to the market, but below what AQN paid for its initial 25% interest in AY (at US$24.25 /sh). In order to fund the acquisition, AQN issued 37.5 million shares at C$11.85/sh, for gross proceeds of C$445 million. The deal should be accretive to cash flows, but with growth already baked in, our target is unchanged at $15/sh. Selections Northland Power Boralex Algonquin Power Market Shares Stock Last FDEPS Sales per share 12-Mth Stock Stock Cap O/S Price Year (A) est. est. P/E (A) est. est. P/S Book Debt/ Price Sym. Rating (Mln) (Mln) 04/30 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value Capital Target Energy Technology Advantage Lithium AAL OP /2017 (0.17) (0.02) (0.02) nmf nmf na na Algonquin Power AQN OP u u 12/ u 0.65u 0.61u u 3.48u 3.36u u u Atlantic Power AT-US SP 256.3u u 12/2017 (0.34)u (0.39)u (0.12)u nmf nmf 3.74u 2.85u 2.88u u u Boralex BLX OP / Brookfield Infrastructure BIP-UN OP u u 12/ u 1.26u 1.40u u 6.51u 7.15u u u Brookfield Renewable Energy BEP-US SP u u 12/2017 (0.23)u (0.02)u 0.24u nmf nmf 8.53u 8.83u 9.58u u u Cobalt 27 Capital KBLT OP / nmf nmf nmf nmf nmf nmf DIRTT Environmental Solutions DRT OP / (0.05) 0.17 nmf Etrion Corp ETX SP /2017 (0.06)u (0.01)u 0.04u nmf u 0.05u 0.11u u Innergex INE OP / Lithium Americas LAC OP /2017 (0.10) (0.11) (0.22) nmf nmf nmf nmf Mason Graphite LLG OP /2017 (0.06) (0.04) (0.01) nmf nmf na Nemaska Lithium NMX SP /2017 (0.00) (0.03) (0.03) nmf nmf na na Northland Power NPI OP / Pattern Energy PEGI OP u u 12/2017 (0.20)u 0.02u 0.26u nmf nmf 4.61u 5.84u 6.14u u u SRG Graphite SRG OP / (0.04) (0.04) nmf nmf nmf nmf nmf nmf nmf TransAlta Renewables RNW SP /2017 (0.01) nmf N Plus VNP OP / u 0.19u 0.25u u 2.98u 3.29u u Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted 1 FD EPS are pro-forma numbers from continuing operations and exludes goodwill amortization, restructuring and one-time charges. u = US dollar

50 VISION MAY Technology Sector Analysis Richard Tse Associates: Andrew McGee: Steven Walt: As we enter another earnings season, we continue to be bullish on Technology but find that we re leaning to some of the more defensive names of late in light of their relative valuations. That s not to say we dislike the high growth flyers it s just that given the relative valuations we think those names now come with a higher short-term risk profile. Those following our research will know this view is consistent with what we outlined at the start of 2018 as detailed in our Year Ahead report Despite the Run, There Are Opportunities. As we enter May, the Nasdaq is up ~3% YTD and the Canadian Tech group is ~12%; this compares to the S&P 500 which is flat and the TSX down 3%. Overall, our recommendations are largely unchanged with Outperform ratings on Altus, CGI, Kinaxis, Open Text, Real Matters, Shopify, Sierra Wireless, and Solium. We touch on a few names below: CGI Group: CGI Group has positioned itself well over the past months to harvest recent investments to drive organic growth. In addition, CGI has de-levered considerably providing ample capital to pursue the M&A component of its growth strategy where we see the potential for transformational deals. The upside is that growth opportunities (organic and acquisitions) and margin expansion with a higher mix of IP/digital revenue presents leverage on the upside. If that weren t enough, we believe CGI s high-recurring