Canadian Market Summary

Transcription

1 Equity Morning Update Global Portfolio Advisory Group October 9, 2018 Canadian Market Summary Scotiabank GBM Comment Sun Life Financial Inc. Ticker: SLF-CA Price: $50.85 Rating: Sector Outperform Target: $58.00 With MFS Outflows Remaining Under Pressure, Capital Deployment a Potential Earnings Offset for SLF < Although there has been some 'back-and-forth' in the key operational components of the company in 2018, on a relative basis the 'quieter' nature of an investment in SLF has underpinned the significant outperformance of the shares in what has been a difficult year for life insurance stocks both on-and-off 'the field' (SLF is down 2% YTD, which makes it a captain of industry when compared to its peers [GWO -11%, MFC -17%, IAG - 17%]). With Q3/18 having concluded in September, we take a quick look at two areas of fundamental interest with SLF -- the outlook for net flows at MFS, and the potential for deployment of the strong capital position in Asia. < The share price outperformance of SLF is also reflected in the valuation metrics of the sector, with Sun now trading at 10.4x our 2019E, a lofty 15% P/E premium to the industry average of 9.0x. Though we fully acknowledge that relative valuation has historically played a key role in stock selection within the large-cap Canadian Financials space, in sticking with our Sector Outperform rating we are of the view that the market will continue to accord a larger-than-normal premium to the 'drama-free' set-up associated with SLF. While we expect that the earnings contribution of MFS will begin to flatten out in the very near term, the enviable balance sheet flexibility of SLF provides mgmt. with the ability to bolster the contribution of other parts of the business. Scotiabank GBM Comment Oil & Gas - Integrated and Exploration & Production Large Cap Q3/18 Preview < Q3/18 featured stable commodity prices (though 10% lower AECO, QoQ), with many projects returning to normalized volumes post-q2/18 turnarounds. Growth projects continue their ramp-up (Hebron, Fort Hills), while a select few projects underwent Q3/18 turnarounds. < Stable Pricing Quarter-to-Quarter < WTI averaged ~US$69/bbl, up ~2% from last quarter, while WCS prices of C$61.91/bbl saw a modest reduction of 1% Q/Q. AECO prices continued to see downward pressure, averaging ~C$1.08/mcf, down 10% Q/Q (benefiting oil sands operations). < Projects Return to Normalized Volumes... < For Q3/18 we expect a return of volumes at certain projects post-q2/18 turnarounds. White Rose is up ~50% following its 3-week turnaround which began in Q2/18. Syncrude volumes returned to normal in September (the first upgrader restarted mid- July, the second in early August, and the third in September); however, we expect the downtime to contribute to a 7% drop in production QoQ. Cold Lake, Kearl and SU s oil sands operations are also expected to show meaningful growth from last quarter. <...while Others Continue to Ramp Up < Hebron and Fort Hills continue to ramp up to their respective gross nameplate capacities of 150 mbbl/d and 194 mbbl/d. We estimate Q3/18 Hebron and Fort Hills volumes at 75 mbbl/d and 138 mbbl/d, respectively. SU is guiding for ~ mbbl/d (gross) volumes at Fort Hills in Q3/18; built-in redundancies at Fort Hills have been key to a

2 successful start-up to date. < Refinery Downtime < Husky's Superior refinery continues to be offline following a fire that occurred on April 26, The Superior refinery's capacity of 50 mbbl/d represents ~12% of Husky's total refining capacity. Downtime is expected to last 1.5 to 2 years. HSE's Lima refinery's planned turnaround began late September and is expected to last 5 weeks (into Q4). We expect strong refinery utilizations from the remaining three integrated companies. < With the exception of HSE, we expect a QoQ increase in CFPS for our integrated names. Strong Q3/18E refining margins and utilizations support strong downstream cash flows. Additionally, IMO should benefit from less planned maintenance and we expect CVE to have lower realized hedging losses. However, HSE s Q3/18 cash flows will be affected by an annual take-or-pay payment related to its Liwan assets (~$0.15/sh). Consensus CFPS estimates for HSE may not include this payment. SGBM Rating Changes < None to report Earnings < None to report Other News/ Rating Changes TransCanada Corp. (TRP) Initiated at Neutral at Goldman Sachs Fortis Inc. (FTS) Initiated at Buy at Bank of America Merrill Lynch Source Energy Services Ltd. (SHLE) Cut to Hold from Buy at GMP Securities

3 U.S. Market Summary News < Alphabet Inc. (GOOG) GOOG shutting down Google+ after a software bug exposed user data to third-party developers. Link, source: CNBC. < adidas AG (ADDYY) ADDYY agrees to reported $391m deal to produce Arsenal uniforms, <Link>, source: CNBC. Rating Changes < Tesla Inc. (TSLA) Initiated at Outperform at Macquarie < TE Connectivity Ltd. (TEL) Reinstated at Outperform at Macquarie < Dominion Energy Inc. (D) Raised to Overweight from Neutral at JPMorgan < Walmart Inc. (WMT) Raised to Buy from Hold at Deutsche Bank < Thermo Fisher Scientific Inc. (TMO) Initiated at Buy at UBS < Danaher Corp. (DHR) Initiated at Buy at UBS

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