Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO analyst Jenny Ma is adopting a more cautious outlook for the Canadian real estate sector,
“Canadian Real Estate: Shifting to a More Conservative Stance . Taking into account myriad new risks that have emerged, in our view investors should take a bottom-up approach to investing in Canadian REITs in the second half of 2022. Characteristics to look for are strong cash flow growth profiles (to outpace inflation in operating costs and higher interest expense), longer weighted average debt terms (to limit exposure to higher interest rates), and discount valuation in the form of lower multiples and deeper discounts to NAV (to limit downside). We are shifting our preferences to reflect a more conservative view. Our pecking order for asset classes are: diversified commercial (for value and downside protection), multifamily (for current valuation reflecting some degree of cap rate expansion and regulatory risks, and a strong long-term growth profile), and retail (for moderate but consistent growth). Our top picks for individual REITs are H&R REIT (HR.UN-TSX; $13.77; OP), InterRent REIT (IIP.UN-TSX; $13.83; OP), Minto Apartment REIT (MI.UN-TSX; $18.60; OP), Crombie REIT (CRR.UN-TSX; $17.26; OP), and RioCan REIT (REI.UN-TSX; $22.68; OP)… YTD, the Canadian REITs under coverage posted a simple average total return of -5.6% while the S&P/TSX Capped REIT Index is -9.2%.”
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BofA Securities analyst Ryan Greenwald reported on research predicting electric vehicle sales,
“On Wednesday morning, BNEF [Bloomberg New Energy Finance] released their latest Long-Term Electric Vehicle Outlook in which they outlined their updated expectations for how road transport will evolve over the next 30 years. As has been consistent with each iteration, revisions in the 2022 report contemplate a much faster electrification transition than previously projected despite the current NT supply challenges … In the US, BNEF now forecasts EVs to be ~16.4% of new passenger vehicles sold in 2025 and 43.6% in 2030 (vs. 11.3% and 34.3% most recently). While a significant upward revision year-over-year, this is notably still shy of the 50% targeted EV sales share that the Biden administration has outlined for by the end of the decade. Although EV penetration was just 1% of the total US passenger fleet in 2021, revised sales forecasts are expected to translate to 4.1% penetration by 2025 (vs. 2.9% previously). Even against near term vehicle availability bottlenecks, passenger fleet penetration forecasts now reflect 1.5% and 2.1% for 2022-2023 (vs. 1.2% and 1.7% previously). In Europe, sale penetration expectations of 39.1% by 2025 and 59.8% by 2035″
There are obvious positive implications here for lithium, copper and nickel producers as well as selected rare earth providers.
“BofA: “In the US, BNEF now forecasts EVs to be ~16.4% of new passenger vehicles sold in 2025 and 43.6% in 2030″” – (research excerpt) Twitter
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Also from BMO, economist Erik Johnson noted that U.S. office vacancy remains low despite much of the country returning to almost-normal levels of activity,
“With arenas filling up, airports getting busier, and restaurants buzzing with activity, you would think that most other in-person activities would also be returning to their pre-pandemic levels. Not so, however, when it comes to U.S. office occupancy. According to data from Kastle, the ten city average stood at just 43% of the same week in 2019 as of May 25. The data is not nationally representative so take the exact level with a grain of salt, but the trend speaks volumes for the impact that hybrid work is having on occupancy. Rather than surging above its pre-omicron levels, occupancy has leveled off the past few months. It’s clear that hybrid work isn’t just about health concerns, but is an enduring preference on the part of workers. The upshot is that commercial real estate could face a longer term adjustment process as leases come up for renewal in the years ahead”
I will, of course, be looking for the equivalent Canadian data today.
“BMO: “The New Normal for Office Occupancy?”” – (research excerpt) Twitter
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Newsletter: “These 10 timeless investing rules offer guidance for today’s markets” – Globe Investor
Diversion: “A Man’s ‘Eczema’ Was Actually Caterpillar Hairs” – Gizmodo
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