revenue base provides some defensive attributes within the technology group. Kinaxis: Kinaxis remains one of the most compelling names in our coverage group. The Company has had a number of wins of notable wins which have alleviated potential concerns around the loss of Samsung last year. We believe momentum in Asia and Europe is continuing with outsized strength in verticals like Pharma and Auto. If that wasn t enough, we see partner channels scaling with increasingly more resources being dedicated to the Kinaxis product line. We believe the runway for Kinaxis continues to be long with the Company in the very early days of growth. OpenText: OpenText s growth engine has not changed over the many years we ve covered this name. We see the recent pullback as an opportunity. We continue to believe EMC s ECD division has a lower relative risk profile beyond the integration period and potential synergies from other acquisitions are still not priced into the stock. Add to that, scaling free cash flow means capacity for more M&A. More importantly, we see a foundation building for organic growth which has been elusive for OpenText; in our view, that represents an inexpensive option on the name. Shopify: Shopify remains a leading technology platform for e-commerce. Our view is that the fundamentals remains unchanged. Overall, we see a considerable runway of growth that s underscored by a push internationally and a potential scaling in enterprise. We see: outsized relative growth for Shopify over the next three to five years; 2) we believe Shopify is the technology (platform) leader in enabling e-commerce vendors; 3) we re still early in the e-commerce growth cycle; and, 4) we believe Shopify could be a potential takeout candidate. Selections CGI (GIB.a) Kinaxis (KXS) OpenText (OTEX) Shopify (SHOP) Market Shares Stock Last FDEPS EBITDA (Mln) Debt/ 12-Mth Stock Stock Cap O/S Price Year (A) est. est. P/E (A) est. est. EV/EBITDA Book Total Price Sym. Rating (Mln) (Mln) 4/30 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value Capital Target Absolute Software Corp. ABT SP (0.08u) (0.00u) 0.02u NMF NMF 7.9u 7.9u 9.2u (1.36u) 0% 7.00 Altus Group Limited AIF OP 1, % CGI Group Inc. GIB.A OP 21, % Constellation Software Inc. CSU SP 19, u 27.80u 31.47u u 753.5u 884.3u u 44% EXFO Inc. EXFO SP 200u u u 0.07u 0.31u u 20.8u 29.7u u 8% 4.25u Kinaxis Inc. KXS OP 2, u 1.10u 1.50u u 42.1u 57.1u u 0% Maxar Technologies Ltd. MAXR SP 2,529u u u 4.55u 5.12u u 749.9u 793.4u u 60% 60.00u Mediagrif Interactive Inc. MDF SP % Mitel Networks Corp. MITL R 1,377u u u R R R R 144.6u R R R R 2.80u 65% R Open Text Corporation OTEX OP 9,481u u u 2.61u 2.83u u 1,026.9u 1,121.7u u 43% 50.00u Real Matters Inc. REAL OP u 0.09u 0.24u NMF u 13.7u 32.4u u 0% Shopify Inc. SHOP OP 12,808u u u 0.07u 0.57u NMF NMF 23.4u 14.9u 61.3u NMF NMF 9.90u 0% u Sierra Wireless Inc. SWIR OP 578u u u 0.97u 1.34u u 64.5u 72.9u u 0% 32.00u Solium Capital Inc. SUM OP u 0.08u 0.22u NMF u 10.97u 23.35u u 0% Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted u = US dollar

