Nutrien is going to the next level – our top pick for ’18

Canadian and U.S. morning comments

November 14, 2017

Chuck Magro must be sleeping well at night. His $30B+ mega-merger will close imminently, nitrogen is set to exit cycle lows over the next 12 to 18 months, recent demand strength means potash may not be as doomed as first thought, and Chuck has numerous levers available to unlock shareholder value.

We see Nutrien eventually hitting the low US$60s, implying a 30% total return from today’s US$48 price. Nutrien offers something compelling for all investors: a good yield at 3.3% with dividend growth, a share buyback story – likely to unfold over the next year, strong leverage to the start of the next nitrogen cycle, a balance sheet de- risking story, growth of its stable cash flow generating business, and most importantly, value. We have raised our targets on AGU/POT to US$130/US$23, derived from a US$58 Nutrien price. You need to own this name.

Read more…


Markets reach new highs on improving fundamentals

Here's what we're thinking

November 7, 2017

Global equities, commodities and bond yields trended higher over the past month on encouraging economic data and earnings reports. In particular, manufacturing surveys, GDP data and labour market numbers have remained consistent with a solid pace of economic activity that continues to trigger ongoing upward revisions to growth forecasts. In the ongoing third-quarter reporting season, U.S. earnings and sales results continue to outperform analyst consensus estimates with earnings per share (excl. the insurance sector) growing at a very healthy 7.4% y/y rate, in large part thanks to stellar results from mega-tech companies. Markets have a litany of event risk to manage through over coming weeks including awaiting U.S. President Trump’s nomination of the next Chairperson of the Federal Reserve, Congress introducing a long-awaited tax reform proposal (talk of phasing in corporate tax cuts has weighed on equities recently), a possible ramping up of NAFTA headline risk heading into early 2018 as termination threats linger, etc.

Read more…


East Shale Basin Duvernay heats up as Q3 results ahead on lease bonuses

Canadian and U.S. morning comments

October 31, 2017

Leasing activity was up in the quarter, with 23 arrangements signed with 20 separate producers, for quarterly new lease consideration of $15.5 million. Activity remained high, with 245 wells spud on PSK’s land base, with operators primarily focused on the Western Saskatchewan Viking, the multi-zonal Deep Basin fairway, and Central Alberta light oil plays. Note that PrairieSky continues to maintain no debt on its balance sheet, despite acquisition activity in the quarter. Overall, we continue to favour the characteristics and opportunities of PrairieSky’s assets and business model, which we highlighted in our recent Investor Day and Royalty Playbook piece. We maintain our Sector Perform rating and increase our one-year price target to $36.00.

Read more…


Synchronized global upturn reinforces bullish fundamentals

Here's what we're thinking

October 24, 2017

Global markets have continued to grind higher in recent weeks despite volatile headlines thanks largely to supportive medium-term market fundamentals. In particular, economic growth across major economies is hitting 7-year highs while the recovery has broadened out into a global synchronized upturn for the first time since the 2008/09 financial crisis. We expect this to continue into 2018 as well with unemployment rates remaining low and central banks keeping monetary conditions at stimulative levels despite some very modest interest rate hikes. Most of our indicators point to ongoing economic recovery with the earliest start to a recession pointing to 2019 with many indicators suggesting this may not start until 2020. Thus, there remains ample time left in the current equity bull market to view any near-term pullback (5%-10%) in stock markets as an attractive opportunity to put cash to work. We believe investments closely correlated with economic growth trends (cyclical assets) should outperform given our constructive global macro-economic outlook.

Read more…