Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank analyst Himanshu Gupta is predicting another big year for industrial REITs,
“After two years of back-to-back outperformance for Industrial REITs, we think the set-up for 2022 is exactly the same; as such, we expect continued outperformance in 2022. the set-up for Industrial REITs in 2022 … Higher expected AFFOPU [adjusted funds from operations per unit] growth at lower leverage (relative to the CDN REIT sector) and potential for AFFO multiple expansion (relative to CDN sector and relative to US Industrial REITs). Thematically, Industrial real estate sector continues to fit the bill – secular tailwinds, cyclical beneficiary, and also one of the top-performing real estate sub-sectors in inflationary environment national industrial vacancy rate in Canada is now 1.8% vs. a balanced market at 5% to 6% vacancy rate in our opinion. Total absorption in Canada in 2021 was more than double the historical annual average – tenant demand for distribution and logistics warehouse was very strong and CBRE estimates continued positive momentum in 2022 as well. National industrial rents in Canada grew 10.9% y/y. Toronto, Montreal vacancy rates are below 1%, and despite that, new supply under construction is still similar to 5-yr averages in key major markets … Reiterate our SO [sector outperform] rating on DIR [Dream Industrial REIT], GRT [Granite REIT], and SMU [Summit Industrial REIT] "
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Citi analyst Roland Shu is “maximum bullish” on Taiwan Semiconductor,
“Maximum bullish on TSMC — It took TSMC three years to double its revenue in 2004 from the 2001 low base. After that, it took TSMC 7-8 years to double its revenue from 2004 to 2020. We believe TSMC has resumed fast revenue growth momentum from 2020 to double its revenue in four years, leading to much higher and sustainable earnings. We estimate TSMC’s ROE will be above 30% from 2022 to 2025 versus its revised long-term target of >25%. Despite continuous high capex on the leading edge process development and capacity build from 2021, we forecast TSMC’s FCF to dip in 2022 but to increase sharply from 2023. Given TSMC’s excellent profit profile, we believe it has sufficient financial strength to raise the leading edge foundry bar higher for competitors.”
“Citi ‘Maximum bullish’ on TSMC” – (research excerpt) Twitter
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CIBC’s Avery Shenfeld argues that it’s “Not That ‘70s Show” for inflation,
“The coming two years are unlikely to be a replay of that 70s show, with more growth, and less inflation, than what a stagflation label would imply. Even with an omicron stall in Q1, Canada’s growth should still be solidly in the 3½% range in 2022, with the US a touch higher, and while inflation will average above central bank targets, it will end the year at a tamer level… as long as we’re not losing a battle against yet another variant at this time next year, a moderation in Covid-19 troubles will simultaneously propel growth and ease inflation, with the growth benefits centred on services, and the disinflation coming in goods prices. That will reverse what Covid has wrought … If, as we expect, March brings an improvement on the Covid front, that month will also mark the start of a tightening cycle by the Fed with the Bank of Canada moving in April, aimed at keeping inflation running tame in 2023 and beyond … For equities, the toughest sledding could come earlier in the year, as Covid troubles and labour cost pressures temporarily impede earnings growth. Rising rates over the balance of the year should actually prove to be less of a challenge, since we’ll only see them as the economy, and therefore earnings, reaccelerate. S&P valuations aren’t particularly cheap, but the TSX isn’t overdone on a forward multiple basis.”
“CIBC: ‘It’s Not That ‘70s Show’ for inflation” – (research excerpt) Twitter
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Diversion: A brief list of life lessons from history,
“What A World” – Morgan Housel, Collaborative Fund
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Scott Barlow