51 VISION MAY Telecom & Media Sector Analysis Adam Shine, cfa Associates: Ahmed Abdullah: Luc Troiani, CFA: Transcontinental Inc. (TCL.A: TSX) Taking Big Leap Forward in Packaging: On April 2, TCL announced that it signed an agreement to acquire Chicago-based Coveris Americas (Coveris) for US$1.32 billion, representing the largest purchase in the company s history. The deal, which is expected to close during TCL s Q3 after regulatory approvals, will be its seventh acquisition in Packaging over the past four years and will leap-frog it to 7 th from 22nd among North American flexible packaging converters. Coveris not only enhances TCL s existing offering in packaging in verticals like dairy, pet food and consumer products, but also opens up new areas including agriculture, beverage and protein. The purchase strengthens TCL s manufacturing capabilities and scope of offering, with Coveris s R&D capabilities poised to contribute to innovation and cost competitiveness. Based on pro forma f2017, Packaging will jump to 48% of revenues and 37% of Adj. EBITDA vs. 20% and 13%, respectively, after the Multifilm tuck-in early in March. Deal metrics are 1.4x revenues and 10.3x EBITDA or 8.9x including US$20 million of synergies to be realized within 24 months of closing. TCL expects pro forma leverage to be 2.7x at closing, with a drop below 2.0x by f2020 (we estimate 1.4x). While some bank debt used to fund the purchase will likely get refinanced with debt issuance, the sale of million subscription receipts at a price of $26.60 each recently raised gross proceeds of $287.5 million to accelerate deleveraging and help position TCL for more M&A. The Coveris deal is immediately accretive to Adj. EPS by high single digits and FCF by mid-single digits before synergies and by double digits for each including synergies. While the company continues to streamline its Media operations through divestitures and manage the secular challenges in Printing through the pursuit of new contract wins and ongoing efficiency gains, the existing Packaging platform is expected to produce organic growth at least around the 6% achieved last year, with Coveris anticipated to deliver near-term gains of 1%-2% which we conservatively model at a lower initial pace. Our $33 target is based on the average of our f2019e and f2020e metrics in our NAV, with implied EV/EBITDA multiples of 7.6x PF2018E, 7.0x f2019e and 6.5x f2020e. While rapid deleveraging given TCL s strong FCF profile will accrete value to equity investors, we look for packaging s greater prominence in the company s overall business mix to drive a re-rating of the stock s valuation. Selections Transcontinental Spin Master Stingray Thomson Reuters Cineplex Quebecor TELUS BCE Market Shares Stock Last FDEPS EBITDA ($mln) ND/ 12-Mth Stock Stock Cap. O/S Price Year (A) est. est. P/E (A) est. est. EV/EBITDA Book Total Price Sym. Rating (Mln) (Mln) 4/30 Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Value Capital Target Broadcasting & Entertainment Cineplex Inc. CGX OP 1, / Corus Entertainment Inc. CJR.b UP 1, / DHX Media DHX.b SP / Spin Master TOY OP 4, / Stingray Digital RAY.a OP / TVA Group Inc. TVA.b SP / Printing & Publishing Thomson Reuters TRI OP 36, / Transcontinental Inc. TCL.a OP 2, / Advertising & Marketing Aimia Inc. AIM SP / NM Telecommunications BCE Inc. BCE OP 49, / Cogeco Communications Inc. CCA SP 3, / Quebecor Inc. QBR.b OP 5, / Rogers Communications Inc. RCI.b SP 31, / Shaw Communications SJR.b SP 13, / Telus Corp. T OP 27, / Stock Rating: OP = Outperform; SP = Sector Perform; UP = Underperform; T=Tender; UR= Under Review; R=Restricted TRI & TOY estimates are in US$, rest is CAD$.

52 VISION MAY Transportation & Industrial Products Sector Analysis Cameron Doerksen, CFA Associate: Umayr Allem, CFA, MBA: We maintain our Sector Perform rating and $250 target on Canadian Pacific Railway (CP: TSX) following in-line Q1 results and unchanged guidance: Although we expect CP to show solid earnings growth in 2018 and are optimistic about its revenue growth prospects, in the short term we would be cautious of the stock in light of the potential for a work stoppage. If there is a strike by train crews we would expect it to be short-lived. In 2015, a one-day strike ended after both sides agreed to mediated arbitration after the federal government threatened back-to-work legislation. A nine-day strike in 2012 also ended with back-to-work legislation. A strike would be disruptive to the Canadian economy when the railroads are already facing some operational challenges, so we suspect the government would intervene this time around as well if there were any work stoppage. Although over the long term a strike does not alter the fundamentals for CP, the stock could be under some pressure until there is resolution on the labour front. We maintain our Sector Perform rating and $ target on Canadian National Railway (CNR: TSX) shares following Q1 results: Although we also remain positive about CN s long-term revenue growth prospects and are encouraged by the recent improvement in network fluidity, we believe it will still take time for CN s network to fully recover from the severe operational issues experienced this past winter. Unsurprisingly given the tough Q1, CN lowered its FY 2018 guidance. The company is now expecting EPS of $5.10-$5.25 versus the prior forecast of $5.25-$5.40. The new guidance assumes volume growth of 2-4% versus up 3-5% previously. We expect CN s operations to continue to improve, but actions CN has undertaken to improve fluidity (130 additional leased locomotives, ramped up hiring of train crews and capex program increasing to $3.4 billion from $3.2 billion) will only more fully impact in the latter half of Indeed, capacity expansion projects will not be fully complete until mid-q4 while new qualified conductors will come on board throughout the year with 1,000 expected in H2. We maintain our Outperform on TFI International Inc. (TFII: TSX) and increased our target to $41.00 from $39.00 following Q1 results: Our positive thesis on TFII has been underpinned by our expectation for a meaningful improvement in the U.S. Truckload segment profitability in 2018 and into Overall, TL segment (Canada and the U.S.) reported an EBIT margin of 5.9%, above our 4.0% forecast. The U.S. operation saw its operating ratio improve from 102.6% last year (i.e., losing money) to 98.3% this year. As pricing improvements in the United States unfold throughout the year as contracts are renewed at better rates (low double digits), we expect an acceleration in profitability improvement. The Canadian conventional TL segment also had a good quarter with a 400 bps improvement in operating ratio supported by pricing improvements in the high single digits. Selections Bombardier Chorus Aviation Exchange Income TFI International Shares Stock Market Last Cash EPS FDFCFPS 12-Mth Stock Stock O/S Price Cap Year (A) est. est. P/E (A) est. est. P/CFPS Net Debt / Price Sym. Rating (Mln) 04/30 (Mln) Reported Last FY FY1 FY2 FY1 FY2 Last FY FY1 FY2 FY1 FY2 Cap Target Air Canada* AC OP ,891 12/ x 6.5x x 7.3x nmf Bombardier Inc. BBD.b OP ,381 12/2017 u0.03 u0.02 u0.03 nmf nmf -u0.39 -u0.02 u0.20 nmf 19.7x 205% 4.50 BRP Inc. DOO OP ,360 01/ x 16.7x x 17.1x 108% CAE Inc. CAE OP ,541 03/ x 19.7x x 19.9x 25% Canadian National Rail CNR SP ,802 12/ x 17.3x x 11.7x 41% Canadian Pacific Rail CP SP ,924 12/ x 16.8x x 11.9x 56% Cargojet Inc. CJT SP / x 28.8x x 7.8x 72% Chorus Aviation Inc.* CHR OP ,055 12/ x 5.7x (2.37) (2.71) 1.42 nmf 5.4x 83% Exchange Income Corporation EIF OP / x 9.6x x 6.3x 56% Héroux-Devtek Inc. HRX R R R 03/2017 R R R R R R R R R R R R New Flyer Industries Inc. NFI SP ,745 12/2017 u3.03 u2.89 u x 14.6x u1.90 u2.61 u x 12.6x 42% Transat A.T. Inc. TRZ OP / nmf 16.3x 2.49 (0.22) 1.39 nmf 6.3x TFI International Inc. TFII OP ,389 12/ x 11.4x x 9.6x 51% WestJet Airlines* WJA SP ,659 12/ x 7.3x x 45.7x 45% Rating System: OP = Outperform; SP = Sector Perform; UP = Underperform; T = Tender; UR = Under Review; R = Restricted u = US dollars *based on EBITDAR (includes leases)